Summary of a Recent
Judicial Development in
Commercial Transactions

Dairy Farmer's Tort Claim Not Under
"Economic Loss Doctrine"

Chuck Munson
National AgLaw Center Graduate Assistant

In Grams v. Milk Products, Inc., 699 N.W.2d 167 (Wis. 2005), the Supreme Court of Wisconsin held that a farmer's tort claim, which was based on disappointed performance expectations, did not fit within the "other property" exception to the economic loss doctrine.

The plaintiffs, a husband and wife farming team, specialized in purchasing calves shortly after birth and raising them for resale at a later date. Id. at 170. The young calves were fed a milk substitute (a "milk replacer") known as "Half-Time" manufactured by the defendant. Id. The milk replacer included medications specially designed to keep the calves healthy during this period when their immune systems were developing. Id. In November 2000, the plaintiffs asked a sales representative for Cargill about obtaining a less expensive milk replacer. Id. The representative from Cargill informed the plaintiffs that they could purchase Half-Time without medication at a lower price than Half-Time with medication, and the plaintiffs decided to begin using this non-medicated "Half-Time" in January 2001. Id. Soon thereafter, the plaintiffs noticed problems in their calves, including decreased weight gain, a general appearance of unhealthiness, and an increase in the mortality rate from an average of 9% to 34%. Id . Based on their belief that the non-medicated Half-Time was damaging the calves' immune systems and causing the poor growth of the calves and increased mortality rate, the plaintiffs filed suit against Cargill and Milk Products, Inc., alleging breach of implied warranty, strict liability tort, negligence, intentional misrepresentation, and strict responsibility misrepresentation. Id.

In its analysis, the court pointed out that under the economic loss doctrine, the commercial purchaser of a product may not recover from the manufacturer/seller under negligence or strict liability theories for solely economic losses arising from that product, especially when a warranty given by the manufacturer specifically precludes the recovery of such damages as in this case. Id. at 172. The economic loss doctrine differentiates economic loss damages, for which risk sharing is encouraged, from other losses like personal injury. Id. at 173. The "other property" exception to the economic loss doctrine differs widely amongst the states, and it has been repeatedly limited in scope and application in Wisconsin. Id. at 173. Under Wisconsin law, damage by a defective component of an integrated system to either the system as a whole or other system components is not damage to "other property," which would preclude the application of the economic loss doctrine. Id. at 174.

The plaintiffs argued that the "other property" exception in Wisconsin was an unworkable legal conundrum, and that the court should resolve the issue by adopting a "bright-line" rule. Id. at 178. The plaintiffs' suggested bright-line rule would have held that physical damage to anything other than the product itself, in this case the milk replacer, should be considered damage to "other property" and therefore subject to suit in tort. Id. The court declined to adopt the suggested rule, and pointed out that such a rule would reject inquiry into the scope of bargaining and replace it with an overly formalistic distinction based on the kind of property harmed. Id. at 178. The court further opined that such a distinction would case the erosion of the Uniform Commercial Code, and that the fundamental distinction between contract and tort would be lost. Id. at 178.

The court concluded that the plaintiffs did have a contractually rooted claim against Cargill, stating that contract law, rather than tort law, was the proper vehicle for resolving the dispute at hand. Id. at 180.

The case was decided on July 8, 2005; this summary was posted July 20, 2007.