Supreme Court of Wisconsin, Chris Hinrichs and Autovation Limited, v. The Dow Chemical Company d/b/a Dow Automotive, No. 2017AP2361

Contract Law

Torts

Economic Loss Doctrine

Fraud in the Inducement

Misrepresentation

Common Law

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Unfair Competition

Consumer Law

Commercial Purchaser

Wisconsin Law

All subsequent references to the Wisconsin statutes are to the 2015-16 version unless otherwise indicated.

Wisconsin Stat. § 100.18(1) provides:

No person, firm, corporation or association, or agent or employee thereof, with intent to sell, distribute, increase the consumption of or in any wise dispose of any real estate, merchandise, securities, employment, service, or anything offered by such person, firm, corporation or association, or agent or employee thereof, directly or indirectly, to the public for sale, hire, use or other distribution, or with intent to induce the public in any manner to enter into any contract or obligation relating to the purchase, sale, hire, use or lease of any real estate, merchandise, securities, employment or service, shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in this state, in a newspaper, magazine or other publication, or in the form of a book, notice, handbill, poster, bill, circular, pamphlet, letter, sign, placard, card, label, or over any radio or television station, or in any other way similar or dissimilar to the foregoing, an advertisement, announcement, statement or representation of any kind to the public relating to such purchase, sale, hire, use or lease of such real estate, merchandise, securities, service or employment or to the terms or conditions thereof, which advertisement, announcement, statement or representation contains any assertion, representation or statement of fact which is untrue, deceptive or misleading.

(This section is part of Wisconsin's Deceptive Trade Practices Act, the purpose of which is "to protect consumers from untrue, deceptive or misleading representations to promote the sale of a product." Bonn v. Haubrich, 123 Wis. 2d 168, 173, 366 N.W.2d 503 (Ct. App. 1985). It is also intended "to deter sellers from making false and misleading representations in order to protect the public." Novell v. Migliaccio, 2008 WI 44, ¶30, 309 Wis. 2d 132, 749 N.W.2d 544).

Hinrichs developed a product called JeeTops, which he manufactures and installs through his company, Autovation Limited. He obtained a patent for the JeeTops in 2010.

JeeTops are acrylic skylights installed aftermarket in the roofs of Jeep Wrangler vehicles equipped with a certain type of hardtop. The complaint describes the JeeTops as giving "front- seat passengers unparalleled views of the outdoors" and rear-seat passengers "unprecedented panoramic views." After installation, "the cumulative effect is to give the Wrangler's occupants the sensation of directly experiencing the environment through which they are driving."

Installation of JeeTops is accomplished using an adhesive manufactured by Dow. The adhesive performs a dual role, attaching the JeeTops to the existing Jeep and maintaining a watertight seal.

(…) Hinrichs relayed to Dow that customers were experiencing cracks in their JeeTops panels.

In examining Hinrichs' common law claims, we conclude that the "fraud in the inducement" exception to the economic loss doctrine does not apply to allow Hinrichs' common law claims to go forward because the alleged misrepresentation is related to the quality and characteristics of the product in question and is thus not extraneous to the contract. We further conclude that the "other property" exception to the economic loss doctrine does not apply to allow Hinrichs' common law claims to go forward because the JeeTops and adhesive are components of an integrated system.

The economic loss doctrine is a judicially created doctrine with three primary purposes. Van Lare v. Vogt, Inc., 2004 WI 110, ¶17, 274 Wis. 2d 631, 683 N.W.2d 46 (citing Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403, 573 N.W.2d 842 (1998)). First, the doctrine exists to "maintain the fundamental distinction between tort law and contract law . . . ." Id. Second, it protects "commercial parties' freedom to allocate economic risk by contract . . . ." Id. Third, the doctrine encourages "the party best situated to assess the risk of economic loss, the commercial purchaser, to assume, allocate, or insure against that risk." Id. The doctrine has been part of our jurisprudence since it was first adopted by this court in Sunnyslope Grading, Inc. v. Miller, Bradford and Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989).

We have described the economic loss doctrine as holding that "a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories . . . ." Van Lare, 274 Wis. 2d 631, ¶18. "Economic loss" in the context of the doctrine is defined as "the loss in a product's value which occurs because the product is 'inferior in quality and does not work for the general purposes for which it was manufactured and sold.'" Insurance Co. of N. Am., 276 Wis. 2d 361, ¶23 (quoting Wausau Tile, Inc. v. Cty. Concrete Corp., 226 Wis. 2d 235, 246, 593 N.W.2d 445 (1999)). Both direct and consequential economic loss are encompassed within this definition. Daanen & Janssen, Inc., 216 Wis. 2d at 401.

The upshot of the economic loss doctrine is that it "requires transacting parties in Wisconsin to pursue only their contractual remedies when asserting an economic loss claim, in order to preserve the distinction between contract and tort." Ins. Co. of N. Am., 276 Wis. 2d 361, ¶24 (quoting Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶34, 262 Wis. 2d 32, 662 N.W.2d 652).

It "precludes parties under certain circumstances from eschewing the more limited contract remedies and seeking tort remedies." Id.

We have recognized several exceptions to the economic loss doctrine, two of which are at issue here. See John J. Laubmeier, Demystifying Wisconsin's Economic Loss Doctrine, 2005 Wis. L. Rev. 225, 228 (2005). First, we address the "fraud in the inducement" exception. Subsequently, we turn to the "other property" exception.

This court has recognized "a narrow fraud in the inducement exception" to the economic loss doctrine. Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶42, 283 Wis. 2d 555, 699 N.W.2d 205. We have emphasized the limited nature of this exception. See id.

Fraud in the inducement presents a special situation where parties to a contract appear to negotiate freely— —which normally would constitute grounds for invoking the economic loss doctrine——but where in fact the ability of one party to negotiate fair terms and make an informed decision is undermined by the other party's fraudulent behavior.

Huron Tool and Eng'g Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541, 545 (Mich. Ct. App. 1995).

