Palermo Villa Inc v. IJ White Corporation

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

PALERMO VILLA, INC.,

Plaintiff, Case No. 21-CV-516-JPS

v.

I.J. WHITE CORPORATION,

Defendant/Third-Party Plaintiff, ORDER

v.

KUHLMAN INCORPORATED,

Third-Party Defendant.

1. INTRODUCTION

The above-captioned breach of contract case is currently set for a jury

trial beginning on March 18, 2024. ECF No. 91. Plaintiff Palermo Villa, Inc.

(“Palermo’s”) alleges in the Complaint that Defendant I.J. White

Corporation (“IJW”) breached its agreement with Palermo’s by failing to

provide a freezer capable of meeting Palermo’s required specifications. ECF

No. 1 at 4, 6. IJW disputes this contention. See generally ECF No. 6 (IJW’s

Answer and Affirmative Defenses). Further, IJW has filed a third-party

complaint against Kuhlman Incorporated (“Kuhlman”), alleging that “the

deficiencies in the [freezer’s] performance are a direct and proximate result

of deficiencies and/or defects in Kuhlman’s design and manufacture of the

refrigeration components for the [freezer].” ECF No. 17 at 2. IJW therefore

brings third-party claims for indemnification and contribution against

Kuhlman. See generally id.

On December 15, 2022, Kuhlman filed a motion in limine, ECF No.

52, and supporting brief1 asking the Court to bar IJW “from presenting

evidence at trial in support of its tort claims against Kuhlman for

indemnification and contribution.” ECF No. 53 at 1. Making this

evidentiary determination requires the Court to rule on “whether there is a

legal basis for the jury to assess comparative fault between IJW and

Kuhlman for [Palermo’s] claimed damages (if any) in the context of a breach

of contract claim by Palermo against IJW.” Id. at 1–2. The Court heard oral

argument on the motion during a January 24, 2023 hearing (which primarily

addressed a separate motion in limine). ECF Nos. 80, 81. Upon

consideration of this material, the Court will grant in part and deny in part

Kuhlman’s motion on the terms stated in the balance of this Order and

allow IJW’s indemnification claim to proceed.

2. RELEVANT FACTS2

Palermo’s contracted with IJW for an Ultra Series Blast Freezing

System (the “Spiral Freezer”). Palermo’s alleges that the IJW Spiral Freezer

is not capable of meeting the specifications provided in the contract

between Palermo’s and IJW, namely to freeze 150 rising pizza crusts per

1The supporting brief lays out both Kuhlman’s arguments for its motion

together with IJW’s arguments in opposition and is signed by the attorneys for

each party. See generally ECF No. 53.

2The Court adopts the statement of facts from the supporting brief, ECF

No. 53 at 2–3, with minor, non-substantive edits. Counsel for IJW signed the

supporting brief and raises no dispute as to the facts as described and expert

opinions as characterized therein. See generally id. Additional facts that were

discussed during oral argument are included where applicable, with citations to

the oral argument transcript, ECF No. 81; additional citations to the record are

made where necessary.

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minute down to a temperature range of 0°F ± 10°F. Palermo’s is claiming

damages for breach of contract and breach of express and implied

warranties based on IJW’s alleged failure to manufacture a Spiral Freezer

capable of meeting those specifications.

Palermo’s contracted with Kuhlman to provide refrigeration valves

and piping for the Spiral Freezer. Palermo’s makes no claims against

Kuhlman. No contract exists between IJW and Kuhlman.

IJW’s freezer and refrigeration expert, Robert Sterling (“Sterling”),

has offered opinions critical of Kuhlman’s work. Sterling opines that

Kuhlman selected suction valves for the Spiral Freezer that are too small,

which creates excessive pressure/temperature drop in the system. ECF No.

47-29 at 182–88 (Sterling deposition transcript); ECF No. 47-22 at 35, 40

(Sterling expert report). According to Sterling, this has several negative

impacts on system performance, including preventing lower temperatures

at the coil, and driving lower suction temperatures at the compressor,

which results in subcooled liquid stacking inside the coil that can lower the

coil’s capacity to freeze Palermo’s rising crust product in high volumes. ECF

No. 47-29 at 182–83; ECF No. 47-22 at 35, 40. Sterling also recommends the

installation of a P-trap to ensure that liquid stacking does not occur at the

coil in the Spiral Freezer to lower the coil efficiency. ECF No. 47-29 at 184–

85; ECF No. 47-22 at 38.

