Ripp Distrib. Co., Inc. v. Ruby Distribution

411 Wis. 2d 630

Ripp Distributing Company, Inc., Plaintiff-Respondent,

v.Ruby Distribution LLC and Brian Elder, Defendants-Appellants.

Court of Appeals

No. 2023AP778. Submitted on briefs September 14, 2023.— Decided March 21, 2024.

2024 WI App 24

(Also reported in 5 N.W.3d 930.)

APPEAL from an order of the circuit court for La Crosse County: GLORIA L. DOYLE, Judge. Reversed and cause remanded with directions.

On behalf of the defendants-appellants, the cause was submitted on the briefs of Jeffrey A. Mandell and Isaac S. Brodkey of Stafford Rosenbaum LLP, Madison.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Kara M. Burgos of Moen Sheehan Meyer, Ltd., La Crosse.

A nonparty brief was filed by Jacob S. Margolies of Dentons Bingham Greenebaum LLP, Louisville, Kentucky, for Professor Yaron Nili.

Before Kloppenburg, P.J., Graham, and Nashold, JJ.

¶ 1. GRAHAM, J. This case arises from the sale of the assets of Ruby Distribution LLC's water distribution business to Ripp Distributing Company, LLC. Prior to the sale, the parties executed an asset purchase agreement (the "APA"), in which Ruby and its sole member, Brian Elder,¹ made various representations and warranties about the assets as of the effective date of the APA and the date the asset sale would close. As part of the APA, the parties agreed to a survival clause, which provided that Ruby's representations and warranties "shall survive the Closing for a period of one year from the Closing Date."

¶ 2. After the sale closed and Ripp took possession of the assets, it allegedly discovered operational issues and, 18 months after the closing, it filed this lawsuit, which asserts contract and tort claims based on the allegedly false representations and warranties that Ruby made in the APA. Ruby filed a motion for judgment on the pleadings, arguing that the contract claims should be dismissed based on the one-year limitations period in the survival clause, and that the tortious misrepresentation claims should be dismissed based on the economic loss doctrine. The circuit court denied the motion.

¶ 3. On interlocutory appeal, we conclude that Ruby is entitled to judgment on the pleadings. Ripp's contract claims are time barred under the APA's survival clause, which can only be reasonably interpreted as a contractual limitations period for commencing a lawsuit for breach of the representations and warranties. Turning to Ripp's tortious misrepresentation claims, they are barred by the economic loss doctrine. Therefore, we reverse and remand for the entry of an order dismissing Ripp's complaint.

BACKGROUND

¶ 4. The following facts and allegations are derived from Ripp's complaint, and Ruby's answer, as well as the APA and closing documents that were attached to the complaint, which are properly considered when evaluating Ruby's motion for judgment on the pleadings.

¶ 5. Prior to the sale that is the subject of this lawsuit, Ruby owned and operated a water distribution business. On May 6, 2020, Ruby and Ripp entered into the APA, in which Ruby agreed to sell and Ripp agreed to purchase substantially all of the assets of the business, including but not limited to equipment, inventory, accounts receivable, intangible assets, and customer contracts, records, and relationships. According to the APA, the closing date was to take place on or before June 15, 2020.

¶ 6. As part of the APA, Ruby made various representations and warranties, all of which are found in Section 7. We now summarize those representations and warranties that pertain to the allegations in Ripp's complaint:

• With regard to its operation of the business through the closing date, Ruby represented and warranted that, "[s]ince the Effective Date² of this Agreement and through the Closing Date," Ruby had and would continue "to conduct the Business in the ordinary course of business."³

• With regard to the "Purchased Assets," Ruby represented and warranted that it owned and had transferable title to the assets; that the equipment⁴ and other tangible personal property would be sold and accepted by Ripp "AS IS, WHERE IS" in its "then present condition" at closing; and that accounts receivable would be sold "AS IS," "without any representation or warranty as to collectability, aging, or quality"

• As for its "Contracts," Ruby represented and warranted that it had "provided [Ripp] with a list of all customer accounts, contracts and other agreements, whether written or oral" that related to the assets that Ripp was purchasing; and that Ruby had delivered to Ripp "a correct and complete copy of each written agreement listed (as amended to date) and a written summary setting forth the basic terms and conditions of each oral agreement." Ruby further warranted that, to its knowledge: all of the agreements were "legal, valid, binding, enforceable and in full force and effect" and would "continue" to be so "on identical terms" after Ripp acquired the business; that Ruby was not in breach of any of the agreements "and no event has occurred that, with notice or lapse of time, would constitute a breach or default" by Ruby or would "permit termination, modification, or acceleration, under the agreement[s]"; and that "no party has repudiated any provision of the agreement[s]."