Pursuant to this exception, "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." Kaloti Enters., 283 Wis. 2d 555, ¶42 (citations and internal quotation omitted). To invoke the "fraud in the inducement" exception, a plaintiff must demonstrate three elements: (1) that the defendant engaged in an intentional misrepresentation; (2) that the misrepresentation occurred before the contract was formed; and (3) that the alleged misrepresentation was extraneous to the contract. Id. Stating the third element differently, the misrepresentation must "concern 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." Id.

A misrepresentation relates to the quality or characteristics of the goods sold if it is expressly dealt with in the contract's terms. Id., ¶43. If not addressed explicitly in the contract, a misrepresentation is still related to the quality or characteristics of the goods sold, precluding the application of the "fraud in the inducement" exception, if the misrepresentation informs the reasonable expectations of the parties to the risk of loss in the event the goods purchased did not meet the purchaser's expectations. Id.

Hinrichs urges us to apply the "fraud in the inducement" exception here to preclude application of the economic loss doctrine. He contends that his prior purchases of adhesive from Dow do not preclude a claim where a subsequent purchase is induced by a misrepresentation.

We disagree with Hinrichs. His argument ignores a fatal shortcoming: that the alleged misrepresentation regarding the effectiveness of Dow's adhesive is related to the quality and characteristics of the product in question and is thus not extraneous to the contract. As the court of appeals correctly stated, "whether the Dow adhesive was properly functioning on the acrylic used in JeeTops directly relates to its quality and characteristics——in particular its ability to maintain a water- tight seal, which was one of its main functions." Hinrichs, No. 2017AP2361, unpublished slip op., ¶14. Hinrichs therefore cannot fulfill the third necessary element for application of the "fraud in the inducement" exception.

Therefore, we conclude that the "fraud in the inducement" exception to the economic loss doctrine does not apply to allow Hinrichs' common law misrepresentation claims to go forward because the alleged misrepresentation is related to the quality and characteristics of the product in question and is thus not extraneous to the contract.

We turn now to the "other property" exception to the economic loss doctrine. Pursuant to this exception, the economic loss doctrine "does not bar a commercial purchaser's claims based on personal injury or damage to property other than the product, or economic loss claims that are alleged in combination with noneconomic losses." Daanen & Janssen, Inc., 216 Wis. 2d at 402; Grams v. Milk Products, Inc., 2005 WI 112, ¶24, 283 Wis. 2d 511, 699 N.W.2d 167. In other words, the economic loss doctrine bars "the recovery of purely economic losses in consumer transactions through tort remedies where the only damage is to the product purchased by the consumer." State Farm Fire and Cas. Co. v. Hague Quality Water, Int'l, 2013 WI App 10, ¶6, 345 Wis. 2d 741, 826 N.W.2d 412 (citing State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 341, 348, 592 N.W.2d 201 (1999)).

To determine whether the "other property" exception applies, we apply a two part test. Id. First, we consider whether the defective product and the damaged property are part of an "integrated system." Id., ¶7. If the product and damaged property are part of such a system, then any damage to that property is considered to be damage to the product itself. Id. That is, "once a part becomes integrated into a completed product or system, the entire product or system ceases to be 'other property' for purposes of the economic loss doctrine." Selzer v. Brunsell Bros., Ltd., 2002 WI App 232, ¶38, 257 Wis. 2d 809, 652 N.W.2d 806.

If the damaged property and the defective product are not part of an integrated system, we then apply the second part of the "other property" test——the "disappointed expectations" test. State Farm Fire and Cas. Co., 345 Wis. 2d 741, ¶7. In doing so, we focus on the product's expected function and whether the purchaser should have foreseen that the product could cause the damage at issue. Id. When claimed damages are merely the result of disappointed expectations of a product's performance, the exception will not apply and the economic loss doctrine will bar recovery in tort. Grams, 283 Wis. 2d 511, ¶3.

The court of appeals here concluded that the JeeTops and the adhesive were components of an integrated system. Hinrichs, No. 2017AP2361, unpublished slip op., ¶15. It reasoned that "they became components of an integrated system once the adhesive was applied to bond the JeeTops to the motor vehicle. At that point, they were integral parts of a greater whole and did not serve an independent purpose." Id. Accordingly, the court of appeals concluded that the "other property" exception did not apply. Id.

We agree with the court of appeals that the JeeTops and the adhesive formed an integrated system.

Wis. 2d 235, provides a useful analogy. In that case, Wausau Tile purchased cement from Medusa Corporation for use in manufacturing concrete paving blocks. Id. at 241. Wausau Tile claimed that the concrete it received from Medusa was defective and brought claims against Medusa sounding in both contract and tort. Id. at 242.

This court determined that the economic loss doctrine barred Wausau Tile's tort claims. Id. at 241. Rejecting Wausau Tile's argument that the "other property" exception applies, this court reasoned that "the pavers were integrated systems comprised of several component materials, including Medusa's cement." Id. at 251. "Various substances incorporated into finished products constitute integral components of those products." Id.

Similarly here, when the adhesive joins a JeeTops to the body of a Jeep, it creates an integrated system. An adhesive does not function on its own——its basic purpose is to integrate two parts by adhering them together. Like the court of appeals did, we see no relevant difference between the products here and others that courts have determined to be components of an integrated system, such as the cement in a concrete paving block in Wausau Tile, a window in a house, a gear in a printing press, a generator connected to a turbine, and a drive system in a helicopter.

(…) Wisconsin Stat. § 100.18 created a new cause of action, providing "protection and remedies for false advertising that do not exist at common law." Kailin, 252 Wis. 2d 676, ¶42; see also K & S Tool & Die Corp. v. Perfection Mach. Sales, Inc., 2007 WI 70, ¶36, 301 Wis. 2d 109, 732 N.W.2d 792 (determining that "the legislature created a distinct cause of action" pursuant to § 100.18). As the Kailin court stated, the policies underlying the economic loss doctrine— —the allocation of risk and the distinction between tort and contract law——are irrelevant to the legislature's choice to provide a purely statutory cause of action and remedy by way of § 100.18. Kailin, 252 Wis. 2d 676, ¶42. A common law restriction like the economic loss doctrine therefore does not apply to Hinrichs' statutory claim.

Therefore, we conclude that the economic loss doctrine does not serve as a bar to claims made under Wis. Stat. § 100.18.

