Court Opinion

ID: 3001448
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:16:51.077581+00
Date Added: 2024-06-11T12:19:07.152473
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 07-2209
JAMES J. FOSKETT, MARY C. FOSKETT and PHYSICIANS’
BENEFITS TRUST LIFE INSURANCE CO.,
                                              Plaintiffs,
                           v.

GREAT WOLF RESORTS, INC., GREAT BEAR LODGE OF
WISCONSIN DELLS, LLC and GREAT LAKES SERVICES, LLC,
                 Defendants/Third-Party Plaintiffs-Appellees,
                               v.

BLACK WOLF LODGE, LLC, TALL PINES RENTAL,
LLC, N/K/A J&A REAL ESTATE VENTURE, LLC,
TALL PINES REALTY, LLC, ET AL.,
                          Third-Party Defendants-Appellants.
                        ____________
         Appeal from the United States District Court for
               the Western District of Wisconsin.
            No. 06 C 0503 S—John C. Shabaz, Judge.
                        ____________
    ARGUED DECEMBER 6, 2007—DECIDED MARCH 5, 2008
                        ____________

  Before EASTERBROOK, Chief Judge, and CUDAHY and
RIPPLE, Circuit Judges.
2                                               No. 07-2209

  CUDAHY, Circuit Judge. This case emerges from the
sale of a Wisconsin water park by Black Wolf Lodge, LLC
(Black Wolf), Tall Pines Rental, LLC, Tall Pines Realty, LLC
and Tall Pines Development of Wisconsin Dells, LLC
(collectively, Sellers) to Great Bear Lodge of Wisconsin
Dells, LLC (Buyer).1 The asset purchase agreement for the
transaction required the Sellers to indemnify the Buyer
against claims resulting from pre-closing acts, omissions or
events and required the Buyer to indemnify the Sellers
against claims resulting from post-closing acts, omissions
or events. Almost seven years after the transaction was
completed, the Buyer was sued by a park visitor who
allegedly was injured on one of the park’s attractions. The
Buyer sued the Sellers for contributory negligence and the
Sellers tried to invoke their right to indemnification under
the asset purchase agreement. After the Buyer refused to
indemnify the Sellers, the Sellers counterclaimed for
indemnification. Both parties moved for summary judg-
ment on the indemnification issue. The district court
found that the Buyer’s contributory negligence claim
resulted from the Sellers’ allegedly negligent pre-closing
design, installation and maintenance of one of the rides. As
a result, the court concluded, the Sellers were not entitled
to indemnification under the agreement. The Sellers ap-

1
  The Third Party Plaintiffs in this case include Great Wolf
Resorts and Great Bear Lodge; the Third Party Defendants
include Black Wolf Lodge; and the water park attraction
involved in the case is the Tree Wolf slide at the Great Wolf
Lodge water park. With the various wolves and bears in-
volved in this case, our opinion could begin to sound like a
twisted version of a Grimm Brothers’ fairytale. For the sake
of clarity, we refer to the parties as simply “Buyer” and
“Sellers.”
No. 07-2209                                                    3

peal that decision. We reverse and direct that judgment
be entered in favor of the Sellers.

                       I. Background
   Prior to 1999, Black Wolf owned and operated a
water park and resort in Lake Delton, Wisconsin. In 1998,
a new attraction, the Tree Wolf slide, was constructed at
the park. In November 1999, the Buyer purchased the
water park. The Buyer agreed to purchase the assets “as-
is,” subject to exceptions expressly included in the asset
purchase agreement. For their part, the Sellers repre-
sented that they were “in compliance with all applicable
Laws and Orders” and that they “ha[d] not received notice
of any violation or alleged violation of any Laws or
Orders.” The Buyer agreed to assume the following
liabilities of the Sellers:
   2.1.(a) Furniture, Fixture and Equipment Orders. Sellers’
   obligations to purchase furniture, fixtures and equip-
   ment on order as of the Closing Date.
   2.1.(b) Contractual Liabilities. Sellers’ Liabilities relating
   to the period beginning with the Closing Date under
   and pursuant to the Contracts.
   2.1.(c) Liabilities Under Permits and Licenses. Sellers’
   Liabilities arising on and after the Closing Date under
   any permits or licenses listed in Schedule 4.9(b) and
   assigned to Buyer at the Closing.
   2.1.(d) Prorated Liabilities. Liabilities of Sellers for
   which Buyer receives a credit against the Purchase
   Price (as defined below) at Closing.
Section 2.2 of the agreement expressly limited the Buyer’s
assumption of liabilities:
4                                                 No. 07-2209

