Insurance Co. of North America v. Cease Electric Inc.

• Citation: 2004 WI App 15,269 Wis.2d 286,674 N.W.2d 886
• Decision Date: 17 December 2003
• Docket Number: No. 03-0689.,03-0689.
• Parties: INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Respondent, COLD SPRING EGG FARM, INC., Involuntary-Plaintiff-Respondent, v. CEASE ELECTRIC INC., d/b/a Zillmer Electric and Pekin Insurance Company, Defendants-Appellants.
• Court: Court of Appeals of Wisconsin

269 Wis.2d 286

2004 WI App 15

674 N.W.2d 886

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Respondent, COLD SPRING EGG FARM, INC., Involuntary-Plaintiff-Respondent, v. CEASE ELECTRIC INC., d/b/a Zillmer Electric and Pekin Insurance Company, Defendants-Appellants.¹

No. 03-0689.

Court of Appeals of Wisconsin.

Submitted on briefs October 8, 2003.

Decided December 17, 2003.

On behalf of the defendants-appellants, the cause was submitted on the briefs of Monte E. Weiss and J.P. Fernandes of Weiss Law Office, S.C., of Milwaukee.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Timothy A. Bascom and Amy J. Uhlenbrauck of Bascom, Budish & Ceman, S.C., of Wauwatosa.

Before Anderson, P.J., Brown and Snyder, JJ.

¶ 1. BROWN, J.

Cease Electric Inc., d/b/a Zillmer Electric and Pekin Insurance Company appeal from a judgment awarding Cold Spring Egg Farm, Inc., and Insurance Company of North America damages for losses sustained due to the failure of a ventilation system Cease Electric installed in one of Cold Spring's hen barns and double taxable costs pursuant to WIS. STAT. § 807.01(3) (2001-02).² The appellants present two primary challenges to the judgment on appeal. First, the appellants argue that the trial court erred in refusing to impose sanctions against Cold Spring for its alleged spoliation of evidence. We conclude that Cold Spring's conduct does not qualify as spoliation because the record fails to demonstrate that Cold Spring knew, or should have known, at the time of the destruction of the evidence that litigation was a distinct possibility and that Cold Spring knew, or should have known, that the evidence would be relevant to such litigation. The appellants also submit that the economic loss doctrine precludes Cold Spring's recovery under any tort theory. We hold that the purpose of the transaction between Cold Spring and Cease Electric was for services and the economic loss doctrine has not been expanded to cover services. We affirm.

¶ 2. Cold Spring raises chickens to produce eggs at its egg farm.³ In the summer of 1996, Cold Spring hired Cease Electric to upgrade the ventilation system in one of its barns. The ventilation systems are required to bring fresh, cooler air into the barns so that the birds have sufficient oxygen to live. Cold Spring purchased new fans for the system from Aerotech, Incorporated. ¶ 3. Prior to the installation of the new ventilation system, each ventilating fan had its own individual thermostat and operated independently of all other ventilating fans. The new ventilation system was designed so that a single controller would operate all of the fans in stages. As the temperature in the barn rose, the fan control would engage different fans to bring fresh air into the barn. As the temperature in the barn fell, the controller would turn off the fans accordingly. In addition to the primary fan control, the ventilation system was designed by the manufacturer to have a backup thermostat. In its instructions, the manufacturer recommended the use of a backup thermostat as a safety device in the event that the primary fan control failed to operate. The manufacturer also recommended wiring the backup thermostat to a power source that was separate from the power source for the primary fan control. Cold Spring retained Cease Electric to install the ventilation system's component parts, including the primary fan control and the backup thermostat. Brian Cease, who passed away in December 1997, installed the main fan control unit and the backup thermostat.

¶ 4. In November 1996, Cold Spring terminated its relationship with Cease Electric. Cold Spring had become concerned that Cease Electric was not completing the projects correctly or in a timely fashion.

¶ 5. On January 8, 1997, approximately three months after Cease Electric had completed wiring the ventilation system in the barn, the ventilation system failed. As a result of this failure, approximately 17,000 chickens died. ¶ 6. On the day of the loss, Scott Hartwig, the manager of the Cold Spring operation, called Carroll Electric,⁴ a Cease Electric competitor, to the barn to respond to the situation. Al Dittmar, one of Carroll Electric's electricians, replaced the main fan control unit as well as the backup thermostat. Hartwig recalls Dittmar giving him the former primary fan control but not the old backup thermostat. He recalls that the replaced primary fan control had been placed in the office at Cold Spring but cannot remember what was done with the backup thermostat.

