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Vol. 73, No. 6, June 2000 |
'99 Significant
Court Decisions
Other significant decisions
Annual Survey covers 1999 legal
developments
In his annual feature, the author highlights what he believes
are significant 1999 Wisconsin Supreme Court and Court of Appeals
decisions.
by Daniel W. Hildebrand
Torts
In State Farm Mut. Ins. Co. v. Ford Motor Co.1
the Wisconsin Supreme Court held that the economic loss doctrine
applied to consumer transactions. The consumer purchased a used
Ford Bronco truck "as is" from a Ford dealership and
purchased an extended service warranty. After the warranty expired,
the consumer approached his parked vehicle to find that a fire
had occurred even though it was still locked and the windows
were rolled up. His insurer, State Farm, determined that the
fire was caused by a defective ignition switch and paid the consumer
$11,600, which it determined to be the fair market value of the
vehicle.
Several
months later, the consumer received a recall notice from Ford
indicating that a short circuit in the ignition switch of Bronco
trucks could cause overheating, smoke and, possibly, fire. State
Farm then initiated a subrogation action against Ford to recover
the money it had paid to its insured. Ford raised the economic
loss doctrine as an affirmative defense, asserting that the doctrine
bars State Farm's tort claims of negligence and strict liability.
The court held that the damage to the vehicle constituted
"economic loss" in that no property other than the
vehicle was damaged and no personal injuries occurred. Economic
loss is the diminution in the value of the product because of
its inferior quality or because it does not work for the purposes
for which it was manufactured and sold. Such economic losses
associated with a defective product that does not meet a purchaser's
expectations must be addressed through the law of contracts and
warranties and not through tort law. Policy justifications supporting
the application of the economic loss doctrine are that it maintains
the historical distinction between tort and contract law, protects
parties' freedom to allocate economic risk by contract,
and encourages the party best situated to assess the risk of
economic loss, enabling the purchaser in this case to assume,
allocate, or insure against that risk.
Under contract law, recovery is limited to the parties to
the contract. Products liability law was designed to govern the
problem of physical injuries resulting from a defective product;
it was not designed to undermine contract law or warranty provisions.
If a plaintiff could recover tort damages for purely economic
loss, the manufacturer would be liable even though it did not
agree that the product would perform as plaintiff wished or expected
it to do. Society's interest in tort law in protecting purchasers
from physical injury does not justify requiring the consuming
public to pay more for products so that a manufacturer can insure
against the possibility that some of the products will not meet
the expectations of some of its customers.
The policy of maintaining the distinction between tort and
contract law applies to consumer transactions. In this case,
the consumer purchased the truck "as is" and also purchased
an extended warranty which had expired. If the consumer or his
insurer were allowed to recover tort damages for purely economic
loss, the contract would be rendered meaningless. Ford would
be liable even though it did not agree that the Bronco would
perform as the consumer expected and even though the warranty
had expired.
Chief Justice Abrahamson and Justice Bradley dissented. They
emphasized that the economic loss doctrine should not preclude
a strict liability claim when the parties are of unequal bargaining
power, the product is a necessity, no alternative source for
the product is readily available, and the purchaser cannot reasonably
insure against consequential damages. They argued that the consumer
in this case should be able to proceed to trial under the doctrine
of strict product liability for the injury to the defective product
itself. The allegation was that this allegedly defective product
posed an unreasonable risk of harm to person and property. Strict
liability is grounded on policies of safety and risk spreading
to advance on the theory that manufacturers will use greater
care if they are liable for defective products. Safety concerns
are not reduced when the injury is only to the product itself.2
Attorney Fees
In Jandrt v. Jerome Foods Inc.3
the supreme court upheld a substantial award in attorney fees
and costs against a law firm that brought a class action alleging
a toxic tort. The complaint alleged, upon information and belief,
that plaintiffs' birth defects were caused by the exposure
of their mothers during pregnancy to certain chemicals present
and used at defendant's turkey processing plant where the
mothers worked. The causation allegation was made upon information
and belief because, among other things, the law firm was advised
by a consultant that it would need discovery from the defendant
concerning the specific chemicals used and the levels of exposure
before conclusively determining causation.
The firm filed the action within one week of a significant
change in Wisconsin's law of joint and several liability
that potentially would have a significant impact upon plaintiffs'
recovery should their lawsuit be successful. Nine months after
the action was filed, the law firm offered to voluntarily dismiss
the action. The firm and its clients concluded that the causal
connection between the chemicals used at the plant and the plaintiffs'
birth defects could only be demonstrated through epidemiological
studies and chose not to commence such an undertaking. Defendant
then filed a motion seeking sanctions. The trial court held that
the commencement and continuation of the action was frivolous
because the firm failed to make a reasonable inquiry into the
facts underlying the allegation of causation prior to and following
filing. The trial court awarded defendant a total of $716,000
in attorney fees and costs.
After reviewing the evidence, the supreme court concluded
that the law firm did not file a frivolous action. Giving the
firm the benefit of the doubt, the court determined that the
action was not commenced frivolously in light of the pending
need to file an order to avoid application of the new statute
changing the joint and several liability rules. However, the
court concluded that the action was frivolously continued.
In signing a pleading, motion, or other paper, the signing
attorney warrants that it was not interposed for any improper
purpose, that to the best of his or her knowledge the paper is
well grounded in fact, and that the signer has conducted a reasonable
inquiry and that the papers warranted by existing law or a good
faith argument for a change in it. The analysis must be made
from the perspective of the attorney and with a view of the circumstances
that existed when the paper was signed.
The element of causation within the plaintiffs' negligence
claims required factual support. Attorneys do not have the unfettered
right to rely either on the investigation of a referring attorney
or on client statements for the factual basis of a claim. Here,
the information from the referring attorney was skeletal and
insufficient to support a claim. The client's statement
that her doctor had attributed cause to the chemicals, while
objectively reasonable, should have prompted the firm to contact
the doctor prior to filing to determine whether he did opine
as to the causation of the birth defects.
Finally, the court rejected the firm's argument that
the circuit court erred by, in effect, requiring that an expert
opinion be retained prior to filing. The circuit court thoroughly
explained its decision as one requiring expert opinion precisely
because the firm had no other objective evidence of causation.
The law firm never engaged in comprehensively reviewing the medical
records, identifying the risk factors present in the mothers,
and obtaining any evaluation through consultation with medical
and scientific efforts of the scientific invalidity of an associate's
elimination analysis. The firm could have made document requests
under OSHA. As such, the "safe harbor" does not relieve
an attorney from establishing the factual basis for a claim when
that basis could be established by means other than discovery.
The essential element of plaintiffs' allegation requiring
a factual basis was causation.
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