Importantly, a loss of coil operating capacity (i.e., thermal

performance) impacts the ability of IJW’s Spiral Freezer to meet the product

specifications provided by Palermo’s of freezing 150 rising crusts per

minute within 21 to 25 minutes. ECF No. 47-29 at 159; ECF No. 47-22 at 33–

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35. The failure to meet this specification is the basis of Palermo’s loss of

production claim of over $7,412,891. ECF 47-31 at 6.3

Sterling testified that even if Kuhlman changed the valves, piping

and defrost cycle, the freezer still would not meet the specifications

provided in the contract between Palermo’s and IJW due to the inadequate

dwell time provided by Palermo. ECF No. 47-29 at 182:20–83:4, 190:14–

191:19. Sterling believes the valves, piping, and defrost cycle are “non-

issues” with a longer dwell time (referring to the length of time a product

must spend in a given freezer before reaching the desired product exit

temperature range). Id. at 191:20-192:11. With larger valves and an adequate

dwell time, Sterling believes “[e]nergy costs go down.” Id. at 192:6-192:15.

Increased energy costs are not a part of Palermo’s damages claim

against IJW. ECF No. 47-30 at 9 (deposition of Palermo’s corporate

representative). Neither Brian Hudecek (Palermo’s damages expert) nor

Benjamin Darrah (IJW’s damages expert) directly attributed any damages

to Kuhlman. ECF No. 51-7 at 11 (Hudecek deposition transcript); ECF No.

51-11 at 2–3 (Darrah deposition transcript).

3. LEGAL STANDARD4

A district court has broad discretion in ruling on evidentiary

questions presented before trial through motions in limine. Jenkins v.

3Sterling also criticizes Kuhlman for selecting a defrost cycle that did not

include a dedicated soft hot gas step, which impacted the Spiral Freezer

performance until being rectified by changes to include a “liquid push-out” step

to the defrost cycle in November of 2020. ECF No. 47-22 at 36–38.

4Kuhlman’s motion in limine functionally stands in for a dispositive

motion. See ECF No. 53 at 4 (asking the Court to find that IJW’s claims against

Kuhlman are “improper under Wisconsin law and should be barred at trial”).

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Chrysler Motors Corp., 316 F.3d 663, 664 (7th Cir. 2002). “A district court’s

power to exclude evidence in limine derives from its authority to manage

trials.” Allen v. Am. Cyanamid Co, No. 11-CV-0055, 2021 WL 1092804, at *1

(E.D. Wis. Mar. 22, 2021) (citing Luce v. United States, 469 U.S. 38, 41 n.4

(1984)).

“Evidence is relevant if: (a) it has any tendency to make a fact more

or less probable than it would be without the evidence; and (b) the fact is of

consequence in determining the action.” Fed. R. Evid. 401. “The court may

exclude relevant evidence if its probative value is substantially outweighed

by a danger of one or more of the following: unfair prejudice, confusing the

issues, misleading the jury, undue delay, wasting time, or needlessly

presenting cumulative evidence.” Fed. R. Evid. 403.

4. ANALYSIS

Kuhlman moves for a finding that IJW’s third-party contribution and

indemnification claims against Kuhlman are either not legally valid under

Wisconsin law or barred by the economic loss doctrine. See generally ECF

No. 53. If the Court makes such a finding, Kuhlman argues, then no

evidence as to these claims5 should be admitted at trial. See id. at 1. Further,

Indeed, the questions the motion in limine presents would have been much better

addressed on a motion to dismiss. The supporting brief does not state what legal

standard ought to govern the Court’s ruling on the motion.