    2.2 Liabilities Not to be Assumed.
    Except as and to the extent specifically set forth in
    Section 2.1, Buyer is not assuming any Liabilities of
    Sellers and all such Liabilities shall be and remain the
    responsibility of Sellers. Without limiting the gener-
    ality of the foregoing sentence, Buyer is not assuming
    and Sellers shall not be deemed to have transferred
    to Buyer the following Liabilities of Sellers, except
    to the extent specifically set forth in Section 2.1:
    ***
    2.2.(e) Violation of Laws or Orders. Liabilities of Sellers
    for any violation of or failure to comply with any
    applicable statute, law, ordinance, rule or regulation
    (collectively, “Laws”) or any order, writ, injunction,
    judgment, plan or decree (collectively, “Orders”) of
    any court, arbitrator, department, commission,
    board, bureau, agency, authority, instrumentality or
    other body, whether federal, state, municipal, foreign
    or other (collectively, “Government Entities”).
  As in any asset sale, the parties had to agree on how to
allocate the risk that any of the assets were defective
and the risk that claims, particularly tort claims, would
be brought against either party after the transaction’s
closing date. To this end, the agreement also included
the following indemnification provisions:
      10.1 By Sellers.
      Subject to the terms and conditions of this Section 10,
    Sellers shall, jointly and severally, indemnify, defend
    and hold harmless Buyer, and its directors, officers,
    employees and controlled and controlling persons
    (hereinafter “Buyer’s Affiliates”), from and against
No. 07-2209                                               5

   all Claims (as hereafter defined) incurred by Buyer,
   Buyer’s Affiliates, the Business or the Purchased Assets
   by reason of or resulting from:
     10.1.(a) the material inaccuracy or breach of any
   representation or warranty of Sellers contained in
   or made pursuant to this Agreement;
     10.1.(b) the material breach of any covenant of Sellers
   contained in this Agreement;
     ***
     10.1.(d) any Claim of or against Buyer, the Purchased
   Assets or the Business resulting from acts, omissions or
   events occurring prior to the Closing Date, and not
   specifically assumed by Buyer pursuant to this Agree-
   ment;
     ***
    10.1.(f) any Claim of violation or infringement of
   Laws and/or Orders in existence as of the Closing
   Date;
     ***
     10.2 By Buyer.
     Subject to the terms and conditions of this Section 10,
   Buyer shall indemnify, defend and hold harmless
   Sellers, their officers, employees, Members and control-
   ling persons from and against all Claims incurred
   by any such person by reason of or resulting from: (a)
   the material inaccuracy or breach of any representation
   or warranty of Buyer contained in this Agreement;
   (b) the material breach of any covenant of Buyer
   contained in this Agreement; (c) any Claim of or
   against Sellers, the Purchased Assets or the Business
6                                                 No. 07-2209

