*1 Steven J. Wickenhauser
Christy K. Wickenhauser, Plaintiffs-Respondents-Petitioners,
v. Carolyn Jack Lehtinen Lehtinen, Defendants-Appellants, Joseph Nielsen and Sharon Nielsen,
Defendants. Supreme Court argument February No. 2004AP2681. Oral 2007. Decided June 82WI
(Also 855.) reported in 734 N.W.2d *6 by were briefs there plaintiffs-respondents For the Norman, S.C., New Bakke O'Brien and J. Timothy J. O'Brien. by Timothy Richmond, argument and oral by brief there was a defendants-appellants For Miller, Falls, and Miller & River L. Miller and Steven Miller. Steven L. by argument oral ROGGENSACK, This J. PATIENCE DRAKE of the decision curiam per an unpublished a review of is judg- circuit court's that reversed of appeals court (the Christy awarding ment1 Steven and Wickenhauser Wickenhausers) compensatory punitive damages (Lehtinen) denying Jack Lehtinen's motions summary judgment preclusion. based on claim appeals court of reasoned that since Wickenhausers purchase option obtained of an rescission acres prior property their action, were barred obtaining damages election of remedies doctrine from in this action. Wickenhauser v. No. Lehtinen, (Wis. unpublished slip op., App. 2004AP2681, Ct. 2006). Jan.
¶ 2. We conclude that the election of remedies doctrine bar does not the Wickenhausers from obtain- ing damages in this action because rescission option prior in the action is with consistent the subse- quent damages. addition, award of their claim in this *7 by preclusion, action is not barred claim nor the did compulsory require common-law counterclaim rule bring damages Wickenhausers to their claim for as a counterclaim in the first Furthermore, action. the fraud exception in the inducement to the economic doc- loss holding. trine is consistent with our However, not we do arguments by address several alternative Le- raised appeals htinen to the court because not were brought Accordingly, before us for consideration. we appeals reverse the court determination and remand appeals proceedings to the court of for further consis- opinion. tent with this
I. BACKGROUND ¶ 3. The Wickenhausers and Wickenhauser operate dairy Farms, Inc. own farm outside of Lundell, The Eric Honorable J. Judge Circuit Court for St. County, presided. Croix County. Wisconsin, in St. Croix Richmond,
New parcel original acres, farm consists of 146 Wicken- buildings related to their farm- residence and hausers' ing operation. August 1997, the On Wickenhausers purchased acres from Thomas Burow 300 additional (Burow). time, At the Wickenhausers used Bison attempt in an to secure additional Financial's services financing expansion of to debt and fund the consolidate operation. Bison Financial was not able to their farm financing package Wickenhausers, but for the secure Lehtinen, a the Wickenhausers to it did introduce frequently in real estate. dentist who invested retired Lehtinen entered 4. The Wickenhausers and Lehtinen loaned into a series of transactions where money paid On bills on the Wickenhausers' behalf. or September borrowed 10, 1997, Wickenhausers by a mort- $130,000 gage Lehtinen, from which was secured parcel pur- the Wickenhausers on 300-acre by Another loan was made Le- chased from Burow. provided $66,000 he to htinen in December when secured a mort- Wickenhausers, which also was parcel. gage the 300-acre on presented the Wickenhausers with 5. Lehtinen sign, option that he asked the Wickenhausers
an three-year right purchase gave Lehtinen a which parcel $300,000. Lehtinen con- for entire 300-acre together exchange loan, $66,000 that in tended promise an additional loan his to secure with Joseph Nielsen his friends and Sharon *8 $200,000 from (the agreed Nielsens), to make the Wickenhausers parcel. How- one-half owner of 300-acre Lehtinen Lehtinen wanted believed that ever, the Wickenhausers only option that there was to show the Nielsens protection security loan and as for their sufficient or defaulted loans, if the Wickenhausers Lehtinen's bankrupt. went Lehtinen told the Wickenhausers that option. he would not record the In November Lehtinen claimed he parcel owned a one-half interest the 300-acre sign quit asked the Wickenhausers to claim deed conveying him that interest. The Wickenhausers re- previous fused. In December based on loans, attempted option purchase Lehtinen to exercise the to parcel, the entire 300-acre which recorded, he had but convey property. the Wickenhausers refused to On against March 2001, Lehtinen filed an action (the action) sought Wickenhausers first wherein he option purchase enforcement of the to the 300-acre parcel.