Following Automatic Merchandisers, Wisconsin courts have consistently applied the "particular relationship" test in determining whether a plaintiff is a member of "the public" for purposes of Wis. Stat. § 100.18(1). See, e.g., K & S Tool & Die Corp., 301 Wis. 2d 109, ¶27; Kailin, 252 Wis. 2d 676, ¶44. The test provides that "a plaintiff remains a member of 'the public' unless a particular relationship exists between him or her and the defendant." K & S Tool & Die Corp., 301 Wis. 2d 109, ¶27. Whether such a relationship exists is a question of fact that depends on the peculiar facts and circumstances of the case. Id., ¶¶27, 30 (citing Cawker v. Meyer, 147 Wis. 320, 326, 133 N.W. 157 (1911)).

(…) We reaffirm that one person can be "the public" for purposes of Wis. Stat. § 100.18(1) and decline Dow's invitation to overrule Automatic Merchandisers.

(…) Whether Hinrichs and Dow were in a "particular relationship" so as to remove Hinrichs from the realm of "the public" pursuant to Wis. Stat. § 100.18(1) remains an open question to be determined by the circuit court after further discovery.

Secondary sources: John S. Greene, Navigating Wisconsin's Consumer Protection System, 90 Wis. Law. 22, 24 (Sept. 2017); see also James D. Jeffries, Protection for Consumers Against Unfair and Deceptive Business Practices in Wisconsin, 57 Marq. L. Rev. 559, 595-605 (1974); Mark R. Hinkston, Protecting Consumers in the Modern Age: Wisconsin's Deceptive Trade Practices Act, 81 Wis. Law. 14, 16 (Oct. 2008).

(Supreme Court of Wisconsin, January 9, 2020, Chris Hinrichs and Autovation Limited, v. The Dow Chemical Company d/b/a Dow Automotive, No. 2017AP2361, Review of Decision of the Court of Appeals, Reported at 386 Wis. 2d 351, 927 N.W.2d 156)

T.H. v. Novartis Pharmaceuticals Corporation, S233898

Misrepresentation (California law): Duty of care: Warning: Product warning: Failure to warn: Strict liability: Negligence: Sophisticated user & intermediary defenses: Tort:

Under our state’s law, there is no per se requirement in negligent misrepresentation actions that the misrepresentation be made by the product

manufacturer. Consider Hanberry v. Hearst Corp. (1969) 276 Cal.App.2d 680, where the plaintiff alleged that defective shoes caused her injuries. (Id. at p. 682.) The Court of Appeal allowed the negligent misrepresentation claims to go forward against a nonmanufacturer — the publisher of Good Housekeeping magazine, which had given the shoes its renowned seal of approval. (Id. at p. 683.) This seal appeared not only in the pages of its own magazine, but was used by the shoe manufacturer in its advertising as well as on the product and its packaging. (Ibid.) The court acknowledged that the defendant publisher was neither the seller nor the manufacturer of the shoes, but nonetheless recognized a duty of care because of the allegations that the publisher “held itself out as a disinterested third party which had examined the shoes, found them satisfactory, and gave its endorsement”; and the plaintiff reasonably relied on the endorsement and “purchased the shoes because of it.” (Id. at pp. 686, 683.) As to the plaintiff’s claim under strict liability, however, the court affirmed the trial court’s dismissal — declining to extend strict liability “to a general endorser who makes no representation it has examined or tested each item marketed.” (Id. at p. 688; see also Conte, 168 Cal.App.4th at pp. 101-102 [similarly distinguishing between strict liability and negligent misrepresentation theories].)

Novartis suggests that we recently conflated strict liability and negligence in Webb v. Special Electric Co., Inc. (2016) 63 Cal.4th 167 when we observed that "there is little functional difference between the two theories in the failure to warn context." (Id. at p. 187.) Not so. Webb’s observation was merely that the sophisticated user and sophisticated intermediary defenses applied to both theories of liability. (Ibid.) We did not categorically alter our longstanding recognition that “California law recognizes the differences between negligence and strict liability causes of action.” (Johnson v. American Standard , Inc. (2008) 43 Cal. 4th 56, 71; see Saller v. Crown Cork & Seal Co., Inc. (2010) 187 Cal.App.4th 1220, 1239 ["Negligence and strict products liability are separate and distinct bases for liability that do not automatically collapse into each other because the plaintiff might allege both when a product warning contributes to her injury"].)

We likewise discount decisions from those jurisdictions that differ from California by categorically excluding from liability certain defendants (see, e.g., Huck v. Wyeth, Inc., 850 N.W.2d at p. 371 (plur. opn. of Waterman, J.) [“the tort of negligent misrepresentation does not apply to sellers of products but rather is limited to those in the business or profession of supplying information for the guidance of others”]) or certain injuries (see, e.g., Flynn v. American Home Products Corp. (Minn.Ct.App. 2001) 627 N.W.2d 342, 351 [“the Minnesota Supreme Court has recognized negligent misrepresentation involving damages only for pecuniary loss, and has expressly declined to recognize the tort of negligent misrepresentation involving the risk of physical harm”]) from the tort of negligent misrepresentation. And we find unhelpful the views of those jurisdictions that (federal courts predict) will recharacterize under their product liability act or similar rule all claims against a product manufacturer, no matter the theory, as product liability actions, which can be asserted only against the manufacturer of the product. (See, e.g., Germain, 756 F.3d at pp. 941-954 [construing the laws of Arkansas, Connecticut, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Mississippi, Nebraska, New York, North Carolina, Ohio, Texas, Washington, and West Virginia]; Phelps v. Wyeth, Inc. (D.Or. 2012) 857 F.Supp.2d 1114, 1121 [Oregon law]; Stanley v. Wyeth, Inc. (La.Ct.App. 2008) 991 So.2d 31, 33-34 [noting the “numerous cases where the negligent misrepresentation claims were . . . preempted by . . . a state’s enactment of products liability law”].)

We find that brand-name drug manufacturers have a duty to use ordinary care in warning about the safety risks of their drugs, regardless of whether the injured party (in reliance on the brand-name manufacturer’s warning) was dispensed the brand-name or generic version of the drug. We also conclude that a brand-name manufacturer’s sale of the rights to a drug does not, as a matter of law, terminate its liability for injuries foreseeably and proximately caused by deficiencies present in the warning label prior to the sale.

