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Kaloti Enterprises7/8/2005
ods that [were] the subject matter of the contract." Id., . Therefore, we concluded that the Tietsworth case did not present an opportunity for us to determine whether we would recognize a Huron Tool-type exception. Id.
In the present case, we again face the question of whether we will recognize a fraud in the inducement exception to the economic loss doctrine. Kellogg and Geraci submit that we should not adopt an exception, including a Huron Tool-type exception. They argue that an exception would undermine the ability of parties to a transaction, and especially parties to a commercial transaction, to allocate and protect against risk as they see fit. They argue further that an exception would inject the unpredictability and uncertainty of tort law into such transactions. Accordingly, Geraci asserts, "Allowing a commercial entity to use tort law to obtain rights that its contract did not give it would effectively allow it to rewrite its agreement retroactively and recoup unbargained-for benefits."
We disagree and adopt a narrow fraud in the inducement exception, akin to that established in Huron Tool and carefully explained by the lead opinion in Digicorp. Accordingly, we hold that a fraud in the inducement claim is not barred by the economic loss doctrine "where the fraud is extraneous to, rather than interwoven with, the contract." See Digicorp, 262 Wis. 2d 32, ; Huron Tool, 532 N.W.2d at 545. To invoke this narrow fraud in the inducement exception where, as here, the failure of a party to a business transaction to disclose a fact serves as the basis for a fraudulent inducement to contract claim, a plaintiff must show that: (1) there was an intentional misrepresentation, the five elements of which are set out above; (2) the misrepresentation occurred before the contract was formed, see Digicorp, 262 Wis. 2d 32, ; and (3) "the fraud extraneous to, rather than interwoven with, the contract." See id., . Or stated another way, the fraud concerns matters whose risk and responsibility did not relate to the quality or the characteristics of the goods for which the parties contracted or otherwise involved performance of the contract. See id.; Huron Tool, 532 N.W.2d at 545; see also Raytheon, 979 F. Supp. at 872 (quoting a Florida appellate court's argument that the relevant inquiry is "'the relationship between the inducing representation and the essential requirements, expressed or implied, of the contract agreed to by the parties'").
To further explain, misrepresentations that concern "the quality or character of the goods sold," Huron Tool, 532 N.W.2d at 545, are either: (1) expressly dealt with in the contract's terms, or (2) if they are not dealt with explicitly in the contract's terms, they go to reasonable expectations of the parties to the risk of loss in the event the goods purchased did not meet the purchaser's expectations, see Digicorp, 262 Wis. 2d 32, ; see also Huron Tool, 532 N.W.2d at 545 (explaining that "misrepresentations [that] relate to the breaching party's performance of the contract" are interwoven with the contract and "do not give rise to an independent cause of action in tort").
Applying this standard to the present case, we have already established above, for the purpose of this review, that Kaloti has stated a claim for intentional misrepresentation. The only disputed aspect of that claim, whether Kellogg and Geraci had a duty to disclose, was sufficiently alleged in Kaloti's amended complaint. Therefore, the first element is established. The second element is also established because the misrepresentation that Kaloti alleges, that Kellogg and Geraci did not inform Kaloti of a change in Kellogg's mode of marketing that closed Kaloti's
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