¶ 7. The Wickenhausers filed an answer in the asserting, action, first as an affirmative defense, that fraudulently sign option. Lehtinen induced them to damages Wickenhausers did not counterclaim for April in the first action. On 16, 2001, the Wickenhaus- seeking quiet ers action, commenced this to title to the parcel damages arising 300-acre in their names and misrepresentations from the fraudulent Lehtinen made sign option. to induce them to ¶ 8. 11, 2001, On June the Wickenhausers moved actions, consolidate the but their motion was denied. July 27, On the Wickenhausers filed an amended an- providing swer the first action more detail about the allegations, fraud but did not counterclaim for damages. testimony
¶ 9. After had concluded in the first parties action, proposed the court asked the to submit findings judgments. fact, conclusions of law and September adopted 2001, the court the Wickenhausers' document without modification. The court found that agree grant the Wickenhausers did not Lehtinen an *9 ownership parcel. judg- interest in the 300-acre The (1) option ment the also rescinded for these reasons: it (2) consideration; void for of was lack Lehtinen made misrepresentations material to the Wickenhausers and reasonably misrepre- the Wickenhausers relied on the (3) detriment; sentations to their acting and Lehtinen was agent as a dual at time the he induced the sign option. to Wickenhausers ¶ 10. action, In this the Wickenhausers moved to apply preclusion issue to Lehtinen's to their defenses allegations misrepresentation liability, asserting of and misrepresentation that Lehtinen's had in been decided their favor in first action; therefore, and Lehtinen deny liability not in could this action. Lehtinen moved preclusion dismiss to this action based on claim and the election of remedies doctrine. He asserted that precluded claiming damages were from Wickenhausers granted in this action because rescission in were the first action. applied preclusion 11. circuit The court issue to allegations misrepresen-
Lehtinen's defenses to the liability, tation and and it also denied Lehtinen's motion apply preclusion claim to the Wickenhausers' claim in this The court action. circuit did so because it compulsory concluded that there are no counterclaims recognized in Wisconsin. The circuit that court attempted had Wickenhausers consolidate two "damages cases and also noted that were not available [the action] first fact that the remedies separate pre- case available each were and distinct application preclusion." jury cludes the claim damages resulting found from fraud the amount punitive damages $274,184 in the amount of Judgment accordingly. $500,000. was entered appealed court's deci the circuit Lehtinen among arguing, since the theories, other sion, action, in the first rescission obtained *10 Wickenhausers by remedies doctrine election of the are barred obtaining damages of The court in this action. from rem appeals agreed. the election of that It concluded maintaining plaintiff incon from bars a edies doctrine parties to legal have and defrauded theories sistent Wicken a contract. or to affirm either to rescind elect slip op., unpublished ¶ 13 2004AP2681, hauser, No. omitted). (citations appeals that concluded The court of damages; and a claim for with rescission is inconsistent ¶ Id., circuit court. therefore, it reversed the appeals that concluded ¶ court of 13. Since the recovery damages of action barred in the first rescission Lehtinen's a number of action, it not address in this did arguments the court of made to that were alternative appeals (1) applying including us, whether: but not to liability questions preclusion and fraud of issue fundamentally action unfair this in the first action is (2) jury by damages damages; found the actual for (3) punitive by supported dam evidence; not were ages law; and as a matter of denied should have been (4) jury process did when the due Lehtinen was denied surrounding and circumstances hear all the facts not alleged ¶ Id., 1 n.1. fraud. petition granted ¶ the Wickenhausers' 14. We appeals. the court of the decision of review
II. DISCUSSION A. of Review Standard by deny this case
¶ court resolved 15. The circuit summary judgment that ing was motion Lehtinen's
52
preclusion
confirming
jury's
claim
based on
damages.
appeals applied
award of
The
court
election of remedies doctrine to overturn the circuit
summary judg
court's decision. We
denial
review a
independently, applying
methodology
ment
the same
as
Estate,
Kosterman,
circuit court. AKG Real
v.
LLC
14,
2006 WI
296
2d 1,
Wis.
N.W.2d
(citing
Reemer,
O'Neill v.
WI 13,
2dWis.
403).
applications
544, 657 N.W.2d
of the
election
preclusion
doctrine,
remedies
the doctrine of claim
compulsory
the common-law
to a
counterclaim rule
particular
present
questions
set of facts
us with
lawof
independently.
Menard,
we review
See
Inc. v.
Liteway Lighting Prods.,
¶98,
2005 WI
582,
B. Election of Remedies equi
¶ 16. The election of remedies doctrine is "an principle barring maintaining table one from inconsis Seemann, tent theories or forms of Head relief." & Inc. v. (Ct. Gregg, App. 156, 159, 104 Wis. 2d 311 N.W.2d667 1981), adopted, 126, and 107 Wis. 2d 318 127, aff'd (1982). N.W.2d 381 The election of remedies doctrine requires litigant remedy, a to choose a where the rem sought edies are inconsistent with one another.2 28A § C.J.S. Election Remedies 16. The election of rem- applying edies doctrine has been described as "a where certain state of relied as facts on the basis of a certain
2A for claim relief tort and claim for relief in contract are which not "remedies" to the election of remedies doctrine Co., applies. 267, v. Goetz State Farm Mut. Auto. Ins. 31 Wis. 2d (1966). 273, 142 remedy N.W.2d 804 A relief is is the that applied to a successful claim. Id.
53 to, another with, repugnant is and remedy inconsistent of another facts relied on as basis certain state of Sears, Co., 976, & F.2d v. Roebuck 573 remedy." Roberts (1978) (7th denied, 439 860 1978), cert. U.S. 985 Cir. omitted). (citations & Seemann 17. The court Head appeals doc- election of remedies that traditional
explained
in a
action
that a defrauded
provides
trine
contract
to
seek
may elect either
rescind3
contract
party
damages
or
it and
rescissory
to affirm
seek
damages4
Seemann,
from the breach of contract.5 Head &
arising
Motor Co.
159;
Harley-Davidson
Wis. 2d at
see also
104
2003).
(7th
Inc.,
973, 988
Cir.
319 F.3d
PowerSports,
v.
in the factual
by
inconsistency
This choice is forced
of a
and that
necessary for rescission
contract
predicate
Seemann,
&
necessary
affirming
when
a contract. Head
Unichem, Inc.,
v.
Seidling
2d
159 (citing
104 Wis.
at
3
unilaterally
by cancelling
or
One "rescinds" contract
it
2004).
