Preview:

2004  WI  App  6
COURT OF APPEALS OF WISCONSIN
PUBLISHED OPINION
Case No.:                                                                   02-2192
†Petition for Review filed.
Complete Title of Case:
CITY OF STOUGHTON,
PLAINTIFF-RESPONDENT-CROSS-
APPELLANT,
V.
THOMASSON LUMBER COMPANY,
DEFENDANT-APPELLANT-CROSS-
RESPONDENT.†
Opinion Filed:                                                              December 23, 2003
Submitted on Briefs:
Oral Argument:                                                              July 14, 2003
JUDGES:                                                                     Deininger, P.J., Dykman and Vergeront, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYS:                                                                  On behalf of the defendant-appellant-cross-respondent, the cause was
submitted on the briefs of Edward A. Corcoran, Brennan, Steil, Basting
& MacDougall, Madison, and T. Gregory Slother, Barr, Murman,
Tonelli, Slother & Sleet, Florida.   There was oral argument by Edward A.
Corcoran.
Respondent
ATTORNEYS:                                                                  On behalf of the plaintiff-respondent-cross-appellant, the cause was
submitted on the briefs of Richard J. Delacenserie, Alan G.B. Kim, Jr.,
and Michael A. Dodge, Davis & Kuelthau, S.C., Madison.   There was
oral argument by Alan G.B. Kim, Jr.




2004  WI  App  6
COURT OF APPEALS
NOTICE
DECISION
DATED AND FILED                                                               This opinion is subject to further editing.   If
published, the official version will appear in
the bound volume of the Official Reports.
December 23, 2003
A party may file with the Supreme Court a
                                                                              Cornelia G. Clark                                                      petition to review an adverse decision by the
                                                                              Clerk of Court of Appeals                                              Court of Appeals.   See WIS. STAT. § 808.10
                                                                                                                                                     and RULE 809.62.
                                                                                                                                                     Cir. Ct. No.   94-CV-2565
Appeal No.                                                                    02-2192
STATE OF WISCONSIN                                                                                                                                   IN COURT OF APPEALS
CITY OF STOUGHTON,
PLAINTIFF-RESPONDENT-CROSS-
APPELLANT,
V.
THOMASSON LUMBER COMPANY,
DEFENDANT-APPELLANT-CROSS-
RESPONDENT.
APPEAL and CROSS-APPEAL from a judgment of the circuit court
for Dane County:   DIANE M. NICKS, Judge.   Affirmed; cross-appeal reversed
and cause remanded.
Before Deininger, P.J., Dykman and Vergeront, JJ.
¶1                                                                            VERGERONT,  J.    The  City  of  Stoughton  filed  this  action  for
breach of implied warranty against Thomasson Lumber Company, claiming that




No.   02-2192
225 telephone poles the City purchased from the company were not merchantable
at the time of delivery.    After a trial to the court, the court entered judgment
against  Thomasson  Lumber,  and  Thomasson  Lumber  appeals.    We  conclude:
(1) the  trial  court  did  not  erroneously  decide  that  an  implied  warranty  could
contain  a  warranty  on  future  performance  of  the  poles,  but  rather  properly
considered the generally expected service life of like poles in determining whether
these  poles  were  merchantable  at  the  time  of  delivery  under  WIS.  STAT.
§ 402.314(2)  (2001-02)1;  (2) the trial court did not err in evaluating the expert
testimony; (3) the trial court did not erroneously exercise its discretion in treating
pleadings  of  Thomasson  Lumber  as  admissions  of  a  party  opponent;  (4) the
evidence  supported  the  trial  court’s  findings  that  the  poles  did  not  meet  the
requirements for merchantability at the time of delivery; and  (5) the evidence
supported  the  trial  court’s  finding  that  the  City  mitigated  its  damages.    We
therefore affirm the judgment against Thomasson Lumber.2
¶2                                                                                                      The City cross-appeals the trial court’s decision to limit recovery for
replacement costs to only 189 of the 225 poles replaced.   This limitation was a
sanction for the City’s failure to mark for identification purposes poles it had to
cut up for removal.   For the reasons we explain below, we reverse and remand for
further proceedings on this issue.
1  All references to the Wisconsin Statutes are to the 2001-02 version unless otherwise
noted.
2  Thomasson Lumber also challenges the trial court’s findings that the requirements of
WIS.  STAT.  § 402.315  were  met  and  therefore  this  statute  applied  as  well  as  WIS.  STAT.
§ 402.314.   Under § 402.315, if certain conditions are met, there is an implied warranty that the
goods shall be fit for a particular purpose for which the goods are required.   The trial court found
the particular purpose was the same as the ordinary purpose under § 402.314(2)(c)—use as utility
poles—and that the City succeeded in showing lack of fitness for the ordinary purpose for the
same reasons that it succeeded in showing lack of fitness for the particular purpose.   Because we
affirm the trial court’s findings under § 402.314(2)(c), it is not necessary for us to separately
address § 402.315.
2




