## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

____________ N o. 07

- 1948 S T . P AUL M ERC URY I NSURANCE C OMPAN Y, Plai nt i f f

-Appe l l ant, v.
T HE V I KI NG C ORPO RA T I ON, D efend a nt-A pp ellee
.

____________ A pp eal from the United S t ates Di strictC our t fo r the E astern Di stricto f Wisc onsin
. No . 04 C1124

—WilliamE. C alla han, Jr. , Magis trate Judge
.

____________ A RG UE D N OVE MBE R 9, 2007

— D ECI DE D A UGUS T 21, 2008

____________
Befo re B AUER, M A NI ON, a nd W I L L I A MS, C ircu it Judges . W I L L I A MS, Cir cu i tJudg e . S t. PaulM er cury I nsurance Com pany sued The V i ki ng Cor pora ti on, a fi re sprinkl er m an u fac tu re r, for b re ac h of w ar r a n t y ov er an alleg ed ly defe cti ve spri nkl er that dam age d a bui l ding own ed by St
. Pa ul ’ s i ns ur ed, J o hns o n Ba nk
. Be ca us e th er e was no ag r ee m en t be twe enJ o hn so n Ba nka nd Vi k i ngwhenthe spri nkl erwas pu rchas ed, pri vi ty ofco ntra ct di d not e xi st,2 N o. 07

- 1948

so w e c on c lu d e t h at th e m ag ist ra te ju d g e p ro p er ly gr anted sum m ar y j ud gm ent in f avo r ofVi ki ng.

I . B AC KGR OUND O n Octobe r 25, 20 02, a fi re sprinkl erm anufa cture d by V ikin g becam e a cti vate d at the J ohnson Bank Buil ding in Raci ne, W i sco nsi n. Thi s was n ot supp ose d to happ en, since th er e was no fi r e. The wat erdi d no t st o p g us hi ngunt i l the fi re departm ent a rr i ved to shut down the sy ste m , and by then, the w ate r had ser i ousl y dam age d the ba nk. A t the ti m e o fthe i nci dent, J ohnson Bank had occupi ed the ne w l y-bui l t bui l ding f oronlyabout s i x m onths. I t had c on tr ac te d w ith M .A . M or te n so n C o. to bu ild th e b an k; th is contr act had a one- yea r w ar ra nty effecti ve untilM ay 2003
. Mo r t e n s o n i n tu r n s u b c o n t r a c t e d w i th We n n i n g e r C o mp an y to i ns t a ll a fire sup p ression syst em , i nc lud ing fi re s pr i nk l e r s , wh i c h wa s a l s o u nd e r a o ne - y e a r wa r r a nt y effecti ve unti l M ay 2003
. A s a subcontra cto r, W enni ngerbo ught the spr i nkl er s for the fi re suppress i on s yst em fro m Viki ng. Thi s s pri nkl er contr act i ncl ud ed a o ne- yea r w ar ra nty forr epl acem ent o f defe cti ve spri nkl erheads, though thi s warr anty w as ex p li citly li m ited to th e ori ginal pu rch ase r , W en nin ger. The r e i s no ev i den ce tha t J o hns o n Ba nke ve r r ec ei ve d a ny w ar ra nty info rm ati on, adver ti si ng, o r othe r l i ter atur e fro m Vik i ng r ega rdi ng the sprinkl er s pri orto the acci dent. Aft erthe a cc i den t, J o hns o n Ba nk ’ s i ns urer, S t. Pa ul M er cury Ins ura nce Company, r ei m bur se d J o hns o n Ba nk fu lly for th e w at er d am ag e. S t . Pa u l th en as ke d an en gi-N o. 07

