Grams v. Milk Products, Inc.

• Decision Date: 08 July 2005
• Docket Number: No. 2003AP801.,2003AP801.
• Parties: Gerald GRAMS and Joliene Grams, Plaintiffs-Appellants-Petitioners, v. MILK PRODUCTS, INCORPORATED, Defendant-Respondent, CARGILL, INCORPORATED, Defendant.
• Court: Wisconsin Supreme Court

283 Wis.2d 511

2005 WI 112

699 N.W.2d 167

Gerald GRAMS and Joliene Grams, Plaintiffs-Appellants-Petitioners, v. MILK PRODUCTS, INCORPORATED, Defendant-Respondent, CARGILL, INCORPORATED, Defendant.

No. 2003AP801.

Supreme Court of Wisconsin.

Oral argument March 3, 2005.

Decided July 8, 2005.

For the plaintiffs-appellants-petitioners there were briefs by Christopher J. Rogers and Rogers & Westrick, Fort Atkinson, and Brice A. Tondre, Denver, CO, and oral argument by Brice A. Tondre.

For the defendant-respondent there was a brief by Mark S. Henkel and First Law Group S.C., Stevens Point, and oral argument by Mark S. Henkel.

An amicus curiae brief was filed by E. Campion Kersten and Kersten & McKinnon, S.C., Milwaukee, and William C. Gleisner, III, and Law Offices of William Gleisner, Milwaukee, on behalf of the Wisconsin Academy of Trial Lawyers.

¶ 1. DAVID T. PROSSER, J.

Petitioners Gerald and Joliene Grams (the Grams) seek review of an unpublished court of appeals decision¹ affirming a grant of summary judgment to Milk Products, Inc. (Milk Products) by the circuit court for Rock County, John W. Roethe, Judge. The court of appeals affirmed the circuit court's determination that the economic loss doctrine barred the Grams' tort claims against Milk Products and Cargill, Inc. (Cargill).

¶ 2. The economic loss doctrine is a judicial doctrine intended to preserve the fundamental distinction between contract and tort. Ins. Co. of N. Am. v. Cease Elec., Inc., 2004 WI 139, ¶ 15, 276 Wis. 2d 361, 688 N.W.2d 462. It works to prevent a party to a contract from employing tort remedies to compensate the party for purely economic losses arising from the contract. There are exceptions. For instance, we noted several years ago that "The economic loss doctrine does not preclude a product purchaser's claims of personal injury or damage to property other than the product itself." Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 247, 593 N.W.2d 445 (1999) (emphasis added). Over time, however, the parameters of this "other property" exception have proved elusive. In this case, we must decide whether the Grams' claimed damages fall within the scope of the "other property" exception.

¶ 3. We hold that if claimed damages are the result of disappointed expectations of a bargained-for product's performance, the economic loss doctrine applies to bar the plaintiff's tort claims and the plaintiff must rely upon contractual remedies alone. In this case, the Grams allege in tort that the object of the contract, a "milk replacer" intended for livestock nourishment, did not adequately nourish their calves and that some died. Because we find that this tort claim is, at bottom, based on disappointed performance expectations, we hold that it does not fit within the "other property" exception and is therefore barred by the economic loss doctrine. Accordingly, we affirm the decision of the court of appeals.

I. FACTS AND PROCEDURAL POSTURE

¶ 4. Because this case is before us on the defendants' motion for summary judgment, we take the Grams' version of the facts as true.

¶ 5. Gerald and Joliene Grams have specialized in raising calves since 1992. The Grams acquire the calves when they are between three and five days old and raise them until they are approximately four months old, at which time they resell them. At the time of this dispute, the Grams were raising approximately 6000 calves each year.

¶ 6. For the first few weeks of their lives, the calves are fed a milk substitute which, in farming parlance, is called a "milk replacer." The Grams used a Cargill milk replacer known as "Half-Time." This product included medications designed to keep the calves healthy during the first few weeks of their lives, a critical time in which the calves' immune systems are developing. The "Half-Time" milk replacer was manufactured for Cargill by Milk Products, Inc.

¶ 7. In November 2000, the Grams asked a Cargill representative about obtaining a less expensive milk replacer. The representative told the Grams that they could purchase "Half-Time" milk replacer without medication at a lower price than the medicated version. The Grams began using this non-medicated version in January 2001. As with the medicated "Half-Time," the non-medicated version was sold by Cargill and manufactured by Milk Products.

