Young Radiator Co. v. Celotex Corp.

Citations: 881 F.2d 1408; 1989 WL 88586Docket: No. 88-2691

Court: Court of Appeals for the Seventh Circuit; August 4, 1989; Federal Appellate Court

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Young Radiator Company (Young) filed a diversity action against Celotex Corporation (Celotex) over issues related to a leaky roof, alleging negligent manufacture, defective design, breach of contract, and breach of warranty. The district court granted summary judgment to Celotex, ruling that Young’s tort claims were barred by the Wisconsin statute of limitations and that there was no breach of contract or warranty. Young appealed the rulings on the tort and contract claims but did not contest the warranty decision. The appellate court reversed the summary judgment on the tort claims, upheld the dismissal of the contract claim, and remanded for further proceedings.

The appeal also involved a jurisdictional issue under Fed. R. App. P. 4(a)(3). After Young sued Celotex, Celotex brought in third-party defendants— the architect, general contractor, and roofing subcontractor—seeking contribution. The third-party defendants moved for summary judgment based on statute of limitations, which the district court granted after dismissing Young's tort claims against Celotex. Celotex did not appeal the dismissal of its third-party complaint, leading the third-party defendants to file motions to be dismissed from the appeal, arguing that the lack of a timely appeal notice meant the court lacked jurisdiction to address their claims. The court granted these motions to dismiss.

The underlying facts include Young constructing a plant in Racine, Wisconsin, in 1972, with Cooley as the architect, Korndoerfer as the general contractor, and Christiansen as the roofing subcontractor. Problems arose with the roofing system—manufactured by Celotex—starting from its installation in June 1973. Despite multiple meetings to address issues like leaks and vapor pockets, significant problems persisted. By late 1974, the architect indicated the roof was unacceptable. In July 1975, Christiansen's president reported numerous issues, including unsealed openings allowing water intrusion. Young expressed frustration over the lack of supervision and demanded completion. The roof was ultimately accepted by Celotex and Young on November 5, 1975, after additional repairs. Minor follow-up work occurred in 1976, completing the project.

On November 13, 1975, Young Radiator entered into the Philip Carey Inspection and Service Contract with Celotex for roof repair services. In 1978, Carlson conducted minor repairs for $88, followed by larger repairs in 1979 invoiced at $745.00 and $145.00. After the $745.00 bill, Young contacted Celotex regarding ongoing leakage issues. Celotex acknowledged the leaks were covered under the service contract and agreed to repair them at their expense, assuring Young that the roof would be made watertight. Although repairs were made in spring 1980, leaks persisted, prompting further authorizations for Carlson to make additional repairs in 1980 and 1981. Despite assurances from Celotex about achieving a watertight condition, a November 17, 1981, letter indicated that four additional roof drains were necessary at Young's cost, along with an offer to provide materials for an overlay on Young’s office building, contingent upon a signed release from claims. Young did not respond. From 1980 to July 2, 1984, Young incurred over $11,000 in repair costs before replacing the entire roof in 1984. Young initiated legal action against Celotex on January 2, 1986, claiming negligent manufacture, defective design, and breach of the service agreement.

Regarding the statute of limitations for property injury claims under Wisconsin law, which is six years, the district court determined that the cause of action accrued before 1980, based on the standard from Tallmadge v. Skyline Construction, Inc., where the statute begins to run when the injured party is sufficiently aware of a defect. However, this standard has been superseded by the discovery rule established in Hansen v. A.H. Robins, Inc. The court noted the importance of recognizing this shift in legal standards and indicated that, even under the previous standard, summary judgment would have been inappropriate. Prior to Hansen, Wisconsin law dictated that a tort cause of action accrued on the date of injury, illustrating a historical context of how legal interpretations of accrual have evolved.

Wisconsin courts generally follow the 'date of injury' rule, but in the case of Tallmadge, the Wisconsin Court of Appeals addressed the threshold of injury necessary to establish a cause of action. The court recognized that minor injuries might not be immediately apparent and stated that the determination of when an injury occurred is typically a factual question for a jury. Although the Tallmadge standard was not intended as a discovery rule, it functioned similarly in practice, as noted in Hansen and its application in Wisconsin Natural Gas Co. v. Ford, Bacon & Davis Construction Corp. The Wisconsin Supreme Court ruled in Wisconsin Natural Gas Co. that the discovery of a single electrical short in a pipeline was inadequate to indicate a defect, with the cause of action accruing only when multiple issues were uncovered. In Kohl v. F.J.A. Christiansen Roofing Co., the court reversed a summary judgment, stating that it was the factfinder's role to assess whether significant wind uplift damage warranted initiating the limitation period. Similarly, in State of Wisconsin v. Holland Plastics Co., the court ruled that the factual determination of when a cause of action accrued could not be established as a matter of law based solely on documented roof leakage. 

Celotex argues that evidence of roof leaks during and after construction indicates that Young's cause of action accrued before 1980, citing Holy Family Catholic Congregation v. Stubenrauch Associates, which found that leaks shortly after construction began the limitation period. However, the court distinguishes Holy Family due to its reliance on a different statute and emphasizes that all referenced cases involved negligent construction, while the current case pertains to products liability for defective design and manufacture. The court concludes that evidence of leakage during construction is not significantly relevant to determine when the limitations period for Young's product liability claim commenced, especially considering that minor repairs were made in 1978-79 under Celotex's assurances.

Young incurred over $11,000 in roof repairs between 1980 and 1984, ultimately replacing the entire roof. The court determined that evidence of premature roof failure prior to 1980 was insufficient to trigger the limitation period under the Tallmadge test. The analysis referenced the Hansen discovery rule, which dictates that tort claims accrue upon discovery of the injury or when it should have been reasonably discovered, rather than at the date of injury. This principle was further clarified in Borello v. U.S. Oil Co., which established that a cause of action does not accrue until the plaintiff is aware of the injury and its probable cause. The discovery rule applies to both personal and property injury claims, as affirmed in several cases, including Hammer v. Hammer and Ford Farms, Ltd. v. Wisconsin Electric Power Co.

