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COURT OF APPEALS
DECISION
DATED AND FILED
March 15, 2011
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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Appleton Papers Inc.,
Plaintiff-Respondent,
v.
Andritz BMB AG and Andritz Inc.,
Defendants-Appellants.
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APPEAL
from a judgment of the circuit court for Outagamie County: JOHN
A. DES JARDINS, Judge. Affirmed.
Before Hoover,
P.J., Peterson and Brunner, JJ.
¶1 HOOVER, P.J. Andritz
BMB AG and Andritz Inc. (collectively, Andritz) appeal a judgment entered after
a jury trial. Andritz primarily disputes
whether it granted Appleton Papers Inc. an option to purchase manufacturing
equipment and, if so, whether Appleton
exercised the option. We reject
Andritz’s arguments and answer both questions in the affirmative. We also reject Andritz’s arguments that consequential
damages were either contractually precluded, unforeseeable, or not caused by
the breach. Finally, we reject Andritz’s
numerous challenges to the jury instructions and verdict questions, and affirm.
BACKGROUND
¶2 Appleton Papers sought to expand its thermal paper operations
at an Ohio mill
by installing a specially engineered paper coating line. Andritz submitted the lowest bid, and the
parties negotiated an agreement in February 2007. The parties’ contract was comprised of
several documents, including Andritz’s 109-page proposal 401’273I, and a letter agreement (the
agreement) with an attached eight-page appendix A. The detailed appendix set forth
specific design and warranty requirements, a pricing summary, and a work and
payment schedule. The agreement provided:
As we have discussed, Appleton is still working to analyze
financing options for the expansion project.
Although Appleton
is unable to formalize an equipment purchase at this time, it is imperative the
financing delay does not slow the overall project timeline. Accordingly, we are authorizing Andritz to
proceed with engineering work as outlined below. As part of this authorization, we need to
ensure the current proposal will remain available and substantially unchanged
for a time frame sufficient to allow Appleton
to conclude its assessment of financing options and to also finalize details of
a purchase agreement with Andritz.
Accordingly,
this letter sets forth the terms and conditions of agreement between Appleton
and Andritz related to Proposal 401’273I.
....
1. Appleton shall provide
Andritz a payment of [$1.2 million] upon execution of this Agreement. Such monies shall be utilized to perform
engineering services as outlined in Exhibit A.
2. For
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Andritz hereby grants to Appleton an option to purchase the
coater equipment and installation (hereinafter referred to as the “Facility”)
as more fully described in Appendix A.[, which] shall be incorporated by
reference and considered a part of this agreement.
3. This
option to purchase shall commence on the 2nd day of February, 2007 and shall
expire ... on the 5th day of March, 2007. If Appleton fails to execute its option prior
to ... the 1st day of March, 2007[,] both parties agree to negotiate in good
faith regarding an extension to the option, however, Appleton understands and
agrees that if the option is not effected by March 5, 2007, the delivery date
in Andritz’s proposal can no longer be guaranteed and Andritz will have the
right to make reasonable adjustment to both the delivery date and price in the
Proposal to account for such delay.
4. Appleton may assign this option to any entity from which Appleton shall then lease
the Facility. Any other attempted
assignment, delegation, transfer or conveyance of this option to purchase
without the other party’s express written permission is void.
5. In
the event Appleton
timely exercises this option, the engineering payment shall be applied to the
... purchase price for the Facility. If Appleton fails to exercise this option, the engineering
payment shall not be refunded, though Appleton
shall have rights to utilize all work-product of the engineering services.
6. This
Agreement shall be construed according to [Wisconsin
law.]
7. Other
than as specifically provided in this letter agreement, no contract or
agreement providing for any matter covered by the Proposal shall be deemed to
exist between Appleton and Andritz unless and until Appleton issues a Purchase
Order that is accepted by Andritz.
8. [Limitation
of liability provision]
¶3 In a February 21 e-mail, Appleton’s Mark Smukowski wrote, “I have good
news for the Andritz team; we have completed our financing evaluation and are
now in a position to issue an order.” Smukowski
suggested issuing a letter of intent that would serve to exercise the option. Andritz informed Appleton the next day that it would not
accept a letter of intent to exercise the option and instead desired a mutual
equipment purchase agreement. Smukowski responded
by transmitting a mark-up of such an agreement. He acknowledged Andritz’s discomfort with an
early exercise of the option, but reaffirmed, “we are ready to place an order.”