5It seems likely that this evidence would primarily take the form of

testimony from Sterling, who has opined that Kuhlman’s work was at least

partially responsible for the Spiral Freezer not meeting the specifications provided

in the contract between Palermo’s and IJW. Palermo’s filed a Rule 702 motion to

preclude Sterling from offering his opinions “about dwell times” or “whether it

was within industry standards for IJW—as the Spiral Freezer manufacturer—to

simply accept Palermo’s dwell time testing as true and for IJW to not perform any

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the parties have stipulated that if the Court grants Kuhlman’s motion in

limine, Kuhlman should be dismissed from the case. Id. at 1. The Court

examines each of Kuhlman’s arguments for exclusion of evidence (and

accordingly for its dismissal from this case) in turn.

4.1 Legal Basis for IJW’s Claims Against Kuhlman

The parties dispute whether IJW’s asserted contribution and

indemnification claims against Kuhlman “are valid on their face” as a

matter of law. Id. at 5. Kuhlman’s position focuses on the fact that no

contract exists between IJW and Kuhlman: “[t]he parties’ relationship and

mutual obligations for the work at issue . . . were defined solely by their

respective contracts (i.e., Palermo’s agreement with IJW and Palermo’s

separate agreement with Kuhlman)” and so “[t]he obligations of each are

governed by contract law.” Id. at 4. IJW had no contract with Kuhlman nor

were these two parties jointly liable to Palermo’s, so it is improper for IJW

to “seek[] indemnification and/or contribution from Kuhlman for sums

which may be adjudged against IJW for its breaching its own contract with

Palermo.” Id. at 5. Further, IJW’s contribution and indemnification claims

against Kuhlman cannot proceed in tort because “Wisconsin [law] does not

recognize a tort claim for negligent performance of a contract term.” Id. at

6. Ultimately, Kuhlman argues, there is no legally valid basis for Kuhlman

to be held responsible for damages arising from any breach of the contract

between IJW and Palermo’s.

additional testing or calculations to confirm IJW’s Spiral Freezer could provide the

required specifications within the requested dwell time.” See generally ECF No. 60.

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IJW argues that its indemnification and contribution claims against

Kuhlman are both “legally valid and necessary in equity to ensure that IJW

does not pay more than its fair share of fault for Palermo’s claimed

damages.” Id. at 14. IJW seems to assert principles of equity and fairness—

rather than any black letter law—as the primary legal bases for its claims.

Id. at 15–16 (“If several parties each contribute to cause a breach and a single

injury results, applying the current liability rules used in contract law

would render an unduly harsh result. . . . In contrast, the application of

comparative fault principles would result in greater fairness to all of the

parties involved.”).6

4.1.1 Contribution

The Court concurs with Kuhlman that IJW has not stated a

contribution claim. “When no express agreement confers a right of

contribution, a party’s right to seek contribution against another is

premised on two conditions: (1) the parties must be liable for the same

obligation; and (2) the party seeking contribution must have paid more than

a fair share of the obligation.” Kafka v. Pope, 533 N.W.2d 491, 494 (Wis. 1995)

(citing Wait v. Pierce, 210 N.W. 822, 823 (Wis. 1926)). IJW’s claim fails on the

first prong. It was not liable to Palermo’s for the same obligation as

6Indeed, IJW explicitly acknowledges that, in a contract action, although “a

plaintiff’s total injury may have been the result of many factors in addition to the

defendant’s tort or breach of contract,” “[g]enerally” the “defendant [must] pay

damages equivalent to the total harm suffered.” Id. at 14 (quoting Reiman Assocs.,

Inc. v. R/A Advert., Inc., 306 N.W.2d 292, 301 (Wis. Ct. App. 1981)). IJW urges that

comparative negligence principles should be applied instead to apportion fault

and damages. Id.

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Kuhlman; rather, the parties had different obligations to Palermo’s under

different contracts.