No.   02-2192
BACKGROUND
¶3                                                                                        In                                                                    1990  and   1991,  the  City  purchased   225  utility  poles  from
Thomasson  Lumber.     The  poles  were  treated  for  Thomasson  Lumber  with
copper/naphthenate  (copper nap) at a facility owned by Olon Belcher Lumber
Company.   The purchase specifications drafted by the City required that the poles
be southern yellow pine, be treated with copper nap to a .06 retention, meet the
standards of  the American National Standards Institute  (ANSI) and American
Wood Preservers Association (AWPA), and be independently inspected prior to
delivery  to  the  City.3     Thomasson  Lumber  selected  McCallum  Inspection
Company to perform the independent inspection.   The City installed the poles for
use to support electrical lines for homes and businesses in the City.
¶4                                                                                        In January 1993, the Rural Electrification Administration, a United
States government agency, sent a warning to electric utilities, including the City’s
electric utility, advising that the agency had received reports from three electric
cooperatives that poles treated with copper nap were deteriorating after only two
to three years; the agency advised purchasers of such poles since 1988 to visually
inspect and sound the poles.   The next month Thomasson Lumber sent its own
alert to its copper nap pole customers recommending that they inspect their poles
promptly because some customers had experienced premature decay in their poles.
In June, a Thomasson Lumber employee performed an inspection of the City’s
copper nap poles, which consisted of sounding and boring approximately thirty to
forty poles.    He  found  one  decayed  pole  and  offered  to  refund  the  City the
purchase price of the rotting pole.
3  ANSI sets forth minimum industry standards for untreated utility poles and AWPA sets
forth minimum industry standards for wood preserving.
3




No.   02-2192
¶5                                                                                          In April 1994, three poles broke in a windstorm.   They broke off
about ten feet from the top of the poles, and the poles were rotten inside.   The City
notified  Thomasson  Lumber  of  this.    That  same  month  Hugh  Thomasson  of
Thomasson Lumber inspected the poles, as did an employee of Olon Belcher.   The
substance of the conversations between Thomasson and the City and between the
Olon Belcher employee and the City concerning these inspections was disputed at
trial.
¶6                                                                                          On August 4, 1994, another copper nap pole collapsed, causing a
fire, and the City filed this lawsuit shortly thereafter.   After consulting with a pole
inspection  company,  Osmose  Wood  Preserving,  Inc.,  and  with  Forester
Engineering, the City ultimately removed and replaced all but one of the poles in
1995.   When the City discovered the remaining pole in 1999, it replaced it.
¶7                                                                                          Prior to trial, Thomasson Lumber filed a motion in limine requesting
that the City be precluded from presenting any evidence or argument regarding
poles that were not produced by the City for inspection by Thomasson Lumber,
and  also  requesting  that  the  City be  precluded  from requesting  any damages
regarding those poles.   The City in response filed an affidavit averring that some
of the poles had to be cut for safe removal and replacement of the poles, but that
all those that had been removed were made available to Thomasson Lumber.   The
court, the Honorable Judge Robert Pekowsky presiding, concluded that, while
some  of  the  poles  had  to  be  cut  up  for  removal,  the  City  did  not  meet  its
responsibility to preserve evidence because it failed to mark the cut poles so that
Thomasson Lumber could determine the specific pole from which a cut piece
came.   The court therefore ruled that the City was “precluded from introducing
4




No.   02-2192
evidence regarding the thirty-two4 [sic] poles which were not adequately preserved
for litigation.”
¶8                                                                                              The trial was to the court, the Honorable Diane Nicks presiding.
The court issued a lengthy written decision analyzing the factual and legal disputes
of the parties.   The court applied WIS. STAT. § 402.314,5 which governs implied
warranties of merchantability, and determined that the City had shown that at least
three of the six requirements for merchantable goods were not met:                              (1) the poles
4  Given the trial court’s finding that the City purchased 225 poles, and the evidence that
when Thomasson Lumber inspected the poles in 1997 there were 188 identifiable poles, with the
189th pole discovered in  1999, it appears there were thirty-six poles that were cut but        not
adequately marked.
5
WISCONSIN STAT. § 402.314(1)-(2) provide:
Implied warranty: merchantability; usage of trade.                                              (1)
Unless excluded or modified (s. 402.316), a warranty that the
goods shall be merchantable is implied in a contract for their sale
if the seller is a merchant with respect to goods of that kind.
Under this section the serving for value of food or drink to be
consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as:
(a) Pass without objection in the trade under the contract
description; and
(b) In the case of fungible goods, are of fair average quality
within the description; and
(c) Are fit for the ordinary purposes for which such goods are
used; and
(d) Run, within the variations permitted by the agreement, of
even kind, quality and quantity within each unit and among all
units involved; and
(e) Are adequately contained, packaged, and labeled as the
agreement may require; and
(f) Conform to the promises or affirmations of fact made on
the container or label if any.
5




No.   02-2192
would  not pass without objection in  the  trade  under  the  contract description;
(2) they were not of fair average quality within the description; and (3) they were
not  fit  for  the  ordinary  purposes  for  which  such  goods  were  used.    Section
402.314(2)                                                                                  (a)-(c).
¶9                                                                                          The court rejected Thomasson Lumber’s argument that the City had
not mitigated its damages because it removed and replaced all the poles instead of
inspecting each pole and then remedially treating each pole based on the results of
the inspection.   The court determined that Thomasson had not shown that a single
inspection and single treatment would suffice to ensure that the poles left standing
would reliably perform for a significant period of time.    Therefore, the court
found, the City would need to continue to incur the costs of repeating this process
in an attempt to have the poles safely and reliably perform over the customary
thirty-year pole life.   The court also determined that it was reasonable for the City
to replace all the poles rather than incur the risk to persons and property from
decaying poles.   However, the court agreed with Thomasson Lumber that it should
not  award  damages  for  the  City’s  cost  of  replacing  the  poles  that  were  not
available for inspection because the City had cut them up without marking them.
The court awarded the City a total of $223,394.76 for the cost of replacing 189
poles,  plus  the  interest  on  the  loan  the  City  took  out  in  order  to  pay  for
replacement  of  those  poles,  plus  the  costs  for  paying  the  two  companies  for
inspection and consultation.
6