¶4 The parties continued their contacts, with Andritz changing
its position several times as to whether it required a letter of intent or a
purchase agreement to exercise the option.
After continued negotiations and extensions, Andritz sent Appleton a letter on
April 18, declaring that the option had expired and that Andritz would not
supply or install the coating line. Appleton ultimately found replacement
suppliers, but at a substantially higher cost.
¶5 At trial, Andritz employees testified Andritz had
significantly underestimated the cost of providing the paper coating line and
had deliberately engaged in first a passive, and then an active, strategy to
terminate the purchase option.
¶6 The jury awarded Appleton
the full amount of its claimed damages, consisting of the following three
components: (1) $6.4 million for the
additional cost of purchasing replacement coater equipment; (2) $12.1 million
for the additional cost of obtaining engineering and installation services; and
(3) $10.6 million for building modification costs incurred to accommodate
the larger and heavier replacement equipment. Andritz presented no alternative damages analysis
and did not call its damages expert to testify.
The court denied Andritz’s postverdict motions. Andritz now appeals.
DISCUSSION
Agreement granted Appleton unilateral option to purchase
¶7 Andritz first argues it did not grant Appleton a unilateral option to purchase. Interpretation of a contract presents an issue
of law that we decide independently. Teacher
Ret. Sys. of Texas v. Badger XVI Ltd. P’ship,
205 Wis. 2d 532, 555, 556 N.W.2d 415 (Ct.
App. 1996). Unambiguous language
in a contract must be enforced as it is written. Id. “Language in a contract is ambiguous only
when it is ‘reasonably or fairly susceptible of more than one construction.’” Id. (quoting
Borchardt v. Wilk, 156 Wis. 2d 420, 427, 456 N.W.2d 653 (Ct. App.
1990)). Individual clauses must be interpreted in
the context of the contract as a whole. See Folkman
v. Quamme, 2003 WI 116,
¶¶19, 21, 264 Wis. 2d
617, 665 N.W.2d 857.
¶8 Andritz emphasizes that paragraph seven of the agreement
explicitly states no contract exists unless Appleton issues a purchase order that Andritz
accepts. Thus, Andritz argues, Appleton was required to
issue a purchase order if it wished to exercise the option, and Andritz
retained the right to reject any attempted exercise of the option by not
accepting the purchase order.
¶9 Andritz’s interpretation is unreasonable. It takes paragraph seven out of context,
ignores its opening clause, and requires reading it in a way that nullifies the
option to purchase that, in paragraph two, “Andritz ... grants to Appleton.” By its terms, paragraph seven recognizes that
obligations “specifically provided in this letter agreement” do not depend on
Andritz’s acceptance of a purchase order.
¶10 Further, paragraph four of the agreement affords Appleton a limited right
to assign the option to purchase and prohibits either party from otherwise
doing so. If Andritz were correct that
paragraph seven affords Andritz a right to reject the purchase option, then the
first part of paragraph four allows assignment of a nonright, and the second part
is a superfluous limitation on assigning that nonright. Similarly, paragraphs three and five both
refer to the timeliness of Appleton’s execution or exercise of the option.
¶11 Because the agreement specifically provides Appleton an option
to purchase, the only reasonable reading of paragraph seven is that the option is
exempted from the purchase order requirement.
The mere fact that the agreement’s introduction and paragraph seven
suggest the parties will later utilize a purchase order to document the
purchase and “finalize [the] details,” does not somehow mandate that Appleton
give notice of its election to exercise its option to purchase in any
particular manner.
Appleton exercised the option to
purchase
¶12 Andritz next argues there is no evidence that Appleton ever exercised the option. It asserts Appleton
“told Andritz that it was ‘in a position to issue an order’ or ‘ready’ to do
so, but it never said the simple words ‘[Appleton]
hereby exercises its option and accepts the offer embodied in the February
Agreement.’”
¶13 We conclude the circuit court properly upheld the jury’s
finding that Appleton
exercised the option. Andritz’s
argument, which essentially asks us to reweigh the facts, is misguided. A court may only reverse a jury’s factual
determination if there is no credible evidence to sustain the finding. Wis.
Stat. § 805.14(1). We overturn only a clearly erroneous denial
of a motion challenging the sufficiency of the evidence. K & S Tool & Die Corp. v. Perfection
Mach. Sales, Inc., 2007 WI 70, ¶29, 301 Wis. 2d 109, 732 N.W.2d
792. In this regard, we accord circuit
courts substantial deference because they are in a better position to decide
the weight and relevancy of the evidence presented. Id.