• As for "Compliance with Law," Ruby represented and warranted that, to its knowledge, the conduct of its business and its use of the purchased assets "d[id] not violate, nor [was Ruby] in default under, any law, regulation, rule, license, permit or order of any court or governmental commission."

• Finally, under the heading "Full Disclosure," Ruby represented and warranted that, to the best of its knowledge, "no warranty or representation by [Ruby] contained in this Agreement contains or will contain any untrue statement of material fact or omits or will omit to state any fact required to make the statements herein contained not misleading."

¶ 7. In a provision of the APA that we refer to as the "exclusivity of representations clause," the parties agreed that the representations and warranties in Section 7. were exclusive: "Except for the representations and warranties contained in this Section 7., neither [Ruby] nor Elder makes any other express or implied representation or warranties, either written or oral, on behalf of [Ruby], including any representation or warranty as to future revenues, profitability or success of the business."

¶ 8. Additionally, and importantly here, the APA also included the following clause, titled "Survival of Warranties": "The warranties and representations of [Ruby] shall survive the Closing for a period of one year from the Closing Date." Like the parties, we refer to this provision as the "survival clause," and we refer to the one-year period contemplated by the survival clause as the "survival period."⁵

¶ 9. The APA explicitly provided that the truth of Ruby's representations and warranties, as well as Ruby's performance of certain covenants it made in the APA, were conditions precedent to Ripp's obligation to close the sale. To that end, Section 9.A. provided that Ripp's "obligation … to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing, of each and every one of the following conditions, all or any of which may be waived …:"

(i) Representations True at Closing. The representations and warranties made by [Ruby] in this [APA] … shall be true and correct in all material respects on the Closing Date hereunder with the same force and effect as though such representations and warranties had been made on and as of the Closing Date ….

(ii) Covenants of Seller. Seller shall have duly performed all of the covenants, acts, and undertakings to be performed by it on or prior to the Closing.

The APA also included a section about termination, which allowed Ripp to terminate or abandon the sale "if the Conditions to Close set forth in Section 9.A. have not been met or waived on or before the closing."

¶ 10. Finally, the APA included a provision that is commonly referred to as an "integration clause,"⁶ which provided that "[a]ll understandings and agreements … are merged in this Agreement, the exhibits and schedules attached hereto, which alone fully and completely express their agreement. Any modifications to this Agreement must be evidenced by written agreement signed by both parties."

¶ 11. The parties closed the transaction on June 12, 2020, with Ruby executing and delivering a bill of sale that transferred all rights and interests in the purchased assets to Ripp on the terms provided in the APA. At the closing, Ruby also executed a "Seller Closing Certificate," in which it certified that the representations and warranties that it made in the APA "were, when made, and are true, complete and correct as of the date of this Closing Certificate with the same force and effect as though the representations and warranties had been made again on the date of this Closing Certificate." As part of the closing certificate, Ruby also certified that it had "performed and complied in all material respects with all of its covenants and obligations under the Agreement which are to be performed or complied with by it on or before Closing."

¶ 12. Following the closing, Ripp took possession of the purchased assets and became the sole operator of the water distribution business. At some point after the closing, Ripp allegedly discovered operational issues with some of the assets it purchased, but it did not file this lawsuit until 18 months after the closing date.

¶ 13. In December 2021, Ripp filed its complaint, which alleges that Ripp discovered the following problems after closing: several of the delivery vehicles that Ripp purchased were not road worthy or safe, and all had been suspended by the state department of motor vehicles; some of the water coolers that Ripp purchased were not functioning properly; the "candy business that was supposed to be...