COURT OF APPEALS
DECISION
DATED AND FILED
September 8, 2010
A.
John Voelker
Acting Clerk of Court of Appeals
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NOTICE
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This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official
Reports.
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See Wis. Stat. § 808.10 and Rule 809.62.
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Appeal No.
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STATE OF WISCONSIN
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IN COURT OF
APPEALS
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DISTRICT III
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Realty Investments, LLC and Boston, Inc.,
Plaintiffs-Respondents,
v.
Ash Park, LLC and Holmgren Way Investments, LLC,
Defendants-Third-Party
Plaintiffs-Appellants,
v.
Daniel Meissner AIA, LLC and ABC Insurance Company,
Third-Party
Defendants.
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APPEAL
from a judgment and orders of the circuit court for Brown County: DONALD
R. ZUIDMULDER, Judge. Affirmed.
Before Hoover,
P.J., Peterson and Brunner, JJ.
¶1 PER CURIAM. Ash Park,
LLC and Holmgren Way Investments, LLC appeal a judgment and two orders
directing them to demolish part of a structure located on land owned by
Holmgren Way Investments. Ash Park
and Holmgren Way Investments raise seven claims of error. We disagree and affirm the circuit court.
BACKGROUND
¶2 Ash Park owned two vacant lots, Lot 1 and Lot 2, at the
corner of Holmgren Way
and Willard Drive
in the Village of
Ashwaubenon. In 2005, Realty Investments purchased Lot 1
from Ash Park for $2.2 million. The purchase and sale agreement required the
parties to enter into an “Easement with Covenants and Restrictions Affecting
Land” (ECR). Both parties and their attorneys took part in
drafting and editing the ECR. The ECR
runs with the land, and any subsequent owner of property described in the ECR is
bound by its provisions. Section 4(e)(6)
of the ECR requires that “no improvements shall be constructed, erected,
expanded or altered on [Lot 2] until the plans for the same … have been
approved in writing by [Realty Investments], which consent shall not be
unreasonably withheld or delayed.”
¶3 Realty Investments and Boston, Inc., constructed an Ashley
Furniture Home Store on Lot 1 at a cost of
about $3 million. Terry Gerbers, one of Ash Park’s principals,
subsequently transferred the southwest corner of Lot
2 to Holmgren Way Investments. The
parties refer to this area as the “restaurant lot.” On May 2, 2007, Holmgren Way Investments
began construction of a building, the “future addition,” on the restaurant lot. Holmgren Way Investments did not obtain prior
approval from Realty Investments, as required by section 4(e)(6) of the ECR.
¶4 On June 5, 2007, Realty Investments’ counsel informed Ash
Park the construction on the restaurant lot violated the ECR because Realty
Investments had not been given the opportunity to approve the plans. Realty Investments asserted its belief that the
plans would reveal additional ECR violations. On June 13, after receiving the future
addition plans, Realty Investments’ counsel informed Ash Park
the plans directly violated the ECR. Realty
Investments asked Ash
Park to stop construction
on the future addition and threatened legal action if construction continued. Ash
Park refused to stop
construction and alleged there were no substantive violations of the ECR.
¶5 Realty Investments filed suit to enjoin construction of the future
addition. After a one-day bench trial,
the trial court found that Ash
Park and Holmgren Way
Investments materially breached section 4(e)(6) of the ECR by failing to obtain
Realty Investments’ approval of the plans prior to construction. The court also found that Ash Park and
Holmgren Way Investments materially breached section 1(f) of the ECR by building
the future addition outside the permitted building area of the restaurant
lot. After a subsequent three-day trial
to determine the proper remedy, the trial court ordered Ash Park
and Holmgren Way Investments to demolish the southern 3,977 square feet of the
future addition, the portion that violated section 1(f). Ash
Park and Holmgren Way
Investments appeal.
DISCUSSION
¶6 Ash Park and Holmgren Way Investments argue the trial court
erred by: (1) incorrectly interpreting
the ECR; (2) determining that failure to provide Realty Investments with a copy
of the future addition plans was a material breach of the ECR; (3) failing to
find that Realty Investments waived enforcement of the ECR; (4) refusing to balance
the equities before fashioning an equitable remedy; (5) erroneously
exercising its discretion in ordering the future addition demolished; (6) finding
that Ash Park was liable for violations of the ECR; and (7) executing
proposed findings of fact that are contrary to the record. We
disagree and affirm.