¶14 Appleton
informed Andritz that it had obtained financing and was ready to place an order.
Appleton
also made multiple attempts to satisfy Andritz by providing either a letter of
intent or a purchase order to execute the option. Appleton
further agreed that the “order will be based on scope already negotiated;
change orders will be issued for all other work.” These facts, considered in light of the
agreement’s recognition that Appleton
required time to obtain financing, constitute sufficient evidence upon which
the jury’s determination must be upheld.
Appleton
was not required to use any magic words in order to execute the option.
¶15 Andritz also challenges the jury’s finding that Andritz
breached its duty of good faith. We need
not address this alternative basis for upholding the judgment. See State v. Castillo, 213 Wis. 2d 488, 492,
570 N.W.2d 44 (1997) (appellate courts need not address every issue when one
issue is dispositive).
Limitation
of liability provision not applicable to a breach of the purchase option
¶16 We next address Andritz’s contention that the circuit court erroneously
failed to apply the agreement’s limitation of liability provision to preclude recovery
of all consequential damages. This
presents an issue of contract interpretation subject to our independent
determination. See Teacher Ret. Sys., 205 Wis. 2d at 555.
¶17 Andritz argues the agreement relieves it of liability for the $10.6 million
awarded for building modification costs incurred to accommodate the replacement
equipment. Paragraph eight of the
agreement provides:
In no event shall either party hereto be liable to the
other for any incidental, special,
indirect or consequential damages of any kind, or for lost profits, lost revenues, loss by reasons of plant
shut-down or down-time or the plant’s inability to operate at full capacity to
the extent arising out of the work authorized under this letter agreement. (Emphasis added.)
According to Andritz, this
provision contains two distinct limitations of liability: a broad limitation of all incidental or
consequential damages, and a specific limitation of lost profits arising from
plant shutdowns. Andritz emphasizes the
use of “for,” and then “or for,” arguing the insertion of the second “for”
clearly signals a break in structure. Thus,
Andritz asserts, the paragraph’s limiting clause, “to the extent arising out of
the work authorized under this ... agreement,” applies only to the language
following “or for.”
¶18 However, if the paragraph is read as Andritz suggests, then the
limiting clause is rendered meaningless surplusage. Lost profits are a subset of consequential
damages. See Insurance Co. of N. Am. v.
Cease Elec., Inc., 2004 WI 139, ¶31, 276 Wis. 2d 361, 688 N.W.2d 462. If all consequential damages are barred, then
all lost profits would already be barred regardless of how they arise. “[A] construction of an agreement which
leaves a part of the language useless or creates surplusage is to be avoided.” See North Gate Corp. v. National Food Stores,
Inc., 30 Wis.
2d 317, 323, 140 N.W.2d 744 (1966).
¶19 A construction based on grammar and punctuation will not
prevail if it leads to an unreasonable result.
See Peterson v. Midwest Sec. Ins. Co.,
2001 WI 131, ¶23 n.7, 248 Wis. 2d 567, 636 N.W.2d 727; Mahon
v. Security First Nat’l Bank, 56 Wis. 2d 171, 179, 201 N.W.2d 573 (1972). We therefore affirm the circuit court’s
ruling that paragraph eight’s limitation of liability does not apply to a
breach of the option to purchase.
The building modification
costs were foreseeable and caused by the breach
¶20 Consequential damages are not recoverable unless they were both
foreseeable as a probable result at the time of contracting and caused by the
breach. See Reiman Assocs., Inc. v. R/A Adver., Inc., 102 Wis. 2d 305, 320-22,
306 N.W.2d 292 (1981). Andritz argues Appleton’s building
modification costs were neither.
¶21 Andritz again asks us to reweigh the evidence. That is not our prerogative. See Wis. Stat. § 805.14(1); K
& S Tool, 301 Wis. 2d
109, ¶29. The parties did foresee
building modifications as part of the project, and Appleton had specifically asked Andritz to
consider configuring its coating line to minimize the cost of those
modifications. The Andritz machine had a
significant advantage over others because of its compact design, and thus lower
cost to install in the existing building. Andritz was fully aware of the advantage it
enjoyed over Appleton’s
other bidders in this regard. Thus, the
jury had credible evidence from which to conclude Andritz could foresee that Appleton would probably incur
increased building costs as a consequence of Andritz’s refusal to supply the
coating line.