- 1948 3

W hen inac ti ve, the glas s bu lb fi t togetherw ith a s cre w to block 1 w ater th a twa s i n a c on ne c t e d p i pe . Th e bu lb c on t a i ne d a t em per atur e- s en sitive liqu id , w hich w as d esign ed to expand an d cau se the b u lb to b u rst w he n th e am b ient tem p era tu re ro se above a c er t ai n le vel
. T hi s w oul d the n pe rm i tthe wat ert o fl ow out and d ouse the heats ource. neer, J ohn M er tens, to exam i ne the sp rinkl erhead. A fter el i m i na tingmany po te nt i alc au se s, M er te ns a nd St. Pa ul concl ud ed that a d efecti ve gl ass bulb i n the spri nkl erm ost l i kel y c aused the spri nkl er to acti vate
. M er tens coul d not 1 elim in at e im p ro p er ins ta llat ion or h an d lin g a s p os s ible causes . Vi k i ng ’ s M an ag erofTe ch ni ca l S er vi ce s, Ge o r g e W i r sc h, al so i nspected the s pr inkl er . A ccor ding to W i rs ch ( w ho had i nspected hund re ds ofact i vate d spri nkl er s in hi s tw entyfi ve yea rs o f experi ence) , a spri nkl er head w i l l acti vate f or on ly on e o ff our re aso ns: ( 1) heat, ( 2) m echani caltr aum a, ( 3) i ce in the l i ne, o r ( 4) de fec ts in the w or km anshi p or m at er ials for th e s p rin kle r h ea d
. A lth ou gh W irs c h co u ld no t det er m i ne whatha d c au se d the s pr i nk l ert o a ct i va te , he cl ai m ed not to see any evi dence ofi m properinst al l ati on o r m ec h an ica l tr au m a, an d c ou ld n ot elim in at e d efe c t s in w or km anshi p orm ate ri al s a s pos sibl e ca uses. Vi k i nga l so a sk ed an o th eri nd i vi dual, Pr o fes so r J o hn G lan d , to in sp e c t t h e s p rin kle r. D r. G lan d h as a P h .D . in phy si ca l c he m i st r y a nd t wel ve y ea r s o fe xpe r i en ce c o ndu cti ng m i cro sco pic anal ysis o f m ate ri al s in the pri vate sect or. A lthou gh he d id n o t h ave a ba ckgrou nd i n fir e prot ecti on s yst em s, he ha d w or ked on thre e othe r spri nkl er a c t i v a t i o n c a s e s . As p a r t o fh i s a n a l y s i s , Dr
. Gl a n d e x a m-4 N o. 07

- 1948

St. Pau l als o rai se d tort cl aim s f or negli gence and st ri ct 2 liab ility, and a false a d v ertising claim un d er th e W iscon sin D ecep tiv e T ra d e P rac tices A ct, b u t it has ab an d on ed these claim s on ap p eal. i ned the spri nkl eru nd era m i cro sco pe and co m pared i t t o an ex em p lar sp rinkler. B ased on this com p arison, D r. Gland concl ud ed ther e was no evi dence thatthe subj ect sp rinkler w as d efective. D r. Glan d also saw f oreign fibers an d “wi tn es s m ar k s” nea r w he r e the gl as s bu lb ha d b ee n, w hi ch sugg est ed to hi m that som eone had appli ed f or ce o r re m ov ed th e s p rin kle r aft er it h ad be en in st alle d . H e c ou ld no t el i m i na te the g l as s bulb as the c au se o fa ct i va ti o n, gi ven that the bulb had shat ter ed and w as m i ssing. On Septem ber30 , 20 04, S t. Paulst epped i nto J ohnson Ban k ’ s sh o es v i a su br o g at i o n a nd fi l ed a f o ur - co unt com pla i nt, i ncl ud i ng a cl ai m f orbr ea ch ofwarra nty, aga i nst Vi ki ng i n W i sco nsi n sta te cour t. Vi ki ng r em ove d th e ca se t o fede r alc o urt on d i ve r si tyg r o unds a nd the par ti es a g r ee d t o pr o ce ed be f o r e a m ag i st r at e j udg e. Vi k i ng then m ove d fo r sum m ar y j ud gm ent, w hi ch the m agi str ate j ud ge gr anted, co ncl ud i ng tha t al ack ofpri vi ty between Vik i ng and J ohnson Bank b ar re d St. Paul ’ s br each o f w ar ra nty c l ai m . The part i es al so fi l ed cr oss - m oti ons to excl ud e thei r advers ar i es’ exper t witnesse s, bu t in l i ght o f the s um m ar y j ud gm ent g ra nt, thes e m oti ons w er e deni ed as m oo t. St
. Paul now appeal s the gr ant of sum m ar y j ud gm ent o n i ts bre ach o fwarra nty c l ai m . I t a l so appeal s the m agi str ate 2 j udg e’ s den i alofi ts m o ti o n to exc l ude the e xpe r t te st i m o ny o fV i k i ng ’ s e xp e r t, Dr
. Gl a nd
.N o. 07

