Statutory fraud claim valid

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A pre-existing relationship between a buyer and seller does not preclude application of the false advertising statute, sec. 100.18, the Wisconsin Supreme Court held on June 12.

K&S Tool & Die Corp. creates metal parts and dies. Production stamping is one process K&S uses to create metal parts. The process uses a punch press and a die to stamp pieces of steel into metal parts.

In 2000, Thomas Klusken, the owner of K&S, sought a press with a 1000-ton pressing force for a particular job.

Kluksen contacted Perfection Machinery Sales, Inc., a company in the business of selling used industrial machinery to commercial clients, which had previously sent K&S brochures and catalogs.

Perfection did not have a 1,000-ton press in its inventory, but agreed to search for one, later informing Klusken that they had found two in Michigan.

K&S hired a third company to inspect the presses, both of which were dismantled. The inspector recommended one as the better press, and K&S told Perfection it wanted to purchase that press. Perfection bought and then sold that press to K&S.

However, the press was actually only an 800-ton press, and required three hits, rather than one, to make the part for which it had been purchased.

K&S brought suit against Perfection, asserting a number of claims, including a claim for false advertising under sec. 100.18. At trial, the jury found in favor of K&S, and found damages of $306,000. Perfection appealed, but the court of appeals affirmed, in a published decision, K&S Tool & Die Corp. v. Perfection Machinery Sales, Inc., 2006 WI App 148, 295 Wis.2d 298, 720 N.W.2d 507.

The Supreme Court granted review, but also affirmed, in a unanimous decision by Justice Jon P. Wilcox.

The court first held that the trial court did not err in refusing to rule, as a matter of law, that K&S is not a member of the public, but instead, submitting that issue to the jury.

The court drew an analogy to Cawker v. Meyer, 147 Wis. 320, 133 N.W. 157 (1911), in which the court declined to define the meaning of the phrase “public utility.” As in Cawker, the court held the issue was for the jury.

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The court wrote, “Based on the existing interpretations of ‘the public,’ a plaintiff remains a member of ‘the public’ unless a particular relationship exists between him or her and the defendant. The existence of a particular relationship ‘will depend upon its own peculiar facts and circumstances and must be tested by the statute in the light of such facts and circumstances.’”

Perfection maintained that a “particular relationship” existed, based on the fact that K&S had previously purchased machinery from it, and that K&S and Perfection entered into an agreement for Perfection to find K&S a suitable press.

However, the one prior sale between the two had occurred in 1996. The court concluded that a jury could reasonably conclude that this was insufficient to constitute a “particular relationship.”

The court also held that the jury could reasonably find that the false advertising caused K&S pecuniary loss, noting that, in a case of statutory fraud, reasonable reliance is not an element.

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David Ziemer can be reached by email.