¶ 7. Within one week of the loss, Cold Spring hired Dittmar to conduct a diagnostic investigation to determine why the fans did not operate. Following an investigation, Dittmar reported to Cold Spring that he believed Cease Electric had improperly wired the ventilation system it sold to Cold Spring. Dittmar informed Hartwig that the main fan control unit was wired to the same power circuit as the backup thermostat. Thus, if the circuit breaker tripped, shutting off power to the circuit, then neither the main fan control unit nor the backup thermostat would have the power to turn on the fans. Dittmar then rewired the barn.

¶ 8. Pursuant to the insurance contract, INA paid Cold Spring $118,339.20 for the loss of income and $40,704.89 for the loss of chickens. Cold Spring itself sustained a loss of $39,761.02 due to its deductible. INA then commenced this subrogation action, naming Cold Spring as an involuntary plaintiff and Cease Electric and Pekin Insurance Company, Cease Electric's liability insurer, as defendants. In its complaint, INA alleged the failure of the ventilation system was the result of Cease Electric's negligence.

¶ 9. At some point thereafter, at a mediation, the parties stipulated to the damages in this case and filed the stipulation with the court.⁵ Apparently, the stipulated amount was for $198,805.11. Following this stipulation, Cold Spring and INA filed a joint statutory offer of settlement for $198,000.00. The offer allocated the amount as follows: $159,000.00 to INA and $39,000.00 to Cold Spring. Cease Electric presumably rejected the offer.

¶ 10. The appellants subsequently filed a motion to sanction Cold Spring for its alleged spoliation of evidence. The appellants contended that since Cold Spring had misplaced the backup thermostat, and Dittmar rewired the barn without documenting the miswiring, INA and Cold Spring should be precluded from introducing testimony concerning Dittmar's observations of the miswiring. The trial court, Judge Robert J. Kennedy presiding, concluded that Cold Spring's conduct, while regrettable, did not constitute spoliation of evidence. Shortly before the trial, Judge John R. Race, who replaced Judge Kennedy as a result of judicial rotation, again addressed the issue of spoliation. Judge Race also ruled that Cold Spring's conduct did not rise to the level of spoliation of evidence.

¶ 11. The appellants again raised the issue of spoliation of evidence at the conference on jury instructions, requesting that the court give an instruction on spoliation. The court denied their request on the grounds that they had failed to prove that the conduct of either INA or Cold Spring had risen to such a level as to warrant a spoliation instruction.

¶ 12. Following a two-day trial, the jury returned a verdict in favor of INA and Cold Spring. The trial court inserted the stipulated amount of damages into the jury verdict. The appellants moved for a judgment notwithstanding the verdict and reasserted their motions for a directed verdict at the close of evidence.⁶ They argued that INA's and Cold Spring's claims were barred by the economic loss doctrine and that they had spoliated essential evidence and, as a consequence, their claims should be dismissed as a sanction. The trial court denied the motion and entered judgment for INA and Cold Spring totaling $204,065.29. This amount represented the amount of stipulated damages, in addition to $5260.18 in double costs awarded pursuant to WIS. STAT. § 807.01(3). This appeal followed.

¶ 13. We first address the appellants' contention that the trial court applied the incorrect legal standard in refusing to sanction Cold Spring for its alleged spoliation of evidence and it therefore erroneously exercised its discretion. The appellants submit that because Cold Spring intentionally engaged in conduct resulting in the destruction of evidence that ultimately would have been helpful to it in this lawsuit, the doctrine of spoliation applies and the trial court should have sanctioned Cold Spring by dismissing Cold Spring's claims, by excluding the evidence concerning the miswiring of the barn, or by issuing a jury instruction on spoliation.

[1]

¶ 14. A response to a request for the imposition of sanctions for the destruction of evidence or the negligent failure to preserve it is a matter subject to the sound discretion of the trial court. See Sentry Ins. v. Royal Ins. Co. of Am., 196 Wis. 2d 907, 916, 539 N.W.2d 911 (Ct. App. 1995)

; Milwaukee Constructors II v. Milwaukee Metro. Sewerage Dist., 177 Wis. 2d 523, 529, 502 N.W.2d 881 (Ct. App. 1993). The core issue is not whether this court, as an original matter, would have exercised its discretion in the same manner, but whether the trial court exercised its discretion free of error. We shall not find error if the trial court examined the relevant facts, applied a proper standard of law and, utilizing a demonstrated rational process, reached a conclusion that a reasonable judge could reach. See Johnson v. Allis Chalmers Corp., 162 Wis. 2d 261, 273, 470 N.W.2d 859 (1991).

[2]

¶ 15. Not all destruction, alteration, or loss of evidence qualifies as spoliation. In Milwaukee Constructors II, 177 Wis. 2d at 532, we adopted the process for evaluating the details, significance and sanctions concerning allegations of destruction of evidence set forth in Struthers Patent Corp. v. Nestle Co., 558 F. Supp. 747,...