District Court (Wis.) Says Tort Claims Deriving From Wrongful Repossession Claim Were Not Barred By Economic Loss Rule

In Burt v. Chase Auto Fin. Corp., No. 19-C-739, 2019 U.S. Dist. LEXIS 202056 (E.D. Wis. Nov. 21, 2019), Judge Griesbach permitted tort claims arising out of an allegedly wrongful repossession of a vehicle to proceed despite the economic loss rule.

Chase asserts that the court should dismiss Burt’s invasion of privacy, trespass to land and chattel, and conversion claims because they are barred by Wisconsin’s economic loss doctrine. The economic loss doctrine is a “judicially-created doctrine that seeks to preserve the distinction between contract and tort.” Ins. Co. of N. Am. v. Cease Elec., Inc., 2004 WI 39, ¶ 15, 276 Wis. 2d 361, 688 N.W.2d 462 (citation omitted). While the doctrine is classically applied to cases where a plaintiff seeks to recover damages suffered when a product does not perform as promised, “Wisconsin courts have further defined the parameters of the economic loss doctrine and referred to it more broadly as ‘precluding contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship.'” Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶ 27, 283 Wis. 2d 555, 699 N.W.2d 205 (alterations and citation omitted); see also Below v. Norton, 2007 WI App 9, ¶ 15, 297 Wis. 2d 781, 728 N.W.2d 156 (Wis. Ct. App. 2006) (noting that the economic loss doctrine “is intended to bar purely economic losses in situations when the relationship between the two parties involves a contract for a product”). The doctrine is “based on an understanding that contract law and the law of warranty, in particular, is better suited than tort law for dealing with purely economic loss in the commercial arena.” Tietsworth v. Harley-Davidson, Inc., 2004 WI 32, ¶ 26, 270 Wis. 2d 146, 677 N.W.2d 233 (citation omitted). The Wisconsin Supreme Court has recognized three policies underlying the doctrine:  “(1) to maintain the fundamental distinction between tort law and contract law; (2) to protect commercial parties’ freedom to allocate economic risk by contract; and (3) to encourage the party best situated to assess the risk [of] economic loss, the commercial purchaser, to assume, allocate, or insure against that risk.” Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403, 573 N.W.2d 842 (1998). Although Wisconsin’s economic loss doctrine has an extensive reach, see H.A. Friend & Co. v. Professional Stationary, Inc., 2006 WI App 141, ¶ 15, 294 Wis. 2d 754, 720 N.W.2d 96, the doctrine has not been extended to the circumstances presented here. Again, the economic loss doctrine seeks to protect parties’ freedom to allocate economic risk by contract and to encourage the party best situated to assess the risk to insure against that risk. Kaloti Enters., Inc., 283 Wis. 2d 555, ¶ 28. In this case, Burt claims Chase repossessed his vehicle even though he made timely monthly payments under the installment contract. The improper repossession and unauthorized taking of his vehicle is not the type of risk that Burt could have reasonably anticipated and addressed in the contract. According to Chase, Burt’s tort claims are simply restatements of his breach of contract claim. But they are not. Indeed, instead of using tort law to recover for breach of contract, it appears that Burt is dressing up his tort claims as a UCC violation and breach of contract. If the allegations of the complaint are true, it appears that Chase had no contractual right to repossess Burt’s car. But that does not mean Chase breached the contract or violated the UCC. It simply means it likely has no defense to his tort claims. In other words, if any claims should be dismissed, it is likely the UCC and breach of contract claims. Eventually, the inconsistent and confusing claims asserted in the FAC will have to be sorted out. But the argument that the tort claims are barred by the economic loss doctrine simply because Burt has asserted questionable contract claims finds no support in the law. See, e.g., Tyson v. Sterling Rental, Inc., 836 F.3d 571, 583 (6th Cir. 2016) (holding that “post-delivery repossession by a non-lien-holding seller is not the sort of risk typically anticipated by buyers in the ordinary course of bargaining for a commercial transaction. Thus, Plaintiff could not reasonably have been expected to bargain against the possibility that Defendants would repossess the vehicle without any legal authority, which is what occurred under Plaintiff’s version of disputed facts.”). In short, the nature of Burt’s claims and the facts alleged in the amended complaint fall outside the reach of the economic loss doctrine. Accordingly, the court will not dismiss Plaintiff’s invasion of privacy, trespass to land and chattel, and conversion claims under the economic loss doctrine.