    resulting from acts, omissions or events occurring on or
    after the Closing Date, except for Claims described
    in Sections 10.1(e) or 10.1(g) . . . or (f) all Claims of or
    against Sellers specifically assumed by Buyer pursuant
    hereto.
“Claim” is defined to include:
    (i) all Liabilities; (ii) all losses, damages, judgments,
    awards, penalties and settlements; (iii) all demands,
    claims, suits, actions, causes of action, proceedings
    and assessments; and (iv) all reasonable costs and
    expenses (including, but without limitation, reasonable
    attorneys fees and costs) of investigating, defending or
    successfully asserting any of the foregoing or of suc-
    cessfully enforcing this Agreement.
Section 10.5(a) of the agreement limits the Sellers’ indem-
nification obligations, providing that “[n]o claim or action
shall be brought against Sellers under this Section 10 after
the lapse of eighteen (18) months following the Closing
Date.” The parties agreed that Wisconsin law would
govern the Agreement.
  The closing occurred in November 1999 and the Buyer
subsequently assumed the operation of the water park.
Almost six years later, in August 2005, Dr. James Foskett
allegedly suffered serious and permanent injuries when
he struck the side of the Tree Wolf slide plunge pool.
He and his wife filed a lawsuit against the Buyer in 2006
alleging that the slide and plunge pool were unsafe as
designed and violated the Wisconsin Safe-Place Statute
and state regulations. The Buyer, in turn, filed a
third party complaint against the Sellers alleging that
Dr. Foskett’s injuries were caused by the Sellers’ negligent
“design, construction, installation, inspection, and/or
No. 07-2209                                                  7

maintenance of the subject Tree Wolf ride.” (R. 21 ¶¶ 12-
13.) The Buyer sought contribution from the Sellers in
the event that the Fosketts prevailed in their lawsuit.
In response, the Sellers invoked § 10.2’s indemnifica-
tion provision and tendered the defense to the Buyer.
When the Buyer refused to indemnify the Sellers, the
Sellers counterclaimed for indemnification.
  Both the Buyer and the Sellers subsequently settled
with the Fosketts and moved for summary judgment on the
indemnification issue. The Buyer argued that it is not
obligated to indemnify the Sellers against claims
arising from their own pre-closing negligence, namely,
the allegedly negligent design, construction, inspection,
installation and/or maintenance of the Tree Wolf slide.
Interpreting the indemnification provision in the context
of the entire agreement, the district court determined
that “the language does not require, and the parties
did not intend to require, [Buyer] to indemnify [Sellers]
for claims based on [Sellers’] alleged negligent conduct
prior to the sale.” Foskett v. Great Wolf Resorts, Inc., 501
F. Supp. 2d 1214, 1217 (W.D. Wis. 2007). The Sellers ap-
peal that decision.

                       II. Discussion
   We review grants of summary judgment de novo. Hicks
v. Midwest Transit, Inc., 479 F.3d 468, 470 (7th Cir. 2007). In
deciding a motion for summary judgment, a court must
view the evidence in the light most favorable to the non-
moving party. Id. On cross motions for summary judg-
ment, “we construe all facts and inferences therefrom
‘in favor of the party against whom the motion under
consideration is made.’ ” In re United Air Lines, Inc., 453
8                                                  No. 07-2209

F.3d 463, 468 (7th Cir. 2006) (quoting Kort v. Diversified
Collection Servs., Inc., 394 F.3d 530, 536 (7th Cir. 2005)).
Summary judgment is appropriate when “there is no
genuine issue as to any material fact and . . . the movant
is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(c).
  Because resolution of this case is a matter of contract
interpretation, we begin by noting that our goal is to
ascertain the intent of the parties by reference to the
language they used. See State ex rel. Journal/Sentinal, Inc. v.
Pleva, 155 Wis.2d 704, 456 N.W.2d 359, 362 (1990). We are
to give contractual terms the meaning “a reasonable per-
son would understand the words to mean under the
circumstances.” Seitzinger v. Cmty. Health Network, 270
Wis.2d 1, 676 N.W.2d 426, 433 (2004). “Words and phrases
cannot be considered in isolation; rather, the court must
consider the contract as a whole to provide each provision
with the meaning intended by the parties.” First Bank &
Trust v. Firstar Info. Servs., Corp., 276 F.3d 317, 322 (7th Cir.
2001) (citing Campion v. Montgomery Elevator Co., 172
Wis.2d 405, 493 N.W.2d 244, 249 (Ct. App. 1992)). A
contract must “be construed so as to give a reasonable
meaning to each provision of the contract” and so as to
avoid “render[ing] portions of a contract meaningless,
inexplicable or mere surplusage.” Goebel v. First Fed. Sav. &
Loan Ass’n of Racine, 83 Wis.2d 668, 266 N.W.2d 352,
358 (1978).
  With these principles in mind, we turn to the language
of the indemnification provision that the Sellers invoke.
Section 10.2 of the asset purchase agreement requires the
Buyer to indemnify the Sellers against claims “resulting
from acts, omissions or events occurring on or after the
Closing Date . . . .” The first question we must address,
No. 07-2209                                                   9