I. The trial court’s interpretation of the ECR
¶7 Ash
Park and Holmgren Way
Investments argue the trial court incorrectly interpreted the ECR in finding
they materially breached section 1(f). The
interpretation of a contract is a question of law that we review
independently. Ehlinger v. Hauser, 2008
WI App 123, ¶19, 313 Wis. 2d 718, 758 N.W.2d
476, aff’d, 2010 WI 54, 325 Wis. 2d 287, 785 N.W.2d
328. If the terms of a contract are plain
and unambiguous, we construe the contract as it stands and apply its literal
meaning. J.G. Wentworth S.S.C. Ltd. P’ship
v. Callahan, 2002 WI App 183, ¶11, 256 Wis. 2d 807, 649 N.W.2d 694. However, if we determine that a contract
provision is ambiguous, we look to extrinsic evidence to discern the contract’s
meaning. See Management Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co.,
206 Wis. 2d
158, 177, 557 N.W.2d 67 (1996). A
contract is ambiguous where its terms are reasonably susceptible to more than
one interpretation. Id.
¶8 Here, the contract language is not ambiguous. Section 1(f) reads:
Notwithstanding the foregoing, the Owners of any Lot
may add additional building areas or change, delete, enlarge, reduce or
otherwise modify existing Building Areas on each Party’s Lot, so long as (i) such changes do not in any manner modify the
westerly boundary of the fronts of the building footprints located on … Lot 2 …
or the southerly boundary of the fronts of the building footprints located on …
Lot 2 …. (Emphasis added.)
Section 1(f)
specifically prohibits placing the footprint of any new building in Lot 2 to the south or west of a building footprint shown
on the ECR site plan. The ECR site plan shows
a building footprint in the restaurant lot, which is part of Lot
2. There is no question that the future
addition is located to the south and west of the restaurant lot footprint. Given the plain language of the ECR, Ash Park and
Holmgren Way Investments materially breached section 1(f) by constructing the
future addition south and west of a Lot 2
building footprint.
¶9 Ash Park and Holmgren Way Investments argue that under Wisconsin law, specific provisions in contracts should
govern over general provisions. See Goldman
Trust v. Goldman, 26 Wis.
2d 141, 148, 131 N.W. 2d 902 (1965).
They therefore contend the future addition is not governed by section
1(f), because section 1(f) applies to Lot 2 in
general, whereas sections 4(e)(1) and 4(e)(2) are specific to the restaurant
lot. However, nothing in sections
4(e)(1) or 4(e)(2) exempts the restaurant lot from section 1(f). Section 4(e)(1) contains a height restriction
for freestanding buildings located in the restaurant lot, and Section 4(e)(2)
restricts the square footage of restaurant lot improvements. These restrictions are independent of the
restriction in section 1(f). Section
1(f) is applicable to the restaurant lot irrespective of any additional
restrictions imposed by other sections of the ECR.
¶10 Contrary to Ash
Park and Holmgren Way
Investments’ argument, interpreting the ECR in this way does not render section
4(e)(2) superfluous. Section 4(e)(2)
provides, “[t]he improvements situated in the southwest portion of Lot 2 shall not exceed a total floor area of 10,000
square feet per acre of land, whether in one or more buildings.” The restaurant lot consists of 1.1 acres of
land, thus permitting 11,000 square feet of floor area, which is 4,760 square
feet more than the area of the restaurant lot footprint. However, sections 1(f) and 4(e)(2) are
independent development restrictions, one dealing with building location and
the other dealing with size. Our interpretation
of the ECR does not disregard section 4(e)(2).
It merely finds that sections 1(f) and 4(e)(2) are not in conflict.
¶11 Ash Park and Holmgren Way Investments
also argue the ECR should be construed against Realty Investments, as if the
ECR were an adhesion contract. See Caporali v. Washington
Nat’l Ins. Co., 102 Wis.
2d 669, 675-76, 307 N.W.2d 218 (1981). However,
both sides took part in drafting and editing the ECR and were represented by
counsel throughout the drafting process.
Because the parties to the ECR were sophisticated business entities
represented by counsel, the ECR should not be construed against either party.
