Cerabio LLC and Phillips Plastics Corporation v. Wright Medical Technology, Inc.

In this contract dispute, CERAbio, LLC and its sole member, Phillips Plastics Cor *984 poration (collectively “CERAbio”), claims that it delivered all of the assets of the corporation, including its technological know-how, to Wright Medical Technology, Inc. (Wright), but that Wright failed to pay the remaining half of the agreed-upon sales price. Wright countered that not only was the technological knowledge provided by CERAbio worthless and that it therefore had not performed its end of the deal, but that CERAbio had also committed fraud and had been negligent both in the formation and performance of the contract. Upon CERAbio’s motion, the district court granted summary judgment on Wright’s tort counter claims. At trial, the jury ruled in favor of CERAbio on the contract claims. On appeal, Wright challenges the district court’s ruling on summary judgment as well as an evidentiary ruling at trial. We affirm the summary judgment ruling, but reverse and remand to the district court to correct the effect of the erroneous evidentiary ruling, which we agree was in error.

I.

Wright designs, manufactures, and sells medical devices and products, including bone replacement products known as biologies, frequently used during implantation surgery to replace lost bone and provide a framework for new bone growth. In the late 1990’s, CERAbio developed a bone replacement product made from tricalcium phosphate (“TCP”). The Food and Drug Administration approved the new product, Apatight, for use in humans as a bone void filler. CERAbio obtained patents for the Apatight production process and material.

In early 2001, Wright representatives learned about Apatight at a trade conference. CERAbio was strictly a research and development company which did not manufacture or sell Apatight or other products commercially. Wright markets and sells biologies worldwide and was looking to expand its product offerings in the bone replacement market, so a match seemed ideal. CERAbio negotiated with Wright to provide Apatight to Wright which Wright would then market and sell. Eventually, the negotiations evolved and Wright decided to purchase substantially all of CERAbio’s assets, including all patents and know-how.

Prior to entering into the Agreement, CERAbio informed Wright that it had an established and repeatable process for producing Apatight and that all of the raw materials necessary were commercially available. Under the terms of the August 5, 2002 Agreement between the parties (“Agreement”), Wright agreed to pay $3 million for the CERAbio assets with $1.5 million payable upon closing and a second installment of $1.5 million due no later than three days after Wright verified that it was able to produce Apatight (“Verification”). The contract defined the parameters of Verification and required that CERAbio transfer assets to Wright, that it train Wright’s employees, and that Wright produce three test lots of Apatight using the specific work instructions supplied by CERAbio. Wright had sixty days to attempt to produce the three test lots of Apatight in its Memphis facility using commercially reasonable efforts. If it failed to do so, under the Agreement, CERAbio would have the opportunity to access Wright’s manufacturing equipment and cooperate with Wright to produce the three Apatight test lots — again, using commercially reasonable efforts.

After the closing, Wright attempted to buy TCP powder, one of the key raw materials needed to manufacture Apatight, but found that it was no longer available. Plasma Biotal, the manufacturer of the necessary TCP powder, had started making a new TCP powder with a different particle size — one that would not work properly utilizing the Apatight manufac *985 taring instructions. Plasma Biotal still had a limited supply of the original powder, but it had become contaminated. Wright and CERAbio dispute when CERAbio became aware that the powder was unavailable and the role that the unavailability of the powder played in the ability to seal the deal. From this point forward, the statements of facts in the two briefs begin to read like two unrelated novels. When the facts are digested, however, it appears that the parties do not wholly dispute the course of events, but instead dispute where the blame lies.

