Pentair, Inc. v. Wisconsin Energy Corp.
| Decision Date | 10 September 2009 |
| Docket Number | Case No. 07-CV-3521 (PJS/JJK). |
| Parties | PENTAIR, INC., a Minnesota corporation, Plaintiff, v. WISCONSIN ENERGY CORPORATION, a Wisconsin corporation, Defendant. |
| Court | U.S. District Court — District of Minnesota |
Stuart T. Williams, Bruce C. Recher, and Wesley T. Graham, Henson & Efron, P.A., for plaintiff.
Richard B. Allyn and Gerardo Alcazar, Robins, Kaplan, Miller & Ciresi L.L.P.; and R. Ryan Stoll, Skadden, Arps, Slate, Meagher & Flom L.L.P., for defendant.
ORDER DENYING MOTION FOR SUMMARY JUDGMENT
In July 2004, plaintiff Pentair, Inc. ("Pentair") purchased Wicor, Inc. ("Wicor"), a subsidiary of defendant Wisconsin Energy Corporation ("WEC"). In Count II of its complaint—the only count that has not been dismissed1—Pentair alleges that WEC breached an express warranty about the accuracy of Wicor's financial statements. This matter is before the Court on WEC's motion for summary judgment on Count II. For the reasons set forth below, the motion is denied.
Pentair's purchase of Wicor is documented in a written stock-purchase agreement between Pentair and WEC, dated February 3, 2004 ("Agreement"). See Berglund Decl. Ex. A, Sept. 7, 2007 [Docket No. 7] (hereinafter "Agreement § ___"). Pursuant to the Agreement, Pentair purchased all shares of Wicor. Compl. ¶ 7. The stock sale closed effective July 31, 2004. Compl. ¶ 8.
The Agreement included a number of warranties relating to Wicor's financial health. Among other things, WEC provided a warranty that applied specifically to Wicor's employee-benefit plans, which the Agreement referred to as "Employee Plans/Agreements." Agreement § 3.16(a). WEC warranted that, with certain exceptions not relevant here, "all payments due from [each] Employee Plan/Agreement . . . have been made, and all amounts properly accrued to date as Liabilities that have not been paid have been properly recorded on the books of [Wicor]. . . ." Agreement § 3.16(f).
In Count II of its complaint, Pentair alleges that WEC breached § 3.16(f) of the Agreement. Specifically, Pentair alleges that, in calculating Wicor's worker's-compensation reserve, WEC failed to account for incurred, but unreported, claims and associated expenses, in violation of various financial-accounting standards. Compl. ¶ 10. According to Pentair, WEC understated Wicor's worker's-compensation reserve by over $6 million. As a result of this alleged breach, Pentair claims to have suffered damages exceeding $6 million. WEC now moves for summary judgment on this claim.
Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute over a fact is "material" only if its resolution might affect the outcome of the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute over a fact is "genuine" only if the evidence is such that a reasonable jury could return a verdict for either party. Ohio Cas. Ins. Co. v. Union Pac. R.R., 469 F.3d 1158, 1162 (8th Cir.2006). In considering a motion for summary judgment, a court "must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to the non-moving party." Winthrop Res. Corp. v. Eaton Hydraulics, Inc., 361 F.3d 465, 468 (8th Cir.2004).
The Agreement provides, and the parties agree, that Wisconsin law governs the interpretation and enforcement of the Agreement. Agreement § 12.5. In determining the law of any state, this Court must follow the decisions of that state's highest court. See Integrity Floorcovering, Inc. v. Broan-Nutone, LLC, 521 F.3d 914, 917 (8th Cir.2008). When a state's highest court has not spoken on a particular issue, this Court must predict how the state's highest court would decide the issue and "may consider relevant state precedent, analogous decisions, considered dicta . . . and any other reliable data." Id. ().
WEC makes the interesting argument that, in determining Wisconsin law, this Court is bound not only by the decisions of the Wisconsin Supreme Court, but also by the published decisions of the Wisconsin Court of Appeals. In support of this argument, WEC cites Wis. Stat. § 752.41(2), which provides that "[o]fficially published opinions of the court of appeals shall have statewide precedential effect."