II. Failure to provide the
future addition plans to Realty Investments prior to construction
¶12 Ash
Park and Holmgren Way
Investments argue their failure to provide the future addition plans to Realty
Investments prior to construction was not a material breach of the ECR. Whether a party’s breach of a contract is
material is a question of fact to be determined by the fact finder. Management Computer Servs., 206 Wis. 2d at 184 (citing Shy v. Industrial Salvage
Material Co., 264 Wis.
118, 125, 58 N.W.2d 452 (1953)). We will
not reverse factual findings made by a trial court unless they are clearly
erroneous. Wis. Stat. § 805.17(2). When more than one reasonable inference can
be drawn from credible evidence, we must accept the inference drawn by the
trier of fact. Cogswell v. Robertshaw Controls
Co., 87 Wis.
2d 243, 250, 274 N.W.2d 647 (1979).
¶13 A breach is material when it destroys the essential object of
the contract. Management Computer Servs.,
206 Wis. 2d
at 183. In determining whether a breach
destroys the essential object of the contract, a court may consider the
character of the promised performance, the purposes it was expected to serve,
and the extent to which nonperformance has defeated those purposes. M&I Marshall & Ilsley Bank v. Pump,
88 Wis. 2d
323, 333, 276 N.W.2d 295 (1979). A
significant consideration is the “extent to which the injured party will be
deprived of the benefit he or she reasonably expected.” Management Computer Servs., 206 Wis. 2d at 184 (citing Restatement (Second) of Contracts
§ 241 (1981)).
¶14 Here, the trial court found that Ash Park
and Holmgren Way Investments’ failure to give Realty Investments the future
addition plans prior to construction was a material breach of the ECR. This finding is not clearly erroneous. The overriding purpose of the ECR was to
address where, how, and under what circumstances improvements could be
constructed on the subject property. Realty
Investments specifically contracted for the right to see and approve
construction plans before building commenced.
This right was important, because Realty Investments wanted to ensure
that sight lines from Holmgren Way
to the Ashley Furniture Home Store would be protected in the event of new
construction. The trial court found that
Realty Investments relied on section 4(e)(6) of the ECR to ensure that new
construction would not begin before Realty Investments had the opportunity to
protect its sight lines. By depriving Realty
Investments of the right to review construction plans, Ash Park
and Holmgren Way Investments deprived it of a benefit it reasonably expected. Ash
Park and Holmgren Way
Investments’ breach of section 4(e)(6) was material.
¶15 Ash Park and Holmgren Way Investments
cite Ranes
v. American Family Ins. Co., 212 Wis. 2d 626, 632, 569 N.W.2d 359 (Ct.
App. 1997), for the proposition that failure to give notice under a contract is
not a material breach unless it prejudices the nonbreaching party. However,
Ranes
involved a coverage dispute between insurer and insured, not a commercial
contract dispute between two sophisticated businesses. As such, Ranes
invoked the settled insurance law principle that the failure of an insured to
provide notice of settlement to his own insurer is not a material breach of the
policy unless it prejudices the insurer.
Id. This insurance law principle is irrelevant to
the present commercial context.
¶16 Ash Park and Holmgren Way Investments
also argue their failure to give notice was not material because Realty
Investments could not have reasonably withheld consent had the plans been
timely presented. However, the trial
court found that Realty Investments could have reasonably withheld consent because
the construction plans showed that the future addition violated section 1(f) of
the ECR. This finding of fact is not
clearly erroneous. Section 1(f)
specifically prohibits placing the footprint of any new building to the south
or west of the restaurant lot footprint shown on the ECR site plan. However, a substantial portion of the future
addition was constructed to the south or west of the restaurant lot footprint. Because the future addition violated section
1(f) of the ECR, Realty Investments reasonably could have withheld consent.
III. Waiver of ECR enforcement
¶17 Ash
Park and Holmgren Way
Investments next argue Realty Investments waived its right to object to the
future addition plans by waiting to object until one month after construction
began. They also argue Realty
Investments waived its right to claim a breach of section 1(f) by failing to
assert such a breach until trial. Waiver
determinations present mixed questions of fact and law. All Star Rent A Car v. DOT, 2006 WI
85, ¶15, 292 Wis.