According to the appellant Wright, CERAbio knew prior to closing on the Agreement that the TCP powder was unavailable, but nevertheless represented to Wright that all of the materials necessary to produce Apatight were generally commercially available. To support this claim, Wright points to the deposition of CERAbio’s senior product development engineer, Dr. Ying Ko, who testified that CERAbio knew prior to closing that the TCP powder was no longer available. CERAbio does not necessarily disagree that it knew of the availability problem, it focuses instead on the fact that it was possible to work around the problem and to produce Apatight without the original TCP powder. And so while it may have known that one form of the powder was unavailable, CERAbio says, it thought that other powders were available and acceptable alternatives. It thus counters Dr. Ko’s testimony by pointing to evidence that Plasma Biotal had assured Dr. Ko that it could produce an “original style” powder. Supp.App. at 4. 1 It further implies also that even if CERAbio did know that the powder was unavailable, the Agreement between the two parties put the onus on Wright to engage in due diligence in order to verify the availability of all necessary materials. Finally, it claims that Wright itself was aware of the powder unavailability problem prior to the closing. CERAbio’s spin, in’ a nutshell, is that the unavailability of the TCP powder was not CERAbio’s fault and that with some revisions to the work instructions Apatight could be produced using the new powder, but that Wright never gave CERAbio the chance. It also argues that Wright eventually found a manufacturer who could make a “lookalike” powder but decided instead to shut CERAbio out of the process, produce the virtually identical ceramic bone replacement, Cellplex, on its own, and claim it as its own new creation to avoid paying the remainder of the $1.5 million fee and royalties. 2

Wright, of course, has a different story to tell. Shortly after closing, CERAbio informed Wright that the instructions had to be changed due to the unavailability of the TCP powder- — -a problem that CERA-' bio claimed not to have known about prior to closing on the Agreement. Wright claims that, based on these representations, it consented to oral modifications of the Agreement — permitting CERAbio to make changes to the work instructions and to attempt twelve “pre-verification” production funs over the course of several months. Wright points to evidence that CERAbio did, in fact, know about the availability problem prior to closing and argues that had it known that CERAbio had hidden its knowledge of the unavaila *986 bility, it never would have agreed to the modification.

In the meantime, in light of the powder unavailability, efforts to resolve the problem proceeded on two fronts. Plasma Biotal tried to replicate the old powder it had been producing originally, and CERAbio employees were working at Wright from late August 2002, to early November 2002, to see if they could alter the work instructions to come up with a process for manufacturing Apatight using the new powder. These attempts were called “pre-verification” efforts since the formal Verification process described in the Agreement could not begin without the old powder or an appropriate substitute. Both parties agree that no successful test lots were produced during this time. CERAbio claims that Verification failed because Wright threw CERAbio’s scientists out just as they were on the cusp of success. It did so, says CERAbio, because Wright had independently learned that Plasma Biotal had developed a new “look-a-like” powder that would work in the process and it wanted to proceed to develop the TCP bone replacement product on its own to avoid paying royalties. CERAbio claims that had it known about the existence of the new powder, it could have completed the Verification process in two or three weeks.

Wright, on the other hand, claims that after two or three months of unsuccessful tries (the exact amount of time is the subject of some debate, but not relevant for these purposes), it became clear to Wright that the effort was fruitless. On November 8, 2002, Wright notified CERAbio that it considered CERAbio to be in breach of the Agreement, and proceeded with its own efforts to produce a bone replacement product.

Both parties agree that Wright eventually succeeded in creating a marketable bone replacement product called Cellplex. Wright, of course, argues that it created Cellplex using a completely different process than the one invented by CERAbio. CERAbio claims that the process for manufacturing Cellplex differs only slightly from the process CERAbio developed to manufacture Apatight and then sold to Wright, and that the two end products are virtually identical.

CERAbio sued Wright for the second $1.5 million installment it believes Wright owes under the Agreement. Wright countered with its own contract claim alleging that CERAbio failed to provide its end of the bargain under the terms of the Agreement and therefore was not entitled to the final payment. In addition, Wright claimed that CERAbio’s misrepresentations caused Wright to incur unplanned expenses in excess of $500,000, direct damages of over $880,000, and lost profits as of the time of trial of over $6.7 million.