Regarding the breach of contract claim, Young argued that a letter from Celotex constituted an anticipatory breach by conditioning material shipment on a release of claims related to the office building roof and requiring the installation of roof drains before repairs. The court found Young's argument unpersuasive, noting that the letter and accompanying release explicitly pertained only to the office roof, with no claims related to the plant roof included. The service agreement for the plant roof was identified as Roofing Bond No. PC 4077, separate from the office roof agreement.

The contract stipulates that in the event of a leak, the owner must promptly notify Celotex, which will inspect the roof and arrange repairs at no cost if the leak is covered. If not covered, the owner bears the repair costs. Evidence shows that Celotex had previously determined certain items, such as expansion joint repairs, were not covered, and the owner, Young, accepted responsibility for such repairs while Celotex handled covered repairs. Young did not contest Celotex's assertion that roof drains were not covered and ceased communication with Celotex before filing a lawsuit for anticipatory breach four years later. Under Wisconsin law, anticipatory breach requires a clear intention from the repudiator to not fulfill contractual obligations; Young provided no evidence of Celotex's refusal to repair covered leaks. The plant engineer confirmed that Celotex never declined repair requests. The district court granted summary judgment to Celotex due to the absence of any material factual dispute.

Regarding Rule 4(a)(3), which allows a party fourteen days to file a cross-appeal after an initial appeal notice, the excerpt discusses a situation similar to that in Whitehead v. American Security Trust Co., where a defendant's late notice of appeal was deemed untimely, thus limiting the court's jurisdiction to review judgments favoring third-party defendants. Rule 4(a)(3) was established to prevent such jurisdictional dilemmas, but there remains a divergence among circuit courts regarding whether it is a strict jurisdictional requirement or a flexible procedural rule.

Authority for the appellate practice rules originates from Article III and 28 U.S.C. § 1291, which address jurisdiction in terms of entire cases. Rule 1(b) clarifies that these rules do not alter the jurisdiction of appellate courts as defined by law. While the appellate procedure rules hold the force of law (28 U.S.C. § 2072), Rules 3 and 4 establish mandatory conditions for exercising the appellate jurisdiction granted by Article III and § 1291. These conditions are described as "mandatory and jurisdictional," but they primarily define the prerequisites for invoking court jurisdiction. 

Several circuits, including the Third, Fourth, Fifth, Eighth, Ninth, and D.C. Circuits, have determined that while a timely initial notice of appeal under Rule 4(a)(1) is mandatory and jurisdictional, Rule 4(a)(3), which allows additional time for cross or separate appeals, is procedural and can be suspended. This rationale holds that the initial notice of appeal bestows jurisdiction over the entire case, permitting appellate courts to address issues even without a Rule 4(a)(3) notice. 

Conversely, the Second, Sixth, Seventh, and Tenth Circuits generally view Rule 4(a)(3) as a mandatory jurisdictional requirement. This split in interpretation highlights the differing approaches toward the application of procedural rules across various circuit courts.

Conflicting precedents exist among various circuit courts regarding jurisdictional bars in appeals due to omitted parties in notices of appeal. The case of *Torres v. Oakland Scavenger Co.* addressed a situation where a notice of appeal filed for sixteen plaintiffs inadvertently omitted one plaintiff’s name. The Ninth Circuit ruled that this omission created a jurisdictional bar under Federal Rule of Appellate Procedure 3(c). The Supreme Court affirmed that the requirements of Rules 3 and 4 are both mandatory and jurisdictional, emphasizing that compliance cannot be waived. The ruling in *Torres* is deemed applicable to the current case, reinforcing that each party must be named for the appeal to be valid. The court rejected arguments suggesting that naming some plaintiffs could suffice to invoke jurisdiction over the entire case. It clarified that the non-appealing party's rights cannot be disturbed without a proper appeal, warranting strict adherence to procedural rules. The judgment of the district court is partially affirmed and reversed, with remand for further proceedings, and the motions to dismiss by the third-party defendants are granted. Additionally, the excerpt includes a description of a complex roofing system proposed by Christiansen involving multiple layers of insulation and specific installation methods.

A vapor pocket is defined as a blister containing air or chemical substances, while flashing refers to materials used to seal roof joints. Celotex, in its summary judgment motion, cited statute 893.52 as applicable, but parties agreed that the former statute 893.19(5) governs the case; both statutes have a six-year limitation period. The determination of which statute applies is based on when the cause of action accrued, not the completion of construction, as clarified by Wisconsin statutes. The Wisconsin Supreme Court found the statute unconstitutional for violating equal protection by favoring architects and builders over owners and tenants, and noted the potential issue of causing a litigant to lose a claim before it could accrue. 

During oral arguments, the parties debated the relevance of 'cause' under the Tallmadge test, which requires evidence of property injury linked to a negligent act. Young contended that while the test doesn't prioritize discovering the cause, establishing causation is essential. Celotex argued that cause was irrelevant, but the court sided with Young. An example illustrated that construction defects might not relate to future material disintegration, emphasizing that prior leaks wouldn't indicate later issues. In a related case, a plaintiff's discovery of rust on Cor-Ten steel led to a finding of injury, but in the current case, the complex roofing issues and past repairs did not definitively indicate a design defect.

Celotex also claimed that the district court's dismissal of its third-party complaint did not constitute a final, appealable order. However, the court found the complaint unamendable and granted summary judgment to the third-party defendants based on statute of limitations grounds, rendering Celotex's argument without merit.