Fort Howard Paper Co. v. Standard Havens, Inc.

• Citation: 901 F.2d 1373
• Decision Date: 24 May 1990
• Docket Number: 89-1691,Nos. 89-1638,s. 89-1638
• Parties: , 12 UCC Rep.Serv.2d 122 FORT HOWARD PAPER COMPANY, Plaintiff-Appellee, Cross-Appellant, v. STANDARD HAVENS, INC. and Continental Casualty Company, Defendants-Appellants, Cross-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1373

901 F.2d 1373

16 Fed.R.Serv.3d 1127, 12 UCC Rep.Serv.2d 122

FORT HOWARD PAPER COMPANY, Plaintiff-Appellee, Cross-Appellant, v. STANDARD HAVENS, INC. and Continental Casualty Company Defendants-Appellants, Cross-Appellees.

Nos. 89-1638, 89-1691.

United States Court of Appeals Seventh Circuit.

Argued Dec. 11, 1989.

Decided April 20, 1990.

Rehearing and Rehearing En Banc Denied May 24, 1990.

Chris J. Trebatoski, Michael E. Husmann, K. Thor Lundgren, Tony L. Bonney, Michael, Best & Friedrich, Milwaukee, Wis., for plaintiff-appellee, cross-appellant.

Kathryn M. Coates, Charles A. Grube, Michael S. McCauley, Quarles & Brady, Milwaukee, Wis., Byron J. Beck, Stanley A. Reigel, Brian E. Gardner, Morrison, Hecker, Curtis, Kuder & Parrish, Overland Park, Kan., for defendants-appellants, cross-appellees.

Before BAUER, Chief Judge, FLAUM and MANION, Circuit Judges.

FLAUM, Circuit Judge.

The Fort Howard Paper Company and Standard Havens, Inc., entered into a contract in which Standard Havens agreed to design, build, and install a baghouse filtration system for Fort Howard. After installation, Fort Howard was dissatisfied with the operation of the baghouse and sued Standard Havens for breach of warranty. At trial, the jury found Standard Havens had breached its warranty but also that Fort Howard misused the baghouse and was not entitled to any damages. The trial judge, sitting in diversity, refused to enter a verdict and instead granted Fort Howard's motion for a new trial determining that the defense of misuse was not properly pleaded and, therefore, was not an element of the suit. 119 F.R.D. 397. A second trial was held and the jury returned a verdict in favor of Fort Howard. Standard Havens appeals the grant of the motion for a new trial as well as alleged errors in the second trial.

I.

The Fort Howard Paper Company ("Fort Howard") is a Wisconsin corporation engaged in the business of manufacturing and selling paper products. Its principal place of business is Green Bay, Wisconsin. Standard Havens, Inc., is a Missouri corporation with its principal place of business in Kansas City, Missouri. Standard Havens is engaged in the business of designing, manufacturing and selling air filtration systems. Fort Howard entered into a contract with Standard Havens, whereby Standard Havens agreed to design, construct and install a filter system, known as a baghouse, at Fort Howard's Green Bay, Wisconsin facility. The baghouse was placed in operation at the facility in May, 1984.

The function of the baghouse is to filter flue gases from Fort Howard's boilers so that the emissions will comply with Wisconsin clean air regulations. The baghouse contains 28 modules, with each module containing 210 filter bags. Particulate matter, or fly ash, produced by the combustion of fuel in Fort Howard's boilers is filtered out and deposited on the outside of the filter bags while the boiler flue gas passes through the bags, and is then discharged into the atmosphere from a smoke stack. The build-up of fly ash on the outside of the filter bags creates a resistance to flue gas flow known as pressure drop. A high pressure drop is undesirable because the large industrial fans which drive the flue gas through the baghouse system may not be able to move the flue gas adequately, requiring more power output to run the fans, leading to higher costs.

The baghouse contract contained several express warranties, including the Pressure Drop Warranty, which limited the pressure drop to six inches of water. ¹ Fort Howard was dissatisfied with the performance of the baghouse and brought an action in August of 1985, seeking damages against Standard Havens for breach of the pressure drop warranty. In response to Fort Howard's allegations, Standard Havens denied that any breach had occurred, and instead, alleged that Fort Howard "failed to fulfill its obligations under the contract."