Wright also counter-sued claiming fraudulent inducement of the contract, fraud in the performance of the contract, pre-contract negligent representation, and negligent misrepresentation in the performance of the contract. The district court judge granted summary judgment for CERAbio on all of Wright’s tort claims. (Wright’s contractual claims were not at issue at summary judgment.) His order limited Wright’s recoverable damages to direct damages and excluded the possibility of incidental, special, consequential, and punitive damages. Based on this ruling, in preparation for trial, the district court ruled that evidence that pre-dated the closing on the Agreement was not relevant and hence inadmissible. He theorized that any mention of pre-contractual occurrences would constitute an attempt to evade his ruling on summary judgment. The district court referred to his ruling as a “bright blue line” and the parties continue with this nomenclature. Wright claims *987 that this ruling crippled its ability to prosecute the remaining claims and to offer affirmative defenses to CERAbio’ claims.

The parties proceeded to trial and at the close of CERAbio’s case, the court denied Wright’s motion for judgment as a matter of law. Following a jury verdict in favor of CERAbio, the district court entered an amended order of judgment in favor of CERAbio in the amount of $1,407,550 and entered a declaratory judgment of its entitlement to royalties. (Short App. at 101) (R. at 110).

On appeal, Wright challenges the district court’s bright blue line evidentiary ruling as well as the ruling on the summary judgment claims for fraudulent inducement, fraud in the performance, pare-, contract negligent representation, and negligent misrepresentation in the performance of the contract. We will address the latter first, for if we were to reverse the district court’s ruling on the summary judgment claims, there would no longer be a basis for the “bright blue line” ruling.

II.

A. Summary Judgment

We review Wright’s claims that the district court erroneously granted summary judgment with a fresh set of eyes — de novo — to ensure that, after viewing the, facts in the light most favorable to Wright, there remains no genuine issue of material fact and that CERAbio is entitled to judgment as a matter of law on Wright’s tort claims. Fed.R.Civ.P. 56(c); Ezell v. Potter, 400 F.3d 1041, 1046 (7th Cir.2005).

CERAbio moved the district court for summary judgment on all of the defendant’s counter claims other than its claim for breach of contract, namely Wright’s counterclaims for pre-contract fraudulent inducement and negligent misrepresentation, and post-contract fraudulent and negligent misrepresentation in the performance of the contract.

The district court’s first task was to determine which state’s substantive law applied to the defendant’s counter claims. The district court aptly determined that the Delaware choice of law provision in the Agreement applied only to those counterclaims sounding in contract law and not Wright’s tort claims. (Short App. at 9-10) (R. at 37, p. 9-10). A choice of law provision will not be construed to govern tort as well as contract disputes unless it is clear that this is what the parties intended, Kuehn v. Childrens Hosp., Los Angeles, 119 F.3d 1296, 1302 (7th Cir.1997), and there was no clear indication in the Agreement that the parties intended for the choice of law clause to govern tort claims. The district court concluded that under Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) the governing choice-of-law principles were those of Wisconsin, the forum state. Consequently, under Wisconsin’s choice of law algorithm, if the laws of the competing states are the same, a court must apply Wisconsin law. Deminsky v. Arlington Plastics Mach., 259 Wis.2d 587, 657 N.W.2d 411, 420 (2003); Sharp v. Case Corp., 227 Wis.2d 1, 595 N.W.2d 380, 384 (1999). The district court reviewed the potentially competing state laws and determined that Delaware, Tennessee, and Wisconsin law would compel the same result. Neither party challenges the district court’s conclusion on this matter and our review yields the same finding.

The district court concluded that each of Wright’s four tort-based counterclaims was barred by the economic loss doctrine. . The economic loss doctrine seeks to preserve the distinction between contract and tort law and to prevent parties from eschewing agreed-upon contract remedies and seeking broader remedies under tort theory than the contract would have permitted. Ins. Co. of N. Am. v. *988 Cease Elec. Inc., 276 Wis.2d 361, 688 N.W.2d 462, 467 (2004). “Economic loss” for purposes of the doctrine is “the loss in a product’s value which occurs because the product is inferior in quality and does not work for the purposes for which it was manufactured and sold.” Id. (internal citations omitted). The economic loss doctrine “forbids commercial contracting parties (as distinct from consumers, and other individuals not engaged in business) to escalate their contract dispute into a charge of tortious misrepresentation if they could easily have protected themselves from the misrepresentation of which they now complain.” All-Tech Telecom, Inc. v. Amway Corp., 174 F.3d 862, 866 (7th Cir.1999) (applying Wisconsin law). In short, parties cannot use tort principles to circumvent the terms of an agreement. Wausau Tile, Inc. v. County Concrete Corp., 226 Wis.2d 235, 593 N.W.2d 445, 451-52 (1999). The doctrine’s purpose is to “maintain the fundamental distinction between tort law and contract law; protect commercial parties’ freedom to allocate economic risk by contract; and encourage the party best situated to assess the risk of economic loss, the commercial purchaser, to- assume, allocate, or insure against that risk.” Digicorp, Inc. v. Ameritech Corp., 262 Wis.2d 32, 662 N.W.2d 652, 659 (2003).