(Cal. S.C., Dec. 21, 2017, T.H. v. Novartis Pharmaceuticals Corporation, S233898).

Responsabilité civile et contractuelle (droit californien), déclaration inexacte ("misrepresentation") :

En droit californien, une action en dommages-intérêts fondée sur une déclaration inexacte peut être déposée contre d'autres défendeurs que le seul fabricant du produit. Par exemple, dans une procédure où le demandeur soutenait que des chaussures lui avaient causé un préjudice corporel, la cour a accepté comme défendeur un magazine très connu qui avait fait l'éloge de ces chaussures dans l'un de ses articles. La cour a reconnu que le magazine n'était ni le fabricant ni le vendeur des chaussures, mais qu'il était tout de même tenu par un devoir de diligence du fait qu'il s'était présenté comme une tierce partie désintéressée qui avait examiné les chaussures, les avait jugées satisfaisantes, et en avait fait ainsi la promotion. En outre, le demandeur s'était raisonnablement fié à dite promotion, et, du fait de celle-ci, avait acheté les chaussures. Une telle action reste une action en responsabilité pour faute, et non une action en responsabilité causale : le magazine n'a pas suggéré qu'il avait examiné ou testé chacune des chaussures mises sur le marché.

La responsabilité pour faute ("negligence") doit toujours être distinguée des cas de responsabilité objective ("strict liability"), même si un demandeur qui agit en responsabilité du fait des produits invoque ces deux notions juridiques.

La Cour rejette par ailleurs la jurisprudence d'autres états qui exclut catégoriquement la responsabilité pour déclaration inexacte de certains défendeurs (est citée comme exemple une décision d'un autre état qui exclut le vendeur des défendeurs possibles dans le cadre d'une action en responsabilité pour faute du fait d'une déclaration inexacte, et qui ne retient comme défendeurs possibles que ceux dont le métier en lui-même consiste à donner des informations) ou qui limites dite responsabilité à certains types de dommages (par exemple la jurisprudence de certains autres états qui limite au dommage matériel la responsabilité pour déclaration inexacte, et la prohibe s'agissant du préjudice corporel).

Dans la présente espèce, la Cour juge que le fabricant d'un produit pharmaceutique doit aviser des risques de ses produits. Il peut être recherché à cet égard en responsabilité même par un demandeur à qui le générique a été prescrit. Ce devoir d'avis des risques se prolonge même si le fabricant cède ses droits sur le produit.

Universal Health Services, Inc. v. United States ex rel. Escobar, Docket 15-7

Misrepresentation: Common law: Tort: Securities: In tort law, for exam­ple, “if the defendant does speak, he must disclose enough to prevent his words from being misleading.” W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts §106, p. 738 (5th ed. 1984). Contract law also embraces this principle. See, e.g., Restate­ment (Second) of Contracts §161, Comment a, p. 432 (1979). And we have used this definition in other statutory contexts. See, e.g., Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 44 (2011) (securities law).

A classic example of an actionable half-truth in contract law is the seller who reveals that there may be two new roads near a property he is selling, but fails to disclose that a third potential road might bisect the property. See Junius Constr. Co. v. Cohen, 257 N. Y. 393, 400, 178 N. E. 672, 674 (1931) (Cardozo, J.). “The enumeration of two streets, described as unopened but projected, was a tacit represen­tation that the land to be conveyed was subject to no others, and certainly subject to no others materially affect­ing the value of the purchase.” Ibid. Likewise, an appli­cant for an adjunct position at a local college makes an actionable misrepresentation when his resume lists prior jobs and then retirement, but fails to disclose that his “retirement” was a prison stint for perpetrating a $12 million bank fraud. See D. Dobbs, P. Hayden, & H. Bublick, Law of Torts §682, pp. 702–703, and n. 14 (2d ed.2011) (citing Sarvis v. Vermont State Colleges, 172 Vt. 76, 78, 80–82, 772 A. 2d 494, 496, 497–499 (2001)).

(…) Materiality “looks to the effect on the likely or actual behavior of the recipient of the alleged misrepre­sentation.” R. Lord, Williston on Contracts §69:12, p. 549 (4th ed. 2003) (Williston). In tort law, for instance, a “matter is material” in only two circumstances: (1) “if a reasonable man would attach importance to it in deter­mining his choice of action in the transaction”; or (2) if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter “in determining his choice of action,” even though a reasonable person would not. Restatement (Second) of Torts §538, at 80. Materiality in contract law is substan­tially similar. See Restatement (Second) of contracts §162(2), and Comment c, pp. 439, 441 (1979) (“A misrep­resentation is material” only if it would “likely . . . induce a reasonable person to manifest his assent,” or the defend­ant “knows that for some special reason the representa­tion is likely to induce the particular recipient to manifest his assent” to the transaction). Accord, Williston §69:12, pp. 549–550 (“most popular” understand­ing is “that a misrepresentation is material if it concerns a matter to which a reasonable person would attach importance in determining his or her choice of action with respect to the transaction involved: which will induce action by a complaining party, knowledge of which would have induced the recipient to act differently”); id., at 550 (noting rule that “a misrepresentation is material if, had it not been made, the party complaining of fraud would not have taken the action alleged to have been induced by the misrepresentation”); Junius Constr. Co. v. Cohen, 257 N. Y. 393, 400, 178 N. E. 672, 674 (1931) (a misrepresentation is material if it “went to the very essence of the bargain”); cf. Neder v. United States, 527 U. S. 1, 16, 22, n. 5 (1999) (relying on “ ‘natural tendency to influence’ ” standard and citing Restatement (Second) of Torts §538 definition of materiality).

Materiality, in addition, cannot be found where noncompliance is minor or insubstantial. See United States ex rel. Marcus v. Hess, 317 U. S. 537, 543 (1943) (contractors’ misrepresentation that they satisfied a non-collusive bidding requirement for federal program contracts violated the False Claims Act because “the government’s money would never have been placed in the joint fund for payment to respondents had its agents known the bids were collusive”); see also Junius Constr., 257 N. Y., at 400, 178 N. E., at 674 (an undisclosed fact was material because “no one can say with reason that the plaintiff would have signed this contract if informed of the likelihood” of the undisclosed fact).