¶ 8. Soon after they began using the non-medicated "Half-Time," the Grams noticed certain problems developing in their calves. Specifically, the calves were not gaining weight properly and appeared gaunt and hungry. In addition, the mortality rate of the calves tripled, from an average of 9 percent before the new replacer was used to a high of 34 percent after the new replacer was introduced. By June 2001, after making several attempts to remedy these problems with Cargill and later with Milk Products, the Grams discontinued using the non-medicated "Half-Time." The Grams believed that poor nutritional content in the non-medicated replacer had damaged the calves' immune systems, which in turn caused the poor growth of the calves and their higher mortality rate.

¶ 9. The Grams filed suit against Cargill and Milk Products on October 22, 2001. They alleged five causes of action, one in contract and four in tort: (1) breach of implied warranty; (2) strict liability tort; (3) negligence; (4) intentional misrepresentation; and (5) strict responsibility misrepresentation. The Grams alleged all five causes of action "jointly and severally" against the two defendants.

¶ 10. The circuit court granted summary judgment to both Cargill and Milk Products on all four tort claims, finding that those claims were barred by the economic loss doctrine. The circuit court also granted summary judgment to Milk Products on the Grams' contract claim because there was no privity between the Grams and Milk Products, and it dismissed Milk Products from the case. This left only the Grams' contract claim against Cargill.

¶ 11. The Grams appealed, alleging that the circuit court erred in dismissing their contract claim against Milk Products as well as all their tort claims. The court of appeals affirmed on both issues. Grams v. Milk Prods., Inc., No. 2003AP801, unpublished slip op. (Wis. Ct. App. June 17, 2004). We granted review to determine whether the Grams' tort claims are barred by the economic loss doctrine.²

II. STANDARD OF REVIEW

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¶ 12. This court reviews motions for summary judgment de novo, using the same methodology as the circuit court. Town of Delafield v. Winkelman, 2004 WI 17, ¶ 15, 269 Wis. 2d 109, 675 N.W.2d 470. Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Wis. Stat. § 802.08(2) (2001-02).³ The interpretation of the economic loss doctrine is a question of law that this court reviews de novo. Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 915, 437 N.W.2d 213 (1989).

III. ANALYSIS

A. The Economic Loss Doctrine

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¶ 13. The economic loss doctrine is a judicially created doctrine intended to preserve the boundary between tort and contract. To illustrate, the commercial purchaser of a product may not recover from the manufacturer or seller, under negligence or strict liability theories, for solely economic losses arising from that product. This is especially true when a warranty given by the manufacturer specifically precludes the recovery of such damages. Van Lare v. Vogt, Inc., 2004 WI 110, ¶ 18, 274 Wis. 2d 631, 683 N.W.2d 46. In Wisconsin, the economic loss doctrine is based on three fundamental premises. It seeks "(1) to maintain the fundamental distinction between tort law and contract law; (2) to protect commercial parties' freedom to allocate economic risk by contract; and (3) to encourage the party best situated to assess the risk of economic loss, [that is,] the commercial purchaser, to assume, allocate, or insure against that risk." Id., ¶ 17 (quoting Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403, 573 N.W.2d 842 (1998)).

¶ 14. Tort law generally offers a "broader array" of damages than contract.⁴ Cease Elec., 276 Wis. 2d. 361, ¶ 24. As a result, many products liability plaintiffs would prefer to sue in tort. It has been said that without a boundary maintaining the distinction between the two, "contract law would drown in a sea of tort." State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 320, 592 N.W.2d 201 (1999) (quoting E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986)).

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¶ 15. Wisconsin has recognized the superior ability of contract law, and in particular the Uniform Commercial Code (UCC), to deal with certain kinds of disputes. Cease Elec.,276 Wis. 2d 361, ¶ 33. In Cease Electric, however, we declined to apply the economic loss doctrine to contracts for services. Id., ¶ 2. Central to our decision was the fact that no body of law similar to the UCC applies to contracts for services. We recognized that the UCC provides a "comprehensive system for compensating consumers for economic loss arising from the purchase of defective products." Id., ¶ 28 (citing State Farm, 225 Wis. 2d at 342.) When a product proves to be defective, the UCC allows the aggrieved buyer to sue for breach of warranty or (under certain circumstances) to return the goods and sue for breach of contract. Id., ¶ 29. See also Wis. Stat. §§ 402.313 (express warranties), 402.314, 402.315 (implied warranties), 402.602 (rejection), 402.608 (revoking acceptance).

¶ 16. Concern about duplicating or overriding UCC provisions was an important reason this court chose to adopt the economic loss doctrine in the first place. Sunnyslope, 148 Wis. 2d at 916. In that case, we refused to allow the plaintiff to circumvent a warranty...