In Hinrichs v. Dow Chemical Co. (2020 WI 2), the Wisconsin Supreme Court dismissed misrepresentation claims on the basis of the economic loss doctrine, but ruled the plaintiff might be considered “the public” for the purposes of bringing a statutory fraudulent representation claim. The court further found that heightened pleading standards for fraud claims do not apply to claims made under Wisconsin’s fraudulent representation statute (Wis. Stat. § 100.18).

The opinion was written by Justice Walsh Bradley, joined by Chief Justice Roggensack, Justice Ziegler, and Justice Dallet. Justice R. Bradley wrote a concurring opinion joining the justices’ decision on the common law claims but dissenting from the decision on the § 100.18 claim. (Justices Kelly and Hagedorn did not participate.)

 

Facts

Chris Hinrichs developed acrylic skylight panels for vehicles and owned Autovation Limited, which manufactured, distributed, and installed the panels. Autovation used a Dow Chemical adhesive to install the panels. When Hinrichs discovered some of the panels were cracking, an agent from Dow issued him a report stating that the adhesives were properly functioning. However, Hinrichs later discovered that the adhesives in the panels were in fact failing, damaging his products and significantly affecting his sales. Hinrichs and Autovation filed the common law claims against Dow for negligent misrepresentation, intentional misrepresentation, and strict responsibility misrepresentation, and a statutory claim of violation of the fraudulent representation statute § 100.18.

 

Common Law Claims

The court barred Hinrichs’s common law misrepresentation claims based on the economic loss doctrine, which provides that plaintiffs cannot sue to recover solely economic losses from the nonperformance of a contract.

The court ruled the “fraud in inducement” exception to the economic loss doctrine did not apply because the alleged misrepresentation was not extraneous to the contract. The “other property” exception to the economic loss doctrine did not apply because the damaged panels and the adhesive the parties contracted for were parts of an integrated system.

Under the economic loss doctrine, Hinrichs and Dow had the opportunity to address these circumstances in their contract and, since they declined to do so, Hinrichs was not entitled to damages for economic loss.

 

Fraudulent Representation Claim

In addition to the above common law misrepresentation claims, Hinrichs brought a claim against Dow for violation of § 100.18, which states that companies cannot make advertisements to the public containing untrue, deceptive, or misleading assertions. The court allowed Hinrichs’s statutory claims to proceed for the following reasons.

The court found first that the economic loss doctrine does not apply to statutory claims made under § 100.18. The economic loss doctrine is a common law restriction, and § 100.18 creates a specific statutory cause of action. The Legislature chose to provide a remedy for false advertising outside of common law, so the common law policy of the economic loss doctrine cannot apply to the statutory claim.

The court then affirmed previous case law stating that one person (in this case Hinrichs) can be “the public” for the purposes of bringing a fraudulent misrepresentation claim under § 100.18. On the grounds of stare decisis, the court upheld State v. Automatic Merchandisers (1974), which held that one person can be “the public” for purposes of bringing a § 100.18 claim, unless the plaintiff and the defendant have a “particular relationship.” The court found that Hinrichs alone could be “the public” but remanded to the circuit court the question of whether Hinrichs had a “particular relationship” with Dow that would bar his claim.  

Finally, the court held that the heightened pleading standards for fraud claims in § 802.03(2) do not apply to § 100.18 claims. Thus Hinrichs’s complaint met the general pleading standards and can proceed.

 

Concurring Opinion

In a concurring opinion, Justice R. Bradley argued that Hinrichs should not be considered “the public” for the purposes of § 100.18. According to the concurring opinion, the plain meaning of “the public” in the fraudulent representation statute is people in the general community, not businesses in a commercial relationship like Hinrichs and Dow.

The concurring opinion argued that the court misconstrued Automatic Merchandisers. In that case, the business accused of fraudulent representation had made advertisements to the public in a newspaper then made fraudulent claims to individual respondents to the ads. The court found that a single individual who responded to the public ads could be considered “the public” for purposes of bringing a § 100.18 claim. The concurring opinion argued Hinrichs differed from Automatic Merchandisers because Dow never broadcast fraudulent claims to the general public. Instead, the alleged fraudulent claims occurred in an individual email to Hinrichs.

The concurring opinion argued the court’s decision that Hinrichs could bring a § 100.18 claim reads “the public” completely out of the statute, eliminating any parameters around who can bring such claims. According to the concurring opinion, the court’s “particular relationship” test to determine whether an individual is “the public” has no foundation in statutory text and only creates more ambiguity in the statute.

Thus the concurring opinion would have decided, based on the plain meaning of the statute, that Hinrichs was not a member of “the public” under § 100.18, barring his statutory claim.