The Impact of Contractual Integration Clauses on Claims for in Wisconsin Background

A standard provision in the boilerplate sections of most commercial and transactional Mark C. Witt agreements is an integration clause, also commonly referred to as an “entire agreement” 414.287.9249 provision. Generally, an integration clause states that the agreement containing the clause [email protected] sets forth the only enforceable covenants and representations among the parties relating to the subject matter of the agreement. Thus, all prior covenants and representations that may have been made by the parties, to the extent not incorporated into the final agreement, may neither be enforced by the parties nor be used to vary or contradict the unambiguous terms of the agreement under the parol rule. Although integration clauses are drafted in different ways, one commonly used integration clause is set forth below:

Entire Agreement. This Agreement (including the exhibits and schedules attached hereto) supersedes all prior agreements among the parties with respect to its subject matter and constitutes (together with the other documents and instruments to be executed and delivered pursuant hereto) a complete and exclusive statement of the terms of the agreement among the parties with respect to its subject matter. There have been and are no agreements, representations or warranties among the parties with respect to the subject matter of this agreement other than those set forth in this agreement.

Many commercial and transactional attorneys assume the legal impact of these provisions will follow their literal wording. Once an agreement is executed that contains an integration provision, many attorneys cease worrying about their client incurring liability from concepts contained in prior drafts of the documents and prior representations that were not included in the final agreement. After all, if the parties agree that no other agreements or representations exist, how could any liability arise outside of the express terms of the agreement? The information contained With respect to prior representations, however, Wisconsin courts have answered this herein is based on a summary question in a manner that may be inconsistent with those expectations. While Wisconsin of legal principles. It is not to courts generally have applied the to prevent prior representations from be construed as legal advice. modifying the unambiguous terms of an agreement containing an integration clause, the Individuals should consult courts often have allowed tort claims relating to such prior representations to be asserted with legal counsel before outside of the . taking any action based on these principles to ensure This article will briefly summarize a series of Wisconsin cases that have addressed the their applicability in a given issue of whether an integration clause prevents the parties to that agreement from asserting situation. misrepresentation tort claims after the agreement is executed. Following that summary, the article will provide some drafting recommendations for integration clauses in light of the guidance provided by those cases.1

June 2013 | Page 1 Primary Wisconsin Cases Since the “as is” clause in the agreement made up the entire contract, to the Considering Impact of did not mention negligence or exclusion of all other provisions, misrepresentation, it was not effective provide exactly the kind of specific Integration Clauses on Tort to bar a tort claim for misrepresentation. disclaimer that makes it apparent that Claims However, the existence of the “as is” an express bargain has been struck. clause could be used as evidence that the With an integration clause, worded Grube v. Daun (Wisconsin Court of buyer did not rely on the representations as clearly and unmistakably as the Appeals, 1992) allegedly made. one in question, we see no reason not to give the integration clause its The genesis of the line of cases considered Peterson v. Cornerstone Property intended effect.6 by this article is Grube v. Daun.2 The case Development, LLC (Wisconsin Court of involved representations allegedly made Appeals, 2006) Peterson might lead practitioners to by the seller of real (Mr. Daun) believe that a typical integration clause to the buyers (Mrs. and Mrs. Grube) In Peterson v. Cornerstone Property would negate potential tort claims 4 relating to certain wells on the property Development, LLC, the court considered for relating to the that were discovered after the closing the impact of a clause disclaiming agreement. Even though the integration to be contaminated with gasoline. The the existence of representations in the provision in Peterson did not specifically applicable representations were made both context of a sale of real estate. However, enumerate the being disclaimed in the real estate purchase agreements and the applicable clauses in the Peterson (such as fraud or misrepresentation), as in discussions among the buyer, the seller case were broader than the provisions suggested to be critical by the Grube and the broker prior to the closing. considered by the Grube court: court, the Peterson court held that the integration clause’s “non-reliance” However, the sale documents contained an This Offer, including any language made clear that even alleged “as is” clause which was written to be an amendments to it, contains the entire fraudulent misrepresentations were exception to the representations otherwise agreement of the Buyer and Seller intended to be waived. However, the made to the buyer. The clause stated, regarding the transaction. All prior clarity provided by Peterson has since “Buyer is buying the property in a [sic] negotiations and discussion have been clouded, most recently by the as is condition without any warranties.” been merged into this Offer. Wisconsin Court of Appeals in the C&M The court considered the question of * * * * * Hardware case.7 whether the “as is” clause shielded the Seller has made no representations seller and his agent not only from breach other than written in this offer and C&M Hardware, LLC v. True Value of warranty claims under the contract, but attached documents concerning the Company, 2013 WL 1908657 (Final also from tort claims based on the alleged property. Publication Decision Pending) misrepresentations. (Wisconsin Court of Appeals, 2013) * * * * * The court held that the “as is” clause did 8 [Buyer] has not relied on any In C&M Hardware, the purchaser of a not preclude tort claims based on the representations made by the Seller True Value franchise (C&M) claimed misrepresentations. The court stated that: in entering into the Condominium that the franchisor (True Value) made misrepresentations to C&M in connection … [T]ort disclaimers in Offer to Purchase.5 with the sale. The relevant contract, the will not be honored unless the The court held that unlike the clause in Retail Member Agreement, contained a disclaimer is specific as to the tort Grube, the integration clause in Peterson number of provisions intended to disclaim it wishes to disclaim. In order to be specifically disclaimed the purchaser’s prior representations and to act as an effective, the disclaimer must make right to rely on any alleged representations integration clause. The Court focused its it apparent that an express bargain beyond those in the contract itself. The analysis on the following provisions: was struck to forgo the possibility Court stated, of tort recovery in exchange for Success depends, in part, on [C&M] negotiated alternative economic Indeed, the three provisions of devoting dedicated personal efforts 3 damages. Peterson’s contract that expressly to the business and exercising good stated that the written contract business judgment in dealings with

