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Economic Loss Doctrine Applies Regardless of "Harsh Results"

The Wisconsin Court of Appeals recently confirmed in Shaw v. American State Equipment Co., Inc., that the economic loss doctrine applies even when its application produces what the court described as "harsh results."  The economic loss doctrine generally bars tort claims for purely monetary losses when the parties' relationship involves a contract for a product and the parties have contractual remedies available to them. 

Shaw, who ran a recycling business, bought a used machine from American State.  The circuit court determined that American State's agent intentionally lied to Shaw about the number of hours the machine had been used in order to induce Shaw to buy the equipment (the agent said 7,000 hours when American State's records showed more than 50,000 hours of use).  Even so, the Court of Appeals concluded that the economic loss doctrine barred Shaw's claim.  The economic loss doctrine applies to a fraud claim unless "the fraud concerns matters whose risk and responsibility did not relate to the quality or characteristics of the goods for which the parties contracted or otherwise involved performance of the contract."  Because American State's representation related to the quality and characteristics of the equipment and/or performance of the contract, Shaw's misrepresentation claim was barred.

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