(8th
agreement.
Dictionary
Black's Law
1332
ed.
damages"
party
to
"Rescissory
are awarded
return a
occupied
act. Id. at 419.
position
party
wrongful
before the
damages."
called
damages
These
are sometimes
"restorative
Seemann,
165-67,
Gregg,
&
Inc. v.
Head
(Ct.
1981),
adopted,
2d
App.
107 Wis.
N.W.2d
aff'd
(1982).
damages
do not arise
N.W.2d 381
Restorative
contract,
wrongful
from a
act
fraud in the
from a
but
such as
held
inducement. Id. at 166. Rescission of a contract has been
damages
rights,
money
compensate
while
protect future
*12
Sears,
Co.,
injuries
&
past
due to fraud. Roberts v.
Roebuck
573
(7th
(1978).
denied,
1978),
F.2d
985
Cir.
cert.
54 (1971)). 552, 557, 191 205 N.W.2d of the underlying purpose doctrine of of rem- election edies "is to recovery double for the prevent same wrong." Therefore, Id. it if that a claimant "appears chooses to seek a contract], rescission not may [of he sue for [based on damages enforcement of the con- Id. Stated otherwise, may tract]." one not cancel and contract also sue to compliance enforce with the provisions. contract's Seemann, In Head & the court appeals of
explained that rescission and
damages
restorative
are
consistent
or
entirely
when fraud
is
misrepresentation
of
Id.
cause
the claim.
at 168.6 The court concluded
that a defrauded vendor of real estate who obtains
rescission of a land contract and restitution of the land
may also recover
specie
damages for
loss of rents
from the land for the
of the
period
purchaser's posses-
6
Dobbs,
9.4,
See also 2 Dan B.
§
Dobbs Law
at
Remedies
of
(2d
1993)
Seemann,
612
(stating
n.38
ed.
&
that Head
Inc. v.
Gregg,
(1982),
107
2dWis.
318
381
N.W.2d
confronts the
traditional election of remedies doctrine and modifies the rule
"permit
to
plaintiff
all
to recover
consistent
'restorative'
damages").
or
A
costs
number of cases in
jurisdictions
various
have
recovery
allowed
of both
of
types
rescission
some
damages. Id. at
(citing Seekings
Jimmy
611-12 n.35
v.
GMC of
(Ariz. 1981)
Tucson, Inc., 638 P.2d
("[Cjonsequential
210
dam
ages may be awarded in case
acceptance
where revocation of
(Ariz. 1986) ("A
Ford,
granted.");
is
Landin v.
P.2d
332
plaintiff electing rescission is
damages
entitled
those
that are
whole.");
Katz,
necessary to make him
Robison v.
sion and "restitutionary damages with stated, conform The court put purpose rescission, which is to the defrauded the of occupied good position party as he before in as a back entering Id. at 166. The court noted the contract." "expectation" only rules out or benefit-of-the- rescission bargain damages. Id. appeals adoption Prior to our of the court
opinion Seemann, examined the election in & we Head Chantilly, Inc., v. in Schwabe of remedies doctrine (1975). Schwabe, In a 269, 226 N.W.2d452 Wis. 2d nonpayment of rent. Id. at sued the tenants for landlord in the inducement as tenants raised fraud 268-69. defense, did not counterclaim. an affirmative but Judgment awarded the tenants based Id. at 269. was brought subsequently that defense. Id. The tenants on against man an action the landlord and the landlord's aging officer, fraud. We based on the same Id. concluded doctrine did not bar the that the election of remedies affirmative the tenants' "assertion of the action because in in the first action was not an election the defense affirmatively seeking commencing an action sense of Id. also concluded rescission the lease." at 278. We brought subsequent by a defendant that where action "upset first not the determination action did [action]", rather, first but affirmed the reached action, of remedies did not first the doctrine of election brought by party subsequent who was a bar a action prevailed, defendant, first at 274. action. Id. present Schwabe, 20. Like the Wickenhausers' "upset reached in action does not the determination" action. In action; rather, the first it affirms the first action, an affirmative first the Wickenhausers asserted option, based on fraud in inducement defense finding court, and the in favor of the Wickenhausers, option. rescinded the action, this second *14 seeking are Wickenhausers not a enforce contract provision -against Rather, Lehtinen. this second action damages is based on fraud and the to them that resulted from Therefore, Lehtinen's fraud. it is consistent with findings legal the circuit court's factual and conclusions in first action, i.e., that Lehtinen obtained the signature option by on Wickenhausers' fraudulent misrepresentations. Since this second action was brought by party a who was a defendant in the first findings and action is consistent with the factual and legal action, conclusions of the first the doctrine of by election permitting remedies not does bar it. noteWe that damages, both rescission and restorative recovery will Wickenhausers not receive a double injury. the same This so is because of the rescission option protects contract the Wickenhausers' future in- money damages compensates terest in their land and injuries past them for that were caused Lehtinen's fraud. Compulsory
C. Claim Preclusion and Common-law Counterclaims
¶ 21. Lehtinen contends all the elements preclusion claim met, therefore, are is this action preclude He barred. seeks to the Wickenhausers from asserting claims that did not counterclaim for in the first action. "(l)an preclusion
¶ 22. Theelementsof claim are: identity parties privies prior between the or their in the (2) present identity suits; an between the causes (3) judgment and, in the suits; action two a final on the 57 jurisdiction." competent N. States in a court of merits Bugher, 541, 551, 525 N.W.2d v. Power Co. (1995) (citing Co., 113 v. W.Bend Mut. Ins. DePratt (1983)). describing 306, 311, 334 N.W.2d883 Wis. 2d general preclusion said," 'a final terms, we have claim subsequent judgment actions between is in all conclusive privies] [or parties which their as to all matters the same litigated might litigated in the have been or which were (alteration original) proceedings.'" Id. at former Cady, (quoting 547, 558, 2d Lindas Wis. v. (1994)). .2d458 N.W general of claim However, our statements preclusion application
preclusion
of claim
involve the
plaintiff
plaintiff
in a second action who was also
*15
plaintiff
privity
in
action,7
a
with
the first
plaintiff
to
counterclaiming
action,8
in
or to a
the first
prevail in the
action.9 Claim
who did not
first
defendant
preclusion,
subsequent
standing
alone,
a
is not a bar to
7
Co.,
See,
e.g.,
W.
