Twin Disc, Inc. v. Big Bud Tractor, Inc.

• Decision Date: 05 September 1985
• Docket Number: INCORPORATE,GRAD-LIN,T,84-2395,Nos. 84-2246,s. 84-2246
• Citation: 772 F.2d 1329
• Parties: 41 UCC Rep.Serv. 1627, Prod.Liab.Rep.(CCH)P 10,673 TWIN DISC, INCORPORATED, Plaintiff-Appellee, Cross-Appellant, v. BIG BUD TRACTOR, INC., Defendant and Third-Party Plaintiff-Appellant, Cross- Appellee, v.hird-Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1329

772 F.2d 1329

41 UCC Rep.Serv. 1627, Prod.Liab.Rep.(CCH)P 10,673

TWIN DISC, INCORPORATED, Plaintiff-Appellee, Cross-Appellant, v. BIG BUD TRACTOR, INC., Defendant and Third-Party Plaintiff-Appellant, Cross- Appellee, v. GRAD-LINE, INCORPORATED, Third-Party Defendant-Appellee.

Nos. 84-2246, 84-2395.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 14, 1985.

Decided Sept. 5, 1985.

Stuart Parson, Quarles & Brady, Milwaukee, Wis., for plaintiff-appellee, cross-appellant.

Clay R. Williams, Gibbs, Roper, Loots & Williams, L. William Staudenmaier, Brian C. Tyndale, Cook & Franke, S.C., Milwaukee, Wis., for defendant and third-party plaintiff-appellant, cross-appellee.

Before WOOD and FLAUM, Circuit Judges, and PELL, Senior Circuit judge.

FLAUM, Circuit Judge.

In this diversity case raising questions of Wisconsin law, we are asked to consider various issues concerning breach of warranty, breach of contract, negligence, and strict liability claims brought by Big Bud Tractor, Inc. ("Big Bud"), a manufacturer of large farm tractors, against the manufacturers of some defective component tractor parts. The jury awarded Big Bud $1.1 million in damages, and the district court entered judgment on that verdict after offsetting the amount that Big Bud owed on account to the component manufacturer. For the reasons set forth below, we affirm.

I.

Twin Disc, Incorporated ("Twin Disc") is a Wisconsin corporation engaged in the manufacture and sale of heavy-duty transmissions. In 1977, Twin Disc entered into an agreement to provide heavy-duty, power-shift transmissions to Big Bud, a small Montana corporation, for use in Big Bud's manufacture and sale of large farm tractors. Grad-Line, Incorporated ("Grad-Line"), a Washington corporation, manufactured the electronic shift controllers that Twin Disc used in the transmissions that it supplied to Big Bud.

The problems leading to this suit began when Twin Disc failed to deliver on time the transmissions that the parties had agreed would be delivered in 1978. Twin Disc's consistently late delivery of transmissions in 1978 allegedly caused Big Bud to miss the 1978 fall sales season and caused Big Bud's inventory of component parts to build up at high-interest carrying costs.

After receiving assurances from Twin Disc that its production problems had been corrected, Big Bud ordered a total of forty-eight new model transmissions for delivery in January through April of 1979. None was delivered until May of that year. Big Bud missed the 1979 spring market as a result, and its inventory continued to build up. From December 1979 to April 1980, Big Bud stopped manufacturing new tractors in order to install Twin Disc transmissions in its backlogged inventory of tractors that had been completed except for the transmissions. Big Bud estimated that as a result of the shutdown, it lost $2.9 million and missed its second spring sales season in a row.

Although Big Bud's subsequent attempt to sell its two-year backlog of completed tractors was somewhat successful, Big Bud continued to lose money. Finally, on July 15, 1982, Big Bud filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code. 11 U.S.C. Secs. 1101-1174 (1982 & West Supp.1985).

Meanwhile, on July 18, 1980, Twin Disc commenced this action to recover the approximately $1 million on account that Big Bud owed to Twin Disc for transmissions sold and delivered. Big Bud counterclaimed for over $53 million in damages, alleging breach of warranties, both express and implied, negligence, strict liability, and breach of contract. Big Bud also brought a third-party claim against Grad-Line for over $49 million in damages on breach of warranty, negligence, and strict liability theories, claiming that the delay had been due in part to defective electronic shift controllers that Grad-Line had supplied to Twin Disc.

On March 16, 1984, the district court granted summary judgment to Twin Disc and Grad-Line on all of Big Bud's negligence and strict liability claims, reasoning that Big Bud was "not an ultimate consumer of the transmissions involved in this case." Twin Disc, Inc. v. Big Bud Tractor, Inc., 582 F.Supp. 208, 213 (E.D.Wis.1984). The district court also granted Grad-Line's motion for summary judgment on Big Bud's warranty claims, dismissing the claims for lack of privity. Id. at 214-15. Grad-Line was accordingly dismissed as a party.

