## Facts

- Kaloti Enterprises, Inc., a Wisconsin food-products wholesaler, regularly purchased Kellogg products through Geraci & Associates, an independent broker for Kellogg.
- Under a consistent course of dealing, Geraci negotiated key transaction terms with Kaloti; Kellogg shipped product to Kaloti and used a billing intermediary.
- Kellogg knew Kaloti bought the products to resell as a secondary supplier to large grocery-store customers.
- After acquiring Keebler, Kellogg changed strategy and decided to sell directly to the same grocery stores to which Kaloti resold.
- Kellogg and Geraci entered a confidentiality agreement restricting Geraci from disclosing the new direct-sales strategy.
- In May 2001, Geraci solicited a large order from Kaloti without disclosing the strategy change; Kaloti purchased the goods.
- Kaloti’s grocery-store customers refused to buy from Kaloti because they were purchasing directly from Kellogg.
- Kaloti attempted to cancel and return the goods; Kellogg refused.
- Kaloti sued Kellogg and Geraci, including a claim for intentional (fraudulent) misrepresentation based on nondisclosure.

## Issues

1. Whether, given the parties’ course of dealing and the transaction context, Kellogg and Geraci had a duty to disclose Kellogg’s material change in marketing strategy, making silence actionable as intentional misrepresentation.
2. Whether the economic loss doctrine barred Kaloti’s intentional misrepresentation claim seeking recovery for economic losses.

## Decision

- The Wisconsin Supreme Court reversed the circuit court’s dismissal of the amended complaint and remanded for further proceedings.
- Accepting the pleaded allegations as true, the court held Kaloti stated a claim for intentional misrepresentation by nondisclosure because Kellogg and Geraci had a duty to disclose the direct-sales strategy change.
- The court held the economic loss doctrine did not bar the intentional misrepresentation claim on these allegations because the fraud was extraneous to the contract.

## Legal Principles

- In an arm’s-length commercial transaction, nondisclosure may constitute intentional misrepresentation when a party with superior knowledge fails to disclose a material fact that is not readily observable, is unknown to the other party, and is of the type the other party would reasonably expect to be disclosed.
- A duty to disclose may arise from the transaction context and the parties’ established course of dealing, including the seller’s knowledge of the buyer’s specific resale purpose.
- The economic loss doctrine generally limits contracting parties to contract remedies for purely economic loss, but it does not bar intentional misrepresentation claims based on fraud in the inducement that is extraneous to the contract (i.e., not directed to the quality, character, or performance of the goods and not a risk allocated by the contract).

## Conclusion

The court held that a seller and its broker may be liable for fraudulent inducement by omission when they conceal a material strategy shift that they know will defeat the buyer’s resale purpose, and that such an extraneous intentional misrepresentation claim is not barred by the economic loss doctrine.


Kaloti Enters., Inc. v. Kellogg Sales Co., 283 Wis. 2d 555, 699 N.W.2d 205 (Wis. 2005)