St. Paul Mercury Co v. Viking Corporation ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-1948
S T. P AUL M ERCURY INSURANCE C OMPANY,
Plaintiff-Appellant,
v.
T HE V IKING C ORPORATION,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 04 C 1124—William E. Callahan, Jr., Magistrate Judge.
____________
A RGUED N OVEMBER 9, 2007—D ECIDED A UGUST 21, 2008
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Before B AUER, M ANION, and W ILLIAMS, Circuit Judges.
W ILLIAMS, Circuit Judge. St. Paul Mercury Insurance
Company sued The Viking Corporation, a fire sprinkler
manufacturer, for breach of warranty over an allegedly
defective sprinkler that damaged a building owned by St.
Paul’s insured, Johnson Bank. Because there was no
agreement between Johnson Bank and Viking when the
sprinkler was purchased, privity of contract did not exist,
2 No. 07-1948
so we conclude that the magistrate judge properly
granted summary judgment in favor of Viking.
I. BACKGROUND
On October 25, 2002, a fire sprinkler manufactured by
Viking became activated at the Johnson Bank Building in
Racine, Wisconsin. This was not supposed to happen, since
there was no fire. The water did not stop gushing until the
fire department arrived to shut down the system, and by
then, the water had seriously damaged the bank.
At the time of the incident, Johnson Bank had occupied
the newly-built building for only about six months. It had
contracted with M.A. Mortenson Co. to build the bank; this
contract had a one-year warranty effective until May 2003.
Mortenson in turn subcontracted with Wenninger Com-
pany to install a fire suppression system, including fire
sprinklers, which was also under a one-year warranty
effective until May 2003.
As a subcontractor, Wenninger bought the sprinklers for
the fire suppression system from Viking. This sprinkler
contract included a one-year warranty for replacement of
defective sprinkler heads, though this warranty was
explicitly limited to the original purchaser, Wenninger.
There is no evidence that Johnson Bank ever received any
warranty information, advertising, or other literature from
Viking regarding the sprinklers prior to the accident.
After the accident, Johnson Bank’s insurer, St. Paul
Mercury Insurance Company, reimbursed Johnson Bank
fully for the water damage. St. Paul then asked an engi-
No. 07-1948 3
neer, John Mertens, to examine the sprinkler head. After
eliminating many potential causes, Mertens and St. Paul
concluded that a defective glass bulb in the sprinkler most
likely caused the sprinkler to activate.1 Mertens could not
eliminate improper installation or handling as possible
causes.
Viking’s Manager of Technical Services, George Wirsch,
also inspected the sprinkler. According to Wirsch (who had
inspected hundreds of activated sprinklers in his twenty-
five years of experience), a sprinkler head will activate for
only one of four reasons: (1) heat, (2) mechanical trauma,
(3) ice in the line, or (4) defects in the workmanship or
materials for the sprinkler head. Although Wirsch could
not determine what had caused the sprinkler to activate, he
claimed not to see any evidence of improper installation or
mechanical trauma, and could not eliminate defects in
workmanship or materials as possible causes.
Viking also asked another individual, Professor John
Gland, to inspect the sprinkler. Dr. Gland has a Ph.D. in
physical chemistry and twelve years of experience con-
ducting microscopic analysis of materials in the private
sector. Although he did not have a background in fire
protection systems, he had worked on three other sprinkler
activation cases. As part of his analysis, Dr. Gland exam-
1
When inactive, the glass bulb fit together with a screw to block
water that was in a connected pipe. The bulb contained a
temperature-sensitive liquid, which was designed to expand and
cause the bulb to burst when the ambient temperature rose
above a certain level. This would then permit the water to flow
out and douse the heat source.
4 No. 07-1948
ined the sprinkler under a microscope and compared it to
an exemplar sprinkler. Based on this comparison, Dr.
Gland concluded there was no evidence that the subject
sprinkler was defective. Dr. Gland also saw foreign fibers
and “witness marks” near where the glass bulb had been,
which suggested to him that someone had applied force or
removed the sprinkler after it had been installed. He could
not eliminate the glass bulb as the cause of activation,
given that the bulb had shattered and was missing.
On September 30, 2004, St. Paul stepped into Johnson
Bank’s shoes via subrogation and filed a four-count
complaint, including a claim for breach of warranty,
against Viking in Wisconsin state court. Viking removed
the case to federal court on diversity grounds and the
parties agreed to proceed before a magistrate judge. Viking
then moved for summary judgment, which the magistrate
judge granted, concluding that a lack of privity between
Viking and Johnson Bank barred St. Paul’s breach of
warranty claim. The parties also filed cross-motions to
exclude their adversaries’ expert witnesses, but in light of
the summary judgment grant, these motions were denied
as moot.
