TJ Prop, LLC v. Mueller, et al., 2022AP514 (Wis. Ct. App., Feb. 27, 2024)
TJ Prop, LLC, entered into separate contracts with various subcontractors for the construction of a custom-built home. Ultimately, TJ Prop sued all but one of those entities, claiming, among other things, that they did not use the correct house wrap as required by the contracts and that this failure caused water to seep into the house and behind the walls over a period of several years. TJ Prop alleged negligence claims against Tim Mueller Mason Contractor, LLC (“Mueller”), Crivitz Lumber, LLC (“Crivitz”), and the Estate of Jeffry Zahorik (d/b/a Jeffry Z Construction) (“Jeffry Z”); breach of contract and warranty claims against Mueller and Jeffry Z; and misrepresentation and fraud claims against Crivitz.
Jeffry Z and Crivitz filed separate motions to dismiss arguing, among other defenses, that the economic loss doctrine barred TJ Prop’s negligence claims. Similarly, Mueller filed a motion for summary judgment, raising the same legal arguments as Jeffry Z and Crivitz. The circuit court granted all three defendants’ motions. The court determined that the economic loss doctrine barred all of TJ Prop’s tort claims and that the contract claims were time barred.
The Court of Appeals affirmed. The economic loss doctrine states that 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, Inc. v. Norco Windows, Inc., 2002 WI App 205, ¶9, 257 Wis. 2d 511, 651 N.W.2d 738. The doctrine “applies to only contracts for products, not to contracts for services.” Trinity Lutheran Church v. Dorschner Excavating, Inc., 2006 WI App 22, ¶22, 289 Wis. 2d 252, 710 N.W.2d 680. The parties argued opposing positions with respect to whether the contract to build the home was one for services or one for a product.
In determining that the contract was one for a product, the Court of Appeals applied the “predominant purpose test.” Citing the Wisconsin Supreme Court’s analysis used in Linden v. Cascade Stone Co., 2005 WI 113, ¶8, 283 Wis. 2d 606, 699 N.W.2d 189 (citations omitted) and Insurance Co. of N. Am. v. Cease Elec., Inc., 2004 WI 139, ¶52, 276 Wis. 2d 361, 688 N.W.2d 462, the Court of Appeals analyzed the contracts. The Court found the primary purposes of the contracts were for the construction of a custom-built home and noted that the contracts with Mueller and Jeffry Z were for a fixed price, and not broken down into services and materials. Thus, this case was ultimately more like Linden where the Court found that the subcontractors were providing labor for a fixed price, demonstrating that the parties bargained for costs based on the specifications of the house, not the amount of work put into completion of the project. The Court of Appeals affirmed the dismissal of Mueller and Jeffry Z based on the economic loss doctrine.
Author: Julie Piper-Kitchin
TJ Prop, LLC v. Mueller, et al., 2022AP514 (Wis. Ct. App., Feb. 27, 2024)
TJ Prop, LLC, entered into separate contracts with various subcontractors for the construction of a custom-built home. Ultimately, TJ Prop sued all but one of those entities, claiming, among other things, that they did not use the correct house wrap as required by the contracts and that this failure caused water to seep into the house and behind the walls over a period of several years. TJ Prop alleged negligence claims against Tim Mueller Mason Contractor, LLC (“Mueller”), Crivitz Lumber, LLC (“Crivitz”), and the Estate of Jeffry Zahorik (d/b/a Jeffry Z Construction) (“Jeffry Z”); breach of contract and warranty claims against Mueller and Jeffry Z; and misrepresentation and fraud claims against Crivitz.
Jeffry Z and Crivitz filed separate motions to dismiss arguing, among other defenses, that the economic loss doctrine barred TJ Prop’s negligence claims. Similarly, Mueller filed a motion for summary judgment, raising the same legal arguments as Jeffry Z and Crivitz. The circuit court granted all three defendants’ motions. The court determined that the economic loss doctrine barred all of TJ Prop’s tort claims and that the contract claims were time barred.
The Court of Appeals affirmed. The economic loss doctrine states that 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, Inc. v. Norco Windows, Inc., 2002 WI App 205, ¶9, 257 Wis. 2d 511, 651 N.W.2d 738. The doctrine “applies to only contracts for products, not to contracts for services.” Trinity Lutheran Church v. Dorschner Excavating, Inc., 2006 WI App 22, ¶22, 289 Wis. 2d 252, 710 N.W.2d 680. The parties argued opposing positions with respect to whether the contract to build the home was one for services or one for a product.
In determining that the contract was one for a product, the Court of Appeals applied the “predominant purpose test.” Citing the Wisconsin Supreme Court’s analysis used in Linden v. Cascade Stone Co., 2005 WI 113, ¶8, 283 Wis. 2d 606, 699 N.W.2d 189 (citations omitted) and Insurance Co. of N. Am. v. Cease Elec., Inc., 2004 WI 139, ¶52, 276 Wis. 2d 361, 688 N.W.2d 462, the Court of Appeals analyzed the contracts. The Court found the primary purposes of the contracts were for the construction of a custom-built home and noted that the contracts with Mueller and Jeffry Z were for a fixed price, and not broken down into services and materials. Thus, this case was ultimately more like Linden where the Court found that the subcontractors were providing labor for a fixed price, demonstrating that the parties bargained for costs based on the specifications of the house, not the amount of work put into completion of the project. The Court of Appeals affirmed the dismissal of Mueller and Jeffry Z based on the economic loss doctrine.