2d 615, 716 N.W.2d 506. We will not set
aside the trial court’s findings of fact unless clearly erroneous, Wis. Stat. § 805.17(2), but the
application of the facts to the legal standard of waiver is a question of law that
we review independently, Meyer v. Classified Ins. Corp., 179 Wis. 2d 386, 396, 507
N.W.2d 149 (Ct. App. 1993).
¶18 Waiver is a voluntary and intentional relinquishment of a known
right. Attoe v. State Farm Mut. Auto
Ins. Co., 36 Wis.
2d 539, 545, 153 N.W.2d 575 (1967). Intent
to waive is an essential element of waiver and may be inferred as a matter of
law from the conduct of the parties. Hanz Trucking,
Inc. v. Harris Bros., 29 Wis.
2d 254, 265, 138 N.W.2d 238 (1965).
¶19 Realty Investments did not waive its right to object to the
future addition plans. Although
construction of the future addition began on May 2, 2007, Realty Investments
did not have visible notice of the extent of the construction or the location
of the building until early June when the wood framing was erected. On June 5, Realty Investments sent written
notice of its objection and specifically stated its belief that “the improvements
are not within the area … permitted for improvement under the provisions of the
ECR.” Then, only two days after it
received the construction plans, Realty Investments advised Ash Park and
Holmgren Way Investments that the plans “on their face illustrate violations … of
the ECR.” Realty Investments gave
written notice of its objection soon after visible commencement of construction
on the site and reiterated its objection after it received the construction
plans. Such conduct does not constitute
waiver of Realty Investments’ rights under section 4(e)(6) of the ECR. It is also disingenuous of Ash Park
and Holmgren Way Investments to claim Realty Investments gave them late notice
when they failed to properly disclose the plans.
¶20 Ash Park and Holmgren Way Investments
also contend Realty Investments waived its right to claim a breach of section
1(f) by failing to assert such a breach until trial. However, Ash Park
and Holmgren Way Investments did not make this argument before the trial court
or in their trial briefs. Ash Park
and Holmgren Way Investments’ failure to argue waiver before the trial court
results in their forfeiture of this argument in the instant appeal. See Jackson v. Benson, 218 Wis. 2d 835, 901, 578 N.W.2d 602 (1998).
IV. The trial court’s balancing of the equities
¶21 Ash Park
and Holmgren Way Investments argue the trial court erred by refusing to balance
the equities before fashioning an equitable remedy. A trial court’s decision to grant equitable
relief is discretionary and will not be overturned absent an erroneous exercise
of discretion. Pietrowski v. Dufrane,
2001 WI App 175, ¶5, 247 Wis.
2d 232, 634 N.W.2d 109. In fashioning an
equitable remedy, the trial court must reconcile competing interests and
balance the equities. Pure
Milk Prod. Coop. v. National Farmers Org., 90 Wis. 2d 781, 800, 280 N.W.2d 691 (1979).
¶22 Ash
Park and Holmgren Way
Investments’ assertion that the trial court refused to balance the equities is incorrect. The trial court’s findings of fact show that
it weighed the equities and exercised appropriate discretion in ordering
removal of the future addition. The
court wrote:
The equities in this matter do not favor Holmgren Way
Investments or Ash Park in that (a) neither of such defendants furnished the
plaintiffs with plans in advance of the commencement of construction; (b)
neither of the plaintiffs caused the defendants to incur any expenses in
constructing the Future Addition; (c) such defendants were timely advised of
their violations of the ECR at a time when construction of the Future Addition
was in an early stage and when only some landscaping and some framing and
siding materials were evident in place; (d) neither of the defendants furnished
their designer, architect or builder with a complete copy of the ECR and the
defendants did not furnish the Village of Ashwaubenon with a full copy of the
ECR; (e) the defendants could have avoided considerable expense had they ceased
construction of the Future Addition in early June 2007, rather than
deliberately proceeding to incur additional costs after having been notified of
breaches of the ECR; (f) if a substantial portion of the Future Addition were
not ordered demolished and removed to grade, such would provide a benefit to
the defendants and would allow material breaches of the ECR to work to the
advantage of the defendants and to the detriment of the plaintiffs; and (g) the
plaintiffs at all times had a right to rely on the provisions of the ECR which
forbad the construction of the future addition in the location where the
defendants chose to construct it.