Shortly before the trial was to commence on Big Bud's contract and warranty claims against Twin Disc, Big Bud amended its answer to admit that the amount that Big Bud owed to Twin Disc on account was $1,014,089.85. After a month-long trial, the jury entered a special verdict finding no breach of warranty but finding that Twin Disc breached a "contract or agreement to deliver or repair ... transmission equipment in a timely fashion." The jury awarded Big Bud $1,100,000 in compensatory damages. This award was offset, however, against the $1,014,089.85 that Big Bud owed to Twin Disc on account plus the $195,594.18 in prejudgment interest on that amount that the district court awarded to Twin Disc. Netting the $1,100,000 that Twin Disc owed to Big Bud with the $1,209,684.03 that Big Bud owed to Twin Disc, the district court entered a judgment awarding Twin Disc $109,684.03 plus costs.

Big Bud appeals from this judgment on several grounds, contending that: (1) the district court erred by dismissing Big Bud's tort claims against Twin Disc and Grad-Line on motions for summary judgment; (2) the district court erroneously decided that the contract between Big Bud and Twin Disc contained a disclaimer of all implied warranties; (3) the district court erred in awarding prejudgment interest on the amount that Big Bud owed to Twin Disc; (4) the district court erred in quashing the testimony of Dr. Holahan, one of Big Bud's expert witnesses, on Big Bud's lost profits; and (5) the district court incorrectly instructed the jury on Big Bud's burden of proving lost profits.

In its cross-appeal, Twin Disc alleges that: (1) the district court erred in denying Twin Disc's motion for judgment notwithstanding the verdict; (2) the district court erroneously refused to allow Twin Disc to file a supplemental complaint; and (3) the special verdict form was fatally ambiguous.

II.

A. Tort Claims

Big Bud first argues that the district court erroneously dismissed Big Bud's negligence and strict liability claims against Twin Disc and Grad-Line on their motions for summary judgment. The district court held that Big Bud could not maintain its tort claims against Twin Disc or Grad-Line because Big Bud was an intermediate manufacturer rather than the ultimate consumer of the transmissions. See Restatement (Second) of Torts Sec. 402A & comments 1, q (1965) (seller of unreasonably dangerous defective product is "subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property"); City of Franklin v. Badger Ford Truck Sales, Inc., 58 Wis.2d 641, 649, 207 N.W.2d 866, 870 (1973) ("as to the ultimate user or consumer," the strict liability standard applies to makers and suppliers of defective component parts). Twin Disc and Grad-Line offer as an alternative theory supporting the district court's decision the argument that Wisconsin law does not allow recovery in tort for economic loss alone. The reasoning behind both of these theories is similar--the parties to a purely commercial transaction should not be able to recover in tort for economic losses arising out of that transaction when the parties have negotiated and the UCC provides for adequate contract remedies. It would undermine the law of sales and ignore the understanding of the parties as reflected by their contract, it is argued, if the buyer was able to recover for its economic losses under a tort theory after the seller had bargained for and the buyer had agreed to a limitation of warranty remedies. See Twin Disc, 582 F.Supp. at 213-14 (to allow tort remedies to overlay a purely commercial transaction would undermine certainty and predictability in business relationships and thus vitiate one of the reasons for codifying the law of commercial transactions). See also Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280, 288-89 (3d Cir.1980) (policy considerations support view that tort action should not lie against the seller of a product solely for the failure of the product to perform as expected; importation of strict liability into the economic loss area would effectively supersede Sec. 2-316 of the UCC); Plainwell Paper Co. v. Pram, Inc., 430 F.Supp. 1386, 1388-89 (W.D.Pa.1977) (action by paper buyer against paper producer for economic harm from delivery of paper allegedly unfit for intended use in photocopying process sounds in breach of contract rather than strict liability in tort); Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159, 162 (Minn.1981) (to recognize a tort action for economic losses arising out of commercial transactions would create a theory of redress not envisioned by the legislature when it enacted the UCC).

This policy argument has not been explicitly adopted or rejected by the Wisconsin legislature or courts. The Wisconsin courts have never decided a case like the present one where two manufacturers agree to a contract containing warranty provisions, the contract is subsequently breached, and the wronged party then sues in tort for the purely economic losses arising out of that breach. Thus, the potential disruption of contract remedies and commercial relationships due to the allowance of tort remedies in business transactions has never been addressed in Wisconsin. To the extent that we can discern an indication of how the Wisconsin courts would rule in this case, we are inclined to believe that they might favor a limited use of tort remedies in commercial transactions. Cf. Landwehr v. Citizens Trust Co., 110 Wis.2d 716, 723, 329 N.W.2d 411,...