therefore, is whether the Buyer’s contribution claim against
the Seller “resulted from” a post-closing “act, omission
or event.” The Buyer argues that the contribution claim
“resulted from” the Sellers’ allegedly negligent pre-
closing design and construction of the Tree Wolf slide.
The district court agreed with the Buyer, interpreting
the phrase “resulting from acts, omissions or events
occurring on or after the Closing Date” as referring to
“conduct of the parties themselves which becomes the basis
for a claim.” Foskett, 501 F. Supp. 2d at 1217. We reject this
interpretation. Sections 10.1 and 10.2 of the asset purchase
agreement show that the parties intended to allocate the
risk of tort liability based on who had control over the
water park facilities when the claim arose.
   Even if the Sellers were negligent in their design and
construction of the Tree Wolf slide in 1998, at most there
existed only inchoate, potential liability until the accident
occurred in 2005. A negligence claim requires “an actual
loss or damage as a result of the injury.” Avery v. Diedrich,
301 Wis.2d 693, 734 N.W.2d 159, 164 (2007) (quoting
Nelson v. Davidson, 155 Wis.2d 674, 456 N.W.2d 343,
345 (1990)). Until the accident, there was no injury or
damage, and therefore no negligence claim. See also
Cremona v. R.S. Bacon Veneer Co., 433 F.3d 617, 621 (8th Cir.
2006) (“The precise event giving rise to a tort suit is the
event causing the actual injury or damages. . . . ‘[T]here
can be no tort liability without damage to persons or
property.’ ”) (citation omitted); Heil v. Morrison Knudsen
Corp., 863 F.2d 546, 550 (7th Cir. 1988) (“[A] tort is not
wrongful conduct in the air; the arrow must hit its
mark. . . . Until there is hurt, there is no tort.”) (discussing
Illinois law) (citation omitted). Dr. Foskett’s negligence
claim and the Buyer’s contributory negligence claim did
10                                               No. 07-2209

not result from allegedly negligent pre-closing acts but
from the post-closing accident. As a result, the Sellers
are entitled to indemnification by the Buyer.
   This reading of § 10.2 reflects the most plausible under-
standing of the parties’ risk allocation. If each party
really intended to assume liability for its own conduct, as
the district court believed, it makes little sense that the
Sellers’ indemnification obligations would expire eighteen
months after the closing. If the indemnification provi-
sions made each party responsible for its own conduct,
one would expect the Sellers’ indemnification respon-
sibilities for claims resulting from their pre-closing negli-
gence to exist in perpetuity, or at least as long as the
Buyer continued to own the water park. In addition, it
makes great sense that the parties would allocate the risk
of tort liability based on who was in a better position to
prevent events giving rise to claims. Prior to the closing,
the Sellers had ownership and control of the park and
were the parties with the power to make any necessary
safety-related improvements to the park’s attractions. After
the closing, however, the Sellers no longer had authority
to maintain or repair the park facilities. That authority
belonged to the Buyer. In light of these facts, it seems quite
reasonable that the Sellers would seek to limit their tort
liability after they surrendered ownership and control of
the park. See Cremona, 433 F.3d at 621-22 (noting “[i]t
certainly is sensible [the Seller] would contractually
limit its liability” once it no longer had control over the
injury-causing machine); Union Elec. Co. v. Sw. Bell Tele.
L.P., 378 F.3d 781, 786 (8th Cir. 2004) (“An agreement
making each of these large commercial entities responsible
for injuries to their own customers, agents, contractors
and employees is a sensible allocation of loss because
No. 07-2209                                               11