June 2013 | Page 2 customers, suppliers and employees. Relying on Yauger v. Skiing Enter., Inc., representations exist, a statement [C&M] also acknowledges that 206 Wis. 2d 76, 557 N.W.2d 60 (1996), that the parties may not rely on any neither [True Value] nor any of its the Court also attacked the provisions other representations will strengthen employees or agents has represented because they were not sufficiently a defense against misrepresentation that [C&M] can expect to attain any conspicuous. Since they were not in a claims. While this appears to be specific sales, profits or earnings larger typeface, were not surrounded “form over substance,” the courts . . . [TRUE VALUE] MAKES by an attention-grabbing box, were not have found this non-reliance language NO REPRESENTATIONS OR placed in a prominent location, and were to be significant. WARRANTIES EITHER EXPRESS not otherwise made to “stand out,” the OR IMPLIED REGARDING THE Court found that the provisions did not 2. Specifically Address Tort Claims, PERFORMANCE OF [C&M’S] satisfy the requirement that all exculpatory Fraud Claims and Applicable BUSINESS. contract provisions must be sufficiently Statutory Claims in the Integration conspicuous to give notice to the signer of Provision: Both Grube and C&M * * * * * their nature and significance.12 Notably, Hardware emphasized that in order for a disclaimer of tort claims to This Agreement, and any other the Peterson court also cited Yauger, but did not find the integration provisions in be effective, it must specifically agreement which [C&M] signs identify the claims that are being with [True Value], is the entire that case to be insufficiently conspicuous even though they did not have many of the waived (although such a specific and complete Agreement between identification of waived claims was [C&M] and [True Value] and qualities the C&M Hardware court held to be required. absent from the integration clause there are no prior agreements, held to be effective in Peterson). If representations, promises or Drafting Considerations you are aware of specific claims commitments, oral or written, which that could arise out of pre-closing are not specifically contained in this As demonstrated by the cases, above, representations (such as fraud claims Agreement or any other agreement Wisconsin courts often have not construed or claims under applicable statutes), it which [C&M] signs with [True integration provisions in the broad would be helpful to list those claims Value]. The current form of the manner likely intended by the parties as specifically being negated by the Company Member Agreement shall when drafting their agreements. If tort integration provision. govern all past and present relations, claims for misrepresentation survive actions or claims arising between an integration provision stating that no 3. Make the Integration Provision 9 [True Value] and [C&M]. representations have been made outside Conspicuous: Although the cases of the agreement, the protections gained again are inconsistent, there is ample Notwithstanding the numerous provisions authority requiring that an integration that attempted to make clear that True through the integration provision are largely illusory. While the cases do not clause, in order to function as an Value did not make any enforceable exculpatory provision and negate tort representations to C&M outside of the provide consistent guidance concerning the elements that an integration provision claims, must be conspicuous. Thus, agreement, the Court of Appeals held that the integration provision should be the contract did not successfully preclude must meet in order to negate tort claims arising out of pre-closing representations, formatted in a manner that makes claims based on representations allegedly it stand out from the rest of the made by True Value prior to the execution some practical drafting tips could improve your client’s ability to achieve that goal: document. Suggestions listed by the of the agreement. The Court found it C&M Hardware decision include important that the provisions made no 1. Include Non-Reliance Language the use of different typeface, a box mention of waiver of misrepresentation in the Integration Provision: Both around the provision, or bold font. 10 claims or tort claims in general. In the Peterson and C&M Hardware addition, unlike the provision in Peterson, cases found the presence (or absence) 4. Address Specific Representations the integration clause signed by C&M of a specific disclaimer of a right Made Prior to the Agreement. To did not disclaim reliance on True Value’s to rely on representations outside the extent that you are aware of 11 representations. of the agreement to be significant. specific representations that your Instead of merely stating that no other client may have made prior to execution of the agreement and that

