Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

TABATABAI v. WEST COAST LIFE INSURANCE COMPANY (December 16, 2011)

Firouzeh Keshmiri submitted an application for a $500,000 life insurance policy to West Coast Life Insurance Company in 2006. She chose the "Super Preferred" classification and submitted her first $100 payment. She also signed a conditional receipt agreement, which provided that the insurance would not become effective until all tests were completed and would not be effective unless approved within 90 days. Keshmiri submitted to blood and urine tests. Her test results indicated that her cholesterol level was high as was her red blood cell count. West Coast asked its broker to request a second urine specimen. Before it did so,Keshmiri was diagnosed with a brain tumor and had surgery. As a result of the brain surgery, West Coast found her uninsurable. She died about a year later. Her husband, Habibollah Tabatabai, filed suit for breach of contract and breach of implied duty of good faith and fair dealing. His theory was that West Coast's delay in requesting the second urine specimen was the only reason Keshmiri was unable to complete the insurance application. Judge Stadtmueller (E.D. Wis.) granted summary judgment to West Coast. Tabatabai appeals.

In their opinion, Seventh Circuit Judges Bauer, Rovner, and Williams affirmed. The Court first addressed the doctrine of prevention. Under that doctrine, a failure to perform is excused if the other party to the contract hinders or prevents performance. Tabatabai argues that his wife would have completed performance of the condition under the insurance contract but for the actions of West Coast and that therefore they should be barred from relying on her failure to perform. But here, West Coast acted in good faith. The record contains evidence of several attempts to advise Keshmiri of the second test requirement. Without evidence of purposeful misconduct, the doctrine of prevention does not apply. The Court noted that there was an alternate ground for denying her application anyway. Her cholesterol level did not qualify for the "Super Preferred" classification. As for the duty of good faith and fair dealing, the Court pointed out that it exists only in contractual relationships. Here, no contract was ever formed because of Keshmiri's failure to submit the second urine specimen and because of her cholesterol test results.  

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BPI ENERGY HOLDINGS v. IEC (MONTGOMERY), LLC (December 8, 2011)

BPI is in the business of producing natural gas from coal. Drummond Company is a large coal mining company. Because companies like BPI need access to coal from which to extract natural gas and companies like Drummond need someone like BPI to extract the gas before it can be safely mine the coal, alliances between companies like these are common. BPI and Drummond entered into a memorandum of understanding pursuant to which the parties agreed that BPI would sell its coal rights to Drummond and Drummond would lease to BPI the extraction rights in its coal holdings. The MOA stated that it was not a binding agreement and merely was intended to form the basis of an agreement. The parties soon entered into a letter of intent that was more specific. It identified BPI's coal interests and Drummond's gas extraction opportunities and further described the alliance expectations of the parties. It also provided, however, that it was not binding upon the parties and it did not provide the terms for the gas extraction leases. Notwithstanding the nonbinding nature of the agreement, BPI began transferring some of its coal rights to Drummond. Drummond did not return the favor and eventually terminated the alliance. BPI brought suit against Drummond for promissory fraud. Chief Judge Herndon (S.D. Ill.) granted summary judgment to Drummond. BPI appeals.

In their opinion, Seventh Circuit Judges Posner, Sykes, and Hamilton affirmed. Because there was no contract between the parties, BPI brought its action based on promissory fraud. Although promissory fraud is recognized in Illinois, it is recognized only if it is part of a scheme to defraud. Illinois’ "scheme" requires either a pattern of fraudulent statements or a particularly egregious one. The Court first addressed and rejected Drummond's statute of frauds defense. Although it characterized Illinois' position as "murky," it concluded that Illinois has adopted the majority rule that promissory fraud is a tort and not subject to the Statute of Frauds. Turning to the merits of the fraud claim, the court simply concluded that BPI's evidence was insufficient. The Court also noted that the case would fail for lack of reliance. Both the memorandum and the letter of intent with were nonbinding. Both anticipated that a final, binding agreement would be negotiated. They had not yet even agreed on the terms for the gas extraction leases. Drummond's reliance on these nonbinding agreements was reckless and does not satisfy the justifiable reliance element of fraud.