Recently (since the parties briefed the issue on appeal), the Wisconsin Supreme Court has held that the economic loss doctrine does not apply to claims for the negligent provision of services. Cease Elec., 688 N.W.2d at 472. Wright claims that the contract between itself and CERAbio centered on the provision of services, that is, the installation of equipment, training, and achievement of Verification. CERAbio, on the other hand, maintains that the Asset Purchase Agreement is a contract for the sale of all assets of a business, not a service contract like the one in Cease Electric. We agree with CERAbio that the service contract exception should not apply. Our review of the Asset Purchase Agreement confirms that it was indeed a contract for the sale of all of the assets of CERAbio. The fact that some of the assets included technological knowledge and skills that had to be transferred from CERAbio’s employees to Wright’s employees does not alter the fundamental nature of the contract as one for the sale of goods. Moreover, the policy considerations that prompted the Wisconsin Supreme Court to exempt service contracts from the economic loss doctrine are simply not at play here. Most service contracts, the Wisconsin Supreme Court reasoned (like those to mow the lawn or unclog a drain), are oral and informal and parties rarely hire attorneys to allocate risks and limit remedies. Cease Elec., 688 N.W.2d at 470-71. In many service contracts, furthermore, the information disparities between the parties make it unlikely that each party can negotiate the terms with the same level of bargaining power. Id. at 471. None of these policy considerations apply in this case. Wright and CERAbio, both well-represented, sophisticated business parties, drafted complex, detailed agreements which could and indeed did allocate risks and assign remedies. We conclude, therefore, that the economic loss doctrine applies.

The question then becomes whether there are any exceptions to the economic loss doctrine that might keep Wright’s tort claims alive. The district court correctly discerned that Wisconsin recognizes a fraud in the inducement exception to the economic loss doctrine. (Short App. at 13) (R. at 37, p. 13) (citing Digicorp, 662 N.W.2d at 662). The court below, however, incorrectly stated that the Wisconsin Supreme Court had expressly adopted a narrow exception akin to the one announced in a Michigan cas e—Huron Tool and Eng’g Co. v. Precision Consult *989 ing Servs., Inc., 209 Mich.App. 365, 532 N.W.2d 541 (1995). That very narrow exception limits fraud in the inducement claims to situations where the claimed fraud is extraneous to, rather than interwoven with the contract, that is, where the fraud concerns those matters that were not expressly or impliedly addressed in the contract. Digicorp, 662 N.W.2d at 662. Digicorp, however, did not so hold. Although four’ justices of the five-member court recognized some form of a fraud in the inducement exception to the economic loss doctrine, only two justices announced their recognition of a narrow Huron-Tool like exception. 3 Id. at 662. Two justices dissented announcing that they would have upheld the previous 'broad exception set forth in Douglas-Hanson Co. v. BF Goodrich Co., 229 Wis.2d 132, 598 N.W.2d 262 (1999), aff'd, 233 Wis.2d 276, 607 N.W.2d 621 (2000), allowing a plaintiff to make a claim for intentional misrepresentation when the misrepresentation fraudulently induces a plaintiff to enter into a contract. Digicorp, 662 N.W.2d at 670. A third justice concluded in a dissent that any fraud in the inducement exception was unnecessary. Id. at 667. In short, a majority (three) of the justices overruled the broad exception announced in Douglas-Hanson, but a separate, but different three-member majority rejected the narrow Huron Tool exception. See Tietsworth v. Harley Davidson, Inc., 270 Wis.2d 146, 677 N.W.2d 233, 243-44 (2004). The most we can discern from Digicorp, therefore, is that the fraud in the inducement exception to the economic loss doctrine is more narrow than that announced in Douglas-Hanson and that it does not apply when the fraud pertains to the char-. acter and quality of the goods that are the subject matter of the contract. Id. at 244. 4