- 1948 5 II. A N A L Y S IS A. A l a c k o fpr i v i tybe t we e n J o hns o n B a nk a nd Vi ki ng b a r s S t . P a u l ’ s b r e a c h o fwa r r a n tyc l a i m. Both S t. Pauland V i ki ng ag re e that “ W i sco nsi n l aw requ ires privi ty of con tract b etw een the p arties before l i abi l i ty can be f ounded o n br each o fexpre ss ori m pli ed w arranty. ” Tw i n Dis c, Inc . v. BigBud Trac t or, 5 8 2 F
. S up p. 208, 21 5 ( E.D. W i s. 19 84) ( ci ti ng Paul s on v. O l s on Im pl e m e nt Co. , 31 9 N
. W
. 2d 855 ( W i s. 19 82 )). The m agi str ate j ud ge foun d th at p rivi ty w as lacking he re bec au s e Viking’s w ar ra nty was l i m i ted to the o r i g i na l purchase r ( W enni nger ) , and did notenco m pass Jo hnson B ank or, by ex te n sio n, i ts su b ro ge e S t. P au l. St . Pa u l ch alle n ge s t h is fi n d i n go n th e g r o u n d s th a twe d i s c u s s b e l o w.
1 . Th e r e wa s no ag e nc yr e l a t i o ns hi p be t we e n J o hnson Bank a n d W enn i ngert hat w ould es t abli sh pri vi ty betw een J ohnson Bank and V i king. S t
. P a ulfi r s ta r g ue s tha tp r i v i t y e xi s t s b e t we e n J o hn s on Bank and Vik i ng be cause W enni ngeract ed as J ohnson Bank’s age nt w hen W enni ngerbo ught the spr i nkl er s fro m Vik i ng. To est abl i sh age ncy und er W i sco nsi n law , a pri nci pal m ust: ( 1) m ani festan express ori m pli ed i ntent to have an ot h er p ar ty act f orhi m , ( 2) r eta i n the ri ght t o contr olthe detai l s o fthe oth er p ar ty’ s work, and ( 3) oper ate i n a di stinct o ccupati on or busi ness f ro m the othe r p ar ty
. See Jam e s W. Thomas Con s t r . Co. v. M adi s on , 25 5 N .W .2d 55 1, 55 4 (W is. 19 77 ); P eab o d y S eating C o. v. Ji m C ulle n, Inc. , 2 01 N. W
. 2d 54 6, 5 49 ( W i s. 1 972)
. H ere, th e re cor d does no t s ugges t that e i thero fthe fi rs t tw o re quir e-6 N o. 07