In its decision and order, the
trial court stated:
In this situation, the equities are in favor of razing
the portion of the future addition that violates the ECR, for the
aforementioned reasons: the defendants
consciously agree to the ECR, and then consciously materially breached two
sections of it; for this Court to allow any other result would establish a policy
that would benefit those who breach contracts.
Finally, there was no reason for the defendants to violate the ECR,
because they had a safeguard built into it that would prohibit the plaintiffs
from unreasonably withholding their consent to plans for additions that were in
accordance with the ECR.
The trial court’s findings of
fact and decision and order show that it balanced the equities before ordering
equitable relief. In doing so, the court
determined the equities do not favor Ash
Park and Holmgren Way
Investments. This determination was not
an erroneous exercise of the trial court’s discretion.
V. The trial court’s equitable remedy
¶23 Ash
Park and Holmgren Way
Investments argue the trial court erred by ordering part of the future addition
demolished. They argue this remedy is
too harsh because it is disproportionate to the harm they caused. We will not reverse an equitable remedy selected
by the trial court unless the trial court erroneously exercised its
discretion. Pietrowski, 247 Wis. 2d 232, ¶5.
¶24 Here, the trial court properly exercised its discretion by
ordering Ash Park and Holmgren Way Investments to demolish the part of the
future addition that violates the ECR. Ash Park
and Holmgren Way Investments argue this remedy is too severe and will have a
significant adverse economic impact on them.
However, any harm to Ash
Park and Holmgren Way
Investments is the result of their own wrongdoing. The hardship they now claim was created by
their own conscious breach of the ECR and continuing to build after receiving
notice of the breach. The trial court
found that Ash Park and Holmgren Way Investments
decided to proceed with construction without obtaining consent, hoping to
finish construction prior to litigation and to make the argument that “what is done
is done, and now that the future addition is built, it would simply be too
harsh to order them to tear it down.” The
court therefore ordered the future addition demolished because it did not want
to “establish a precedent for commercial contracting parties where one could
blatantly violate a mandated provision in the hopes no court would enforce it
because the remedy would be too drastic.”
The trial court refused to spare the future addition because it did not
want Ash Park and Holmgren Way Investments to
profit from their wrongful acts. This
was not an erroneous exercise of the trial court’s discretion.
¶25 Ash Park and Holmgren Way Investments cite two cases, Ogden
v. Straus Building Corp., 187 Wis. 232, 202 N.W. 34 (1925), and Hall
v. Liebovich, 2007 WI App 112, 300 Wis. 2d 725, 731 N.W.2d 649, to
support their assertion that the trial court’s remedy is too harsh. As the trial court noted, these two cases are
markedly distinguishable from the case at hand.
¶26 In Ogden,
a newly built hotel encroached slightly on adjoining property. Ogden, 187 Wis. at 264-65. Neither the hotel company nor its neighbor
was aware of the encroachment until after construction was complete. Id.
at 265. The court declined to order
removal of the offending portions of the hotel, noting that the violation was
slight and unsubstantial and that the interested parties were unaware of the
encroachment until after the structure was built. Id.
at 268-70.
¶27 In Liebovich, the defendant built a new house that violated a
restrictive covenant. Liebovich,
300 Wis. 2d
725, ¶1. The trial court properly
refused to order removal of the offending house, finding that the defendant
“made an honest mistake” and was unaware that his new home violated the
restriction. Id., ¶¶9, 15.
¶28 Ogden and Liebovich are not helpful to Ash Park and
Holmgren Way Investments because the violations in those cases were accidental
and the encroachment in Ogden
was minor. Here, the trial court found ninety-five
percent of the future addition was intentionally built in an area prohibited by
the ECR. This violation was neither accidental nor
minor.
¶29 Ash Park and Holmgren Way Investments
also argue the trial court’s remedy is inappropriate because their actions
caused little, if any, harm to Realty Investments. Ash Park
and Holmgren Way Investments note that Realty Investments’ appraisal expert was
unable to quantify Realty Investments’ damages. However, the trial court found that the
offending portion of the future addition impairs the visibility of the Ashley
Furniture Home Store and diminishes the value of the store and of Realty
Investments’ land. Unless remedied, the
court determined this loss in value would be perpetual. Although difficult to quantify, the harm to
Realty Investments was not minimal. Determining
an actual numeric value is not necessary because it was the protection of the
sight line that Realty Investments negotiated in its contract. The remedy ordered by the trial court was not
disproportionate to the harm Ash
Park and Holmgren Way
Investments caused.