No.   02-2192
DISCUSSION
I.   Appeal
A.  Post-Delivery Performance
¶10    Thomasson Lumber contends the trial court erred in considering the
post-delivery performance of the poles when the court determined whether the
requirements of WIS. STAT.  § 402.314(2) were met.    According to Thomasson
Lumber, Selzer v. Brunsell Brothers, Ltd., 2002 WI App 232, 257 Wis. 2d 809,
652 N.W.2d 806, holds that implied warranties do not contain any warranty of
future performance, and the court here found a warranty of future performance
when it found the poles had an  “expected service life  … between  30 and  40
years.”   The City responds that Selzer is not applicable because it addressed an
issue not present in this case:   whether the exception in WIS. STAT. § 402.725(2),
governing the accrual of a cause of action when “a warranty explicitly extends to
future performance of the goods,” applies to an implied warranty.
¶11    This issue presents a question of law, because it involves statutory
construction, and our review is therefore de novo.   Hughes v. Chrysler Motors
Corp., 197 Wis. 2d 973, 978, 542 N.W.2d 148 (1996).
¶12    We agree with the City that our analysis in Selzer is not applicable to
this case.    Thomasson Lumber relies on the statement in Selzer, quoted from
Marvin Lumber & Cedar Co. v. PPG Industries, Inc., 223 F.3d 873, 879 (8th Cir.
2000), that “‘[i]mplied warranties, cannot, by their very nature, explicitly extend
to future performance.’”                                                              257 Wis.  2d 809,  ¶24.   When placed in context, this
statement simply means that an implied warranty by definition is not an “explicit”
7




No.   02-2192
warranty of anything and thus is not a warranty that “explicitly extends to future
performance of goods” within the meaning of WIS. STAT. § 402.725(2).6
¶13    Thomasson Lumber’s reliance on Selzer confuses the legal question
of whether an implied warranty may contain a warranty that “explicitly extends to
future  performance  of  the  goods”  with  the  factual  questions  involved  in
determining  whether  the  requirements  of  WIS.  STAT.                                          § 402.314(2)  are  met.
Evidence that the goods break or physically deteriorate after delivery may be
relevant to whether the goods were fit at the time of delivery for the ordinary
purpose for which they are used; but consideration of  such evidence for that
purpose  does  not  impose  an  express  warranty  for  future  performance,  as
Thomasson  Lumber  contends.     Indeed,  we  recognized  in  Selzer  the  very
distinction that Thomasson Lumber blurs when we said:                                             “While all warranties in
a general sense apply to the future performance of goods, the future performance
exception [in WIS. STAT. § 402.725(2)] applies only where the warranty ‘explicitly
extends to future performance.’”7                                                                 257 Wis. 2d 809, ¶20 (quoting § 402.725(2)).
As  the  City  points  out,  Wisconsin  courts  have  considered  evidence  of  what
happens to goods after delivery to decide whether they are fit for the ordinary
purposes under  § 402.314(2)(c), see Titus v. Polan, 72 Wis. 2d 23, 24-26, 240
N.W.2d  420  (1976)  (evidence that pump installed in November  1973 failed in
August 1974 because the motor was defective establishes that pump was not fit for
6  Thomasson Lumber cites a number of cases from other jurisdictions which, like Selzer
v. Brunsell Bros., Ltd., 2002 WI App 232, 257 Wis. 2d 809, 652 N.W.2d 806, were concerned
with the application of statutes based on U.C.C. § 2-725(2) to a claim for a breach of implied
warranty.  We consider them inapplicable for the same reason that Selzer is inapplicable.
7  We also held in Selzer that an express promise of “permanently protecting against rot
and decay,” like promises of “reliability” and “long service,” did not constitute an “explicit”
warranty of  “future performance” because it did not make a specific reference to a future,
determinable time.   257 Wis. 2d 809, ¶¶19-23.
8




No.   02-2192
ordinary purpose) or fit for a particular purpose under WIS. STAT. § 402.315, see
Calumet Cheese Co. v. Chas. Pfizer & Co., 25 Wis. 2d 55, 58-59, 63, 130 N.W.2d
290 (1964) (substance was not fit for the particular purpose of use as an additive to
cheese because it caused the cheese to develop a bad odor and flavor).
¶14    The trial court’s analysis here is consistent with these decisions.   The
court did not find that Thomasson Lumber had expressly warranted that the poles
would last between thirty and forty years.   Rather, the court found, based on the
evidence, that this was the expected service life of like utility poles, and the court
considered this evidence along with other evidence in finding that the poles were
not fit for the ordinary purpose for which such poles are used.
B.  Expert Testimony
¶15    The City and Thomasson Lumber each presented expert testimony
that was in direct conflict on critical points.   The City’s expert, Dr. William Smith,
reviewed the investigation of all the poles conducted by Osmose Wood Preserving
in 1994 and the results of the investigation of 188 poles conducted by Thomasson
Lumber’s expert, Dr. Darryl Nicholas, in 1997.   Smith also inspected those 188
poles  himself  and  randomly tested  them.    He  opined  that  the  poles  were  an
“abnormal”  population  because  they had an  “irrationally”  high  rate  of  decay,
irregular penetration, and decay towards the top rather than at the ground line, and
this abnormal character made it impossible to predict which poles would fail in the
future.   In contrast, Smith described a pole properly treated with copper nap as
having an average service life of thirty to fifty years, meaning that a majority of
the individual lives would cluster in the middle, and a failure before fifteen years
would not be expected.   According to Smith, the City’s poles were not fit for their
9