Mut. Ins.
306,
DePratt v. Bend
2d
113 Wis.
(1983)
by
(precluding a second action
DePratt
¶
Wisconsin,
counterclaims are
802.07(1)
§
permissive.
(2005-06);10Menard,
Wis. Stat.
general
grounded
2d 582,
Wis.
27. This
rule is
require
"the
that
belief
notions of fairness
that a
given
day
be
defendant
his
in court when and
he
where
Enters.,
N.A.,
sees fit."
v.
Se.,
A.B.C.G.
Inc.
Bank
First
(1994) (citing
465, 476,
2dWis.
59 if previous in a "a favorable was a defendant suit nullify judg- the judgment in the second action would impair rights original action or established ment in the compulsory initial The common-law action." "preserve[] integrity operates counterclaim rule to finality judgments litigant's of and the reliance on and them, upon precluding judg- a by collateral attack proceeding." subsequent ment in a A.B.C.G., Menard, (quoting ¶ 476-77).11 2d at Wis. counterclaim 26. The common-law compulsory to rule of exception general is
rule
a narrow
It
to
operates
protect
counterclaims.
permissive
attack
judgments
pre-
of
from collateral
integrity
first
commenc-
cluding a defendant
action from
judgment
that
the first
nullify
a second action
will
ing
in the first action. See
rights established
impair
or
Clermont,
Compulsory
Common-Law
Coun-
Kevin M.
Res
Elegant
Creating
terclaim Rule:
Effective
(2004).
Doctrine, 79 Notre Dame L. Rev. 1745
Judicata
27. To determine whether
common-law
action,
we
applies
counterclaim rule
this
compulsory
all
whether
the elements
claim
begin by analyzing
Southeast, N.A.,
Bank
Enterprises, Inc. v.First
In A.B.C.G.
(1994),
quoted
we
from the
2d
515 N.W.2d904
184 Wis.
(Second)
22(2)(b) (1982)
explain
§
Judgments
Restatement
compulsory counterclaim rule as follows:
the common-law
(2)
may interpose
who
a claim as counterclaim
A defendant
precluded,
but
do so
after the rendition of
in an action
fails to
is
action,
judgment
maintaining an
the claim
in that
from
action on
if:
(b)
relationship
between the counterclaim
prosecution
plaintiffs
is
the second
claim such
successful
judgment
rights
nullify
impair
action
the initial
or would
would
in the
action.
established
initial
*17
preclusion
present. Menard,
are
action resulted in final on the in merits competent jurisdiction. regard court of However, in identity parties, whether there is an of we note that the parties exactly in the two are not actions the same. Farms, Wickenhauser Inc., was named as a in defendant plaintiff the first is action and not named as a in this parties Also, action. the Nielsens were not in the first action, but are named as in defendants this action. identity However, we have stated that there an is of parties parties part, when the are, the most identi for Sopha Owens-Corning Fiberglas Corp., cal." v. (1999) (emphasis n.28, Wis. 2d 601 N.W.2d627 added). parties Sopha, parties
¶ 29. Similar to the in in parties this second action and the are, the first action part, most identical. While the Wickenhausers relationship Farms, exact to Wickenhauser Inc. is not clear, the Wickenhausers' answer com to Lehtinen's plaint in the first action establishes that are officers Farms, Wickenhauser Inc.12 The Nielsens were named as defendants this action because of their possible mortgage property interest
12We note
case
provides
that Wisconsin
law
requirement
parties
identity
is met when" 'the two actions
closely-held corporation
prin
involve a
in one
...
case
and its
Manu-Tronics,
cipal shareholder
in the other.'"
2d at
163 Wis.
(citation omitted).
possible
relationship
Lehtinen.13
contractual
with
their
relationships
parties,
*18
Regardless
exact
of these
of the
agree
Farms, Inc.
that Wickenhauser
we
with Lehtinen
allegations,
unrelated to the fraud
and the Nielsons are
purposes
fraud
therefore,
of the Wickenhausers'
and
parties
claim,
are the same
both lawsuits.
¶
iden-
whether there is an
Next, we turn to
30.
requires
tity
us to exam-
of
This determination
claims.
of the transac-
ine both lawsuits within the framework
(Second)
analysis adopted
the Restatement
tional
from
(1982).
§
Judgments
Menard,
582,
282
2d
24
Wis.
of
"
311).