¶22 There was also credible evidence that the added building modification
costs were a natural and probable consequence of Andritz’s breach. When Andritz refused to perform, Appleton turned to the
next lowest bidder, Metso, which offered a machine with substantially greater
space requirements. The only licensed
professional engineers who testified on the subject agreed that additional
building modifications became necessary when Andritz withdrew and Appleton had to proceed
with the Metso coating line.
The jury instructions and
special verdict forms were proper
¶23 Andritz presents numerous claims regarding jury instructions
and special verdict forms. We address
each in turn.
¶24 Andritz first complains the court failed to give a causation
instruction informing the jury that any bad faith conduct on Andritz’s part
must have caused Appleton to fail to exercise the option to purchase. We have already upheld the jury’s finding
that Appleton
exercised the option. Therefore, we need
not address the instruction on the alternative theory of liability. See Castillo,
213 Wis. 2d
at 492. For the same reason, we also do
not address Andritz’s related argument that there should have been a special
verdict question on the issue.
¶25 Andritz next claims the court’s “Additional Terms in
Acceptance” instruction was affirmatively misleading. That instruction essentially mirrors the
language of Wis. Stat. § 402.207. The instruction therefore accurately set
forth the law. Andritz further argues
the court improperly rejected Andritz’s proposed revision. Andritz’s revision, however, misstates the
law set forth in § 402.207.
¶26 Next, Andritz argues the circuit court should have given
Andritz’s proposed “Agreements in Principle” instruction. Andritz fails to provide any legal authority
requiring this proposed instruction or develop a proper argument. We therefore do not address the issue. See
State v.
Flynn, 190 Wis. 2d
31, 39 n.2, 527 N.W.2d 343 (Ct. App. 1994).
¶27 Andritz next argues the court should have given Andritz’s
proposed instruction regarding acceptance according to a specified method. The actual instruction the court utilized,
however, conveyed the same information.
The mere fact that Andritz’s proposed instruction also properly stated
the law does not somehow provide Andritz a basis for relief. A circuit court has broad discretion
when instructing a jury, and if the overall meaning communicated by the instructions
was a correct statement of the law, no grounds for reversal exist. Fischer v. Ganju, 168 Wis. 2d 834, 849-50, 485
N.W.2d 10 (1992).
¶28 Andritz also argues the court should have given Andritz’s
proposed instruction regarding the expiration of an option. Again, the court gave another instruction
that conveyed the same information. See id.
¶29 Andritz next contends the court erroneously failed to give
Andritz’s proposed “Demand for Performance” instruction and verdict
question. Andritz requested Wis JI—Civil 3054, providing, “Before an
action may be maintained for a breach of contract, a demand for performance in
accordance with the contract must be made.”
Andritz’s instruction would have misstated the law. The Uniform Commercial Code requires notice
of breach only when a buyer has accepted delivery of the goods and then
discovers a nonconformity. See Wis.
Stat. §§ 402.607(3), 402.714.
When a seller under the commercial code fails to make a delivery or
repudiates the contract, there is no such requirement. See
Wis. Stat. § 402.711.
¶30 Andritz next argues the special verdict questions on breach
misled the jury because they were mutually exclusive and the jury’s verdict was
therefore inconsistent. That is, Andritz
emphasizes the jury could not conclude both that Appleton exercised the option and that
Andritz’s bad faith conduct caused Andritz’s failure to exercise the option. The bad-faith verdict question, however, did
not ask whether Andritz caused Appleton
not to exercise. It asked only whether
Andritz acted in bad faith. Therefore,
the questions were not inconsistent on their face. Further, we have already concluded it is
unnecessary to resolve the causation issue vis-à-vis the alternative bad faith
claim, because the jury concluded Appleton
did exercise the option.
¶31 Finally, Andritz argues it is entitled to a new trial on
damages because the jury was not instructed that a damage award could not put Appleton in a better
position than if Andritz had fully performed and because the verdict questions
did not address the issue. Further,
Andritz claims the court’s alternative instruction regarding “cover” was
misleading.
¶32 The court’s cover instruction informed the jury it could
conclude Appleton
did not cover “if the replacement purchase was not a like-kind purchase but
instead was better than what Andritz had offered to sell ....” The verdict questions then required the jury
to choose between cover damages and an alternative method of determining
damages. Therefore, the jury was
properly instructed that Appleton
could not recover damages related to being put in a better position. Further, contrary to Andritz’s partial
recitation of the cover instruction, a full reading of the instruction reveals
it was not misleading or confusing.
By the Court.—Judgment affirmed.
Not
recommended for publication in the official reports.