This is enough information, however, for us to conclude that the fraud in the inducement exception should not apply to the specific facts of this case. Recall that the purpose of the fraud in the inducement exception is to address the “special situation where parties to a contract appear to negotiate freely — which normally would constitute grounds for invoking the economic loss doctrine — but where in fact the ability of one party to negotiate fair terms and make an informed decision is undermined by the other party’s fraudulent behavior.” Digicorp, 662 N.W.2d at 662 (quoting Huron Tool, 532 N.W.2d at 545). It does not address the situation where “the only misrepréséntation by the' dishonest party concerns the quality or character of the goods sold, [as] the' other party is still free to negotiate warranty and other terms to account for *990 possible defects in the goods.” Id. Tort remedies are inappropriate where commercial contracting parties could have easily protected themselves from the misrepresentation of which they now complain. All-Tech Telecom, 174 F.3d at 866. In this case, the parties to the contract were two sophisticated and well-represented business entities. The crux of their agreement centered around the sale and purchase of the assets of CERAbio’s business — primarily a process for producing Apatight. Wright’s primary concern should have been, and indeed was, whether it was purchasing a process that could be replicated by Wright. Of course, if it could not, Wright would be paying $3 million dollars for a product with no value to it. Wright was free to, and in fact did, negotiate warranty and other terms to account for the possibility that the process could not be replicated. Wright’s remedies, therefore must be limited to contract claims.

As we have cautioned before, we do not mean to imply that the tort of misrepresentation is abolished in all cases in which the plaintiff and defendant are commercial entities with a pre-existing contractual relationship. Id. at 866. The fraud in the inducement exception to the economic loss doctrine, however, does not apply in this particular case where two sophisticated commercial entities created contractual remedies to address the concern that the product Wright was purchasing from CERAbio might not result in the desired outcome either because the process was not repeatable or because the starting materials were not available. The alleged fraud in this case pertains to the character and quality of the product that is the subject matter of the contract. See Tietsworth, 677 N.W.2d at 244. “Misrepresentations such as these, that ultimately concern the quality of the product sold, are properly remedied through claims for breach of warranty.” Cooper Power Sys., Inc. v. Union Carbide Chems. & Plastics Co., Inc., 123 F.3d 675, 682 (7th Cir.1997).

Whether or not the process was repeatable was addressed contractually by the complex process set forth in the contract for Verification. The agreement between the parties was contingent upon Wright producing three test lots meeting the specifications outlined in the Agreement. Of course, if the starting materials were not available, Verification could not be achieved. The Agreement addressed the availability of starting materials in another manner as well. The disclaimer of warranty provision contained in the Non-Disclosure Agreement specified that CERAbio provided all information to Wright on an “as is” basis and that CERAbio:

makes no warranty, either express or implied, concerning the Information, including, without limitation, its accuracy, completeness, or to the non-infringement of intellectual property rights or other rights of third persons or Discloser. Recipient assumes all risk in, and Discloser will not be liable for any damages arising out of, use of information including, without limitation, business decisions made or inferences drawn by Recipient in reliance on the Information or the fact of the disclosure of the Information. 5 , 6

(App. at 1078-79) (R. at 36, Ex. A, ¶ 8) (emphasis ours). This type of disclaimer is referred to as a non-reliance clause. Furthermore, the integration clause in the asset purchase agreement incorporates *991 this non-disclosure agreement and likewise allocates to Wright the risk that the information provided by CERAbio might be incomplete or incorrect. This clause states:

This Agreement, including schedules and exhibits referred to herein, and the NDA [Non-Disclosure Agreement] em-. body the entire agreement and understanding of the parties hereto .... There are no restrictions, promises, representations, warranties, covenants or undertakings of Seller contained in any material made available to Buyer pursuant to the terms of the NDA, or the correspondence between Seller and Buyer.