Secondary sources: W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts §106, p. 738 (5th ed. 1984); Restate­ment (Second) of Contracts §161, Comment a, p. 432 (1979); D. Dobbs, P. Hayden, & H. Bublick, Law of Torts §682, pp. 702–703, and n. 14 (2d ed.2011); R. Lord, Williston on Contracts §69:12, p. 549 (4th ed. 2003).

(U.S.S.C., June 16, 2016, Universal Health Services, Inc. v. United States ex rel. Escobar, Docket 15-7, J. Thomas, unanimous).

Induire en erreur, en responsabilité extracontractuelle ou contractuelle : en droit de la responsabilité civile, si l’adverse partie s’est exprimée, elle doit en avoir dit suffisamment pour éviter d’induire en erreur. Le droit des contrats connaît le même principe (Restate­ment (Second) of Contracts §161, Comment a, p. 432 (1979)), que la Cour a repris dans d’autres contextes statutaires (p. ex. en droit des Securities).

Un exemple classique d’une demi-vérité actionnable en droit des contrats est la déclaration du vendeur qui informe son acheteur que deux routes pourraient bien dans le futur être construites à proximité de l’immeuble en vente, mais qui omet d’informer qu’une troisième route pourrait être construite, cette dernière partageant la propriété en deux. En effet, la mention des deux routes constitue une représentation tacite qu’aucune autre route n’est projetée, et certainement qu’aucune autre route affectant la valeur de la propriété n’est projetée (cf. Junius Constr. Co. v. Cohen, 257 N. Y. 393, 400, 178 N. E. 672, 674 (1931) (Cardozo, J.)). De même, celui qui postule à une offre d’emploi comme professeur assistant induit en erreur, et peut être actionné à ce titre, si son CV donne la liste de ses emplois antérieurs, la liste comprenant par ailleurs une période de retraite, sans mentionner que cette retraite correspond à une période d’incarcération pour avoir commis une fraude bancaire portant sur 12 millions de dollars.

(…) La condition de matérialité s’intéresse au comportement soit effectif soit vraisemblable de celui qui est – est-il allégué – induit en erreur (R. Lord, Williston on Contracts §69:12, p. 549). En droit des « Torts », une matière est « matérielle » dans seulement deux circonstances : (1) si un homme raisonnable attache de l’importance à dite matière pour déterminer son action dans le cadre de la transaction, ou (2) si le défendeur savait ou avait des raisons de savoir que celui recevant les informations attachait de l’importance à dite matière dans la détermination de son action, même si une personne raisonnable n’y attacherait pas d’importance (cf. Restatement (Second) of Torts §538, at 80). La notion de matérialité est substantiellement similaire en droit des contrats : selon le Restatement (Second) of contracts §162(2), and Comment c, pp. 439, 441 (1979), le fait d’induire en erreur est matériel seulement s’il est de nature à vraisemblablement induire en erreur une personne raisonnable, l’incitant ainsi à manifester sa volonté, ou seulement si le défendeur savait que pour certaines raisons, la représentation induirait vraisemblablement celui qui l’a reçue à conclure la transaction. Un fait qui induit en erreur est matériel s’il porte sur l’essence même de la transaction.

Omnicare, Inc. v. Laborers Dist. Council Constr. Industry Pension Fund, Docket 13-435

Securities: issuance: disclosure requirements: the Securities Act of 1933 requires that a company wishing to issue securities must first file a registration statement containing specified information about the issuing company and the securities offered. See 15 U. S. C. §§77g, 77aa. The registration statement may also in­clude other representations of fact or opinion. To protect investors and promote compliance with these disclosure requirements, §11 of the Act creates two ways to hold issuers liable for a registration statement’s contents: a purchaser of securities may sue an issuer if the registration statement either “contains an untrue statement of a material fact” or “omits to state a material fact . . . necessary to make the statements therein not misleading.” §77k(a). In either case, the buyer need not prove that the issuer acted with any intent to deceive or defraud. Herman & MacLean v. Huddleston, 459 U. S. 375, 381–382. Petitioner Omnicare, a pharmacy services company, filed a regis­tration statement in connection with a public offering of common stock. In addition to the required disclosures, the registration state­ment contained two statements expressing the company’s opinion that it was in compliance with federal and state laws. After the Fed­eral Government filed suit against Omnicare for allegedly receiving kickbacks from pharmaceutical manufacturers, respondents, pension funds that purchased Omnicare stock (hereinafter Funds), sued Om­nicare under §11. They claimed that Omnicare’s legal-compliance statements constituted “untrue statements of . . . material fact” and that Omnicare “omitted to state material facts necessary” to make those statements not misleading. The District Court granted Omnicare’s motion to dismiss. Because the Funds had not alleged that Omnicare’s officers knew they were violating the law, the court found that the Funds had failed to state a §11 claim. The Sixth Circuit reversed. Acknowledging that the statements at issue expressed opinions, the court held that no show­ing of subjective disbelief was required. In the court’s view, the Funds’ allegations that Omnicare’s legal-compliance opinions were objectively false sufficed to support their claim.

Held:

A statement of opinion does not constitute an “untrue statement of . . . fact” simply because the stated opinion ultimately proves incor­rect. The Sixth Circuit’s contrary holding wrongly conflates facts and opinions. A statement of fact expresses certainty about a thing, whereas a statement of opinion conveys only an uncertain view as to that thing. Section 11 incorporates that distinction in its first clause by exposing issuers to liability only for “untrue statements of . . . fact.” §77k(a). Because a statement of opinion ad­mits the possibility of error, such a statement remains true—and thus is not an “untrue statement of . . . fact”—even if the opinion turns out to have been wrong.

But opinion statements are not wholly immune from liability under §11’s first clause. Every such statement explicitly affirms one fact: that the speaker actually holds the stated belief. A statement of opinion thus qualifies as an “untrue statement of . . . fact” if that fact is untrue—i.e., if the opinion expressed was not sincerely held. In addition, opinion statements can give rise to false-statement liability under §11 if they contain embedded statements of untrue facts. Here, however, Omnicare’s sincerity is not contested and the state­ments at issue are pure opinion statements. The Funds thus cannot establish liability under §11’s first clause.