- 1948

m ents w as m et. The part i es agr ee th er e is no evi dence of any a gr eem ent o r an y pr e- acci dent cont act between J o hns o n Ba nka nd W ennin ger, l eta l o ne a n a r r an g ement tha two ul d s ug g e s tth e ex i s t e nc e o fa n a g e nc y r e l a t i o ns hi p. St
. Paulc on cedes that J ohnson Bank did notev en kno w Vik i ng spr i nkl er s were i nstal l ed unti l afterthe acci dental acti vati on, and J ohnson Bank’s corp or ate r epres entat i ve tes ti fi ed that J ohnson Ba nk neve r saw any warra nty o r wri tt enmate r i al s f r o m Vi k i ngb efo r e i ns ta l l at i o n. S t. Pa ulmake s m uchof the f ac t th atJ o hns o n Ba nk ev en tu ally p aid for th e s p rin kle rs , bu t p re su m ab ly it p aid M o r te ns on (the g en er alc o nt r ac to r ) no t W enni ng er( th e subcontr acto r)
. A t a ny ra te, S t. Pauldoes notexpl ai n how th i s pay m en t, wi th o utmor e, c r ea te d a n a g en cyr el at i o nsh i p. Inde ed, a cc ept i ngS t. Pa ul ’ s ar g um en t woul d e ss en ti al l y a l l o w a ny ho m eo wnert o s ue a s ubc o nt r ac to r o n a w ar ra nty c l ai m , ev en tho ugh no c on tr act exi sts betw een them
. S uch an approa ch w ou l d be inconsi ste nt with ex ist in g W isc on sin law
. Se e, e . g. , Li nde n v . Cas ca deSt oneCo. , 69 9 N .W .2d 18 9, 19 9 (W is. 20 05 ) (“[ H ] o m eo w n er s re ta in co nt r ac tu alre m edi es ag ains t the ge ne r alc o nt r ac to r s, who i n turn have thei r own r em edi es aga i nst the subco ntra ctors.”). St
. Paultwis ts th is ar gum ent a bi t a nd not es that W i s. St at. § 779. 01 gi ves a s ubcontr acto r a l i en o n the proper ty on wh i ch the subcontr acto r w or ks. S t. Paulr eas ons that th i s l i e n s ho ws tha t J o hn s o n Ba nk wa s the r e a l part y pu rchas i ng the Vi ki ng spr i nkl erheads
. T hi s a r gum ent doe s not m ake se nse. W hether a sta tute cre ate s a l i en byo perati o n o fl aw t o pr o te cta s ubc o nt r acto r’ s r i g ht s ha s no b ea rin g on w h et h er t h e la n d ow n er (Joh n so n B an k) is inN o. 07

- 1948 7 pri vi ty ofco ntra ct with a m an ufa cture r ( Vik i ng) wh ose p rod uc t is being u sed by the sub con tracto r ( W en nin ger). See H unzinger C onstr
. C o . v. SCS of Wis
. , Inc. , 69 4 N
. W
. 2d 487, 49 0 ( W i s. Ct. A pp . 20 05) ( “ A gener alpur po se o f[ th e co ns t r u c t i o n l i e n ] l a ws i s t o e n s u r e th e p a y me n t o fc o nstru ction p roj ect su bcon tracto rs an d m aterial su p p li ers.”) ; see also i d. at49 1 ( “[ A ] c onst ructi on l i en i s a m att eri n re m an d n otin p er so n am . A b se n t a co n tr ac tu al re lat ion sh ip b et w ee n the l i enorand the proper ty own er, a perso nal j udg m en t ag ains t the p r o per tyo wnerc anno t be mai ntained
. ”). On the se cond prong ofthe age ncy t est, S t. Paulsugg est s that the m agi str ate j ud ge confused J ohnson Bank’s adm i tted de cision not to con trol th e d etails of W en nin ger’s w ork w i th J ohnson Bank’s r i ght t o contr oltho se d etai l s. But St
. Pa uldo es no t ex pl ain h o w J o hns o n Ba nkre ta i ne d a “ r i g ht to con trol” W en nin ger’s w ork

— f orexam ple , St. Pauldoes n o tc i t e t o a n y p r o v i s i o n o fth e Mo r t e n s o n c o n t r a c ts h o wi ngtha t J o hns o n Ba nkha d the r i g htt o o ve r r i de a su bc o ntr acto r’ s cho i ce o fm ate ri al s. St. P aul per si sts thatJ ohnson Bank to l d M or tenso n onl y t o use hi gh qual i ty products that ha ve a w ar r an ty
. But a t be stthi s sh o ws tha t J o hns o n Ba nk had som e co ntro l o verM or tenso n; i t doe s no t s how that John son Ba nk had any con trol over Wenn ing er, who actually b ought the s pri nkl er s a nd was cov er ed und er Vik i ng’ s warr anty. St
. Paulal so m ai ntai ns th e ex i ste nce o fan a gencyr el ati onshi p i s a f actualquest ion t h at sho uld be l eft t o a j ury. Bu t as w e hav e s een, ther e i s no ev i dence i n the re cor d to su ggest th at W en nin ger acted as John son Ba nk ’s agent
. So8 N o. 07