St. Paul now appeals the grant of summary judgment on
its breach of warranty claim.2 It also appeals the magistrate
judge’s denial of its motion to exclude the expert testimony
of Viking’s expert, Dr. Gland.
2
St. Paul also raised tort claims for negligence and strict
liability, and a false advertising claim under the Wisconsin
Deceptive Trade Practices Act, but it has abandoned these
claims on appeal.
No. 07-1948 5
II. ANALYSIS
A. A lack of privity between Johnson Bank and Viking
bars St. Paul’s breach of warranty claim.
Both St. Paul and Viking agree that “Wisconsin law
requires privity of contract between the parties before
liability can be founded on breach of express or implied
warranty.” Twin Disc, Inc. v. Big Bud Tractor, 582 F. Supp.
208, 215 (E.D. Wis. 1984) (citing Paulson v. Olson Implement
Co., 319 N.W.2d 855 (Wis. 1982)). The magistrate judge
found that privity was lacking here because Viking’s
warranty was limited to the original purchaser
(Wenninger), and did not encompass Johnson Bank or, by
extension, its subrogee St. Paul. St. Paul challenges this
finding on the grounds that we discuss below.
1. There was no agency relationship between John-
son Bank and Wenninger that would establish
privity between Johnson Bank and Viking.
St. Paul first argues that privity exists between Johnson
Bank and Viking because Wenninger acted as Johnson
Bank’s agent when Wenninger bought the sprinklers from
Viking. To establish agency under Wisconsin law, a
principal must: (1) manifest an express or implied intent to
have another party act for him, (2) retain the right to
control the details of the other party’s work, and (3)
operate in a distinct occupation or business from the other
party. See James W. Thomas Constr. Co. v. Madison, 255
N.W.2d 551, 554 (Wis. 1977); Peabody Seating Co. v. Jim
Cullen, Inc., 201 N.W.2d 546, 549 (Wis. 1972). Here, the
record does not suggest that either of the first two require-
6 No. 07-1948
ments was met. The parties agree there is no evidence of
any agreement or any pre-accident contact between
Johnson Bank and Wenninger, let alone an arrangement
that would suggest the existence of an agency relationship.
St. Paul concedes that Johnson Bank did not even know
Viking sprinklers were installed until after the accidental
activation, and Johnson Bank’s corporate representative
testified that Johnson Bank never saw any warranty or
written materials from Viking before installation.
St. Paul makes much of the fact that Johnson Bank
eventually paid for the sprinklers, but presumably it paid
Mortenson (the general contractor) not Wenninger (the
subcontractor). At any rate, St. Paul does not explain how
this payment, without more, created an agency relation-
ship. Indeed, accepting St. Paul’s argument would essen-
tially allow any homeowner to sue a subcontractor on a
warranty claim, even though no contract exists between
them. Such an approach would be inconsistent with
existing Wisconsin law. See, e.g., Linden v. Cascade Stone Co.,
699 N.W.2d 189, 199 (Wis. 2005) (“[H]omeowners retain
contractual remedies against the general contractors, who
in turn have their own remedies against the subcontrac-
tors.”).
St. Paul twists this argument a bit and notes that Wis.
Stat. § 779.01 gives a subcontractor a lien on the property
on which the subcontractor works. St. Paul reasons that
this lien shows that Johnson Bank was the real party
purchasing the Viking sprinkler heads. This argument does
not make sense. Whether a statute creates a lien by opera-
tion of law to protect a subcontractor’s rights has no
bearing on whether the landowner (Johnson Bank) is in
No. 07-1948 7
privity of contract with a manufacturer (Viking) whose
product is being used by the subcontractor (Wenninger).
See Hunzinger Constr. Co. v. SCS of Wis., Inc., 694 N.W.2d
487, 490 (Wis. Ct. App. 2005) (“A general purpose of [the
construction lien] laws is to ensure the payment of con-
struction project subcontractors and material suppliers.”);
see also id. at 491 (“[A] construction lien is a matter in rem
and not in personam. Absent a contractual relationship
between the lienor and the property owner, a personal
judgment against the property owner cannot be main-
tained.”).
On the second prong of the agency test, St. Paul suggests
that the magistrate judge confused Johnson Bank’s admit-
ted decision not to control the details of Wenninger’s work
with Johnson Bank’s right to control those details. But St.
Paul does not explain how Johnson Bank retained a “right
to control” Wenninger’s work—for example, St. Paul does
not cite to any provision of the Mortenson contract show-
ing that Johnson Bank had the right to override a subcon-
tractor’s choice of materials. St. Paul persists that Johnson
Bank told Mortenson only to use high quality products that
have a warranty. But at best this shows that Johnson Bank
had some control over Mortenson; it does not show that
Johnson Bank had any control over Wenninger, who
actually bought the sprinklers and was covered under
Viking’s warranty.