(citing DePratt,
¶
113
2d at
'Under this
30
Wis.
analysis,
arising out of one transaction or
all claims
single
being part
as
of a
factual
are treated
situation
(quoting
City Madison,
cause
action.'" Id.
Parks v.
of
of
(Ct.
1992)).
App.
492
730, 735,
2d
N.W.2d365
171 Wis.
grouping
A
natural
or common
transaction" 'connotes a
(quoting
operative
Id.
nucleus of
facts.'"
Restatement
(1982)).
(Second)
§
Judgments
deter-
24 cmt. b
To
of
transaction,
mine
from one
"we
whether claims arise
may
time,
related in
consider whether the facts are
(citing
space, origin,
Id.
or motivation."
Restatement
(1982)).
(Second)
§
Judgments
24 cmt.
of
b
We have
analysis,
irrel-
"it is
noted that under
transactional
legal
sought,
theories,
'the
remedies
evant that
may
used
be different between the first and
evidence
argument
presented
contending
was
to us
No
relationship between the Nielsens and Lehtinen rises
therefore, we do
issue.
privities,
level of
not address this
person
However,
"[plrivity exists when a
is so
we note that
party
litigation
to former
that he or
identified in interest with
precisely
legal right
to the
represents
respect
she
same
Milwaukee,
City
subject
Pasko v.
2002 WI
matter involved."
33,
1,
N.W.2d
(quoting Kruckenberg
Id., ¶
second actions.'"
v.
Harvey,
¶43,
2005 WI
279 Wis.
2d
694 N.W.2d
879);
("[T]he
Power,
see also N. States
¶
although
However,
32.
we have concluded that
preclusion
all the elements of claim
met,
are
this action
will not be barred unless the Wickenhausers' claim was
compulsory
a common-law
counterclaim because in
exception,
Wisconsin, with this one narrow
counter-
permissive.
§ 802.07(1);
claims are
Wis.
Menard,
Stat.
¶
27. In order to constitute a common-
compulsory
law
counterclaim, the Wickenhausers' suc-
nullify
cessful claim in this second action must
judgment
impair rights
in the first action or
established
Menard,
the first
¶
action.
28;
Wis. 2d
A.B.C.G.,
(First Enterprises, "in Inc. A.B.C.G. sued seeking separate of ABCG's foreclosure actions six properties pursuant to certain in various interests mortgage assumption
agreements." A.B.C.G., "[T]he default entered circuit court 2d at 471. Wis. judgments Bank" because in favor of First of foreclosure respond Bank's the service of First not ABCG did complaint. Id. brought Subsequently, action an ABCG 34. alleging misrepresentations
against as to Bank, First regarding quality, of contract breach the investment payments extension of additional and schedules manage properties. properly credit, failure to circumstances, deter- we Under those Id. at 471-72. judgment "di- in favor of ABCG would that a mined rectly judgments original default undermine" the interest in the ABCG's the court foreclosed which properties. Accordingly, common-law Id. at 483. precluded compulsory ABCG's ac- rule counterclaim tion. Id. Similarly, Menard, we concluded 35. by the common-law com- action was barred
Menard's allowing pulsory Menard to rule because counterclaim Liteway Lighting Product's "undermine" recover would judgment. (Liteway) original Menard, 2d 282 Wis. purchased lighting products from ¶ Menard had relationship, Liteway during Menard the business *20 Liteway products "money 'credit' for due to as held back ¶ Id., 3. After the defective." Menard claimed were began disput- relationship parties ceased, "the business Liteway." money ing Id. Menard owed the amount of Liteway alleging reim- it had not been sued Menard products and, aas some returned defective bursed for unjustly Liteway Id., ¶ 4. enriched. result, had been Liteway asserting preclusion answered, claim as an affirmative defense because Menard's claims could have brought prior Liteway been in the action had main- against Liteway's prior Id., ¶ tained Menard. 5. action unpaid was for breach of contract Id., due to invoices. Liteway judgment ¶ 6. had obtained a default in that timely first action due to Menard's failure to file a Id., ¶ answer. 7. consequences
¶ 36. Because of the collateral
judgment
Menard's claims could have had on the
in the
compulsory
action,
first
held
we
that the common-law
subsequent
counterclaim rule barred Menard's
suit for
goods.
credit for the
Id.,
returned
stated,
20. We
compulsory
"Menard's claims fall under the common-law
allowing
proceed
counterclaim rule because
Menard to
present
impair Liteway's rights
with its
suit would
as
original
determined in the
action and would undermine
validity
judgment Liteway
Id., ¶
obtained."
22.
In
37.
contrast
Menard,
A.B.C.G.
judgment
Schwabe, we concluded that because
was ren-
dered in favor of the Schwabes as defendants in the first
action based on the
fraud,
affirmative defense of
required
Schwabes were not
to have
counterclaimed
Accordingly,
Schwabe,
the first action.
ment is for the maintaining subsequent against action precluded from In a case he is upon these facts. such plaintiff based ..., although his cause of action improperly splitting not the plaintiffs a defense to he uses the facts first as same against the of an action claim and later as the basis action, judgment in the subsequent In plaintiff. litigated actually facts conclusive as to the prior action is in first action. and determined explained in Schwabe that where However, also we plaintiff action, he action lost the first the second commencing a new action. from or she is barred Schwabe, 2d at 272-73. 67 Wis. is not barred action 38. The Wickenhausers' compulsory because, counterclaim rule
the common-law
nullify the
Schwabe,
action does not
this second
as with
rights
judgment
impair any
established
or
first
were
action,
the Wickenhausers
action.