(App. at 739, ¶ 10.7) (R. at 2, Ex. A, ¶ 10.7).

These provisions allocated to Wright the risk that the information provided by CERAbio might be incomplete or incorrect. Wright assured CERAbio in writing that it would not rely on information provided by CERAbio. Not only does this non-reliance clause verify that the alleged fraud was interwoven with the parties’ contractual agreement, and thus barred by the economic loss doctrine, it also' confirms the district court’s finding that Wright could not have reasonably relied on CERAbio’s oral representation as to the viability of the process or the availability of starting materials.

Wright challenges the proposition that commercial parties can never demonstrate reasonable reliance on misrepresentation in the face of a non-reliance clause. For this portion of the dispute, we must consider the force and effect of a clause in the contract — the non-reliance clause— which the parties agreed to construe in accordance with Delaware law. Although the Delaware Supreme Court has offered' no definitive conclusion, recent opinions of the Delaware chancery courts have repeatedly concluded that “sophisticated parties to negotiated commercial contracts may not reasonably rely on information that they contractually agreed did not form a part of the basis for their decision to contract.” H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 142 (Del.Ch.2003). See also Kronenberg v. Katz, No. Civ. A. 19964, 2004 WL 1152282, at * 17 (Del.Ch. May 19, 2004); Progressive Int’l Corp. v. E.I. Du Pont de Nemours & Co., No. C.A. 19209, 2002 WL 1558382, at *7 (Del.Ch. July 9, 2002) (“sophisticated parties may not rely upon representations that are inconsistent with a negotiated contract, when that contract contains a provision explicitly disclaiming reliance upon such outside representations.”); Great Lakes Chem. Corp. v. Pharmacia Corp., 788 A.2d 544, 555 (Del.Ch.2001) (same).

Wright lashes at this windmill of Delaware authority by arguing that none of the cases established a per se rule that commercial parties can never demonstrate reasonable reliance on misrepresentations in the face of a purported non-reliance clause. Wright claims instead that those courts made. fact-specific determinations about whether, plaintiffs could have reasonably relied upon the defendants’ misrepresentations. This may, in fact, be the case, but it does not get Wright anywhere. The relevant facts in Great Lakes have a familiar ring. The case involved “two highly sophisticated parties, assisted by industry consultants and experienced legal counsel, [who] entered into carefully negotiated disclaimer language after months of extensive due diligence ... [and who] explicitly allocated their risks and obligations in the Purchase Agreement.” Id. at 555. Noting the carefully negotiated and crafted nature of the agreements, the Great Lakes court concluded that “to allow [the buyer] to assert, under the rubric of fraud, claims that are explicitly precluded by contract, would defeat the reasonable commercial expectations of the contracting parties and eviscerate the utility of written contractual *992 agreements.” Id. at 556. The same is true here.

This philosophy is not unique to the Delaware courts. This court and others have held that a written anti-reliance clause in a stock purchase agreement precludes any claim of deceit by prior representations. Rissman v. Rissman, 213 F.3d 381, 383 (7th Cir.2000). In Rissman we pointed out that a non-reliance clause is part of the negotiated bargain. Id. at 384. CERAbio could have assumed the risk of claims based on oral statements it made, but it likely would have increased the purchase price accordingly. Rissman, 213 F.3d at 388. See also Cook v. Little Caesar Enters., Inc., 210 F.3d 653, 658 (6th Cir.2000) (applying Michigan law and concluding that the existence of an integration clause in the franchise agreements made the buyer’s alleged reliance on prior representations unreasonable); Velten v. Regis B. Lippert, Intercat, Inc., 985 F.2d 1515, 1522 (11th Cir.1993) (a buyer who signs an agreement that provides in essence that no representation, promise or inducement not included in the contract shall bind any party cannot later claim damages for fraud); Warner Theatre Assocs. Ltd. P’ship v. Metro. Life Ins. Co., 149 F.3d 134, 136 (2d Cir.1998) (“a specific disclaimer in an agreement destroys the allegations in a plaintiffs complaint that the agreement was executed in reliance upon contrary oral representations.”). Even were we to take a less absolute, case-by-case assessment of the validity of the non-reliance clause (as urged by the concurrence in Rissman), our conclusion would not differ. In this case the parties were sophisticated commercial entities assisted by counsel and the facts surrounding the materiality and intentionality of the misrepresentation are highly contested. See Rissman, 213 F.3d at 388 (Rovner, J., concurring) (considering factors that might be relevant in determining whether an investor’s reliance on prior statements was reasonable despite the existence of a non-reliance clause). We are not unsympathetic to the notion that Wright was purchasing a secret process and therefore in all likelihood it could not investigate independently whether the starting materials were commercially available, but “[cjontractual language serves its function only if enforced consistently,” id. at 385, and parties to contracts are best served by rulings enforcing the express terms of agreements into which they enter.