June 2013 | Page 3 you would like to disclaim through TO THIS AGREEMENT WITH 1 An examination of this issue in states outside the integration provision, it would RESPECT TO THE SUBJECT of Wisconsin is beyond the scope of this article. be a good idea to list them. For MATTER CONTAINED HEREIN [AND However, several other states (such as Alabama, example, your client’s standard sales THEREIN], AND SUPERSEDES ALL Minnesota and Utah, for example) have cited the cases summarized by this article and performed literature or PowerPoint slides may PRIOR AND CONTEMPORANEOUS similar analyses of the scope of the impact of the contain vaguely worded assurances UNDERSTANDINGS, AGREEMENTS, integration provisions. that you know should be negated REPRESENTATIONS AND 2 Grube v. Daun, 173 Wis.2d 30, 496 N.W.2d through the integration provision. WARRANTIES, BOTH WRITTEN AND 106 (Ct. App. 1992). 3 Grube, 173 Wis.2d at 60, 496 N.W.2d at 117. It would improve your client’s ORAL, WITH RESPECT TO SUCH 4 Peterson v. Cornerstone Prop. Dev., LLC, 2006 ability to show both the negation SUBJECT MATTER. WI App. 132 (Ct. App. 2006). of these representations and the 5 Peterson, 2006 WI App. 132 ¶ 7. lack of reliance on them if they are THE PARTIES AGREE THAT THERE 6 Peterson, 2006 WI App. 132 ¶ 37 (citing HAVE BEEN AND ARE NO OTHER Grube). specifically listed in the integration 7 AGREEMENTS, REPRESENTATIONS In addition to the cases discussed in the text, provision. two other recent decisions analyzed the impact OR WARRANTIES AMONG THE of integration clauses. In Gebhart v. Bosben, Sample Provision PARTIES WITH RESPECT TO 2010 WI App. 100 (Ct. App. 2010), the Wiscon- THE SUBJECT MATTER OF THIS sin Court of Appeals considered the impact of Given these drafting considerations, AGREEMENT OTHER THAN THOSE an integration clause in an unpublished opinion. The Gebhart court emphasized the specificity an example of an integration provision SET FORTH IN THIS AGREEMENT, required by Peterson in order for an integration that may improve your client’s ability AND THAT THE PARTIES clause to bar misrepresentation claims in tort. In to negate tort claims would be the ARE NOT RELYING ON ANY American Orthodontics Corp. v. Epicor Software following: AGREEMENTS, REPRESENTATIONS Corp., 746 F.Supp.2d 996 (E.D.Wis. 2010), a federal district court, applying Wisconsin , OR WARRANTIES THAT ARE NOT Entire Agreement; No Other held that the express carve-out of fraud from an SET FORTH IN THIS AGREEMENT, integration provision was sufficient to allow the Representations. [INCLUDING, BUT NOT LIMITED TO, plaintiff to assert claims under the Wisconsin Deceptive Trade Practices Act, even though a NOTE: BY AGREEING TO THIS THOSE STATEMENTS SET FORTH IN ______]. DTPA claim is not technically a fraud claim SECTION, THE PARTIES ARE because the plaintiff does not need to prove an WAIVING RIGHTS THAT THEY ANY RIGHTS THAT THE intent to deceive. 8 MAY OTHERWISE HAVE UNDER PARTIES OTHERWISE WOULD C&M Hardware, LLC v. True Value Company, HAVE TO ASSERT CONTRACT, 2013 WL 1908657 (Ct. App. 2013). THIS AGREEMENT AND OUTSIDE 9 FRAUD, OR OTHER TORT C&M Hardware, 2013 WL 1908657 at ¶¶ 4, 9. OF THIS AGREEMENT TO ASSERT 10 C&M Hardware, 2013 WL 1908657 at ¶ 15. CLAIMS FOR CONTRACTUAL CLAIMS, [OR CLAIMS UNDER 11 C&M Hardware, 2013 WL 1908657 at ¶ 20. 12 BREACH OF REPRESENTATION SECTION ______OF THE ______C&M Hardware, 2013 WL 1908657 at ¶¶ 21-24. OR WARRANTY, STATUTES] RELATING TO ANY MISREPRESENTATION AS A TORT, AGREEMENTS, REPRESENTATIONS FRAUD, AND OTHER CLAIMS. OR WARRANTIES OUTSIDE OF THIS AGREEMENT ARE HEREBY THIS AGREEMENT, TOGETHER IRREVOCABLY WAIVED. WITH [______] AND THE EXHIBITS AND SCHEDULES ATTACHED HERETO, CONSTITUTES THE SOLE AND ENTIRE AGREEMENT OF THE PARTIES

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