the first
fraud.
defense based on
in their affirmative
successful
damages
on the same fraud that
is based
This action
proven
The Wickenhausers are
in the first action.
was
findings
legal
previ-
attacking
or
conclusions
not
ously
factual
Accordingly,
were
the Wickenhausers
determined.
required
in the
action
counterclaimed
first
not
to have
compulsory
rule;
counterclaim
under the common-law
seeking
precluded
therefore,
are not
from
damages in
action.
this second
Doctrine
D. Economic Loss
contend that because a
39. The Wickenhausers
money
their relation-
was the basis for
contract to lend
ship
explain
Lehtinen,
with
should
we
that the fraud in
exception
the inducement
to the economic loss doctrine
*22
is consistent with their claim. The economic loss doc
"
judicially
'precludes]
trine is a
created rule that
contracting parties
pursuing
recovery
from
tort
purely economic or commercial losses associated with
relationship.'"
the contract
Enters.,
Kaloti
Inc. v.
Kellogg
Co.,
¶
Sales
111, 27,
2005 WI
283
555,
Wis. 2d
(citations omitted).
¶
Kaloti,
40.
we
a narrow
in
fraud
exception
inducement
to the economic loss doctrine.
Kaloti,
¶
have stated op- misrepresentation before the occurred Second, the first the circuit court executed because tion was *23 misrepresenta- Lehtinen's fraudulent action concluded op- including the the reasons Lehtinen wanted tions, record the that he would not and his assurances tion signing option, it.14 into misled the Wickenhausers [was] Finally, that "the fraud extraneous conclude we the with, the contract." As to, rather than interwoven concluded, action Lehtinen's court in the first circuit misrepresentations the made to induce Wicken- were misrepresentations sign option. did the hausers to though acknowledges findings the the Even Lehtinen action, precede did not argues he in his brief that the fraud first signed on option was contract in this case because they did not 14, testified January 1998 and the Wickenhausers it, prior to that date. option, nor had seen discuss did However, the fact that the Wickenhausers we do not believe prior to that date means Lehtinen's option not discuss the the Wicken- prior were not made to when misrepresentations that since contract. Common sense dictates signed hausers fraudulently induced the Wickenhaus- misrepresentations necessarily misrepresentations sign option, those ers to formed. prior option to was occurred when performance not relate to Lehtinen's contract, of the which was to obtain a $200,000 Therefore, loan. this gives independent fraud rise to an cause of action in tort. recognize
¶ 42. Furthermore, we that certain policy pertinent concerns articulated Kaloti are to explained Kaloti, this case. In we that" 'Wisconsin has a long-standing principle parties background need a dealing relationships.' of truth and fair in commercial question Where the matter in contract, falls outside the party's courts should be able to address a failure to act honestly parties engaging with law, tort even if the are (quoting in a Id., commercial transaction." Van Vogt,Inc., Lare v. 110, 30, 2004 WI citing Digicorp, 683 N.W.2d ¶ 2dWis. 36). In addition, limited "the fraud the inducement exception. promotes . . the economic loss doctrine's goal protecting parties' freedom to contract. . .. Tort apply only law will under circumstances ... where one party by representing induces another into a contract (or disclose) failing to a fact that would be material to party's the other contract, decision to enter into the but that concerns matters extraneous to the contract's promote Id., ¶¶ terms." 48-49. We conclude that dealing, misrepresentations truth and fair Lehtinen's may the Wickenhausers be addressed tort law be *24 cause the fraud is extraneous to and not interwoven Accordingly, pre with the contract. this action is not by cluded the economic loss doctrine.15 asserts, The inaccurately majority opin concurrence "the ion extends the economic present loss doctrine to the case beyond any Concurrence, case this court has decided." 51. ¶ spends explaining why The concurrence then 51-63 we ¶¶ Although that the Wickenhaus- we conclude 43. damages punitive compensatory and claims for ers' any by of the doctrines fraud are not barred on based alternative address several herein, we did not discussed arguments by of to the court raised Lehtinen that were (1) apply- arguments appeals. include whether: These liability questions ing preclusion and to the issue fundamentally in this unfair action is fraud in the first (2) damages by damages; found the actual for action (3) punitive jury supported evidence; were not damages law; denied as a matter have been should (4) jury process due when was denied Lehtinen surround- facts and circumstances not hear all the did ing alleged not these issues were fraud. Because to the court consider, but were briefed for us to briefed appeals, court of to the remand these issues of appeals we consistent with this further consideration opinion.
III. CONCLUSION the election of remedies conclude that 44. We from obtain- bar the doctrine does not Wickenhausers damages ing rescission of in this action because prior option with the subse- action is consistent damages. quent Furthermore, claim in their award "non- doctrine to "extend" the economic loss should not simply The concurrence is real transactions. commercial" estate majority of the law in Wisconsin. wrong on the state loss doctrine into new not extend the economic opinion does case, Linden v. Cascade Stone example, For in a recent contexts. 189, Co., we con- Wis. 2d 699 N.W.2d 2005 WI real estate was to construct residential cluded that a contract therefore, doctrine; Lin- subject to the economic loss rather than proceed on contract claims required dens were Id. at tort claims. ¶¶ *25 by preclusion,
this action is not barred claim nor did the compulsory require common-law counterclaim rule the bring damages Wickenhausers to their claim for as a counterclaim in the first action. Furthermore, the fraud exception in the inducement to the economic loss doc- holding. trine is consistent with our However, we do not arguments by address several alternative raised appeals Lehtinen to the court of because were not brought Accordingly, before us for consideration. we appeals reverse the court of determination and remand appeals proceedings to the court of for further consistent opinion. with this
By appeals the Court.—The decision of the court of is reversed and the cause remanded to the court of appeals. {concur- 45. SHIRLEY ABRAHAMSON, S. C.J.