St. Paul also maintains the existence of an agency rela-
tionship is a factual question that should be left to a jury.
But as we have seen, there is no evidence in the record to
suggest that Wenninger acted as Johnson Bank’s agent. So
8 No. 07-1948
there is no genuine factual dispute on this issue and no
reason for it to proceed to a jury. See, e.g., Beer Capitol
Distrib. v. Guinness Bass Imp. Co., 290 F.3d 877, 879 (7th Cir.
2002).
2. There is no equitable basis to find privity here.
St. Paul also raises what appears to be an estoppel
argument, claiming that Viking acted as if St. Paul were
covered by the warranty policy by sending St. Paul letters
denying liability. St. Paul does not cite (and there does not
appear to be) any Wisconsin case law discussing whether
privity of contract can be established by estoppel. Indeed,
we doubt whether estoppel even makes sense here, given
that there was no relationship (contractual or otherwise)
between Viking and Johnson Bank when the sprinklers
were purchased and no good reason for St. Paul to believe
that Viking’s warranty extended to Johnson Bank. But even
if estoppel could apply here, St. Paul has not shown why it
should apply, as St. Paul has not demonstrated any
detriment that it incurred because of Viking’s alleged
actions toward it. See Russ v. Russ, 734 N.W.2d 874, 885
(Wis. 2007) (“The elements for equitable estoppel include
(1) an action or non-action that induces (2) reliance by
another, either in the form of action or non-action, (3) to his
or her detriment.” (emphasis added)).
3. The privity requirement for warranty claims still
exists under Wisconsin law.
Finally, St. Paul claims that Wisconsin law is evolving
toward eliminating the privity requirement for remote
No. 07-1948 9
purchasers of products. St. Paul believes this requirement
is unfair and outmoded, and may leave remote users
without a remedy given Wisconsin’s recent expansion of
the economic loss doctrine, which bars tort claims sound-
ing in contract. See Daanen & Janssen v. Cedarapids, Inc., 216
Wis. 2d 395, 397 (1998). St. Paul also notes that other states
have eliminated similar privity requirements. See, e.g.,
Spring Motors Distrib., Inc. v. Ford Motor Co., 489 A.2d 660,
676 (N.J. 1985).
Whether fair or not, the most recent pronouncement by
the Wisconsin Supreme Court on this issue suggests that
privity of contract still applies for warranty claims like the
one here, even if there is no corresponding tort claim. See
Daanen, 216 Wis. 2d at 402 (economic loss doctrine bars tort
claims even when there is no privity of contract). We
decline St. Paul’s invitation to step ahead of our colleagues
on the Wisconsin courts to change the status quo. See
Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1093
(7th Cir. 1999) (“Lacking any inherent power to make state
law such as a state court might have . . . a federal court
must be careful to avoid the temptation to impose upon a
state what it, or other jurisdictions, might consider to be
wise policy.”). It is far from clear that the privity require-
ment leads us to an “unfair” outcome here, as St. Paul
could have avoided its troubles simply by suing the
general contractor, Mortenson, with whom Johnson Bank
had contracted.
10 No. 07-1948
B. The magistrate judge did not abuse his discretion in
allowing Viking’s expert to testify.
Because St. Paul’s breach of warranty claim against
Viking is barred as a matter of law, we merely note in
passing that we also reject St. Paul’s alternate argument
that the magistrate judge abused his discretion in allowing
Viking’s witness, Dr. John Gland, to testify as an expert.
Dr. Gland’s extensive experience in microscopy was
certainly relevant to his testimony that wear and tear on
the sprinkler suggested the possibility of tampering. And
there was nothing problematic about Dr. Gland’s use of
process of elimination in reaching this conclusion. See Jahn
v. Equine Servs., PSC, 233 F.3d 382, 390 (6th Cir. 2000) (“In
order to be admissible on the issue of causation, an expert’s
testimony need not eliminate all other possible causes of
the injury. The fact that several possible causes might
remain ‘uneliminated’ only goes to the accuracy of the
conclusion, not to the soundness of the methodology.”
(internal quotation marks, omission, and citation omitted)).
Moreover, while some of the foreign fibers that Dr. Gland
observed might have been visible to the naked eye (and
hence, as St. Paul notes, visible to jurors), that doesn’t
necessarily mean there was no need for an expert. Indeed,
the significance of the fibers might not have been clear
absent expert testimony, especially since St. Paul’s expert
did not identify the fibers in his report.
No. 07-1948 11
III. CONCLUSION
The judgment is A FFIRMED.
8-21-08