Even considering that “contribution, at its root, is an equity

principle,” Kafka v. Pope, 521 N.W.2d 174, 176 (Wis. 1994), IJW overstates the

breadth of the equitable contribution remedy. “[Contribution] is founded

upon the relationship between persons paying a ‘just proportion,’ not upon

express contract.” Kafka, 521 N.W.2d at 176. But IJW has provided no

authority demonstrating that this “relationship” can be separate contracts

with a common party. IJW and Kuhlman were working on the same project,

broadly speaking, but IJW has not established that this qualifies as a

common obligation for purposes of a contribution claim. The case law

appears to require more. See id. at 176 (“Kafka and Pope both signed

personal guarantees to the same debtor securing promissory notes for the

business in which they were majority shareholders. The guarantees state

that the undersigned would be ‘jointly and severally liable.’ By the very

terms of the guarantees, they acknowledged their joint liability. . . . In

addition to the contract, their relationship as officers and shareholders of

the corporation supports the view that this was a joint venture they

undertook together[.]”).

The reality is that Palermo’s—the only party here that had a contract

with Kuhlman—elected not to sue Kuhlman in this matter. IJW suggests

that the Court should nonetheless find that there was a “relationship”

between it and Kuhlman for purposes of a contribution claim, seemingly

asserting that an equitable contribution remedy allows it to do what

Palermo’s declined to do. In IJW’s estimation, any other holding would be

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inequitable. ECF No. 53 at 16 (“It would be highly unfair for IJW to shoulder

damages that it did not cause, simply because it was a third party

beneficiary of Palermo’s contract with Kuhlman, instead of having a direct

contractual relationship with Kuhlman.”). But Wisconsin law does not

support IJW’s arguments in favor of recognizing such a contribution claim,

and the Court will not accept IJW’s invitation to do so solely as a matter of

equity.7

Accordingly, because the Court discerns no legal basis for IJW’s

contribution claim against Kuhlman, the motion in limine will be granted

in this respect. Any evidence pertinent to such a claim would be irrelevant

and therefore must be excluded. Fed. R. Evid. 401. The Court will leave it

to the parties to determine how to implement their stipulation with respect

to the disposition of this claim. ECF No. 53 at 1.

4.1.2 Indemnification

Conversely, it appears that IJW can sustain an equitable

indemnification claim against Kuhlman. A right of indemnification may

arise as a matter of equity where “one party is exposed to liability for the

wrongful acts of another” in which that party did not join. See Est. of Kriefall

v. Sizzler USA Franchise, Inc., 816 N.W.2d 853, ¶¶ 34, 41 (Wis. 2012)

(“Indemnification can arise by contract or it can be based on equitable

7IJW also argues that a contribution cause of action is independent from the

nature of the underlying cause of action. ECF No. 53 at 15 (citing State Farm Mut.

Auto. Ins. Co. v. Schara, 201 N.W.2d 758, 759 (Wis. 1972)); see also Schara, 201 N.W.

2d at 760 (“The cause of action that accrues depend[s] not one whit upon the nature

of the origin of liability. It is enough that a joint liability from whatever source

exist.”). But this does not help IJW because, as already discussed, IJW has not

demonstrated a key element of a contribution claim—“liab[ility] for the same

obligation.” Kafka, 533 N.W.2d at 494.

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principles. . . . Equitable indemnification seeks to shift the burden of

payment to the party who, in equity, should pay.” (citing Greenlee v.

Rainbow Auction/Realty Co., Inc., 582 N.W.2d 93, 96 n.4 (Wis. Ct. App. 1998);

1 Dan B. Dobbs, Dobbs Law of Remedies: Damages, Equity, Restitution § 4.3(4)

(2d ed. 1993); and 63B Am.Jur.2d, Products Liability § 1879 (2012))). IJW’s

theory of why Kuhlman should be required to indemnify it for Palermo’s

damages—that some of Palermo’s damages were “actually caused by the

misconduct of Kuhlman,” ECF No. 53 at 15; see also generally ECF No. 17

(IJW third-party complaint)—tracks the legal definition of equitable

indemnification.