- 1948 th er e i s no g en ui ne f ac tu aldi spu te o n thi s i ss ue a nd no re as on for it t o p r o c e e d t o a j u ry . Se e, e . g. , Bee rCapi t ol D i s t r i b
. v. G ui nnes s B as s Im p. Co. , 290 F. 3d 877, 879 (7th C ir. 2002 ).

2. Th er e i s no e qu i t able basi s t o f i nd pr i vi ty her e. St
. Paulal so ra i ses wh at appears to be an es toppel argu m en t, claim ing tha t Vikin g acted as i f St. Pa ul w ere cove red by the w arran ty p oli cy by sen d ing St. Pau l letters denyi ng l i abi l i ty. S t. Paul does not ci te ( and ther e doe s no t appear t o be) any W i sco nsi n case l aw di scuss in g whether pr i v i t y o fc o nt r a c tca n b e es t ab l i s he d b y es t o pp e l
. Ind e e d, w e d o ub twh e the r e s t o pp e l e v e n mak e s s e ns e h e r e , g i v en that ther e was no re l ati onshi p ( contr actualo r othe rw i se) betw een Viking an d J ohn son Ba nk w he n th e sp rink le rs w er e purchas ed and no g oo d rea son f orS t. Paul to bel i eve that Vik i ng’ s warr anty extended to J ohnson Bank. Bu t e ven if es to p p el c ou ld ap p ly h er e, St . P au l h as n ots h ow n w h y it sh o uld appl y, a s S t. Pa ulha s no t demons tr at ed an y detri m ent that i t incurr ed beca use o fV i ki ng’ s a l l ege d ac tio n s t ow ar d it. See R uss v . R uss , 73 4 N
. W
. 2d 874, 88 5 ( W i s. 2 0 0 7 ) ( “ Th e e l e men t s f o r e qu i t ab l e e s t o pp e l i nc l ud e ( 1) an acti on o r non- acti on that ind uces ( 2) r el i ance b y an oth er, either i n th e form of action or n on-ac tion, (3) to his orhe rde t r i m e nt
. ” (em p ha sis add ed ))
.
3. T h e p ri vity requ ir em en t for w arr an ty clai m s stil l e x i s t s u n d e rWi s c o n s i n l a w. F i na l l y, S t. Pa ul cl ai m s th at W i sc o ns i n l aw i s evolvi ng toward el i m i nati ng the pri vi ty re quir em ent f or rem oteN o. 07

