Estate of Kriefall v. Sizzler USA Franchise, Inc.

• Decision Date: 29 June 2012
• Docket Number: 2010AP491.,Nos. 2009AP1212,s. 2009AP1212
• Citation: 342 Wis.2d 29,816 N.W.2d 853,2012 WI 70
• Court: Wisconsin Supreme Court
• Parties: ESTATE OF Brianna KRIEFALL, deceased, by her Special Administrator, Douglas A. Kriefall, Connie J. Kriefall and Chad Kriefall, a minor, by his Guardian ad Litem, Plaintiffs, v. SIZZLER USA FRANCHISE, INC., Defendant–Respondent–Cross–Appellant–Cross Petitioner, E & B Management Co., Waukesha, d/b/a Sizzler, Sizzler USA and Secura Insurance, Defendants, Excel Corporation and American Home Assurance Co., Defendants–Appellants–Cross–Respondents–Petitioners. Estate of Brianna Kriefall, deceased, by her Special Administrator, Douglas A. Kriefall, Connie J. Kriefall and Chad Kriefall, a minor, by his Guardian ad Litem, Plaintiffs, v. Sizzler USA, Defendant, Sizzler USA Franchise, Inc., Defendant–Respondent–Cross Petitioner, Secura Insurance, Defendant–Respondent–Cross–Appellant, E & B Management Co., Waukesha, d/b/a Sizzler, Defendant–Respondent–Cross–Appellant–Cross Petitioner, American Home Assurance Co. and Excel Corporation, Defendants–Appellants–Cross–Respondents–Petitioners.

342 Wis.2d 29

816 N.W.2d 853

2012 WI 70

ESTATE OF Brianna KRIEFALL, deceased, by her Special Administrator, Douglas A. Kriefall, Connie J. Kriefall and Chad Kriefall, a minor, by his Guardian ad Litem, Plaintiffs,

v.SIZZLER USA FRANCHISE, INC., Defendant–Respondent–Cross–Appellant–Cross Petitioner,E & B Management Co., Waukesha, d/b/a Sizzler, Sizzler USA and Secura Insurance, Defendants,Excel Corporation and American Home Assurance Co., Defendants–Appellants–Cross–Respondents–Petitioners.

Estate of Brianna Kriefall, deceased, by her Special Administrator, Douglas A. Kriefall, Connie J. Kriefall and Chad Kriefall, a minor, by his Guardian ad Litem, Plaintiffs,

v.Sizzler USA, Defendant,Sizzler USA Franchise, Inc., Defendant–Respondent–Cross Petitioner,Secura Insurance, Defendant–Respondent–Cross–Appellant,E & B Management Co., Waukesha, d/b/a Sizzler, Defendant–Respondent–Cross–Appellant–Cross Petitioner,

American Home Assurance Co. and Excel Corporation, Defendants–Appellants–Cross–Respondents–Petitioners.

Nos. 2009AP1212, 2010AP491.

Supreme Court of Wisconsin.

Argued Jan. 13, 2012.

Decided June 29, 2012.

For the defendants-appellants-cross-respondents-petitioners there were briefs filed by Nora E. Gierke, Rebecca E. Frihart and Reinhart Boerner VanDeuren, S.C., Milwaukee, William C. Buhay, Earl W. Gunn, David I. Matthews and Weinberg, Wheeler, Hudgins, Gunn & Dial, LLC, Atlanta, Barbara I. Michaelides, Paula M. Carstensen and Bates, Carey Nicolaides, LLP, Chicago, and oral argument by Paula M. Carstensen.

For the defendants-third-party-plaintiff-appellant there were briefs filed by Terry E. Johnson, Ronald G. Pezze, Jr. and Peterson, Johnson & Murray, S.C. Milwaukee and oral argument by Terry E. Johnson.

For the defendant-respondent-cross petitioner there were briefs filed by Russell A. Klingaman, Noah D. Fiedler and Hinshaw & Culbertson LLP, Milwaukee, Frederic L. Gordon and Gordon & Holmes, APC, San Diego, and oral argument by Frederic L. Gordon.

PATIENCE DRAKE ROGGENSACK, J.

[342 Wis.2d 39]¶ 1 This is a review of a published decision of the court of appeals ¹ that affirmedin part and reversed in part the judgment of the Circuit Court for Milwaukee County.² The questions before this court stem from damages sustained because of food contaminated by E. coli 0157:H7 pathogens at two Sizzler Steak House restaurants in the Milwaukee area.³ The plaintiffs in the underlying actions settled years ago, and the claims now before us relate to the apportionment of liability and costs among those who were defendants in the underlying actions.

¶ 2 The parties raise five issues, and we affirm the decision of the court of appeals on all issues. First, we hold that Sizzler is entitled to recover consequential damages for Excel's breach of implied warranties in the parties' meat supply contract, notwithstanding limiting language in the Continuing Guaranty. Second, Sizzler also is entitled to indemnity from Excel for the entirety of Sizzler's $1.5 million advance partial payment to the Kriefall family because the payment was not voluntary and the jury found that Sizzler was zero percent liable for the E. coli contamination. Third, pursuant to the Hold Harmless Agreement and Guaranty/Warranty of Product (Hold Harmless Agreement), Excel is required to indemnify E & B for payments E & B made to certain non-Kriefall plaintiffs in exchange for Pierringer releases; ⁴ however, Excel's obligation extends only so far as its apportioned liability, which is 80 percent. Fourth, Excel is not required to indemnify E & B for payments that Federal Insurance Company made on E & B's behalf in settling the non-Kriefall plaintiffs' claims. Fifth, and finally, notwithstanding the jury's determination that Sizzler was zero percent responsible for the E. coli contaminated food that caused the illnesses of so many people, Sizzler may not recover attorney fees from Excel because the exception to the American Rule stated in Weinhagen v. Hayes, 179 Wis. 62, 190 N.W. 1002 (1922), does not apply here.