If a registration statement omits material facts about the issu­er’s inquiry into, or knowledge concerning, a statement of opinion, and if those facts conflict with what a reasonable investor, reading the statement fairly and in context, would take from the statement itself, then §11’s omissions clause creates liability.

For purposes of §11’s omissions clause, whether a statement is “misleading” is an objective inquiry that depends on a reasonable investor’s perspective. Cf. TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 445. Omnicare goes too far by claiming that no reasonable person, in any context, can understand a statement of opinion to con­vey anything more than the speaker’s own mindset. A reasonable in­vestor may, depending on the circumstances, understand an opinion statement to convey facts about the speaker’s basis for holding that view. Specifically, an issuer’s statement of opinion may fairly imply facts about the inquiry the issuer conducted or the knowledge it had. And if the real facts are otherwise, but not provided, the opinion statement will mislead by omission.

An opinion statement, however, is not misleading simply because the issuer knows, but fails to disclose, some fact cutting the other way. A reasonable investor does not expect that every fact known to an issuer supports its opinion statement. Moreover, whether an omission makes an expression of opinion misleading always depends on context. Reasonable investors understand opinion statements in light of the surrounding text, and §11 creates liability only for the omission of material facts that cannot be squared with a fair reading of the registration statement as a whole. Omnicare’s arguments to the contrary are unavailing.

These principles are not unique to §11: they inhere, too, in much common law respecting the tort of misrepresenta­tion. Section 11 is, of course, “not coextensive with common-law doctrines of fraud”; in particular, it establishes “a stringent standard of liability,” not dependent on proof of intent to defraud. Herman & MacLean v. Huddleston, 459 U. S. 375, 381, 388–389 (1983). But we may still look to the common law for its insights into how a reasonable person understands statements of opinion. The Restatement of Torts, for example, recognizes that “a statement of opinion as to facts not disclosed and not otherwise known to the recipient may” in some cir­cumstances reasonably “be interpreted by him as an im­plied statement” that the speaker “knows facts sufficient to justify him in forming” the opinion, or that he at least knows no facts “incompatible with the opinion.” Re­statement (Second) of Torts §539, p. 85 (1976). The Restatement of Contracts, discussing misrepresentations that can void an agreement, says much the same: “The recipient of an assertion of a person’s opinion as to facts not disclosed” may sometimes “properly interpret it as an assertion (a) that the facts known to that person are not incompatible with his opinion, or (b) that he knows facts sufficient to justify him in forming it.” Restatement (Second) of Con­tracts §168, p. 455 (1979). When that is so, the Restatement explains, liability may result from omission of facts—for example, the fact that the speaker failed to conduct any investigation—that rebut the recipient’s predictable inference. Similarly, the leading trea­tise in the area explains that “it has been recognized very often that the expression of an opinion may carry with it an implied assertion, not only that the speaker knows no facts which would preclude such an opinion, but that he does know facts which justify it.” Prosser and Keeton §109, at 760. That is especially (and traditionally) the case, the treatise continues, where—as in a registration statement—a speaker “holds himself out or is understood as having special knowledge of the matter which is not available to the plaintiff.” Id., at 760–761; see Restatement (Second) of Torts §539, Comment b, at 86 (noting that omissions relating to an opinion’s basis are “particularly” likely to give rise to liability when the speaker has “special knowledge of facts unknown to the recipient”); Smith v. Land and House Property Corp.,[1884] 28 Ch. D. 7, 15 (App. Cas.) (appeal taken from Eng.) (opinion of Bowen, L. J.) (When “the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best . . . impliedly states that the speaker knows facts which justify his opinion”). And the purpose of §11 supports this understanding of how the omissions clause maps onto opinion statements. Congress adopted §11 to ensure that issuers “tell the whole truth” to investors. H. R. Rep. No. 85, 73d Cong.,1st Sess., 2 (1933) (quoting President Roosevelt’s message to Congress).

Because neither court below considered the Funds’ omissions theory under the right standard, this case is remanded for a determi­nation of whether the Funds have stated a viable omissions claim. On remand, the court must review the Funds’ complaint to determine whether it adequately alleges that Omnicare omitted from the regis­tration statement some specific fact that would have been material to a reasonable investor. If so, the court must decide whether the al­leged omission rendered Omnicare’s opinion statements misleading in context.

Books: Webster’s New International Dictionary 782 (1927); 7 Oxford English Dictionary 151 (1933); W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on the Law of Torts §109, p. 755 (5th ed. 1984).

(U.S.S.Ct., Omnicare, Inc. v. Laborers Dist. Council Constr. Industry Pension Fund, Docket 13-435, March 24, 2015, J. Kagan).