- 1948 9 pur ch as er s o fpr o duct s. St
. Paulbel i ev es thi s r equi r ement is unfai r and outm od ed , and m ay leave rem ote u sers w i thout a r em edy g i ven W i sco nsi n’s r ecentexpansi on o f the e c o no mi c l o s s do c t r i ne , wh i c h b a r s t o r tc l a i ms s o un din g in co n tr ac t. See D aan en & Jansse n v. Cedarapids, Inc. , 21 6 W i s. 2d 39 5, 39 7 ( 1998 )
. S t. Paulal so note s that o therst ate s h av e elim in at ed sim ilar p riv i t y r eq u ire m en ts
. Se e, e . g. , Spr i ng M ot ors D i s t r i b
. , Inc
. v. For d M ot orCo. , 48 9 A.2 d 660, 676 (N
. J. 1985). W hetherf ai r ornot, the m ostr ecentpro nouncem ent b y the W i sco nsi n Suprem e Cour t o n thi s i ssue sugge sts that pr i vi tyo fc o nt r ac t s ti l l appl i es f o r war r an tyc l ai m s l i k e th e on e h er e, ev en if t h e r e i s n o c or re sp on d in g t or t c laim
. See D a a nen , 216 W is. 2d at 402 (econ om ic loss d octrine ba rs tort c l a i ms e v e n w h e n th e r e i s n o p r i v i t y o fc o n t r a c t )
. We decl i ne St. P aul ’ s invi tat i on t o ste p ahead ofo ur co l l eagues on th e W isc on sin co u rt s t o c h a n g e t h e s ta tu s q u o. See Lexington Ins
. Co
. v. Rugg & Kno pp, Inc. , 165 F
. 3d 1087, 10 93 ( 7th Ci r. 19 99) ( “Lacki ng anyi nherentp ower to m ake st ate law suc h as a st a t e c o u r t m ight ha ve . . . a fed eral court m us t be ca r efult o a vo i d the t empta ti o n t o i m po se upo n a sta te w h at i t, o r othe r j uri sdic ti ons, m i ght c onsi der t o be w i se pol i cy. ”)
. I t i s f arfro m cl eartha t th e pr i vi ty re quir em en t l ea ds us t o a n “ unf ai r ” o utcom e he r e, a s S t. Pa ul co ul d ha ve a vo i ded i ts trou bl es s i m pl y b y s ui ngthe g en er alc o nt r ac to r, M o r te ns o n, wi thwho m J o hns o n Ba nk ha d c o nt r a c t e d.10 N o. 07

- 1948 B. T h e m agistrat e jud ge d id not ab u se h is disc reti on i n al l ow i ng V i king’ s ex pertt o t est i fy. Because S t. Paul ’ s br each of w arranty c l ai m ag ai nst V ikin g is b ar re d as a m at te r o f law , w e m er ely n ot e in pas singtha t we a l so r ej ec t S t. Pa ul ’ s alte r na te a r g um en t th atthe magi st r at e j udg e ab us ed hi s di sc r et i o n in a l l o wi ng Vik i ng’s witness, Dr. J ohn Gla nd , to te sti fy a s a n expert
. Dr. Gla nd ’ s e xtensi ve experi ence in m i cro sco py w as cer tainl y r el evantto hi s t est i m ony that w earand tea r on th e s pr i nk l ers ug g es te d the po ss ibi l i tyo ft amper i ng . And ther e was nothin g p ro bl em ati c ab out Dr. Gla nd ’ s use o f p ro c es s of e lim in at ion in re ac h in g t h is c on c lu sio n . See Jahn v. Equ i neSe r vs . , PSC, 23 3 F.3d 38 2, 39 0 (6th C ir. 2 0 0 0 ) (“In ord er to be ad m issible on th e issue of cau sation, an ex p ert’s tes ti m ony need not el im i nate al l o therposs ibl e ca uses of th e i nj ur y . The f ac t th ats ev er alpo ssible c au se s m i g ht r emai n ‘ une l i m i na te d’ o nl y g o es t o the a ccura cyo fthe c on c lu sio n, no t t o th e s ou n d n es s o f th e m et h o d olo gy .” (int erna l qu ota t io n m a r k s , om is s io n, a n d c it a t io n om it ted ))
. M o r eo ve r, whi l e so m e o fthe f o r ei g n fibe r s th atDr
. Gl an d o bs er ve d m i g ht h ave be env i sibl e to the na k ed ey e ( an d he nc e, as St. Pa ul note s, visible to j urors), th at d oesn ’t ne c e s s a r i l y mea n the r e wa s no ne e d f o r a n e xp e r t
. Ind e e d, the s i gni fi cance ofthe fiber s m igh t no t hav e be en cl ear abs en t exp ert testim ony , esp e c ia lly si nc e St. Pau l’ s exp ert did noti denti fy the fiber s in hi s r epor t.N o. 07

- 1948 11 I I I . C ONC L US I ON The j ud gm ent i s A FFI RMED .

8- 21- 08