Malicious Injury Case Analysis

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Perhaps the most important thing to keep in mind regarding this case is that it concerns dismissal, rather than summary judgment. To proceed to trial, the plaintiff will have to present evidence; at this stage of the proceedings, allegations alone are sufficient.

In light of the decision, a well-pleaded sec. 134.01 claim will never be barred by the economic loss doctrine, although only one of the three reasons that the court gave is necessary to support the court’s holding — that a sec. 134.01 claim does not depend on the existence of a contract.

The other two reasons — that the allegations and damages are different in a sec. 134.01 claim and a breach of contract claim — are specious, because those reasons are present whenever a party to a contract pursues any tort claim.

Suppose a plaintiff is claiming fraud in the inducement, for which Wisconsin law recognizes a limited exception to the doctrine. The allegation — fraud — is not an element of a breach of contract claim, and the damages will always exceed those available in contract. Thus, those two factors will always be present, even when the doctrine does bar a tort claim.

So, the real crux of the court’s analysis is that a sec. 134.01 claim, alleging malicious injury to business, can be asserted, whether a contract exists or not. In contrast, a contract is a prerequisite to a fraud in the inducement to contract claim.

It is also important to note that, although the decision affirms the court of appeals’ decision, it does so on a different basis.

The court wrote, “our conclusion is not based on a malevolent action exception to the economic loss doctrine. While we agree with the court of appeals that the economic loss doctrine does not bar Brew City’s claims under sec. 134.01, we do not agree with its conclusion that a malevolent action exception to the economic loss doctrine is implicated. If such an exception were to exist, it would require a case in which the economic loss doctrine applies in the first instance. Rather, we determine that the economic loss doctrine does not apply in the case of an independent tort based on allegations distinct from any contract allegations, and which seeks separate, non-economic damages.”

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Had the “malevolent action” exception adopted by the court of appeals remained as a valid exception, it would have clouded the law. Effectively, such an exception would encompass all fraud in the inducement claims, even though Wisconsin recognizes only a limited exception for such claims. Kaloti Enters., Inc., v. Kellogg Sales Co., 2005 WI 111, 283 Wis.2d 555, 699 N.W.2d 205.

Finally, it is important to note that a plaintiff will always be able to name as a defendant, a member of an LLC, in a sec. 134.01 action.

In a footnote, the court set forth the text of sec. 183.0402(1)(b), which states that no member or manager of an LLC shall act in a manner that constitutes, “A violation of criminal law, unless the member or manager had reasonable cause to believe that the person’s conduct was lawful or no reasonable cause to believe that the conduct was unlawful.”

Because sec. 134.01 is a criminal statute, individual members can always be named as defendants in their individual capacity; well-pleaded allegations will necessarily be alleging criminal conduct, and that conduct is therefore, necessarily based on conduct that occurs “other than as a member or manager.”

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David Ziemer can be reached by email.