Emission de papiers-valeurs, obligations de divulgation à charge de l’émetteur : le Securities Act de 1933 exige d’une entreprise qui entend émettre des titres de déposer préalablement de manière formelle une déclaration contenant des informations portant sur l’entreprise émettrice et portant sur les papiers-valeurs à offrir sur le marché. La déclaration peut également contenir d’autres représentations de faits ou des opinions. Pour protéger les investisseurs et promouvoir le respect des obligations de divulgations, la Section 11 de la loi précitée de 1933 met en place deux voies permettant d’engager la responsabilité de l’émetteur s’agissant du contenu de la déclaration telle qu’enregistrée. Un acheteur de papiers-valeurs peut actionner un émetteur si la déclaration enregistrée soit contient une fausse déclaration portant sur un fait matériel, soit omet de déclarer un fait matériel, la description conforme à la vérité de ces faits matériels étant nécessaire pour éviter que la déclaration ne soit trompeuse. Dans les deux cas, l’acheteur n’a pas besoin de prouver que l’émetteur avait agi avec une intention de tromper ou de frauder. Dans la présente affaire, une compagnie de services pharmaceutiques, O., dépose une déclaration d’enregistrement en relation avec une offre publique de papiers-valeurs. En plus des déclarations exigées par la loi, la déclaration d’enregistrement contient deux avis exprimant l’opinion de l’entreprise selon laquelle ses activités seraient de manière générale en conformité avec le droit fédéral et avec le droit des états. Après que le Gouvernement fédéral ait déposé une action contre dite compagnie pour avoir prétendument reçu des pots-de-vin de fabricants de produits pharmaceutiques, des fonds de pension qui avaient acheté des papiers-valeurs de dite compagnie ont actionné cette dernière sous l’angle de la Section 11 de la loi. Les fonds de pension ont fait valoir que les déclarations de la compagnie portant sur son respect du droit fédéral et étatique constituaient des déclarations inexactes portant sur des faits matériels, et que la compagnie avait omis de déclarer des faits nécessaires à ce que l’ensemble de la déclaration enregistrée ne soit pas trompeuse. La cour de district fédérale accepta de ne pas entrer en matière et jugea ainsi en faveur de la compagnie O. Du fait que les fonds de pension n’avaient pas allégué que les responsables de la compagnie savaient qu’ils portaient atteinte à la loi, la cour constata que les exigences de recevabilité de l’action des fonds de pension n’étaient pas satisfaits sous l’angle de la Section 11. Le Sixième Circuit fédéral renversa cette décision. Reconnaissant que les déclarations litigieuses exprimaient des opinions, le Sixième Circuit jugea qu’aucune intention de tromper n’avait à être alléguée. Selon la cour, les allégations des fonds selon lesquelles les déclarations de la compagnie O. portant sur son respect du droit fédéral et étatique étaient objectivement fausses suffisaient à accorder la recevabilité de l’action des fonds de pension.

La Cour Suprême fédérale juge qu’une déclaration d’opinions ne constitue pas une déclaration inexacte portant sur un fait seulement parce que l’opinion émise se révèle ultimement incorrecte. L’opinion contraire du Sixième Circuit assimile à tort les faits et les opinions. Une déclaration de fait exprime une certitude au sujet d’une chose, tandis qu’une déclaration d’opinion n’exprime qu’une vue incertaine portant sur la chose. La Section 11 incorpore cette distinction dans sa première Clause en n’engageant la responsabilité de l’émetteur que pour de fausses déclarations portant sur des faits. Parce qu’une opinion implique la possibilité d’une erreur, une telle déclaration reste juridiquement vraie, et ne constitue ainsi pas une déclaration inexacte portant sur un fait, même si l’opinion se révèle finalement inexacte. Cependant une opinion n’est pas complètement immunisée de toute notion de responsabilité au sens de la première Clause de la Section 11. Toutes les opinions affirment explicitement un fait : le fait que l’auteur de l’opinion tient son opinion pour vraie. Une opinion sera ainsi qualifiée de déclaration de fait incorrecte si l’opinion n’a pas été sincèrement exprimée. Par ailleurs, une opinion peut donner lieu à responsabilité pour fausse déclaration d’un fait au sens de la Section 11 si dans l’opinion est incluse une déclaration de faits incorrects. En l’espèce, la sincérité des responsables de la compagnie émettrice n’est pas contestée et les déclarations litigieuses sont de pures opinions. Les fonds de pension échouent ainsi à établir une responsabilité sous l’angle de la première Clause de la section 11.

Si une déclaration d’enregistrement omet un fait matériel portant sur des investigations menées par l’émetteur concernant une déclaration d’opinion, ou si elle omet un fait matériel concernant la connaissance de l’émetteur d’une déclaration d’opinion, et si ces faits matériels se trouvent en conflit avec ce qu’un investisseur raisonnable, lisant la déclaration de bonne foi et dans son contexte, pourrait comprendre, alors la Clause d’omission de la Section 11 implique responsabilité.

Dans le cadre d’une analyse sous l’angle de la Clause d’omission de la Section 11, on applique un standard objectif qui dépend de la perspective d’un investisseur raisonnable pour déterminer si une déclaration est trompeuse. Un plaideur irait trop loin en soutenant qu’aucune personne raisonnable, quel que soit le contexte, ne peut comprendre une déclaration d’opinion comme contenant davantage que l’idée subjective du déclarant. Selon les circonstances, un investisseur raisonnable peut comprendre une déclaration d’opinion comme contenant des faits à la base de l’opinion du déclarant. Spécifiquement, une déclaration d’opinion d’un émetteur peut équitablement impliquer des faits concernant des investigations menées par dit émetteur, ou peut équitablement impliquer la connaissance que l’émetteur a de ces faits. Et si les faits réels sont autres, et qu’il ne sont pas divulgués, la déclaration d’opinion sera trompeuse par omission.

Cependant une déclaration d’opinion n’est pas trompeuse simplement parce que l’émetteur connaît, mais omet de divulguer, certains faits en porte-à-faux avec sa déclaration d’opinion. Un investisseur raisonnable ne s’attend pas à ce que chaque fait connu par un émetteur supporte sa déclaration d’intention. Par ailleurs, la question de savoir si une omission rend trompeuse l’expression d’une opinion dépend toujours du contexte. Un investisseur raisonnable comprend une déclaration d’opinion à la lumière du texte qui l’entoure, et la Section 11 ne crée une responsabilité que si l’omission porte sur un fait qui ne peut pas être compris par une lecture équitable de la déclaration d’enregistrement complète.