The Court disagrees. To begin with, the Court doubts that § 752.41(2) stands for anything more remarkable than the proposition that a published decision of the Wisconsin Court of Appeals is binding on all Wisconsin courts of equal or lesser authority unless it is overturned by the Wisconsin Supreme Court. The Seventh Circuit, however, has apparently read § 752.41(2) to mean that the published opinions of the Wisconsin Court of Appeals bind federal courts on matters of Wisconsin law to the same extent as the opinions of the Wisconsin Supreme Court. See Cole v. Young, 817 F.2d 412, 416 (7th Cir.1987); see also Fittshur v. Village of Menomonee Falls, 31 F.3d 1401, 1406 (7th Cir.1994).2
This seems like an odd way to read the statute, and, as a later Seventh Circuit case makes clear, this approach is inconsistent with a federal court's role in a diversity case. See Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630, 633-37 (7th Cir.2002) (). As a matter of internal judicial administration, states are certainly free to make the decisions of their intermediate appellate courts binding on their own trial courts. But the task of a federal court sitting in diversity is not to imitate a state trial court; rather, it is to predict the ultimate rule of law that would have emerged had the case been litigated through the state system. See id. at 635.
A federal court's performance of this task must account for the fact that, unlike a state litigant, a federal litigant normally has no opportunity to ask for a definitive ruling from the state's highest court.3 If federal courts were bound by the rulings of intermediate state courts, federal litigants would in most cases be denied "any opportunity to receive a judicial assessment about what the supreme court of the state might determine the law to be through a resolution of conflicting precedent in the lower state appellate courts." Id. For this reason, § 752.41(2) cannot be construed to require a federal court to be bound by the decisions of the Wisconsin Court of Appeals. The Court will therefore follow the traditional approach of treating the decisions of Wisconsin's intermediate appellate courts as persuasive, but not binding, authority.
For purposes of its motion, WEC does not dispute that it made a warranty, that it breached the warranty, and that Pentair suffered damages as a result of WEC's breach. Instead, WEC moves for summary judgment on the basis that Pentair had full knowledge of WEC's breach before the deal closed.4
According to WEC, Pentair's knowledge is relevant in two ways. First, WEC argues that Pentair's knowledge of the breach means that Pentair cannot prove that it relied on the warranty, and, according to WEC, Pentair cannot recover for breach of warranty unless it can prove reliance. Second, WEC argues that, because Pentair proceeded with the transaction despite its knowledge of WEC's breach, Pentair waived that breach. The Court considers each argument in turn.
Whether Wisconsin requires proof of reliance as an element of a breach-of-warranty claim is a difficult question. Judicial opinions are not clear, and it is impossible to discern a general principle that is not contradicted at least to some extent by some language in some opinion. But having carefully examined the relevant case law, the Court concludes that whether reliance is an element of a breach-of-warranty claim under Wisconsin law depends on whether the parties have expressly agreed that a particular factual representation constitutes a warranty.
If the seller merely makes a factual representation (e.g., "this car has four new tires")—but the seller does not go further and expressly agree that his representation is a warranty (e.g., "I hereby warrant that this car has four new tires")—the buyer cannot recover for breach of warranty unless she can prove that she relied on the factual representation. Wisconsin has long followed the rule, later incorporated into the Uniform Sales Act, that a seller's representation about the quality of goods does not become an enforceable warranty unless the buyer relied on the representation. Neave v. Arntz, 56 Wis. 174, 14 N.W. 41, 42 (1882) (); Acme Equip. Corp. v. Montgomery Co-op. Creamery Ass'n, 29 Wis.2d 355, 138 N.W.2d 729, 731 (1966) ().5
But if the seller has expressly agreed that his representation is a warranty, the buyer may recover for breach of that warranty even if she did not rely on it—that is, even if she knew or had reason to know that the factual representation being warranted was not true. The Wisconsin Supreme Court long ago explained that reliance is not required where parties have themselves made it clear...
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