Tietsworth v. Harley-Davidson, Inc.
677 N.W.2d 233, 2004 WI 32, 270 Wis. 2d 146 (2004)
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Rule of Law:
Under the economic loss doctrine, a tort claim for purely economic damages like diminished value is not cognizable when a product defect has not yet caused personal injury or damage to other property. Additionally, a claim under Wisconsin's Deceptive Trade Practices Act cannot be based on a seller's mere nondisclosure of a defect or on advertising statements that constitute subjective puffery.
Facts:
- Harley-Davidson manufactured and sold 1999 and early-2000 model year motorcycles equipped with Twin Cam 88 (TC-88) engines.
- In its marketing materials, Harley-Davidson described the TC-88 engine as a 'masterpiece,' of 'premium' quality, and 'filled to the brim with torque.'
- Steven C. Tietsworth and the other plaintiffs purchased these motorcycles.
- The TC-88 engines were later found to have an alleged defect in the rear cam bearing mechanism, which created a 'propensity' for premature engine failure.
- The motorcycles owned by the plaintiffs who initiated the lawsuit had not actually suffered any engine failure or malfunctioned in any way.
- On January 22, 2001, Harley-Davidson sent a letter to owners informing them that 'a small number' of cam bearings had failed.
- In the letter, Harley-Davidson extended the warranty on the cam bearing from one year to five years or 50,000 miles.
- Harley-Davidson also developed and sold a $495 'cam bearing repair kit' through its dealers.
Procedural Posture:
- Steven C. Tietsworth and other owners filed a proposed class action lawsuit against Harley-Davidson, Inc. in the Milwaukee County Circuit Court, the state's trial court.
- The complaint alleged claims including common-law fraud and violation of Wisconsin's Deceptive Trade Practices Act (DTPA).
- Harley-Davidson filed a motion to dismiss the entire complaint for failure to state a claim upon which relief could be granted.
- The circuit court granted Harley-Davidson's motion and dismissed the case in its entirety.
- The plaintiffs (as appellants) appealed the dismissal of their fraud and DTPA claims to the Wisconsin Court of Appeals, an intermediate appellate court.
- The court of appeals reversed the circuit court's decision, reinstating both the fraud and DTPA claims.
- Harley-Davidson (as petitioner) appealed the court of appeals' decision to the Supreme Court of Wisconsin.
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Issue:
Do allegations of purely economic loss, such as diminished resale value, resulting from an undisclosed product defect that has not yet manifested, state a valid claim for common-law fraud or for a violation of Wisconsin's Deceptive Trade Practices Act?
Opinions:
Majority - Diane S. Sykes, J.
No. Allegations of purely economic loss from an unmanifested product defect do not state a valid claim for common-law fraud or a violation of Wisconsin's Deceptive Trade Practices Act. For the fraud claim, the alleged injury of 'diminished value' due to a mere 'propensity' for future failure is too speculative and uncertain to constitute a legally cognizable injury, which requires actual damage that has occurred or is reasonably certain to occur. Furthermore, the economic loss doctrine bars this tort claim because it seeks recovery for purely economic losses arising from a product's failure to meet expectations, a harm that contract and warranty law are designed to address. The doctrine maintains the distinction between tort and contract law by requiring parties to a sale to use their contractual remedies. For the statutory claim, Wisconsin’s Deceptive Trade Practices Act (DTPA) prohibits 'untrue, deceptive or misleading' assertions or statements of fact. A mere nondisclosure or omission is not an 'assertion, representation or statement of fact' and is therefore not actionable under the statute. The affirmative statements made by Harley—that the engine was a 'masterpiece' and of 'premium quality'—constitute classic, non-actionable puffery, which are subjective exaggerations that cannot be proven true or false.
Dissenting - Shirley S. Abrahamson, C.J.
Yes. The plaintiffs' allegations are sufficient to state a claim for both common-law fraud and a violation of the DTPA, and the case should not be dismissed. The majority expands the economic loss doctrine too far by applying it to a consumer fraud claim. There should be a 'fraud in the inducement' exception to the doctrine because a seller should not be shielded from liability for intentional misrepresentations that trick a consumer into a contract. The purposes of the economic loss rule are not served by protecting a party who commits fraud. Regarding the DTPA claim, the majority's distinction between an affirmative statement and a nondisclosure is artificial. An omission that makes other statements misleading should be actionable under the DTPA's broad remedial purpose of protecting consumers. Furthermore, Harley-Davidson's statements about its 'six-year process' to create a 'masterpiece' should not be dismissed as mere puffery; taken in context, they are representations of quality and reliability that a reasonable consumer would rely upon, and whether they are misleading is a question for a jury, not for a court on a motion to dismiss.
Analysis:
This decision significantly strengthens the economic loss doctrine in Wisconsin by applying it to bar intentional tort claims, like fraud, in the context of consumer product sales where the only damage is economic. It establishes that 'no-injury' product defect claims, based on a potential future failure and alleged diminished value, cannot be brought as tort actions. The ruling also narrows the scope of the state's Deceptive Trade Practices Act by confirming that mere silence or nondisclosure is not actionable and by affirming a broad interpretation of non-actionable advertising 'puffery,' making it more difficult for consumers to sue based on omissions or highly laudatory, subjective marketing claims.
