Causation/reliance interplay dooms condo false advertising claim

Grain Exchange Condominium Ass’n, Inc. v. Burke, 341 Wis. 2d 489, 815 N.W.2d 406, 2012 WL 1351240 (Wis. App.), 2012 WI App 62

The Association and its members sued the developer of its building, the Milwaukee Grain Exchange, which the developer had converted into residential condos.  The Exchange was required to have its façade inspected, and inspection revealed that repairs were required.  The Association brought various claims against the defendants, most of which were dismissed.  A claim of false advertising based on the use of the phrase “newly renovated” survived for trial for one plaintiff, and the jury found in favor of defendants.  The Association appealed.

Under Wisconsin’s false advertising law, a plaintiff must show that (1) the defendant made a representation to the public with the intent to induce obligation; (2) the representation was untrue, deceptive, or misleading; and (3) the representation materially induced (caused) the plaintiff a pecuniary loss.  The Association alleged that defendants falsely advertised that “the building, or elements of the building” were “ ‘newly renovated,’ ‘new construction,’ and an ‘engineered masterpiece.’”  The trial court granted summary judgment on “engineered masterpiece” as puffery and “new construction” because the condos were plainly not being sold as new property.  The trial court found a factual issue on the falsity of “newly renovated,” though only one owner presented evidence that she saw this statement and thus was allowed to go to trial. 

On appeal, the Association argued that “new construction” should have been actionable, but the court of appeals disagreed: as a matter of law, the term didn’t materially induce the plaintiffs to buy because any reliance would not be reasonable.  Reasonable reliance is not a separate element, but a factor to consider in determining causation.  When a plaintiff’s belief is unreasonable, her reliance may also be unreasonable, and a court may determine that a representation didn’t materially induce her decision and that she would have acted in the absence of the representation.  The undisputed facts showed that the Grain Exchange building was advertised as an historic building and that the buyers were aware that the building was old, not new.  Thus, it would have been unreasonable to rely on “new construction” and this representation didn’t materially induce the plaintiffs to act.

As to “newly renovated,” the Association argued that reliance wasn’t a required element.  But only one plaintiff presented any evidence that she saw this ad claim before buying.  If a plaintiff didn’t see the claim, it couldn’t have caused her a pecuniary loss.  Reasonable reliance isn’t required, but some reliance is.

The court also affirmed the dismissal of other claims, including contract-based claims barred by the economic loss doctrine and warranty claims.