No.   02-2192
ordinary purpose, were not of fair, average quality, were not of even quality, and
did not meet the industry standards as represented by the brand.
¶16    In contrast, Nicholas testified that the City’s poles would pass in the
trade  without  objection,  were  of  fair  and  average  quality,  were  fit  for  their
ordinary purpose, and were of even kind, quality, and quantity under applicable
industry standards.   Based on his inspection of the 188 poles in 1997, and taking
into account the passage of time and the manner in which the poles had been
stored after removal, he opined that the poles had been treated to appropriate
penetration and retention levels.
¶17    The trial court analyzed in detail the testimony of both Smith and
Nicholas, explaining why it did not consider Nicholas’s testimony persuasive on
several points and why it accepted Smith’s opinions rather than Nicholas’s.
¶18    Thomasson  Lumber  contends  the  trial  court  erred  in  relying  on
Smith’s testimony.    According to Thomasson Lumber, Smith  “disavowed” his
status as an expert because he did not conduct an adequate investigation of the
poles.   Thomasson Lumber relies on Green v. Smith & Nephew AHP, Inc., 2000
WI App 192, ¶23, 238 Wis. 2d 477, 617 N.W.2d 881, in which we concluded that
opinion testimony was erroneously admitted because the witness admitted that the
opinion was outside his area of expertise.   Green has no relevance to this case
because Smith made no admission of a lack of expertise.   Once the relevancy of
evidence is established and the witness qualifies as an expert, whether to credit
that expert’s testimony and the weight to give it are judgments for the fact finder
to make.   See State v. Peters, 192 Wis. 2d 674, 690, 534 N.W.2d 867 (Ct. App.
1995).   That includes the judgment whether Smith’s investigation was adequate to
support the opinions he gave.
10




No.   02-2192
¶19    Thomasson Lumber also relies on Weber v. White, 2003 WI App
240, ¶15, ___ Wis. 2d ___, 672 N.W.2d 151, review granted, 2004 WI 1 (Wis.
Dec. 16, 2003) (No. 03-0471), which it brought to our attention as a supplemental
authority.   Weber, too, is inapplicable.   In Weber, an expert expressly stated on
cross-examination that he could not give an opinion to a reasonable degree of
chiropractic certainty on future health care expenses; we therefore concluded there
was no evidence properly before the jury of future health care expenses.   Id.   In
this case, Smith testified that in his opinion to a high degree of scientific certainty
or probability, the decay in the poles was caused by fungi that were introduced at
or prior to the treatment process in one or more of three primary ways; but he
acknowledged he could not, on the basis of the investigation he had made, opine to
the requisite degree of certainty which of these three caused the decay in a specific
pole.   Smith’s inability to give an opinion to the requisite degree of certainty on
the cause of decay in a specific pole does not render inadmissible the opinions he
did give to the requisite degree of certainty.   Whether to accept the opinions he
gave to the requisite degree of certainty in view of the opinions he could not give
is a judgment for the trial court as fact finder to make.   See Peters, 192 Wis. 2d
674 at 690.
¶20    On much the same basis, we reject Thomasson Lumber’s contention
that  the  trial  court  improperly  disregarded  and  mischaracterized  Nicholas’s
testimony.   The court did not disregard his testimony but chose to rely instead on
Smith’s opinion on certain points where their opinions were in conflict.   That is
properly the role of the fact finder.   See Gegan v. Backwinkel, 141 Wis. 2d 893,
901, 417 N.W.2d 44 (Ct. App. 1987).   Thomasson Lumber presents explanations
for aspects of Nicholas’s testimony that the trial court found not persuasive or
inconsistent with other evidence.    However, whether there is a more favorable
11




No.   02-2192
assessment of Nicholas’s testimony is irrelevant:    it is the trial court’s role to
decide how to assess his testimony and how to reconcile it with other evidence.
C.  Admissions Based on Pleadings
¶21    In deciding whether the poles would pass without objection in the
trade under the contract description and were of fair average quality within the
description,  WIS.  STAT.                                                              § 402.314(2)(a)-(b),  the  court  considered  pleadings
Thomasson Lumber had filed against Olon Belcher and McCallum: a complaint
filed in June 1994 in a federal district court in Alabama against both companies
and the cross-complaint filed against Olon Belcher in this action.   The complaint
in the Alabama lawsuit alleged that Thomasson Lumber had delivered untreated
utility poles to Olon Belcher to be treated with copper nap in accordance with an
agreement with Olon Belcher dated January  20,  1989, and had entered into a
contract with McCallum to inspect the poles after treatment by Olon Belcher to
confirm that  the  copper  nap  adequately penetrated  the  poles.    The  complaint
further alleged that Thomasson Lumber had received numerous complaints from
its  customers  that  utility  poles  treated  by  Olon  Belcher  and  inspected  by
McCallum were  degrading in service,  and inspections by Thomasson Lumber
confirmed that these poles had become rotten and decayed.   The poles were rotting
and  decaying,  the  complaint  alleged,  because  of  improper  treatment  by Olon
Belcher and inadequate inspection by McCallum and were “defective and [could
not] be used for their intended purpose.”   Thomasson Lumber’s cross-claim in this
action makes similar allegations.
¶22    The trial court rejected the City’s position that the court should treat
these pleadings as conclusively establishing the facts alleged and should preclude
Thomasson Lumber from presenting any evidence to the contrary.   However, the
12




