Hk Systems, Inc. v. Eaton Corp.

• Decision Date: 28 January 2009
• Docket Number: No. 07-3596.,07-3596.
• Citation: 553 F.3d 1086
• Parties: HK SYSTEMS, INC., Plaintiff-Appellant, v. EATON CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

553 F.3d 1086

HK SYSTEMS, INC., Plaintiff-Appellant, v. EATON CORPORATION, Defendant-Appellee.

No. 07-3596.

United States Court of Appeals, Seventh Circuit.

Argued September 3, 2008.

Decided January 28, 2009.

Michael A. Stiegel (argued), Michael Best & Friedrich, Chicago, IL, for Plaintiff-Appellant.

Michael H. King (argued), Dewey & Leboeuf, Chicago, IL, for Defendant-Appellee.

Before POSNER, RIPPLE, and EVANS, Circuit Judges.

POSNER, Circuit Judge.

This is a diversity suit for breach of contract. The substantive issue, one of Wisconsin law, is the scope of an indemnification clause in a contract for the sale of a business. The clause required the seller, defendant Eaton, to indemnify the buyer, plaintiff HK, for all losses resulting from any "misrepresentation," "act or omission," or "occurrence of a matter ... relating to or arising out of the period on or before the Closing Date."

IBP, a large beef processor, wanted to replace the automated material-handling system in its beef-processing plant in Nebraska. Eaton-Kenway, a subsidiary of Eaton, and another company, Alvey, submitted a joint bid in response to IBP's request for proposals. IBP liked the bid and in December 1994 issued a two-sentence letter of intent to purchase the new system from the joint bidders.

Two months later, while IBP and the joint bidders were in the midst of negotiations aimed at transforming the bid into a contract, Eaton sold Eaton-Kenway to HK. The following month IBP signed a contract with HK for the material-handling system, with Alvey a subcontractor of HK. That is the contract that contains the indemnification clause. Eaton had nothing to do with the contract negotiations after it sold Eaton-Kenway to HK.

Three years later, IBP sued HK in Nebraska for fraud and breach of contract. The fraud claim was that before the sale of Eaton-Kenway to HK Eaton had misrepresented to IBP the speed at which the material-handling system would operate. The breach of contract claim was that the system did not operate at the speed promised in the contract. The suit was settled, HK agreeing to pay IBP $8 million, though Alvey contributed $5 million of that amount. HK then brought this suit against Eaton for indemnification.

Eaton moved for summary judgment on the ground that the loss HK had incurred in settling IBP's suit had been caused not by Eaton but by HK's own actions. The district judge denied the motion and the case proceeded to trial. Eaton moved for judgment as a matter of law, which the judge denied, and the jury awarded a little more than $3 million to HK. But Eaton then moved the judge to reconsider his earlier denial of its motion for summary judgment, and the judge granted the motion and dismissed the suit, precipitating this appeal by HK.

The judge's action in reconsidering his denial of summary judgment after the jury's verdict may seem odd; HK argues that it was improper. Although the standard for granting summary judgment is the same as the standard for granting judgment as a matter of law, Klunk v. County of St. Joseph, 170 F.3d 772, 775 (7th Cir.1999), the record compiled in a trial is bound to differ from the record on which a motion for summary judgment is based. Even if the motion should have been granted when made, any evidence properly admitted at trial is available for consideration if the judge is asked after the trial to reconsider his earlier denial of the motion—and if the opposing party has presented a convincing case at trial the inference is that the judge was right to deny the motion. So an appellate court will generally refuse to review the denial of a motion for summary judgment after the case has been tried. Chemetall GMBH v. ZR Energy, Inc., 320 F.3d 714, 718-19 (7th Cir.2003). But the justification for refusing fails when the motion is denied because of a ruling on a pure question of law rather than on the adequacy of the evidence presented in opposition to the motion. Id. at 719-20, and cases cited there. For then if the ruling was erroneous and the motion should have been granted regardless of the evidence, the trial is an irrelevance. And that is this case.

