Wis. Pub. Serv. Corp. v. Arby Constr., Inc.

• Decision Date: 11 July 2012
• Docket Number: No. 2010AP878.,2010AP878.
• Citation: 342 Wis.2d 544,818 N.W.2d 863,2012 WI 87
• Parties: WISCONSIN PUBLIC SERVICE CORPORATION, Plaintiff, Associated Electric & Gas Insurance Services Limited (AEGIS), Plaintiff–Appellant–Petitioner, v. ARBY CONSTRUCTION, INC., Defendant–Respondent.
• Court: Wisconsin Supreme Court

342 Wis.2d 544

818 N.W.2d 863

2012 WI 87

WISCONSIN PUBLIC SERVICE CORPORATION, Plaintiff,Associated Electric & Gas Insurance Services Limited (AEGIS), Plaintiff–Appellant–Petitioner,

v.ARBY CONSTRUCTION, INC., Defendant–Respondent.

No. 2010AP878.

Supreme Court of Wisconsin.

Argued Jan. 12, 2012.

Decided July 11, 2012.

For the plaintiff-appellant-petitioner there were briefs filed by W. Thomas Terwilliger, Cassandra B. Westgate and Terwilliger, Wakeen, Piehler & Conway, S.C., Wausau, and oral argument by W. Thomas Terwilliger and Cassandra B. Westgate.

For the defendant-respondent there was a brief filed by Charles P. Graupner, Aaron H. Kastens, Adam E. Witkov and Michael Best & Friedrich, LLP, Milwaukee, and oral argument by Charles P. Graupner.

DAVID T. PROSSER, J.

[342 Wis.2d 547]¶ 1 This is a review of a published decision of the court of appeals, Wisconsin Public Service Corp. v. Arby Construction, Inc., 2011 WI App 65, 333 Wis.2d 184, 798 N.W.2d 715, affirming an order of the Brown County Circuit Court, Donald R. Zuidmulder, Judge. The two plaintiffs, Wisconsin Public Service Corporation (WPSC) and Associated Electric & Gas Insurance Services Limited (AEGIS), brought suit against the defendant, Arby Construction, Inc. (Arby), for indemnification of the damages that the plaintiffs paid in the settlement of a tort suit in federal court. The circuit court dismissed the AEGIS claim against Arby on the basis of claim preclusion.

¶ 2 AEGIS contends that the circuit court erred. The issue presented is whether AEGIS raised, in the form of an affirmative defense, a cross-claim against Arby in the prior federal action and is therefore precluded from pursuing the same claim in this action because the claim was adjudicated in the federal judgment of dismissal.

¶ 3 We affirm the court of appeals. We conclude that AEGIS's claim was raised, in substance, in the prior federal action and was decided. Therefore, the claim is subject to claim preclusion and was properly dismissed by the circuit court.

I. FACTUAL BACKGROUND

¶ 4 The parties in this suit are three of many named defendants in a personal injury suit that was filed in the United States District Court for the Eastern District of Wisconsin. Brooks v. Old Republic Ins. Co., Case No. 06–C–996 (E.D.Wis.).¹

¶ 5 Wisconsin Public Service Corporation is a major public utility headquartered in Green Bay. WPSC provides electricity to a large part of northeast and central Wisconsin, including Door County.

¶ 6 AEGIS is a mutual insurance company that provides liability insurance to utility and energy-related industries. It is based in East Rutherford, New Jersey. AEGIS provided excess insurance coverage for WPSC. AEGIS also provided excess insurance coverage for two other named defendants in the federal suit, including Arby.²

¶ 7 Arby Construction, Inc. is a construction company based in New Berlin. Arby does excavation work on underground power lines. Arby had a longstanding relationship with WPSC. In 1995, the two corporations executed an agreement that Arby would hold WPSC and its insurers harmless for any damages that resulted from contract excavation work performed for WPSC. The indemnification agreement read in part:

To the fullest extent permitted by law, the Contractor [Arby] shall fully indemnify and completely hold harmless the Company [WPSC], its agents, insurers [i.e., AEGIS] and/or employees from and against all actions, claims, demands, damages, losses, costs and expenses ... which relate to personal or bodily injury ... where all or any of such actions ... in any way arise out of or by reason of ..., in whole or in part, any act or omission of the Contractor.

(Emphasis added.)

¶ 8 Cedar Grove Resort is a resort located in the village of Ellison Bay in Door County. Sometime prior to July 10, 2006, Ferrellgas, Inc., another named defendant in the federal suit, installed a propane gas pipeline to the Cedar Grove Resort. Ferrellgas was the other named defendant with excess insurance coverage provided by AEGIS.

¶ 9 Shortly before July 10, 2006, Arby was engaged by WPSC to install underground electrical lines to the Cedar Grove Resort. During the course of its excavation or boring, Arby struck the buried unmarked propane pipeline that had been installed by Ferrellgas, causing a leak.