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ANDERSON v. GULF STREAM COACH (November 3, 2011)

Jeff and Liz Anderson had a 2008 Crescendo RV manufactured by Gulf Stream. They liked the vehicle but wanted to upgrade to a more powerful version for their tour of the Western United States. They contacted Mike Apple at Royal Gorge, a Gulf Stream dealer. He suggested a 2009 Tourmaster. The Anderson's, with Apple, examined the vehicle and consulted Gulf Stream's website. The website indicated that the vehicle came with a standard 425-hp engine. In fact, the vehicle at issue had only a 360-hp engine. Assuming the RV had the larger engine, the Anderson's purchased it "as is" and accepted delivery in September 2008. After only a few uses, they discovered numerous significant problems. They returned the RV to Royal Gorge. During the repair process, Apple discovered the presence of the smaller engine, although the original paperwork had correctly identified the engine’s horsepower. The Anderson's went back and forth with Apple and Gulf Stream. Finally, in April 2009, the Anderson's brought suit for breach of express warranty, breach of the implied warranty of merchantability, Magnuson-Moss Warranty Act violations, Indiana’s Deceptive Consumer Sales Act violations, and fraud. Magistrate Judge Nuechterlein (N.D. Ind.) granted summary judgment to the defendants on all counts. The Anderson's appeal.

In their opinion, Circuit Judges Bauer, Flaum, and Williams affirmed in part and reversed in part. The Court first addressed the Magnuson-Moss Warranty Act claim, which was based on the state law warranty claims. The statute provides a federal cause of action for failure to comply with a warranty. The statute requires, however, notice and a reasonable opportunity to cure. Although the district court concluded that the Anderson's did not give a reasonable opportunity to cure, the Court disagreed, when the record was viewed in the light most favorable to the Anderson's. Thus, summary judgment on the state law expressed warranty claim and related MMWA claim was improper. The Court reached the same conclusion with respect to the Anderson's state law implied warranty claim and its related MMWA claim. Again, the district court relied on its conclusion that the Anderson's failed to provide an opportunity to cure, with which the Court disagreed. The Court turned to the Indiana Deceptive Consumer Sales Act claim. That claim was based on the fact that the Tourmaster was designated a 2009 model but was manufactured to fulfill an order for 2008 model. The FTC is responsible for enforcing model year designation requirements. Under those requirements, although an RV manufacturer may use an older chassis on a newer model, or even the same chassis on different model years, it cannot do as it did here – use a 2007 chassis on a vehicle that is completed during the 2008 model year and call it a 2009. The district court erred in concluding that it could. But the Court also concluded that there were issues of material fact with respect to this claim because the Anderson's allegedly received documents with the RV that accurately identified the 360-hp engine. Summary judgment is therefore not appropriate for either party. Finally, the Court concluded that there was no evidence in the record of intent to deceive and affirmed summary judgment on the fraud claim.

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ECHO, INC. v. TIMBERLAND MACHINES & IRRIGATION (October 25, 2011)

Between 2004 and 2008, Timberland Machines & Irrigation distributed assorted outdoor power equipment for Echo in New England. On October 21 of 2008, Echo gave Timberland a sixty-day termination notice. Echo alleges that it actually made the decision to terminate Timberland in August of that year, for financial reasons. In September, Echo met with Lawn Equipment Parts Company to discuss giving it the New England region. Lawn Equipment was already a Echo distributor in another region. Echo eventually awarded the New England region to Lawn Equipment. Depending on the calculation, Echo accounted for between 30% and just over 50% of Timberland’s total sales. Echo brought suit against Timberland for breach of contract and for unpaid sums owed. A few weeks later, Timberland filed a separate suit in the same federal district against Echo and Lawn Equipment. It asserted Connecticut Franchise Act claims against Echo and claims for tortious interference, unjust enrichment and violation of the Connecticut Unfair Trade Practices Act against Lawn Equipment. The cases were consolidated before Judge Kocoras (N.D. Ill.), who granted summary judgment against Timberland on all counts after striking portions of the affidavit of Timberland’s president. Timberland appeals.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Hamilton affirmed. The Court first addressed the affidavit, which the district court struck on the grounds that it constituted undisclosed expert testimony. The purpose of the affidavit was to establish that Timberland met the definition of a franchise under the Connecticut Franchise Act. Judicial interpretations of the statute hold that a party is a franchisee of another party if more than half of its business comes as a result of that relationship. The affidavit was designed to support a calculation that met the half-of-its-business test. The Court was not impressed. Of the four points of calculation stricken from the affidavit, the Court: a) agreed that one should be stricken, even if not expert testimony, because it was unsupported by any analysis, b) concluded that two points no longer mattered once the first was stricken, and c) disagreed with the exclusion of one point regarding certain sales numbers, given the president's knowledge as a result of his role in the corporation. Nevertheless, the Court disagreed with the substantive point made in the affidavit, concluded that the relevant sales figures were less than 35%, and affirmed summary judgment on the Franchise Act claim. With respect to the award of interest on the account stated claim, the Court concluded that Timberland waived its objection. Even had it not waived its objection, the interest award was appropriate in that Timberland accepted the goods and was obligated to pay for them, with interest, pursuant to the parties’ prior relationship. Finally, the Court found no genuine issues of material fact with respect to Timberland’s tortious interference, Unfair Trade Practices Act, or unjust enrichment claims.

