Linden v. Cascade Stone Company, Inc.

• Decision Date: 08 July 2005
• Docket Number: No. 2004AP4.,2004AP4.
• Citation: 699 N.W.2d 189,2005 WI 113,283 Wis.2d 606
• Parties: James B. LINDEN and Dianne C. Linden, Plaintiffs-Appellants-Petitioners, v. CASCADE STONE COMPANY, INC., West Bend Mutual Insurance Company and Rich Fern d/b/a Allied Construction, Defendants-Respondents, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Intervening Defendant-Respondent.
• Court: Wisconsin Supreme Court

283 Wis.2d 606

2005 WI 113

699 N.W.2d 189

James B. LINDEN and Dianne C. Linden, Plaintiffs-Appellants-Petitioners, v. CASCADE STONE COMPANY, INC., West Bend Mutual Insurance Company and Rich Fern d/b/a Allied Construction, Defendants-Respondents, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Intervening Defendant-Respondent.

No. 2004AP4.

Supreme Court of Wisconsin.

Oral argument March 30, 2005.

Decided July 8, 2005.

For the plaintiffs-appellants-petitioners there were briefs by Mark A. Seidl and Seidl & Stingl, S.C., Wausau, and oral argument by Mark A. Seidl.

For the defendant-respondent, West Bend Mutual Insurance Company, there was a brief by R. Michael Waterman and Mudge Porter Lundeen & Sequin, S.C., Hudson, and oral argument by R. Michael Waterman.

For the defendant-respondent, Rich Fern d/b/a Allied Construction, there was a brief by Mark S. Henkel and First Law Group, SC, Stevens Point, and oral argument by Mark S. Henkel.

For the intervening defendant-respondent there was a brief by Paul E. David and Wendorff, Ellison & David, LLP, Wausau.

¶ 1. PATIENCE DRAKE ROGGENSACK, J.

James and Dianne Linden seek review of a court of appeals decision affirming the grant of summary judgment that dismissed their negligence and contract claims against Cascade Stone Company, Inc. (Cascade), Rich Fern d/b/a Allied Construction (Fern) and their insurers for alleged faulty workmanship in the construction of their house. We conclude that summary judgment is appropriate and therefore affirm.

I. BACKGROUND

¶ 2. On March 24, 1999, James and Dianne Linden entered into a written contract with Groveland Craftsman, Inc. (Groveland), wherein Groveland agreed to construct a new house for the Lindens. Groveland retained various subcontractors to assist in the house's construction. Groveland hired Cascade to apply exterior stucco to the house and Fern to shingle the house's roof.

¶ 3. On June 5, 2000, the Lindens sued Groveland and its insurer, ABC Insurance, alleging breach of contract and warranty stemming from alleged defects in the house and delay in completion of the project. The Lindens also alleged Groveland was negligent. The Lindens' amended complaints added Vetter Windows, Fern, Cascade, and Cascade's insurers, West Bend Mutual and Western National, as defendants, and Fern's insurer, American Family, intervened.¹ The Lindens alleged that Groveland was negligent in allowing water to infiltrate into the house, causing deterioration, mold and deficient air quality in the house. The Lindens alleged that Cascade's negligent stucco application allowed substantial water infiltration, and that Fern provided negligent roofing services that also led to water infiltration.

¶ 4. The circuit court granted summary judgment in favor of Fern and Cascade, holding that the economic loss doctrine barred the Lindens' tort claims against the subcontractors. The court also concluded that there was no coverage for the contract claim under Cascade's West Bend policy, and denied the Lindens' motion to add a contract claim against Fern.² The Lindens appealed, and the court of appeals affirmed. We granted the Lindens' petition for review, limiting the issues to the following: (1) whether a general contract to complete a described project, whereunder the general contractor subcontracts with others to assist in completing the project and a claim is made for negligent services provided by the subcontractors, controls the analysis of whether the contract is primarily for goods or primarily for services; (2) whether an objective test should be used by Wisconsin courts to determine if the predominant purpose of a mixed contract was for the sale of a product or to provide services; and (3) whether the "integrated system limitation" of the "other property exception" to the economic loss doctrine applies to bar a negligence claim against a subcontractor who provided services in the construction of a house.

II. DISCUSSION

A. Standard of Review

¶ 5. Whether the trial court properly granted a motion for summary judgment is a question of law we review de novo, valuing the previous courts' analyses. Biese v. Parker Coatings, Inc., 223 Wis. 2d 18, 21, 588 N.W.2d 312 (Ct. App. 1998). "In determining if the trial court properly granted summary judgment, we apply the same methodology as the trial court." Id. at 22. "[S]ummary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Id. (citing Wis. Stat. § 802.08(2)). Interpreting the nature of a contract —whether it is primarily one for goods or primarily one for services — presents a question of law subject to independent review. Ins. Co. of N. Am. v. Cease Elec. Inc., 2004 WI 139, ¶ 14, 276 Wis. 2d 361, 688 N.W.2d 462. Whether the economic loss doctrine bars a claim under a given set of facts is also subject to independent review. Id., ¶ 15.