No.   02-2192
court did decide to treat the pleadings as admissions by Thomasson Lumber that at
least the most severely rotten and decayed of the City’s poles were defective and
could not be used for their intended purpose.   Thus, the court did not treat the
pleadings  as  conclusively  establishing  any  fact,  but  instead  treated  them  as
evidence to be considered along with other evidence.
¶23    Thomasson Lumber contends the trial court erroneously exercised its
discretion in considering these pleadings as admissions because, as the court itself
recognized, it could not determine the number of poles Thomasson was referring
to in the pleadings.
¶24                                                                                      “A positive statement of an evidentiary fact made by a party in a
pleading in another case may be sufficient to constitute an admission,” in which
case the admission is substantive evidence of the facts admitted.   Kraemer Bros.,
Inc. v. United States Fire Ins. Co., 89 Wis. 2d 555, 569, 278 N.W.2d 857 (1979).
Generally, the question of the admissibility of evidence is a matter within the trial
court’s discretion.   See Martindale v. Ripp, 2001 WI 113, ¶28, 246 Wis. 2d 67,
629 N.W.2d 698.
¶25    We see no erroneous exercise of discretion here.   The pleadings are
not inadmissible hearsay.   Under WIS. STAT. § 908.01(4)(b)4, a statement made by
a party’s agent within the scope of the agency and offered against the party is not
hearsay.    Thomasson  Lumber’s  objection appears to  go  to  relevancy, but  we
conclude  a  reasonable  court  could  decide  they  were  relevant.    Although  the
allegations  in  the  Alabama  complaint  did  not  specifically  identify  the  poles
complained of as those sold to the City, the evidence was that when Thomasson
Lumber filed the lawsuit, it knew of the City’s problems with the poles and knew
the City was requesting replacement of all poles.   The trial court could therefore
13




No.   02-2192
reasonably  infer  that  the  Alabama  complaint  related  to  the  poles  Thomasson
Lumber sold the City, which had been treated by Olon Belcher and inspected by
McCallum.    It  is  also  logical  to  conclude  that  Thomasson  Lumber’s  cross-
complaint against Olon Belcher was complaining of the poles that were the subject
of the City’s complaint against Olon Belcher.    The fact that neither pleading
specifies  the  number  of  poles  that  Thomasson  Lumber  asserted  had  been
negligently treated by Olon Belcher does not mean that the pleadings are not
admissible as evidence that Olon Belcher’s inadequate treatment of poles sold by
Thomasson Lumber resulted in decay of those poles.
¶26    Thomasson Lumber also relies on Fletcher v. Eagle River Memorial
Hospital, Inc., 156 Wis. 2d 165, 177, 456 N.W.2d 788 (1990), but that case is not
applicable.    Fletcher addresses a  “judicial admission,” which occurs when the
court treats a statement by a party or a party’s attorney as a concession that
forecloses the party from submitting evidence to contradict the concession.   Id.
The court in Fletcher cautioned that in exercising discretion whether to treat a
statement as a judicial admission, trial courts must make a  “searching inquiry”
before  reaching                                                                       “the  conclusion  that  a  party  has  voluntarily  foregone  the
opportunity to prove or to contest a critical factual element of the lawsuit.”   Id.
Thomasson  Lumber  relies  on  this  statement.    However,  as  we  have  already
explained,  the  court  did  not  preclude  Thomasson  Lumber  from  submitting
evidence that might contradict the statements in its pleadings, and the court’s
analysis  in  deciding  to  admit  the  pleadings  as  evidence  against  Thomasson
Lumber was a proper exercise of discretion.
14




No.   02-2192
D.  Sufficiency of Evidence Regarding Each Pole
¶27    Thomasson  Lumber  contends  the  evidence  did  not  establish  that
each of the 189 poles for which the court awarded damages was not merchantable
at the time of delivery.   According to Thomasson Lumber, because some poles
showed no signs of decay when the City removed them, the court erred in finding
that all 189 poles were defective at the time of delivery.
¶28    When we review a trial court’s factual findings, we affirm unless the
finding is clearly erroneous.   WIS. STAT. § 805.17(2).   We do not consider the
evidence  that  might  have  supported  contrary  findings,  but  instead  search  the
record for evidence to support the findings the trial court did make.   Becker v.
Zoschke,  76  Wis.  2d  336,  347,  251 N.W.2d  431  (1977).    When  the  evidence
supports the drawing of either of two conflicting inferences, the trial court, not this
court, decides which inference to draw.   State v. Friday, 147 Wis. 2d 359, 370-71,
434 N.W.2d 85 (1989).   In addition, judgments on the weight of the evidence and
on the credibility of the witnesses are for the trial court sitting as finder of fact to
make, not this court.   State v. Douglas D., 2001 WI 47, ¶100 n.36, 243 Wis. 2d 204,
626 N.W.2d 725.
¶29    The trial court here chose to accept Smith’s testimony that the poles
had  incipient decay at the  time  of  delivery as a  result  of  deficiencies in  the
treatment process.   The evidence was that incipient decay, as well as decay, is a
prohibited defect under the ANSI standards, which defines incipient decay as “an
early stage of decay that has not proceeded far enough to soften or otherwise
perceptibly impair the hardness of the wood … [and] is usually accompanied by a
slight discoloration or bleaching of the wood.”   There was testimony that properly
treated utility poles should have no decay or failures for fifteen to twenty years
15