Kuhlman’s argument that “[i]t would be against the equitable

principles of indemnity for IJW to shift its own breach of contract burden

with Palermo to Kuhlman,” ECF No. 53 at 6, is unpersuasive. This argument

focuses too much on the formal aspects of the relationships between the

parties and not enough on the practical realities of the situation. Although

IJW and Kuhlman were not in privity of contract and did not have a

common obligation to Palermo’s for purposes of a contribution claim, see

supra Section 4.1.1, they were working on the same project, and their work

impacted one another’s. Without refrigeration (which Palermo’s contracted

with Kuhlman to provide), there could be no Spiral Freezer. Contracts

aside, it is reasonable to expect that the refrigeration mechanism for the

Spiral Freezer might have some impact on the Spiral Freezer’s ability to

perform to specifications. Whether that impact was positive, negative, or

neutral is a fact question for the jury; Kuhlman essentially conceded this

point when it declined to move for summary judgment on this issue. That

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the refrigeration mechanism might have impacted the overall performance

of the Spiral Freezer necessarily raises the question of who should pay if it

did not. These basic truisms counsel in favor of allowing IJW’s

indemnification claim to proceed.

The Court is also not persuaded by Kuhlman’s argument that “if

Palermo chose to pursue a breach of contract claim against Kuhlman (which

it did not), and IJW was allowed to seek indemnification . . . for its own

breach, Kuhlman would then be forced to pay two separate line items of

damages for the same breach (i.e., its own breach of contract with Palermo

and IJW’s breach of contract Palermo).” ECF No. 53 at 6. First, this is a self-

serving and inaccurate characterization of both IJW’s theory of the case and

arguments for indemnification. As the Court understands IJW’s theory of

the case, IJW is not simply trying to raise a “phantom” breach of contract

claim against Kuhlman that Palermo’s could have, but didn’t, raise. Id. at 7.

IJW instead is arguing as follows: if IJW breached its contract with

Palermo’s, and Kuhlman’s negligence was an underlying cause of why IJW

is found to be in breach, then Kuhlman should reimburse IJW for those

portions of Palermo’s damages which are attributable to Kuhlman. See ECF

No. 61 at 3–5 (joint final pretrial report) (framing as jury questions whether

“Palermo’s suffer[ed] damages because of [IJW’s] breach, “[w]hat duty of

care . . . Kuhlman owe[d] [IJW],” and “[w]hat damages, if any, were

suffered by [IJW] as a result of Kulman’s [sic] allegedly negligent

performance of its contract with Palermo’s”).

Second, Kuhlman has not made a persuasive argument that there is

no legal basis for IJW to bring a negligence claim against Kuhlman, or that

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the parties’ separate contracts with Palermo’s prevent IJW from doing so.

Kuhlman points out that Wisconsin does not recognize a tort of negligent

performance of a contract. ECF No. 53 at 6–7 (citing Dvorak v. Pluswood Wis.,

Inc., 358 N.W.2d 544 (Wis. Ct. App. 1984) and McDonald v. Century 21 Real

Est. Corp., 390 N.W.2d 68 (Wis. Ct. App. 1986)). This is true, but it misses

the point. McDonald8 is inapposite because it concerns whether there may

be a tort cause of action between parties who are also parties to a contract.

See McDonald, 390 N.W.2d at 70–71 (“Because the McDonalds have not

pressed a contract claim [against the realtors], we must determine whether

[the realtors] breached any common law duty owed to the McDonalds

without regard to the terms of the listing contract.”). That is not the

situation here. Kuhlman has not explained why the lack of privity of

contract between it and IJW and the fact that they both had separate

contracts with Palermo’s necessarily means that Kuhlman cannot have

owed a duty of care to IJW. See Teacher Ret. Sys. of Tex. v. Badger XVI Ltd.

P’ship, 556 N.W.2d 415, 421 (Wis. Ct. App. 1996) (“[I]ndemnification is an

equitable doctrine that can apply even in the absence of contract.” (citing

Brown v. LaChance, 477 N.W.2d 296, 302 (Wis. Ct. App. 1991)).

Third, and most importantly, Palermo’s did not sue Kuhlman, so any

damages Kuhlman might have to pay in this matter would be paid to IJW

only out of the total, and only if the jury finds that Kuhlman owed a duty

to IJW in installing the refrigeration mechanism for the Spiral Freezer, and

breached that duty, causing the Spiral Freezer not to meet the specifications

8Dvorak is insufficiently specific to the facts of this case. See generally Dvorak,

358 N.W.2d 544 (holding a breach of an employment contract is not a tort and

generally discussing the distinction between breach of contract and tort actions).