¶ 10 On July 10, 2006, the leak caused a massive explosion and fire that killed two people and injured several others, including the three minor children of the deceased. These victims and the estates of the deceased brought the Brooks suit in federal court. The plaintiff victims of the accident were visiting Door County from Michigan.

¶ 11 The Brooks suit was eventually settled and dismissed in a stipulated Order of Dismissal. The present case involves some of the jockeying among three of the defendants in attempting to allot damages from the liability settlement.

¶ 12 To understand the dispute about claim preclusion, we must describe the procedure in federal court.

II. THE FEDERAL SUIT

¶ 13 The Brooks complaint was filed in federal district court on September 22, 2006. WPSC and Arby were among the named defendants. AEGIS was not.

¶ 14 The Brooks complaint was amended on July 31, 2007. It added AEGIS as a defendant. On the same day, WPSC filed three separate cross-claims, two of which named Arby Construction and its insurers as defendants. One of these cross-claims, directed solely at Arby and its insurers, made specific reference to the Arby–WPSC indemnification agreement from 1995.³

[342 Wis.2d 551]¶ 15 The Brooks amended complaint required new answers from the defendants.

¶ 16 On August 10, 2007, WPSC and AEGIS filed an answer to the Brooks amended complaint. This joint answer included the following statement under an “AFFIRMATIVE DEFENSES” heading:

172. That, upon information and belief, based upon the contractual language and other agreements between Wisconsin Public Service Corporation and Arby Construction, Inc., Arby Construction, Inc. and its insurers and reinsurers is required to fully defend, indemnify and hold harmless Wisconsin Public Service Corporation and its insurers with respect to the negligence and any other act or violation alleged against Wisconsin Public Service Corporation in this case, and any damages asserted against Wisconsin Public Service Corporation and its insurers or reinsurers in this matter.

(Emphasis added.)

[342 Wis.2d 552]¶ 17 On August 14, 2007, Arby filed an answer to the Brooks amended complaint. This answer included several affirmative defenses. It also included cross-claims for contribution and indemnity against “every Defendant [including WPSC and AEGIS] (except Arby and its third-party insurers)” and an unrelated third-party defendant. Arby also separately answered WPSC's general and specific cross-claims.⁴

¶ 18 On August 21, 2007, AEGIS separately answered the Brooks amended complaint. In this answer, AEGIS included, under a section titled “AFFIRMATIVE DEFENSES,” the following statement:

48. As and for a third and separate affirmative defense, this answering defendant alleges, upon information and belief, that as an excess indemnity insurer, it is liable only if one or more of its insureds is found to be liable, and, therefore, to that extent, any affirmative defense available to its insureds is available to it and, therefore, this answering defendant affirmatively incorporates by reference any affirmative defense raised by any of its insureds, namely, Arby Construction, Inc., Wisconsin Public Service Corporation and/or [Ferrellgas, Inc.] and/or Ferrellgas, L.P.

(Emphasis added.)

¶ 19 On April 1, 2008, the federal litigation settled. Several defendants paid confidential amounts to the Brooks plaintiffs. Based on the settlement agreement and a later stipulation by the parties, the district court entered an order of dismissal.

¶ 20 The June 5, 2008, Order for Dismissal reads:

WHEREAS, upon representation of counsel, all issues in this case are resolved and all claims are settled with the exception of certain contribution and indemnification claims which will be addressed outside the confines of this lawsuit;

NOW, THEREFORE, IT IS HEREBY ORDERED:

1. The cross-claims for contribution asserted by Arby Construction and Ferrellgas against each other, and the contractual indemnification claim asserted by Wisconsin Public Service Corporation against Arby Construction and its insurers, are dismissed without prejudice and without costs.

2. This lawsuit, together with any and all claims set forth in the pleadings other than those [referred to] in paragraph one, above, is dismissed on the merits, with prejudice, but without costs.

III. PROCEDURAL HISTORY OF THIS CASE

¶ 21 On June 29, 2009, WPSC and AEGIS filed a complaint in Brown County Circuit Court against Arby seeking indemnification for amounts paid in the underlying settlement as well as more than $400,000 in attorney fees spent defending the action.

¶ 22 Arby answered the complaint and alleged myriad affirmative defenses including claim preclusion. Arby also filed a motion to dismiss AEGIS from the action “for failure to state a claim and based on res judicata (i.e. claim preclusion).”

[342 Wis.2d 554]¶ 23 AEGIS opposed Arby's motion to dismiss, arguing that AEGIS was not adverse to Arby in the prior federal suit, that no identity of claims existed, and that the common law compulsory counterclaim rule was inapplicable to this case.

¶ 24 Arby replied that because AEGIS did “not dispute that, in the prior litigation,[AEGIS] raised an affirmative defense seeking indemnification from Arby,” claim preclusion applied.

¶ 25 After a hearing on the motion, the circuit court granted Arby's motion to dismiss AEGIS from the suit. As part of its reasoning, the circuit court concluded that the federal dismissal order “covers AEGIS, covers this claim, and there was no carve out.... [T]hese things happen.” In essence, the circuit court ruled that AEGIS did not carve out any exception to the order...