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Kaloti Enters. v. Kellogg Sales Co. - 2005 WI 111, 283 Wis. 2d 555, 699 N.W.2d 205

Rule:

In an appeal of a dismissal for failure to state a claim, the appellate court accepts as true, for the purpose of review, the facts alleged in the amended complaint.

Facts:

Plaintiff Kaloti Enterprises, a food wholesaler, brought an action against defendant Kellogg Sales Company, a food manufacturer and its agent. Kaloti alleged that Kellogg had a duty to disclose a change in its marketing strategy that largely closed the markets on which Kellogg knew Kaloti relied to sell Kellogg's products. The circuit court dismissed the amended complaint for failure to state a claim. The Court of Appeals (Wisconsin) certified two questions.

The questions were: (1) whether a duty to disclose facts arose between sophisticated parties to a commercial transaction where they had an established practice of doing business and the facts were material to a change in that practice; and (2) whether the wholesaler's intentional misrepresentation claim was barred by the economic loss doctrine.

Issue:

Did a food wholesaler state a cause of action for intentional misrepresentation against a food manufacturer, which failed to disclose material facts to the wholesaler after having had an established practice of doing business together?

Answer:

Yes.

Conclusion:

Based solely on Kaloti's allegations, the Supreme Court of Wisconsin held that Kellogg and its agent had a duty of disclosure that they failed to satisfy, thereby providing a basis for Kaloti's intentional misrepresentation claim, and that under the circumstances, the intentional misrepresentation claim was not barred by the economic loss doctrine because the fraud was extraneous to, rather than interwoven with, the contract. The fact that Kellogg would have been selling directly to large stores in Kaloti's area of distribution was material, as Kaloti, as a secondary supplier, bought products from the manufacturer, Kellogg, in order to resell them to the same large stores and he would not have placed the disputed order if Kaloti had known that Kellogg was going to sell directly.

The judgment of the trial court dismissing Kaloti's amended complaint was reversed and the case was remanded for further proceedings.

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