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in Palermo’s and IJW’s contract. In the end, carefully-crafted jury

instructions and verdict forms will best guide the jury through these

nuances.

For the reasons above, the Court finds that it is not proper, at this

juncture, to preclude IJW from presenting evidence on its equitable

indemnification claim against Kuhlman. Accordingly, Kuhlman’s motion

in limine will be denied in this respect.9

9The Court finds it worthwhile to briefly mention an issue the parties have

not explored in their submissions. “The right to receive either indemnification [or]

contribution requires a party seeking payment to prove it has made a payment, part

or all of which the party seeks to recover.” Kriefall, 816 N.W.2d, ¶ 35 (emphasis

added) (citing State Farm Mut. Auto. Ins. Co. v. Cont’l Cas. Co., 59 N.W.2d 425 (Wis.

1953) and Brown, 477 N.W.2d 296 and summarizing Brown as “recognizing that

one element of the right to indemnification is payment by the party seeking the

remedy”)); accord Kjellsen v. Stonecrest, Inc., 176 N.W.2d 321, 323 (Wis. 1970) (noting

that indemnification requires a showing that “a person who, in whole or in part,

has discharged a duty which is owed by him but which as between himself and

another should have been discharged by another” (emphasis added) (quoting 41

Am.Jur.2d, Indemnity p. 688, sec. 2)); cf. Brown, 477 N.W.2d at 302 (finding third-

party plaintiffs stated indemnification claim against third-party defendant where

they had already settled with and paid plaintiff).

Here, IJW has made no payment to Palermo’s; it is only asserting that, if

not allowed to proceed on an indemnification claim, it could potentially have to

pay those of Palermo’s damages more properly attributable to Kuhlman. Even

though no payment has yet been made, it would be inefficient to require IJW to

bring its indemnification claim in a separate lawsuit after this one concludes. See

Teacher Ret. Sys., 556 N.W.2d at 421 (“[T]here is no reason to compel two trials: the

first trial in which Skidmore’s liability, if any, to Teacher Retirement System would

be determined, and the second trial, following Skidmore’s payment of any

judgment, to determine which, if any, of the contractors were responsible for a

portion of that judgment. This would be an unnecessary imposition of fees and

costs on the parties as well as being a waste of legal resources.”) (citing Wis. Stat.

§§ 803.05; 802.07(3); and Wait v. Pierce, 210 N.W. 822, 823–25 (Wis. 1926)).

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4.2 Economic Loss Doctrine

Kuhlman contends that IJW’s claims are barred by the economic loss

doctrine because the parties have contractual remedies available. ECF No.

53 at 7–14. IJW counters that the economic loss doctrine does not apply

because there is no contract between it and Kuhlman. Id. at 17–18. For the

reasons stated in the prior section, the Court concurs with IJW that the

economic loss doctrine has no application to its equitable indemnification

claim.

5. CONCLUSION

For the reasons and on the terms stated in this Order, Kuhlman’s

motion in limine is granted in part and denied in part. Given that the state

of this case has shifted significantly in light of the Court’s rulings on this

and another motion in limine, ECF No. 84, and so that the parties may

reassess whether they are willing to stipulate to any of the issues to which

they previously could not agree, the Court will deny all remaining

outstanding motions as moot. ECF Nos. 55, 59, 72. The parties must also

update and resubmit their joint final pretrial report. The parties will have

until January 26, 2024 to file an updated joint final pretrial report and renew

any Rule 702 motions and motions in limine.

Accordingly,

IT IS ORDERED that Third-Party Defendant Kuhlman

Incorporated’s motion in limine, ECF No. 52, be and the same is hereby

GRANTED in part and DENIED in part;

IT IS FURTHER ORDERED that the outstanding motions in this

case, ECF Nos. 55, 59, 72, be and the same hereby are DENIED as moot; and

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IT IS FURTHER ORDERED that the parties meet and confer

forthwith and submit an updated joint final pretrial report and any

renewed and/or additional Rule 702 motions and motions in limine on or

before January 26, 2024.

Dated at Milwaukee, Wisconsin, this 19th day of September, 2023.

H \ OURT:

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J.R. Stadffmeller

U.S. District Judge

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