ring). agree majority opinion I with the that the misrepresen- Wickenhausers have a claim for intentional tation and are not barred pursuing the election of remedies in join majority opinion's cannot, however, it. I discussion economic loss doctrine for two reasons: majority opinion's
I. The discussion of the economic ignores parties' arguments loss doctrine and decides application of the economic loss doctrine to the present parties case—an issue that the did not or raise brief. argument by
II. or parties Without briefs analysis, majority opinion without extends the case, present beyond any economic loss doctrine to the ease this court has decided.
r-i parties agree ¶ 46. The the economic loss apply present doctrine does not case. contend that "the economic Lehtinens completely to this case. ...
loss doctrine is irrelevant *26 Lehtinens raised the economic loss doctrine have never . . The issue in this case is not as defense.. whether bring fraud, can or seek Wickenhausers claim consequential damages, they but whether can choose legally remedies are inconsistent."1 which argue ¶ if court 48. The Wickenhausers that this holds that have made an election of remedies and adopt remedies, then the court should chosen contract exception a fraud-in-the-inducement-like to the elec- doctrine, like the tion of remedies Kaloti2 fraud-in-the- exception inducement to the economic loss doctrine.3 majority opinion ¶ 49. Because the holds that the apply election of remedies doctrine does not to the present case, no discussion of a fraud-in-the- exception inducement-like to the election of remedies is needed. majority opinion ignores
¶ 50. Because the the arguments needlessly parties' applica- and reaches the tion of the present the economic loss doctrine to the facts of join majority opinion's
case, I do not discus- sion of the economic loss doctrine. (Lehtinens1) Defendant's-Appellants' Response Brief and
Appendix at 26.
Enters.,
Co.,
Kellogg
Kaloti
Inc. v.
Sales
2005 WI
2d
283 Wis.
¶ ('Wickenhausers Brief Reply of Wickenhausers at 13-14 acknowledged involving that cases the economic loss doctrine goods. arise from a contract for the did occur sale That not However, principle [of inducement] here. fraud in the is what important: misrepresentation is when another deliberate induces risks, into a false of the or transaction with a sense duties involved, obligations party pursue so induced is able to damages.").
I I argument by Furthermore, 51. without briefs or parties any analysis, majority without opinion extends economic loss doctrine to the present beyond any case case this court has decided. premise underlying major- An unstated ity opinion's discussion of the economic loss doctrine is applies present that the economic loss doctrine to the applies case, is, it to a noncommercial real estate party misrep- transaction which a claims intentional party resentation and in which at least one was not sophisticated represented not was counsel dur- ing negotiations. majority opinion cites no case supporting premise. its unstated
¶ 53. This court has not decided the eco- whether nomic loss doctrine all real covers estate transactions. history
¶ 54. A short
of the economic loss doctrine
point.
demonstrates the
The economic loss doctrine is a
judicially
theory,
that,
created doctrine
in
seeks to
preserve the distinction
contract law and tort
between
warranty,
law because "contract
and the
law
law of
particular,
dealing
is better suited than tort
for
law
with
purely economic loss in the commercial arena."4
prior
cases,
55.
In
court has
broadened
addressing "damages
economic loss doctrine from
sulting
re-
inadequate
product
from
value because the
is
general purposes
inferior and does not work for the
for
which it was manufactured and sold" in a commercial
addressing
damages
transaction5 to
those
in a con-
4
Inc.,
Janssen,
Daanen &
v.
Cedarapids,
Inc.
216
2d
Wis.
(1998).
395, 404,
5 (internal omitted) (remote Id. at 400-01 quotation marks Miller, purchaser); Sunnyslope Grading, Inc. v. commercial circumstances, sumer transaction as well.6 these negligent liability misrepresenta- claims of and strict tions barred loss doctrine.7 were economic Equities ¶ 56. In Mose v. Tedco Ltd. Road - Potter (Ct. Partnership, App. 848, 2dWis. 598 N.W.2d594 1999), appeals applied the court of the economic loss to a real doctrine commercial estate transaction involv ing buyer land that both the seller and knew was provided clean-up contaminated. The contract of the appeals simply contamination. The court of stated that any forego application it not did "discern reason to simply 'product' the economic loss doctrine because the is real at estate." Id. 859. Armstrong, App ¶70, 57. Kailin v. 27, 2002 WI
252 Wis. 2d 643 N.W.2d also involved a com complaint alleged mercial real estate transaction. The intentionally defendants had failed to disclose history delinquency that one of the tenants had a payments rent and was default at the time closing. single citing only offer and the In a sentence appeals case, the Mose the court of stated that "applies economic loss doctrine when real estate is the subject Id., ¶ of the contract." Although appeals
¶ 58.