I. BACKGROUND

¶ 3 In late July and early August 2000, approximately 150 people became ill from ingesting food contaminated with E. coli at two Sizzler Steak House restaurants in the Milwaukee area. Their illnesses ranged from diarrhea and cramps to, in the case of three-year-old Brianna Kriefall, death.

¶ 4 Excel Corporation processed and distributed the contaminated meat that was the source of the E. coli pathogens. Excel's role in the contamination was confirmed by tests of sealed packages of Excel's tri-tip beef that had been shipped to Sizzler restaurants; also, Excel eventually stipulated to its meat having been the source of the E. coli.

¶ 5 Excel's contaminated meat was distributed to franchisees of Sizzler USA Franchise, Inc. (Sizzler). Sizzler's franchisee here, E & B Management Co., Waukesha (E & B), operated two Sizzler Steak House restaurants in the Milwaukee area. E. coli contamination occurred at both restaurants, although the Wisconsin Department of Health and Family Services classified the two outbreaks as separate occurrences, caused by different food handling errors. There was testimony at trial that numerous food handling procedures employed at E & B's Sizzler restaurants failed to comply with established standards for safe food handling, including using the same utensils to handle raw meat and ready-to-eat foods, cutting raw meat near ready-to-eat foods, and storing raw meat and ready-to-eat foods in close proximity.

¶ 6 Many of those sickened by the Milwaukee E. coli contamination asserted claims against Excel, Sizzler, E & B, E & B's shareholders, and Sysco Food Services of Eastern Wisconsin, the local distributor for Excel's meats. The claims included negligence, strict liability, and breaches of implied warranties of merchantability and fitness. Over the course of negotiations and pre-trial preparations, the plaintiffs' claims were broadly classified into two groups. One group, the Kriefall plaintiffs, includes Brianna Kriefall's estate, and Brianna's mother, father and brother. The plaintiffs in the second group, referred to collectively as the “non-Kriefall plaintiffs,” have proceeded separately and were subject to different settlement proceedings than the Kriefall plaintiffs.

¶ 7 Prior to trial, the Kriefall plaintiffs settled with Excel, E & B, Sizzler, and their insurers.⁵ The Kriefalls received $10.5 million, including $8.5 million in settlement of claims against Excel, and $2 million in settlement of claims against E & B and Sizzler. Excel paid the entire $10.5 million amount.

¶ 8 The 138 non-Kriefall plaintiffs also settled their claims. The plaintiffs received differing amounts, depending on the severity of their injuries. Settlements for the non-Kriefall claims were paid from a fund administered by one of E & B's insurers, Secura Insurance Co. The fund included the policy limits under E & B's Secura policy, $3.5 million, as well as another $1 million from Federal Insurance that provided coverage to E & B as an additional insured under a policy issued to Sizzler. In total, the non-Kriefall plaintiffs were paid approximately $3.5 million. The remaining amount from the settlement fund, approximately $1 million, was paid to the Kriefalls on behalf of Sizzler as an advance payment pursuant to Wis. Stat. § 885.285 (2009–10).⁶

¶ 9 After all of the plaintiffs' claims were settled, Excel, Sizzler, E & B and their respective insurers went to trial to apportion liability among them. The jury found that Excel was 80 percent liable, E & B was 20 percent liable, and Sizzler was not liable. The parties then sought to apply certain contractual and common law doctrines in the assignment of the ultimate responsibility for the settlement amounts among themselves.

¶ 10 Much of the parties' dispute turns on three components of the contractual relationship governing Excel's distribution of meat to Sizzler's restaurants. First, the Boxed Beef Sales Confirmation and Contract (Boxed Beef contract) affected Excel and Sizzler's relationship for the sale and purchase of meat products. That document, renewed yearly, set forth the amounts of certain cuts of beef that Sizzler agreed to purchase from Excel. The Boxed Beef contract included tri-tip steaks that were the source of the E. coli contamination at the Milwaukee Sizzler restaurants.

[342 Wis.2d 44]¶ 11 Second, in 1997, Excel had sought to participate as a supplier of meat for Sizzler's restaurants.⁷ In the parties' agreement, Excel was required to provide Sizzler with a guaranty that Excel's beef products complied with various federal, state and local food safety laws. This guaranty, referred to as the “Continuing Guaranty,” provides, in relevant part:

Excel Corporation (Seller), hereby states that each and every article contained in and comprising each shipment or other delivery hereafter made by Seller, to or on the order of Sizzler International, Inc. (Buyer), is hereby guaranteed, as of the date of each such shipment or delivery, to be:

1. Not adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act....

....

This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature nor shall it extend to the benefit of persons or corporations other than Sizzler International, Inc. or its affiliates.⁸

¶ 12 Third, Excel entered into a Hold Harmless Agreement with its regional distributor, Sysco Food Services of Eastern Wisconsin. The Hold Harmless Agreement provides, in relevant part, that Excel, as Seller:

agrees to defend, indemnify and hold harmless Buyer and its employees, officers, directors and customers (individually, an “Indemnitee”) from all actions, suits, claims and proceedings (“Claims”), and any judgments, damages, fines, costs and expenses (including reasonable attorneys' fees) resulting therefrom ... provided, however, that Seller's indemnification obligations hereunder shall not apply to the extent...