But by not preserving, in its motion for judgment as a matter of law, its argument that HK was the author of its loss in the suit by IBP—which would have preserved the argument for appeal—Eaton took a big risk. The doctrine of law of the case counsels against a judge's changing an earlier ruling that he made in the same case, Agostini v. Felton, 521 U.S. 203, 236, 117 S.Ct. 1997, 138 L.Ed.2d 391 (1997); Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 816-17, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988); Santamarina v. Sears, Roebuck & Co., 466 F.3d 570, 571-72 (7th Cir.2006), or that his predecessor as presiding judge had made. Fujisawa Pharmaceutical Co. v. Kapoor, 115 F.3d 1332, 1339 (7th Cir. 1997); In re Engel, 124 F.3d 567, 583-85 (3d Cir. 1997). The doctrine has greater force in the second type of case—when there is a change of judges during the litigation and the new judge is asked to revisit the rulings of his predecessor. Reluctance to admit one's own errors discourages casual reconsideration of one's own rulings—but not of another judge's rulings. There was no change of judges here.

The doctrine of law of the case was applied to a motion to reconsider a summary judgment ruling in Fye v. Oklahoma Corp. Comm'n, 516 F.3d 1217, 1223-24 (10th Cir.2008), and doubtless in other cases as well. And while the doctrine obviously does not prevent an appellate court from correcting a trial judge's error, e.g., United States v. Comprehensive Drug Testing, Inc., 513 F.3d 1085, 1101-02 (9th Cir.2008), Eaton failed as we said to preserve its challenge to the alleged error (in denying its motion for summary judgment) in its motion for judgment as a matter of law. So it had to throw itself on the judge's mercy. But the exercise of mercy was within his discretion. "A judge may reexamine his earlier ruling (or the ruling of a judge previously assigned to the case, or of a previous panel if the doctrine is invoked at the appellate level) if he has a conviction at once strong and reasonable that the earlier ruling was wrong, and if rescinding it would not cause undue harm to the party that had benefited from it," Avitia v. Metropolitan Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir.1995). These conditions are satisfied; we'll see that the judge had a solid basis for thinking he had erred. And in revisiting the issue of causation after the trial he was not depriving HK of the benefit of any of the evidence presented at the trial, because that evidence did not bear on the judge's decision. He had denied summary judgment on the basis of his reading of the indemnification clause, and in reconsidering the denial after the trial he continued to treat the meaning of the clause as a pure issue of law, unrelated to anything that had gone on at the trial. He ruled that the indemnification clause did not make Eaton liable for any part of the loss that HK had sustained in settling IBP's suit, because the contract between HK and IBP was an "intervening and superseding cause" of the loss that HK had suffered as a result of being sued by IBP.

This was not the most perspicuous articulation that the judge could have given of the ground of his decision, though it is a common formula in Wisconsin cases, see, e.g., Smith v. Katz, 226 Wis.2d 798, 595 N.W.2d 345, 357 (1999), as in cases in other states. The term "intervening [or superseding] cause," like "proximate cause," "legal cause," "chain of causation" (the "chain" that the "intervening cause" "breaks"), and "but for" cause belongs to an old-fashioned tort vocabulary. It would be clearer to speak in terms of responsibility, because the object of "causal" analysis in law is merely to determine who shall be responsible for some untoward event; in this case it is the loss that HK incurred as a result of the failure of the material-handling system to perform up to IBP's expectations—the failure that gave rise to IBP's suit against HK.

If a tanker truck spills oil, and a malicious passerby deliberately drops a lighted match into the resulting pool, starting a fire that inflicts a loss on a third party, the victim cannot recover damages from the truck company even if the spill was caused by the company's negligence. The "reason" is said to be that the arson was an "intervening cause" of the loss. Leposki v. Railway Express Agency, Inc., 297 F.2d 849 (3d Cir.1962); Giebel v. Richards, 224 Wis.2d 468, 591 N.W.2d 901, 904 (1999); Stone v. Boston & Albany R.R., 171 Mass. 536, 536-43, 51 N.E. 1 (Mass.1898); cf. Scottsdale Ins. Co. v. Subscription Plus, Inc., 299 F.3d 618, 620-21 (7th Cir.2002) (Wisconsin law). Yet an "intervening" criminal act is not always deemed to "break the causal chain"; a hotel is liable for its negligence that allows a criminal who is not employed by or otherwise affiliated with the hotel to commit a crime against a guest. E.g., Shadday v. Omni Hotels Management Corp., 477 F.3d 511, 512-13 (7th Cir.2007); Wassell v. Adams, 865 F.2d 849 (7th Cir.1989). The difference between the two examples has nothing to do with causation. In both the loss is attributable to multiple factors (including, in the oil-spill case, the presence of oxygen in the atmosphere). Without all of them the loss would not have occurred. But the hotel is held responsible...