No.   02-2192
after being placed in service, and that a failure of even 1% of a pole population
within the first five years meant that something was drastically wrong with that
pole population.   From this evidence, as well as much other evidence the circuit
court carefully explained in its decision, a reasonable fact finder could infer that
each of the poles was defective at the time of delivery and that, as a result of the
defect, the first three requirements of WIS. STAT. § 402.314(2) were not met.
¶30    Thomasson Lumber apparently believes the City had to prove that
each pole was observed to have exhibited decay, but this confuses the nature of the
evidence with the fact to be proved.   Evidence that a particular pole was rotten
within five years of delivery may be one way to prove that particular pole was
defective at the time of delivery, but it is not the only way.   Evidence, including
reasonable inferences from the evidence, that all poles were subject to a deficient
treatment process is another way to prove that each of the poles was defective at
the time of delivery.
¶31    Thomasson Lumber incorrectly relies on J.I. Case Plow Works v.
Niles & Scott Co., 90 Wis. 590, 607-08, 63 N.W. 1013 (1895), for support of its
argument that the City must prove that each pole exhibited decay.   In that case, the
court concluded there was no basis in the record for inferring that goods that had
not been returned were defective.   Id.   That court did not have before it, as we do,
a record that provides a basis for a reasonable inference that all the goods were
defective because of a deficiency in a process that all were subject to.
16




No.   02-2192
E.   Mitigation of Damages
¶32    WISCONSIN  STAT.  § 402.714  governs  damages  for  a  breach  of
implied warranty in this case.8   As in cases where there is a breach of a contract,
the party aggrieved by a breach of implied warranty has an obligation to take
reasonable steps to minimize damages.   See Sprecher v. Weston’s Bar, Inc., 78
8
WISCONSIN STAT. § 402.714 provides:
Buyer’s damages for breach in regard to accepted goods.
(1) Where the buyer has accepted goods and given notification
(s.                                                                                    402.607  (3)) the buyer may recover as damages for any
nonconformity of tender the loss resulting in the ordinary course
of events from the seller’s breach as determined in any manner
which is reasonable.
(2) The measure of damages for breach of warranty is the
difference at the time and place of acceptance between the value
of the goods accepted and the value they would have had if they
had  been  as  warranted,  unless  special  circumstances  show
proximate damages of a different amount.
(3) In a proper case any incidental and consequential damages
under s. 402.715 may also be recovered.
WISCONSIN STAT. § 402.715 provides:
Buyer’s  incidental  and  consequential  damages.                                      (1)
Incidental damages resulting from the seller’s breach include
expenses    reasonably    incurred    in    inspection,    receipt,
transportation and care and custody of goods rightfully rejected,
any commercially reasonable charges, expenses or commissions
in connection with effecting cover and any other reasonable
expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller’s breach
include:
(a) Any loss resulting from general or particular requirements
and needs of which the seller at the time of contracting had
reason to know and which could not reasonably be prevented by
cover or otherwise; and
(b) Injury to person or property proximately resulting from
any breach of warranty.
17




No.   02-2192
Wis.  2d  26,  42,  253 N.W.2d  493  (1977)  (discussing breach of contract).    The
burden is on the breaching party to establish that the aggrieved party has not
reasonably minimized damages.   Id.
¶33    Thomasson Lumber contends that the only credible evidence relating
to what steps were reasonable for the City to take was that of Osmose Wood
Preserving, which recommended the immediate removal of seven poles that were
dangerous  and  the  remedial  treatment  of  others  that  showed  signs  of  decay.
However, the trial court explained in detail why it determined that the City acted
reasonably in not following this recommendation:                                        (1) Osmose found decay in
65% of the poles when testing from ground to a foot above the brand; however the
poles  that  had  broken  had  typically  broken  toward  the  top.                     (2) A  pole  not
recommended  by  Osmose  for  removal  broke  and  fell  down  shortly  after  its
inspection.                                                                             (3) Osmose  itself  recommended  against  traditional  inspection  and
treatment methods because there was no consistent pattern on where the severe
decay was located and, in the  majority of  poles, decay was found above the
locations  that  would  be  covered  by  traditional  methods.                          (4) There  was  no
evidence that a single “top to bottom” inspection and treatment as recommended
by Osmose would be sufficient to solve the problem of the premature decay.
¶34    The  trial  court  also  discussed  in  detail  the  information  the  City
gathered in deciding whether it needed to replace all the poles and determined,
based on that information, that the City acted reasonably in replacing the poles.
Thomasson Lumber makes a number of objections to the court’s analysis and
characterizes them as questions of law.   However, we are satisfied that Thomasson
Lumber is simply urging us to take a different view of the evidence than did the
trial court.   That, as we have already explained, is not our function.
18