Just prior to trial, Fort Howard filed a motion in limine asserting the defenses of misuse and hindrance were not properly pleaded by Standard Havens. Oral argument on the motion was conducted the morning of the trial. The court concluded that the dispute did not lend itself to an easy resolution from the bench and took the motion under advisement and proceeded with trial. At trial, the court allowed Standard Havens to introduce evidence that substances other than those provided for in the contract were burned in Fort Howard's boilers. After a three week trial, the jury returned a thirteen-question special verdict, which contained four questions on the issues of misuse and hindrance, finding that: 1) Standard Havens had breached the pressure drop warranty; 2) but that Fort Howard had misused the baghouse causing the pressure drop problem, thereby negating any claim to damages.

The trial court refused to enter judgment for Standard Havens on the jury verdict and ordered a new trial. The court stated:

Standard Havens' defenses of misuse and hindrance to Fort Howard's breach of warranty claim were not properly pleaded. Furthermore, they were not added to the case through a proper amendment of the pleadings. Accordingly, the misuse and hindrance defenses were improperly placed before the jury. The Court hereby GRANTS Fort Howard's motion for a new trial. The new trial will not include any issues not properly pleaded.

After the trial court's order of a new trial, Fort Howard and Standard Havens conditionally stipulated that Standard Havens could amend its Answer to include the misuse and hindrance defenses. Pursuant to the stipulation, Standard Havens filed a motion to amend its Answer. The trial court denied the motion and issued orders that no evidence relating to misuse or hindrance be admitted at the second trial. Thereafter, the second trial was conducted without these defenses, and the jury returned a verdict in favor of Fort Howard finding a breach of the pressure drop warranty and damages of $955,162.

In January, 1989, Fort Howard filed a motion to amend the judgment to include an award of prejudgment interest. The district court, finding that the measure of damages was not readily ascertainable, denied the motion. Fort Howard cross-appeals this ruling. Standard Havens appeals the trial court's refusal to enter judgment after the first trial and, in the alternative, for errors allegedly made by the court in the second trial. For the reasons stated below, we affirm.

II.

Standard Havens alleges that the trial court erred in refusing to enter judgment on the verdict following the first trial on the grounds that Fort Howard knew from the outset of the action that its defenses were based on Fort Howard's failure to perform its obligations under the contract and this was sufficient to notify them of misuse and hindrance. Correspondingly, it contends that the failure to use the particular words "hindrance" and "misuse" in its Answer is not fatal because Fort Howard had proper notice.

Standard Havens asks this Court to construe the pleadings liberally. In this respect, Standard Havens argues that we should examine the pleadings to determine whether Fort Howard had notice of the defenses and not whether precise words were used. Standard Havens claims Fort Howard was on notice of "misuse" and "hindrance" because it alleged in its Answer that "Fort Howard has failed to perform obligations imposed upon it under the contract" listing various general obligations, including but not limited to, operation of the equipment in accordance with Standard Havens instructions, sufficient maintenance of the equipment, operation under conditions stated in the specifications, and notification to Standard Havens of testing.

Fort Howard, on the other hand, argues that because it received no notice from the pleadings of the misuse defense, it was deprived of any opportunity to prepare to meet these claims at trial. If it in fact knew it was defending a claim of misuse, Fort Howard asserts, it would have conducted discovery and retained experts for that claim. Therefore, allowing Standard Havens to raise these defenses denied it a fair trial.

We have determined that "appellate review of the grant of a new trial order ... is exceedingly limited because of the broad discretion that trial judges possess in this area.... Only upon a clear showing that a trial judge abused this broad discretion may an appellate court overturn a new trial order." Juneau Square Corp. v. First Wisconsin National Bank, 624 F.2d 798, 806 (7th Cir.1980) (citations omitted). "An abuse of discretion occurs only when no reasonable person could take the view adopted by the lower court." Nanetti v. University of Illinois at Chicago, 867 F.2d 990, 995 (7th Cir.1989). Therefore, in reviewing the new trial order, we do not seek to substitute our judgment for the trial judge's decision that a new trial was appropriate. "We seek only to determine whether he abused his discretion." Juneau, 624 F.2d at 806.

Difficulties arose in this case when Fort Howard's motion concerning the admission of evidence of misuse and hindrance was not ruled upon at the outset. Further problems developed because of the unstated reason for allowing a special verdict containing questions of misuse and hindrance to go to the jury. The absence of the decision on the motion prior to trial, or at least prior to the special verdict questions going to the jury, caused additional costs in the first trial and ultimately necessitated the second trial.

Nevertheless, not having addressed the issue earlier, the court correctly resolved the matter by granting a new trial. The court granted a new trial primarily because it determined that allegations that a party failed to perform "obligations imposed upon it under the contract" does not provide fair notice of hindrance. Likewise, the court determined, after reviewing the case law, that a misuse defense does not necessarily arise from a party's failure to perform contractual obligations. Accordingly, ...