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WILDER CORPORATION OF DELAWARE v. THOMPSON DRAINAGE AND LEVEE DISTRICT (September 27, 2011)

Wilder Corporation owned several thousand acres of farmland on the Illinois River in Fulton County, Illinois. It sold the land in 2002 to The Nature Conservancy, which intended to restore it to an ecologically functional floodplain. Wilder warranted that the land was not contaminated by petroleum. Unfortunately, Wilder was wrong and the property was contaminated, apparently as a result of the local drainage district’s use and storage of petroleum on the property. The Conservancy sued Wilder for breach of contract and obtained a judgment for several hundred thousand dollars. Wilder brought suit against the drainage district, seeking indemnification for the damages it was ordered to pay the Conservancy. Judge Mihm (C.D. Ill.) granted summary judgment to the Conservancy. Wilder appeals.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Hamilton affirmed. The Court briefly explored the common law of indemnity. It noted that the most common form of indemnity is contractual, as in an insurance policy. There is also non-contractual indemnity, as in where tort liability is shifted from a blameless person to a blameworthy one. Here, however, Wilder wants to shift its contractual liability on the theory that it was blameless and that the drainage district was blameworthy for the petroleum contamination. But the doctrine of indemnity simply does not apply in a situation like this. The district had no control over what warranties Wilder gave to the Conservancy. Furthermore, Wilder could have insisted on a subrogation clause, in which case he could have stepped into the Conservancy's shoes in a nuisance claim against the district. Having failed to do so, it cannot shift the liability to the district. The Court noted that the suit was also barred by the economic-loss doctrine.

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DAKOTA, MINNESOTA & EASTERN RAILROAD CORP. v. WISCONSIN & SOUTHERN RAILROAD CORP. (September 20, 2011)

Dakota, Minnesota & Eastern Railroad and Wisconsin & Southern Railroad both operated freight lines in southern Wisconsin. Wisconsin approached Dakota in an effort to purchase some rail line near Janesville, Wisconsin. The line included a 200-foot spur connecting the line with a plant owned by Freedom Plastics. Freedom’s facility was the only plant on the spur. It shipped several carloads a week and was Dakota's largest customer in the area. So Dakota did sell the line to Wisconsin but retained the right to use the line and retained an exclusive easement to serve Freedom over the spur. Years later, Freedom entered receivership. The receiver eventually sold the Janesville plant to North American Pipe Corporation. Wisconsin started shipping for North American, contending that Dakota’s exclusive easement terminated when the plant was sold. Dakota brought suit against Wisconsin, alleging two theories of recovery: 1) breach of contract, on the theory that the exclusive easement was not personal to Freedom but rather referred to the plant itself, and 2) trespass, on the theory that Dakota never sold the tracks, only the land under the tracks. Chief Judge Conley (W.D. Wis.) granted summary judgment to Wisconsin on both claims. Dakota appeals.

In their opinion, Seventh Circuit Judges Bauer, Posner, and Manion affirmed. With respect to the breach of contract claim, the Court sided with Wisconsin. It rejected Dakota's claim that "trade usage" converted its right to serve Freedom to a right to serve the facility, no matter who owned it. Dakota’s only evidence (a railroad worker’s affidavit) was insufficient to establish trade usage, said the Court. Trade usage requires at least management-level, if not expert, opinion testimony. Then, although it found the contract unambiguous, it considered extrinsic evidence because the parties both relied on it. But the evidence of negotiations did not support Dakota's position. With respect to the trespass claim, the Court noted that the contract of sale excluded the spur tracks but the quitclaim deed did not. Given that inconsistency, the Court stated that the deed controls. Furthermore, the rails are fixtures and sold with the real property to which they are attached. In any event, the Court concluded that the trespass claim was unnecessary. If Dakota had the contract right it claimed, it would prevail on the contract claim without the trespass claim. If it did not have those rights, it could prevail on neither

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QUALITY OIL, INC. v. KELLEY PARTNERS (September 19, 2011)

Kelley Partners operates a number of quick-lube facilities in Illinois. In 2003, it entered into an agreement with lubricants distributor Quality Oil which provided: a) Quality “loaned” $150,000 to Kelley without cost, b) Kelley agreed to purchase 85% of its motor oil requirement from Quality and agreed to purchase at least 225,000 gallons of oil and 225,000 oil filters over five years, c) the agreement terminated when Kelley either met the purchase requirements or 60 months, whichever came first, d) Kelley agreed to pay a penalty if it terminated the agreement early, and e) Kelley agreed that it could be liable for the termination penalty if it transferred any of its locations without obligating the purchaser to the contract terms. Two years into the agreement, and before it met its purchase requirements, Kelley sold its business without obligating its purchaser to the contract. Kelly refused to pay an early termination penalty. Quality brought a breach of contract claim against Kelley. Magistrate Judge Cox (N.D. Ill.) granted summary judgment to Quality for the termination penalty and prejudgment interest. Kelley appeals.