No.   02-2192
¶35    Thomasson Lumber also asserts that the court made an error of law
in considering the risk of defective poles as a factor in analyzing whether the City
acted reasonably in replacing all of the poles.   According to Thomasson Lumber,
the risk of injury to persons or property is not admissible in this context under the
economic loss doctrine.   Thomasson Lumber cites Selzer, 257 Wis. 2d 809, ¶39,
and Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 918, 933, 471 N.W.2d 179
(1991), but neither supports Thomasson Lumber’s position.   The economic loss
doctrine,  when  it applies, bars  recovery in  tort for  damages resulting from a
product not performing as intended, including damages to the product itself or
economic losses caused by the defective product.   Selzer, 257 Wis. 2d 809, ¶33.
The plaintiff in Selzer sought recovery in tort for damage to his house caused by
defective windows, and we concluded those damages were barred by the economic
loss doctrine.   Id., ¶39.                                                              (Earlier in the opinion in Selzer, we held that recovery for
breach of warranties was barred by the statute of limitations.   Id., ¶¶23-24.)   In
Northridge, the plaintiff sought recovery in tort for damages caused by asbestos
and the court decided the claims were not barred by the economic loss doctrine
because the alleged damage was physical injury to other property.                       162 Wis. 2d at
923.
¶36    The City here is not seeking damages in tort, but for breach of
implied warranty.   It is not seeking damages for injuries to person and property,
but for the cost of replacing the poles and related expenses.   In any event, the
economic loss doctrine does not bar the recovery of damages for injury to persons
or  other  property  resulting  from  a  defective  product;  in  fact,  WIS.  STAT.
§ 402.715(2)(b) specifically allows it when caused by a breach of warranty.   Most
importantly for the purposes of this case, nothing in the economic loss doctrine
precludes the trial court from considering the risk of injury to persons and other
19




No.   02-2192
property from decaying poles when considering whether the City acted reasonably
in replacing the poles.
II.   Cross-Appeal
¶37    The City’s cross-appeal challenges the trial court’s decision not to
award damages for thirty-six of the poles that had been cut up when removed and
not  marked.     The  City  contends  Judge  Nicks  erroneously  construed  Judge
Pekowsky’s ruling, because he simply excluded evidence of the thirty-six poles
and did not preclude the recovery of damages for replacing them.   The effect of
Judge Nicks’s decision, the City argues, is dismissal of its claim for damages for
those thirty-six poles.   According to the City, such a sanction requires egregious
conduct,  which is not present here.    Thomasson Lumber responds that Judge
Pekowsky did intend to preclude damages for the thirty-six poles, and the record
shows egregious conduct by the City because the poles were cut without being
marked after this litigation began, when the City was well aware of the need to
identify the poles that samples were taken from.
¶38    As both parties recognize, the decision whether to impose a sanction
for the spoliation of evidence is committed to the trial court’s discretion.   Garfoot
v. Fireman’s Fund Ins. Co., 228 Wis. 2d 707, 717, 599 N.W.2d 411 (Ct. App.
1999).9   We affirm discretionary rulings if the trial court examined the relevant
facts,  applied  a  proper  standard of  law,  and utilizing a  demonstrably rational
process, reached a reasonable conclusion.    Id.    In Garfoot, we reaffirmed the
proposition that dismissal as a sanction for destruction of evidence requires a
9  In this case, as we have already stated, the City did not destroy the thirty-six poles but
cut them up without identifying which pieces were part of which pole.   The City implicitly
concedes that this constitutes spoliation of evidence.
20




No.   02-2192
finding  of  egregious  conduct,  which  means  a  conscious  attempt  to  affect  the
outcome of litigation or a flagrant knowing disregard of the judicial process.   Id. at
724.   We arrived at this reaffirmation after reconciling Milwaukee Constructors II
v. Milwaukee Metropolitan Sewerage District, 177 Wis. 2d 523, 502 N.W.2d 881
(Ct. App.  1993), in which we had applied this standard, with a later decision,
Sentry Insurance Co. v. Royal Insurance Co., 196 Wis. 2d 907, 539 N.W.2d 911
(Ct. App. 1995), which could arguably be read as requiring only negligence for the
sanction of dismissal.   Garfoot, 228 Wis. 2d at 722-24.
¶39    Thomasson Lumber appears to agree with the City that not allowing
damages  for  replacement  of  the  thirty-six  poles  is  effectively  the  same  as
dismissing a claim as to each of those poles and is permissible only if there was
egregious conduct by the City.   We accept this concession because we can see no
meaningful distinction between dismissal of a claim as a sanction and not allowing
the recovery of damages for a particular number of goods.
¶40    We consider first Judge Pekowsky’s ruling.   We do not agree with
Thomasson Lumber that Judge Pekowsky found the City had engaged in egregious
conduct in cutting up some of the poles.   Thomasson Lumber’s motion in limine
did not argue that the City’s conduct was egregious.   Rather, it argued that the
poles were in the City’s control, and for that reason the City should be precluded
from presenting evidence or argument on the poles that were cut up and from
recovering damages for them.10   As noted above, Judge Pekowsky accepted the
City’s explanation that it was necessary to cut up some poles to remove them, but
10  The factual materials Thomasson Lumber submitted in support of the motion were not
directed at the City’s conduct and motives; rather, they established that when its expert examined
the poles the City made available, he observed poles that were cut up but did not include them in
his inspection because he could not identify which poles they were from.
21