Ces principes ne sont pas applicables qu’à la Section 11. Ils apparaissent également dans le cadre de la Common law telle qu’elle s’applique à l’acte illicite de représentation erronée. La Section 11 n’est pourtant, et bien entendu, pas alignée exactement sur les doctrines de la Common law relatives au dol. En particulier, la Section 11 établit un strict standard de responsabilité qui ne dépend pas de la preuve de l’intention de tromper. Mais nous pouvons cependant nous référer à la Common law quand il s’agit de déterminer comment une personne raisonnable comprend une déclaration d’opinion. Par exemple, le Restatement of Torts reconnait qu’une déclaration d’opinion portant sur des faits non divulgués et par ailleurs non connus de celui qui écoute peut, dans certaines circonstances, raisonnablement être interprétée par l’auditeur comme une déclaration implicite du déclarant selon laquelle il connaît des faits qui suffisent à lui permettre son opinion, ou selon laquelle il ne connaît pas de faits incompatibles avec son opinion. Le Restatement of Contracts reconnaît les mêmes principes quand il décrit la représentation erronée qui peut rendre nul un accord : celui qui prend connaissance de l’expression de l’opinion d’une personne portant sur des faits non divulgués peut parfois adéquatement interpréter cette opinion comme constituant une assertion que les faits connus par le déclarant ne sont pas incompatibles avec son opinion, ou que le déclarant connaît des faits suffisants à justifier l’expression de l’opinion. Lorsqu’il en est ainsi, poursuit le Restatement, la responsabilité peut résulter de l’omission de la déclaration d’un fait, comme dans l’exemple où l’auteur de l’opinion n’a pas conduit d’investigation susceptible d’éviter que celui qui reçoit l’opinion n’en tire une inférence (fausse) qui était prévisible. Ces principes s’appliquent spécialement et traditionnellement lorsque l’auteur de l’opinion s’exprime dans le cadre d’une déclaration d’enregistrement ou dans un autre contexte où il est regardé comme une personne détenant une connaissance spéciale du domaine concerné, connaissance spéciale qui n’est pas à la disposition de celui qui s’estime lésé et qui agit en responsabilité. L’analyse téléologique de la Section 11 supporte les considérations qui précèdent : le Congrès a adopté la Section 11 pour s’assurer que les émetteurs « disent toute la vérité aux investisseurs » (selon le message délivré au Congrès par le Président Roosevelt).

La présente affaire est renvoyée à l’autorité inférieure du fait qu’aucune des deux instances précédentes n’a considéré la théorie de l’omission sous l’angle du standard correct. La cour inférieure devra déterminer si les fonds de pension ont adéquatement allégué que la compagnie émettrice avait omis, dans sa déclaration d’enregistrement, un ou plusieurs faits spécifiques susceptibles d’être qualifiés de matériels pour un investisseur raisonnable. Si tel est le cas, la cour doit décider si l’omission alléguée, dans son contexte, rend trompeuse la déclaration d’opinion de la compagnie émettrice.

Halliburton Co. v. Erica P. John Fund, Inc., Docket 13-317

Securities:  investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. In Basic Inc. v. Levinson, 485 U. S. 224, this Court held that investors could satisfy this reli­ance requirement by invoking a presumption that the price of stock traded in an efficient market reflects all public, material infor­mation—including material misrepresentations. The Court also held, however, that a defendant could rebut this presumption by showing that the alleged misrepresentation did not actually affect the stock price—that is, that it had no “price impact.” For the same reasons the Court declines to overrule Basic’s pre­sumption of reliance, it also declines to modify the prerequisites for invoking the presumption by requiring plaintiffs to prove “price im­pact” directly at the class certification stage. The Basic presumption incorporates two constituent presumptions: first, if a plaintiff shows that the defendant’s misrepresentation was public and material and that the stock traded in a generally efficient market, he is entitled to a presumption that the misrepresentation affected the stock price.

Second, if the plaintiff also shows that he purchased the stock at the market price during the relevant period, he is entitled to a further presumption that he purchased the stock in reliance on the defend­ant’s misrepresentation. Requiring plaintiffs to prove price impact directly would take away the first constituent presumption.

The Court agrees with Halliburton, however, that defendants must be afforded an opportunity to rebut the presumption of reliance before class certification with evidence of a lack of price impact. De­fendants may already introduce such evidence at the merits stage to rebut the Basic presumption, as well as at the class certification stage to counter a plaintiff’s showing of market efficiency. (…) The fact that a misrepresentation has price impact is “Basic’s fundamental premise.” It thus has everything to do with the issue of predominance at the class certification stage. That is why, if reliance is to be shown through the Basic presumption, the publicity and market efficiency prerequi­sites must be proved before class certification. Given that such indi­rect evidence of price impact will be before the court at the class certi­fication stage in any event, there is no reason to artificially limit the inquiry at that stage by excluding direct evidence of price impact (U.S.S.Ct., 23.06.2014, Halliburton Co. v. Erica P. John Fund, Inc., Docket 13-317, C.J. Roberts).

Valeurs boursières : fraude, perte : un investisseur ne peut récupérer son dommage que s’il prouve s’être fié à des indications trompeuses du défendeur pour prendre sa décision de vente ou d’achat. Dans sa jurisprudence Basic, la Cour a jugé que l’investisseur pouvait satisfaire à la condition de « s’être fié à » en invoquant la présomption que le prix des valeurs échangées dans le cadre d’un marché efficient reflète toutes informations matérielles publiques, y compris les informations trompeuses. La Cour a également jugé que le défendeur pouvait renverser cette présomption en démontrant que la tromperie alléguée n’avait pas affecté le prix des valeurs boursières, soit qu’elle n’avait pas eu d’impact sur le prix. L’investisseur n’a dès lors pas à prouver l’impact sur le prix lors de la phase de certification de la procédure de classe (class action). Le mécanisme des présomptions fonctionne ainsi dans ce type d’affaires : si un investisseur, demandeur à l’action, démontre que la tromperie du défendeur était publique et matérielle, et que la valeur boursière en cause s’échangeait sur un marché de manière générale efficient, dit investisseur se trouve au bénéfice d’une présomption que la tromperie a exercé un effet sur le prix de la transaction boursière. Ensuite, si le demandeur démontre qu’il a acheté la valeur boursière au prix du marché à l’époque de l’achat, il est au bénéfice d’une présomption supplémentaire selon laquelle il a acheté en se fiant à la tromperie. La Cour précise cependant que la défenderesse doit avoir l’opportunité de renverser la présomption de « s’être fié à » avant la certification de classe, à l’aide de la preuve de l’absence d’impact sur le prix. Dès lors, si le fait de « s’être fié à » est démontré par le biais de la présomption établie par la jurisprudence Basic, les prérequis de tromperie rendue publique et de marché efficient sont tous deux à prouver avant la certification de classe. Considérant ainsi le fait que la question de l’impact sur le prix sera devant la cour, de manière indirecte, au stade de la certification de classe, il n’existe aucune raison de limiter artificiellement l’administration des preuves, à ce stade de certification de classe, en excluant l’apport de la preuve directe d’un impact sur le prix.