each is in a better position to protect and insure against
those losses . . . .”).
  While the Sellers’ incentive to seek indemnification
against negligence claims arising after the closing seems
obvious, the Buyer argues that it makes no sense for it to
indemnify the Sellers “for conduct that [the Buyer] had
no opportunity to control, e.g., the design and construc-
tion of the Tree Wolf slide, occurring a year prior to the
Closing Date.” (Appellee’s Br. at 14) (emphasis in original).
The Buyer’s argument might be more persuasive if the
agreement required it to indemnify the Sellers against
their own future negligent conduct. An indemnitor may
have difficulty anticipating whether an indemnitee will
behave negligently in the future and may not be in a
position to prevent negligent conduct that results in harm.
See Sutton v. A.O. Smith Co., 165 F.3d 561, 563 (7th Cir.
1999). But in this case, the Buyer took control of the
water park in 1999 and has had ample opportunity to
inspect the park’s facilities and to detect and fix any
defects that could give rise to tort liability, regardless of
what the Sellers may have done prior to the sale. The
interpretation we adopt not only represents a sensible
allocation of risk between the parties; it also has the
desirable effect of providing an incentive for the party
with control over the park to make it safe. If the Buyer
could forever turn to the Sellers as a source of funds
after an accident, it may not have as great an incentive to
spend money on repairs or improvements that could
prevent the accident from occurring in the first place. We
believe that sound “[p]ublic policy seeks to encourage
people to exercise due care in their activities for fear
of liability, rather than to act carelessly cloaked with the
knowledge that an indemnity contract will relieve such
12                                               No. 07-2209

indifference.” Lampe v. Genuine Parts Co., 463 F. Supp. 2d
928, 935 (E.D. Wis. 2006) (quoting Park Pride Atlanta, Inc. v.
City of Atlanta, 246 Ga.App. 689, 541 S.E.2d 687, 689 (2000)).
   In short, it seems implausible that the Sellers would
agree to an indemnification provision that left them
exposed to liability for injuries that may occur many
years after they lost the ability to prevent accidents like
Dr. Foskett’s. The indemnification provisions show that
the parties did not intend such an implausible allocation
of risk, agreeing instead that the Buyer would be re-
quired to indemnify the Sellers for claims arising after
the closing. Our reading of the indemnification provi-
sions does not, as the Buyer asserts, render meaningless
its right to indemnification under § 10.1. Rather, under our
interpretation the Buyer had eighteen months during
which it would be indemnified for any claims brought
after the closing that resulted from pre-closing accidents
or injuries. This is consistent with holding each party
liable for accidents that occur while it is in a position to
prevent those accidents. In addition, § 10.1 gave the Buyer
eighteen months to seek indemnification for costs it
incurred due to the Sellers’ breach of a representation
or warranty. Once the Buyer assumed ownership and
control of the park, however, it was in the best position
to prevent any injuries to visitors and thus, it was re-
quired to indemnify the Sellers against claims resulting
from post-closing events, like Dr. Foskett’s accident.
  The district court noted that its interpretation of the
indemnification provisions was consistent with the gen-
eral rule that a party will not be presumed to have indem-
nified another against claims based on the indemnitee’s
own negligence. Foskett, 501 F. Supp. 2d at 1217-18. There
exists an exception to this rule, however, where it is
No. 07-2209                                                 13