the court of
seemed to be
way
on its
to extend the economic loss
all
doctrine to
Inc.,
Risberg,
&
¶ to the 59. Mose and Kailin cases as addressing applies the economic loss doctrine whether in contracts, to commercial real estate this court Van Lare refused to decide whether the economic loss doc- applies Specifically, trine all real estate transactions. the Van Lare court announced that "we do not decide today conceptualization
whether the broader of the economic loss doctrine Tietsworth covers all real Lare, estate transactions . . .." Van 274 Wis. 2d 21. ¶ applied
¶ 60. The Lare court the economic Van only loss doctrine to commercial estate real transac negotiated length sophisti tions at arms' between two parties represented during negotia cated counsel a bargained-for process that tion resulted a written complainant alleged liability contract, when the strict misrepresentation. The Van Lare court concluded that applying loss economic doctrine such case policies justify furthers the the doctrine's exist Lare, 24. ence. Van open Thus, the Van Lare court left question of the extension of the economic loss doctrine in real estate transactions to noncommercial transac- misrepresentation, tions, to claims of intentional negotiat- unsophisticated parties transactions between ing counsel, without and to transactions with an oral agreement not-fully-bargained-for agree- or with ment.8 cited, comment, the court The Van Lare court but without suggesting memorandum that "strict appeals certification *29 Lare, 62. After Van this court in a adopted,
¶ case, a fraud-in-the-inducement product to exception the economic loss doctrine when intentional misrepre- is alleged.9 sentation of the fraud-in- applicability exception inducement a real estate case was not decided. 63. The next of interest case is Linden v. Cascade
¶
Co., Inc.,
113, 283
606,
Stone
2005 WI
Wis. 2d
699 N.W.2d
189,
by
cited
at
42 n.15. At issue
majority opinion
¶
in Linden was the applicability of the economic loss
doctrine to a contract
to construct
a residence.10 A
house,
contract
for the construction of a
a
or
dwelling,
any other architectural
structure is significantly —and
liability misrepresentation may
apply in
well
situations where
parties
equal bargaining positions
pur-
are not in
or the
may
chaser
be in the
position
not
best
to assess the risk of
assumptions upon
economic loss—two
which
economic loss
Lare,
631,
doctrine rests."
2d
Van
Wis.
9Kaloti,
555,
2d
adoption
283 Wis.
29. The
of this rule
disagreement by
followed discussion and
the court in whether
exception
recognized
such an
should be
in Digicorp, Inc. v.
54,
Corp.,
652,
Ameritech
2003 WI
662 N.W.2d
Inc.,
Harley-Davidson,
and Tietsworth v.
2004 WI
2dWis.
property exception" applies economic loss doctrine to bar negligence against provided claim a subcontractor who services the construction of a house. legally purchase from a contract real —different (whether existing estate it be land or land with struc- *30 tures). Recognizing distinction, this the Linden court applicability examined the of the economic loss doctrine to a contract for the construction of a house as a (or goods products) services, contract for and and not as a contract for a real estate transaction. deciding
¶ 64.
whether the economic loss doc-
applied
trine
to the
house,
contract for construction of a
"[s]ome
the Linden court described how
contracts en-
compass
products
pre-
both
and services. We use the
purpose
dominant
test to determine whether a mixed
products
predominantly
contract for
and services is
product
subject
of a
sale
and therefore
economic
predominantly
loss
or
doctrine,
a contract for services
subject
and therefore not
to the
loss
economic
doc-
(citations
Linden,
¶
606,
trine . . . ."
ted).
omit-
¶ 65. The Linden court concluded "that under the
totality
predominant purpose
circumstances,
product,
house,
the contract was for
a new
rather
Linden,
¶
606,
than one for services."
2dWis.
25.
announced,
The Linden court also
"We conclude that
general
one
when
contracts with a
contractor to build a
general
house and the
contractor subcontracts with
provide
general
services,
others to
various
contract
controls whether the
loss doctrine is
economic
available
present case,
as a
... In the
defense.
we conclude that
general
contract between the Lindens and Grove-
primarily
product.
Id., ¶
land was
for a
..."
32.
Co., Inc.,
Linden v. Cascade Stone
4,
2005 WI
plaintiffs
"faulty
2d
claimed
Wis.
Linden, applies
¶ 67. Linden to a contract, construction involving goods services, contract not to a contract phrase for a real estate transaction as the "real estate Mose, Kailin, Lare, transaction" is used in Van and the present case. parties
¶ 68. Without briefs from the on the issue of whether the economic loss doctrine should be ex- beyond type tended Van Lare to the of real estate transaction at issue in the instant case or the claim of misrepresentation, majority opinion intentional applicable holds that the economic loss doctrine is present noncommercial real estate in- transaction Tollard, The Linden court examined Van Sistine v. (Ct. 1980), 2d App. Wis. 291 N.W.2d636 applied which predominant purpose windows, test to a contract to install install siding, reposition appliances, perform stucco finishing. volving unsophisticated party negotiating at least one fully bargained- without counsel and written, without a majority's expansion for contract. The of the economic beyond present loss doctrine Van Lare to the case is unsupported and unwarranted. Irrespective
¶ 69. of the fraud-in-the-inducement exception major- to the economic loss doctrine that the ity opinion applies, I conclude that the Wickenhausers misrepresentation. have a claim for intentional Wiscon- recognized intentionally sin law has that one who inducing deceives another with intent and effect of reliance other's detriment will be liable tort. separately. 70. For the forth, reason set I write
¶ 71. I am authorized to state that Justices ANN join WALSH BRADLEY BUTLER, and LOUIS B. JR. opinion. this