Wright and CERAbio bargained for the allocation of risks contained in the Agreement and Wright accepted the risk that it might receive faulty oral information from CERAbio. The district court correctly concluded, therefore, that Wright’s counterclaim for fraudulent inducement could not stand.

Wright’s other counterclaims allege negligent misrepresentation in the formation of the contract, negligent misrepresentation in the performance of the contract, and fraud in the performance. Any economic loss caused by these acts, however, is best addressed through the contractual remedies to which the parties agreed.

For example, Wright claims that CERA-bio negligently misrepresented information that induced Wright to enter into the Agreement. Although the Wisconsin Supreme Court has not yet specifically addressed the economic loss doctrine in this context, the appellate courts have laid the ground work. See Selzer v. Brunsell Bros., Ltd., 257 Wis.2d 809, 652 N.W.2d 806, 831-32 (Ct.App.2002) (economic loss doctrine prevents tort claims for negligent misrepresentation); Kailin v. Armstrong, 252 Wis.2d 676, 643 N.W.2d 132, 146 n. 20 (Ct.App.2002) (noting that the Wisconsin appellate courts have applied the economic loss doctrine to bar a negligent misrepresentation that induced a contract); Prent Corp. v. Martek Holdings, Inc., 238 Wis.2d *993 777, 618 N.W.2d 201, 208 (Ct.App.2000) (economic loss doctrine bars recovery for negligent misrepresentation to a commercial buyer of a product). It is no stretch to assume that the Wisconsin Supreme Court would follow suit. In describing the policy reasons surrounding the economic loss doctrine, that court has followed a path that protects commercial parties’ freedom to allocate economic risk and encourages the party best situated to assess the risk of economic loss, and to assume, allocate, or insure against that risk. See Digicorp, 662 N.W.2d at 659. For the same reasons, we conclude that the district court was correct in determining that the economic loss doctrine would preclude Wright’s claims that CERAbio negligently or fraudulently misrepresented information during the performance of the contract to convince the defendant that verification had occurred. (Short App. at 25) (R. at 37, p. 25). These are simple contract claims disguised in tort claim clothing. If CERAbio breached its duties to perform its tasks during Verification, Wright’s remedy lies in contract.

Wright argues that Tennessee law applies to its post-contract fraud claims. But under Tennessee law, like Wisconsin law, we see no support for allowing Wright to wrap its contract claims in tort language. In Ritter v. Custom Chemicides, Inc., 912 S.W.2d 128, 133 (Tenn.1996), the Tennessee Supreme Court made clear that it was joining the economic loss doctrine bandwagon noting that negligence theory was an inappropriate method to resolve injuries causing economic loss (in the Ritter case, from product liability). Id. ‘When a product does not perform as expected,” the Ritter court went on to explain, “the buyer’s remedy should be governed by the rules of contract, which traditionally protect expectation interests.” Id. n. 8. This conclusion followed logically from a much earlier Tennessee Supreme Court decision ruling that a cause of action for breach of contract — even negligent or fraudulent — remains in contract rather than tort. Mid-South Milling Co. v. Loret