No.   02-2192
concluded that, by not marking the poles, the City had not met its responsibility to
preserve evidence.   This ruling can be reasonably read only as a determination that
the City was negligent in not marking the poles.11
¶41    However,  on  the  issue  of  whether  Judge  Pekowsky  intended  to
preclude damages for the thirty-six poles as well as exclude evidence of them, we
conclude his ruling is ambiguous.   The ruling does not expressly refer to damages,
stating only that the City could not introduce evidence regarding the cut-up poles.
Although it is certainly reasonable to infer that if there is no evidence permitted on
these poles, there can be no damages, his ruling did not state that, even though
Thomasson Lumber specifically requested that relief.
¶42    We now turn to Judge Nicks’s ruling.   The parties debated in their
trial and post-trial briefs whether Judge Pekowsky intended to preclude damages
as well as evidence, but the City never raised the issue it now raises on appeal—
that  precluding  damages  for  some  poles  was  effectively  a  dismissal,  which
requires egregious conduct.   Not surprisingly, therefore, Judge Nicks did not make
a finding on whether the City had engaged in egregious conduct.    Rather, she
found that there was nothing in the trial record to call into question the finding
Judge  Pekowsky  had  made—that  the  City  had  not  met  its  responsibility  to
preserve evidence.
11  In its ruling, the court relied on Sentry Insurance Co. v. Royal Insurance Co., 196
Wis. 2d 907, 539 N.W.2d 911 (Ct. App. 1995), for the proposition that a party has a duty to
preserve evidence essential to the claim litigated.   Our decision in Garfoot v. Fireman’s Fund
Insurance Co., 228 Wis. 2d 707, 599 N.W.2d 411 (Ct. App. 1999), was issued after the briefing
on the motion in limine and shortly before Judge Pekowsky made his decision.   From this timing
and Judge Pekowsky’s reliance on Sentry in his decision, it appears his decision was made
without benefit of our decision in Garfoot.
22




No.   02-2192
¶43    With respect to the effect on damages of Judge Pekowsky’s ruling,
we are uncertain whether Judge Nicks construed his ruling to preclude an award of
damages for the cut-up poles and decided that result remained fair; or whether she
recognized  his  ruling  did  not  address  damages  but  concluded  it  was  fair  to
preclude them for the cut-up poles.   In either event, it is evident that Judge Nicks
precluded damages because of her judgment that it would unfair to allow them.
We therefore conclude that we should review Judge Nicks’s decision on this point
as  a  discretionary  decision  made  by  her,  rather  than  attempt  to  construe  the
ambiguous ruling of Judge Pekowsky.
¶44    Judge Nicks explained that as a result of the City’s failure to mark
the poles, Thomasson Lumber was deprived of its right to inspect all 225 poles,
and her factual findings “[were] based on evidence derived from the inspection of
available poles.”    She stated that it would be unfair to Thomasson Lumber to
award damages to cover poles that were not available for inspection.
¶45    The difficulty we have with Judge Nicks’s explanation is that the
evidence she chose to rely on to establish that the poles were defective did not, as
we explained above, depend upon on a visual inspection of each pole.   Rather,
Smith’s testimony on the deficiencies in the treatment process was based on his
expertise as applied to the results of Osmose’s inspection of all the poles standing
in 1994, the results of Nicholas’s inspection of 188 poles in 1997 after they were
removed, and his own random inspection of those same  188 poles.    It is not
apparent  to  us  how  the  opportunity  for  Thomasson  Lumber  to  inspect  the
additional thirty-six poles, with the knowledge of which pieces made up one pole,
would have affected the trial court’s findings.   That is, even assuming that all
thirty-six poles would not have shown signs of decay—and we recognize that
there is evidence that some of the pieces did—we are uncertain that would have
23




No.   02-2192
affected Smith’s opinions or the trial court’s decision to credit his opinions.   We
recognize that the trial court is in the best position to decide how an inspection of
the thirty-six poles might have affected its view of the evidence and its findings.
We also agree that, in the absence of evidence to the contrary, it is fair to assume
that those poles that were not inspected because the City did not mark them would
have provided evidence favorable to Thomasson Lumber.   Nonetheless, in spite of
having carefully reviewed the record in light of Judge Nicks’s expressed rationale,
we are unable, without more explanation of her analysis, to conclude that her
decision  to  preclude  damages  for  the  thirty-six  poles  is  a  proper  exercise  of
discretion.
¶46    We are therefore persuaded that the best course is to reverse Judge
Nicks’s award of damages for only 189 poles and remand on this issue.   This will
provide the court with the opportunity to consider how Thomasson Lumber’s lack
of opportunity to inspect the thirty-six poles affected the court’s findings of fact
and to provide a fuller explanation of the conclusion it arrives at.   Because we are
remanding for this purpose, the City will have the opportunity to raise the issue of
whether its conduct meets the standard established in Garfoot.   We point out that
under Garfoot, a finding of prejudice is not necessary in order to impose the
sanction  of  dismissal—or,  in  this  case,  no  damages—when  the  conduct  is
egregious; rather, that is a matter for the trial court to consider in the proper
exercise of its discretion.                                                                 228 Wis. 2d at 730-31.
By the Court.—Judgment affirmed; cross-appeal reversed and cause
remanded.
24

Download 5569.pdf

Wisconsin Law