The issues presented to the court have implications for warranty and UCC interpretation, equitable indemnity, the Weinhagen exception to the American attorney fee rule, and contractual indemnity and offset for insurer payments.  If you’re interested in reviewing the briefs filed with the Supreme Court, you can find them on the appellate version of CCAP, called WSCCA (Wisconsin Supreme Court and Court of Appeals Access).  For easy access and searching, the appellate case number is 09AP1212 (a number I will likely not be able to forget).  The court of appeals briefs are available on the same page.

This decision is sure to hold interest for pretty much all Wisconsin attorneys who practice in civil litigation.  The court of appeals decision, authored by Judge Fine and filed on June 7, 2011, is available here.

A three-year-old child died and others became ill after ingesting E. coli contaminated meat at two Milwaukee-area Sizzler area restaurants in 2000. Now, Sizzler USA is fighting to obtain damages and attorney fees from the supplier of beef containing the strain.

The Wisconsin Supreme Court accepted review in Estate of Kriefall v. Sizzler USA Franchise, 2009AP1212/2010AP491, a case in which franchisor Sizzler USA obtained a $6.5 million lost profits award from the meat supplier, Excel Corp., for breaching an implied warranty of merchantability.  Sizzler USA is also seeking $1.7 million in attorney fees and costs incurred in defending the personal injury suit.

The court is asked to examine legal issues related to damage/lost profit limitations for breaches of express and implied warranties, indemnification, and attorney fees.

Although not specifically mentioned in the article above, the court of appeals also awarded to Sizzler $1.5 million that it paid to settle the underlying plaintiff’s claim against Sizzler, which is also part of the Supreme Court review.  The case is a tangle of appeals and cross-appeals, and should make for interesting reading when the Court releases its decision.

I’ve been working on this case since 2005 with  my partner Russ Klingaman.  Since the case was originally filed in 2000 or so, it’s good to see that we’re getting close to a resolution.

When Vassallo demanded a refund, Viking sued for the balance of the purchase price, and Vassallo counterclaimed for breach of contract.  As did the trial court, the court of appeals made short work of the breach of contract claim, determining that the lack of specification in the contract meant that Vassallo got what it contracted to get:

The trial court found specifically that Country Pasta wanted its packaging system to be more automatic. It wanted to have the “bags closed or tied and the bags to be weighed more accurately.” Nothing in those photographs, or elsewhere in the contract, establish how quickly the packaging system was required to function. By the end of his second visit to Country Pasta, Parrish testified he was able to give Kellogg a package closed with a tin-tie, but Kellogg was dissatisfied because of the way the tin-tied bag performed during handling. Kellogg himself testified that he thought the bags looked “sloppy.” Nothing in the contract even hints at any handling standards the tin-tie must withstand. The record does not explain how the “look” of the bag delivered differed from the photographs attached to the contract. Country Pasta has not established that the packaging system as a whole, or the tin-tie applicator specifically, failed to meet any identifiable “[p]roduct [p]erformance [s]pecifications.”

Likewise, the court determined that Vassallo had accepted the entire packaging system by accepting a part of the commercial unit:

By retaining all of the items in the contract, Country Pasta treated the packaging system in a way that was inconsistent with the seller’s ownership. This conduct constitutes acceptance of goods pursuant to Wis. Stat. § 402.606(1)(c).

Finally, the court of appeals relied upon the factual findings of the trial court in deciding that Country Pasta knew too much to revoke the contract:

The trial court found that when Parrish “told [Country Pasta's] employees that the tin-tie applicator would not work, that certainly was an indication that there was not going to be additional work done.” The trial court also found that “there was no evidence presented at trial as to any further discussion of [additional work].” Thereafter, as the trial court found, Country Pasta “could not reasonably assume that the nonconformity of the machinery would be cured.” These findings make revocation under Wis. Stat. § 402.608(1)(a) and (2) unavailable to Country Pasta.

The moral of the story is the same as always — make your contracts as specific as you can.  What works 99% of the time in business will fail the 1% of the time you land in litigation.  If something’s wrong with an expensive product purchase, complain early, and often, and find someone who knows how to protect your rights under the UCC. 

Pasta photo courtesy Dottie Mae’s photostream via this license.

The court of appeals recognized that while the UCC applies to commercial transactions.  However, because it was written by lawyers, there is an exception that permits parties to opt out of the UCC when drafting contract terms in a security agreement, waiving its requirements.  And also because it was written by lawyers, there are exceptions to the exception, a number of provisions that are unwaivable by stipulation. 

[Wis. Stat.] Section 401.102(3) states:

     (3)  The effect of chs. 401 to 411 may be varied by agreement, except as otherwise provided in chs. 401 to 411 and except that the obligations of good faith, diligence, reasonableness and care prescribed by chs. 401 to 411 may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.  (Emphasis added.)

The provision at issue in this case was just such an exception to the exception:

For the reasons stated above, we hold that the plain language of § 401.102(3) states first an exception that parties may vary the effect of U.C.C. provisions by agreement and, second, an exception to the exception that Wis. Stat. chs. 401 to 411 include provisions that certain rights may not be waived by contract.  The subsections in Wis. Stat. § 409.602 are plainly just such an exception to the exception defined in § 401.102(3), so the parties must abide by them. 

The unwaivable provisions that the court identified were many:

These include the right to:  (a) require that the secured party may use the collateral only in the manner and extent agreed to by the debtor, subsec. (1); (b) request an accounting from the secured party regarding the collateral and any surplus from the sale of the collateral, subsec. (2); (c) require that the secured party proceed in a commercially reasonable manner when enforcing the obligation against the debtor, subsecs. (3) and (4); (d) application of the proceeds from the collateral to the debtor’s obligation under the loan, subsec. (5); (e) receive timely notice upon disposition of the collateral by the secured party, subsec. (7); (f) a calculation and explanation of the surplus or deficiency on disposition of the collateral, subsecs. (8) and (9); (g) redeem the collateral, subsec. (11); and (h) remedies under Wis. Stat. §§  409.625 and 409.626 when the secured party fails to comply with ch. 409, subsec. (13).  Sec. 409.602(1)–(5), (7)-(9), (11), (13).

So read closely, and if you’re in default (or think you are), there are a number of rights that you may retain, despite what your contract says.