B. Economic Loss Doctrine

¶ 6. "The economic loss doctrine is a judicially created doctrine under which a purchaser of a product cannot recover from a manufacturer on a tort theory for damages that are solely economic." Bay Breeze Condo. Ass'n v. Norco Windows, Inc., 2002 WI App 205, ¶ 9, 257 Wis. 2d 511, 651 N.W.2d 738 (citing Kailin v. Armstrong, 2002 WI App 70, ¶ 27, 252 Wis. 2d 676, 643 N.W.2d 132). Economic damages are those arising because the product does not perform as expected, including damage to the product itself or monetary losses caused by the product. Biese, 223 Wis. 2d at 23. Economic damages do not include losses due to personal injury or damage to other property. Id.

¶ 7. The economic loss doctrine preserves the distinction between contract and tort law; the doctrine seeks to avoid drowning contract law in "a sea of tort." Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403-04, 410, 573 N.W.2d 842 (1998) (citing East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986)). In protecting the distinction between tort and contract law, the economic loss doctrine recognizes:

In contract law, the parties' duties arise from the terms of their particular agreement; the goal is to hold parties to that agreement so that each receives the benefit of his or her bargain. The aim of tort law, in contrast, is to protect people from misfortunes which are unexpected and overwhelming. The law imposes tort duties upon manufacturers to protect society's interest in safety from the physical harm or personal injury which may result from defective products. Thus, where a product fails in its intended use and injures only itself, thereby causing only economic damages to the purchaser, "the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong."

Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 247-48, 593 N.W.2d 445 (1999) (citations omitted).

C. Predominant Purpose Test

¶ 8. Some contracts encompass both products and services. We use the predominant purpose test to determine whether a mixed contract for products and services is predominantly a sale of a product and therefore subject to the economic loss doctrine, see Biese, 223 Wis. 2d at 26,

or predominantly a contract for services and therefore not subject to the economic loss doctrine, see Cease Electric, 276 Wis. 2d 361, ¶ 52.

¶ 9. The predominant purpose test was developed in the Uniform Commercial Code (UCC) context when contracts that were alleged to be sales (Wis. Stat. ch. 402) occurred. Because the sales chapter of the UCC applies to transactions in goods, Wis. Stat. § 402.102, and many contracts involved both goods and services, it was necessary to determine which component was predominant. See Bonebrake v. Cox, 499 F.2d 951 (8th Cir. 1974)

.

¶ 10. Van Sistine v. Tollard, 95 Wis. 2d 678, 291 N.W.2d 636 (Ct. App. 1980), was the first Wisconsin case to apply the predominant purpose test in order to determine whether a mixed contract was predominantly for goods or for services. In that case, the dispute concerned a contract to install windows, install stucco siding, reposition appliances and perform finishing. The court considered subjective factors, such as the contractor being described as a "siding contractor" and the tasks to be undertaken were described as services such as "`install', `reposition,' `move' and `finishing.'" The contract did not speak in terms of a sale. Id. at 685. The court also considered that more than half of the cost of the project was for labor, with a lesser amount expended for materials. Id. Given the totality of services provided, the court concluded that the contract was primarily for services. Id.

¶ 11. In Micro-Managers, Inc. v. Gregory, 147 Wis. 2d 500, 434 N.W.2d 97 (Ct. App. 1988), the court of appeals again employed the predominant purpose test to determine whether the UCC applied to the transaction. There, Gregory contracted with Micro-Managers to develop software for a programmable controller for manufacturing equipment. The court reasoned that "all . . . charges to Gregory would be on the basis of time, at stated rates, and materials." Id. at 508. The contract described time components and tasks to be accomplished, using such words as "`man-days,' `development,' `time,' `design,' etc." Id. at 508-09. The court concluded that the words chosen connote the provision of services and not the sale of goods. Id. at 509. The court also considered billing evidence, and concluded that $55,968 of the $59,828 total bill was for services. Id. at 508. After considering the totality of services, the court concluded that the contract was predominantly for services. Id. at 509.

D. Which Contract Controls

¶ 12. Before we employ the predominant purpose test, we must determine which contract controls, the general contract between the Lindens and Groveland, or the subcontracts between Groveland and Cascade and Fern. The Lindens argue that we should examine the subcontracts that are predominantly...