clear that the parties intended that the indemnitee be
covered even if the alleged losses are traceable to its own
negligent conduct. See Spivey v. Great Atl. & Pac. Tea Co.,
79 Wis.2d 58, 255 N.W.2d 469, 472 (1977). This case falls
within this exception. Reading the indemnification provi-
sions together, it is clear that they are intended to create
a workable system for allocating the risk that claims
would be brought against either party after the closing.
Adopting the Buyer’s interpretation would mean that if
Dr. Foskett’s accident had occurred six months after
the closing, each party could have demanded indem-
nification from the other; the Buyer could have demanded
indemnification because the accident “resulted from” the
Sellers’ alleged pre-closing negligence; and the Sellers
could have done so because the accident “resulted from”
the post-closing accident. This would lead to the absurd
result of each party’s indemnifying the other for the
same loss. See Kabes v. Sch. Dist., 270 Wis.2d 502, 677
N.W.2d 667, 671 (Ct. App. 2004) (noting that courts
should avoid interpreting contracts in ways that yield
absurd results). The only reasonable construction of the
contract is that for eighteen months the Sellers were
required to indemnify the Buyer for claims that arose
before the closing and the Buyer is required to indemnify
the Sellers from claims that arise after the closing, re-
gardless of whether the claim may be traced back to the
conduct of the Sellers before the Buyer assumed control of
the water park and many years before the accident
giving rise to the claim occurred. See Barrons v. J.H. Findorff
& Sons, Inc., 89 Wis.2d 444, 278 N.W.2d 827, 831 (1979)
(noting that courts will construe agreements to indemnify
a party against claims resulting from its own negligence
“if that is the only reasonable construction”).
14                                               No. 07-2209

  Although we believe the language of the indemnifica-
tion provisions clearly places the Buyer’s contributory
negligence claim within the scope of its indemnification
obligations, we address how our interpretation fits within
the context of the entire agreement to ensure that we
“giv[e] a reasonable meaning to every provision of the
contract” and avoid “leaving some of the language
useless or superfluous.” Kennedy v. Nat’l Juvenile Det.
Ass’n, 187 F.3d 690, 694 (7th Cir. 1999) (citing Heritage
Mut. Ins. Co. v. Truck Ins. Exch., 184 Wis.2d 247, 516
N.W.2d 8, 9 (Ct. App. 1994)). We disagree with the Buyer’s
assertion that our interpretation is inconsistent with the
assumption of liabilities set forth in §§ 2.1 and 2.2 of the
asset purchase agreement. Those sections state that the
Buyer assumes only the liabilities expressly included in
the agreement. Because those liabilities do not include
the Sellers’ tort liabilities, the Buyer asserts, requiring it
to indemnify the Sellers for the Sellers’ alleged negligence
would contradict these sections. The Buyer also points out
that § 2.2(e) expressly excludes from the liabilities the
Buyer assumed any liability for a “violation of or failure
to comply with any applicable” law and argues that
because Dr. Foskett’s complaint alleged that the Tree
Wolf slide was in violation of Wisconsin law, § 2.2(e)
precludes the Sellers from seeking indemnification for
post-closing injuries based on these alleged pre-closing
violations. It is clear from the language of the asset pur-
chase agreement that the limitations on the Buyer’s as-
sumption of liabilities described in §§ 2.1 and 2.2 do not
govern a negligence claim arising after the closing date.
Section 2.1 defines “Liability” as “any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unassert-
ed, liquidated or unliquidated, secured or unsecured.”
No. 07-2209                                               15

The definition does not include “potential claims” or claims
“existing or non-existing.” Since neither Dr. Foskett’s claim
nor the Buyer’s contributory negligence claim existed until
after the accident occurred in 2005, whatever potential
liability the Sellers may have had for their alleged pre-
closing negligence is not a “liability” as defined in the
agreement. Thus, our reading of the Buyer’s indemnifica-
tion obligations is entirely compatible with the asset
purchase agreement’s distribution of liabilities between the
parties.
   After determining the Sellers were not entitled to indem-
nification because the Buyer’s contributory negligence
claim “resulted from” the Sellers’ alleged pre-closing
negligence, the district court also held that the Buyer
was not required to offer proof of the Sellers’ negligent
conduct in order to avoid its indemnification responsibili-
ties. The conclusion that the Sellers lose their right to
indemnification not only if they were negligent but if
anyone says they were negligent strikes us as a dubious
one. See Sutton, 165 F.3d at 564. But because we find
that the relevant event for indemnification purposes is the
post-closing accident, and not the Sellers’ allegedly negli-
gent pre-closing conduct, we need not reach the question
whether the district court erred on this point.

                      III. Conclusion
  For the foregoing reasons, we REVERSE the judgment of
the district court and direct that judgment be entered
in favor of the Sellers.

                    USCA-02-C-0072—3-5-08