VI. Ash Park’s liability under
the ECR
¶30 Ash Park and Holmgren Way Investments contend Ash Park
cannot be liable to Realty Investments under the ECR because Ash Park
no longer owns the real estate on which the future addition was built. The interpretation of a contract is a
question of law that we review independently.
Ehlinger, 313 Wis. 2d 718, ¶19.
¶31 At the time of contracting, Ash Park was the “Developer” and
owner of Lot 2. ECR section 4(e)(6) provides, “To the extent
permitted by applicable laws, the Developer may subdivide and spin-off by
certified survey map portions of Lot 2 …; upon any such subdivision the
Owner of the largest portion of Lot 2, as subdivided, shall have the rights and
obligations of the Developer under this ECR.”
When the ECR was signed, Lot 2
consisted of 6.94 acres. In 2007, Ash Park’s
principal transferred 1.1 acres of Lot 2 to
Holmgren Way Investments. Following this
transfer, Ash Park
remained the “Developer” under the ECR, because it was still the owner of the
largest portion of Lot 2. Ash
Park therefore remains
liable to Realty Investments under the ECR.
VII. The trial court’s findings
of fact
¶32 Ash
Park and Holmgren Way
Investments argue three of the trial court’s findings of fact are contrary to
the record. We will not set aside a
trial court’s findings of fact unless they are clearly erroneous, and we give
due regard to the trial court’s opportunity to judge the credibility of the
witnesses. Wis. Stat. § 805.17(2).
¶33 Ash Park and Holmgren Way Investments
first object to the trial court’s finding that “the walls of the future addition
were constructed higher than was allowed by the ECR.” The ECR provides that the front wall of a
building in the restaurant lot may not be more than twenty-five feet high and
all other walls may not be more than twenty feet high. Daniel Meissner, Ash Park’s
architect, confirmed that the future addition’s rear wall was twenty-two feet
high, two feet higher than the ECR allowed.
Thus, the trial court’s finding that the future addition’s walls were constructed
higher than the ECR allowed is not clearly erroneous.
¶34 Ash Park and Holmgren Way Investments
next object to the trial court’s finding that the future addition reduces the
appeal and value of the Ashley Furniture Home Store and the real estate where
it is located. The trial court based its
finding on the affidavit of Peter Moegenburg, Realty Investments’ real estate
appraisal expert. Moegenburg stated, “It
is my opinion that the construction of the Future Addition … reduces or
diminishes the appeal and value of the Ashley Furniture Home Store and the real
estate on which such store is situated.”
Moegenburg also stated the loss of value caused by the future addition
would be perpetual, unless remedied.
However, Moegenburg was unable to quantify the loss in value, due to
uncertainty about the use of the future addition and difficulty obtaining
useful comparable sales data. Even
though Moegenburg could not quantify the loss in value, his testimony supports the
trial court’s finding that some diminution in value did occur. The trial court’s finding of fact is not
clearly erroneous.
¶35 Finally, Ash Park and Holmgren Way Investments object to the trial
court’s finding that they did not provide a complete copy of the ECR to their
designer, architect or builder or to the Village of Ashwaubenon. At trial, Meissner testified he did not
receive a full copy of the ECR until this lawsuit began. Edward Fisher, who provided architectural
drafting services for the future addition, testified he first saw a full copy
of the ECR at his deposition. Joash
Smits, the construction project manager, testified he had a “verbal
communication” with Terry Gerbers about the ECR. Todd Gerbers, the Village of Ashwaubenon
building inspector and zoning administrator, testified he had never seen a copy
of the ECR. The trial court’s finding
that Ash Park
and Holmgren Way Investments did not provide a complete copy of the ECR to
their designer, architect, or builder or to the Village of Ashwaubenon
is supported by the record and is not clearly erroneous.
By the Court.—Judgment and orders
affirmed.
This
opinion will not be published. See Wis.
Stat. Rule 809.23(1)(b)5.