In their opinion, Seventh Circuit Judges Ripple, Evans (who, as a result of his death, took no part in the decision), and Sykes affirmed. Kelley's principal argument was that the five-year/225,000 gallon contract termination clause was handwritten, that it should therefore take priority over other contract terms, and that it should be interpreted to relieve Kelley of any obligation after five years, even if it did not meet the purchase requirements. The Court rejected that argument on several grounds. One, handwritten terms are not given priority if they alter the fundamental contractual bargain. Two, a contract must be ready in its entirety. And three, a contract should be interpreted so as not to produce absurd results. Here, although the Court conceded that a literal interpretation of the handwritten term could support Kelley's argument, it made no commercial sense to read it that way, taking the agreement as a whole. Kelley stopped purchasing motor oil from Quality after two years without having met its contractual obligation and then sold its business. It therefore breached the agreement and was liable to Quality for the early termination penalty.

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LINDQUIST FORD v. MIDDLETON MOTORS (September 13, 2011)

Middleton Motors, a Ford dealership near Madison, Wisconsin, was experiencing financial difficulties in 2002. It began discussing arrangements with Lindquist Ford, an Iowa dealership. Middleton wanted both daily management help and an infusion of cash. Discussions continued into 2003, when the dealerships signed a confidentiality agreement and also agreed not to hold the other liable in the absence of a written agreement. The parties never consummated a written agreement and Lindquist never invested any funds. Nevertheless, Craig Miller, Lindquist's general manager, took over Middleton's management in April of 2003. He remained in that capacity until Middleton terminated the relationship in March of 2004. When Middleton refused to compensate Lindquist, Lindquist brought suit for breach of contract, promissory estoppel, quantum meruit, and unjust enrichment. The district court granted summary judgment to Middleton on the contract and promissory estoppel claims but, after a bench trial, awarded $160,000 to Lindquist on the unjust enrichment and quantum meruit claims. The Seventh Circuit reversed and remanded (opinion here and intheiropinion here) for a new trial. On remand, Judge Crabb (W.D. Wis.) again found for Lindquist and awarded approximately the same amount. Middleton appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder remanded with instructions to enter judgment for Middleton. The Court noted that both unjust enrichment and quantum meruit under Wisconsin law contain an equitable element. When it remanded the first appeal, it identified as the only remaining issue whether Lindquist's compensation expectation was equitably reasonable, considering the parties' course of conduct. If Lindquist expected to be paid only if Miller was successful and he was not, but was given a chance to be, then Lindquist should not be compensated. The negotiation record between the parties clearly establishes that Lindquist did not expect to be paid unless the Middleton dealership became profitable. Although the district court found that Lindquist did make the dealership profitable, the Court concluded that it erred in doing so. That conclusion is simply unsupported by the evidence. Therefore, Lindquist can only recover if Miller was not given a chance to make the dealership profitable. The district court concluded that he was not. Again, however, the Court concluded that the district court's findings were clearly erroneous and that Middleton did not prevent Miller from making the dealership profitable. Judgment should have been entered for Middleton.

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WELLS FARGO BANK v. LAKE OF THE TORCHES ECONOMIC DEVELOPMENT CORPORATION (September 6, 2011)

Lake of the Torches Economic Development Corporation is chartered under tribal law. It operates the Lake of the Torches Resort Casino in northern Wisconsin. Several years ago, the company issued $50 million in revenue bonds in order to finance a riverboat casino in Mississippi. The accompanying indenture named Wells Fargo Bank as trustee. Under the indenture, Wells Fargo was given certain oversight powers with respect to casino revenues. Lake of the Torches also agreed to a limited waiver of its sovereign immunity with respect to lawsuits related to the bonds. The Mississippi casino investment was not a success. Lake of the Torches stopped depositing casino revenue into the Wells Fargo trust account and ultimately repudiated its $46 million bond obligation. Wells Fargo brought suit for breach of the Indenture and sought the appointment of a temporary receiver. Without any notice or hearing, Judge Randa (W.D. Wis.) dismissed the case for lack of jurisdiction. He concluded that the Indenture was a management contract under the Indian Gaming Regulatory Act, that the Indenture was not approved by the National Indian Gaming Commission as required by the Act, that the Indenture was therefore void, that the waiver of sovereign immunity was also void, and that the district court lacked jurisdiction. The court also denied Wells Fargo's request for leave to file an amended complaint asserting claims under the bond documents only. Wells Fargo appeals.

In their opinion, Seventh Circuit Judges Flaum, Ripple, and Evans (who, as a result of his death, did not take part in the decision) affirmed in part and reversed and remanded in part. The Court first addressed its jurisdiction, given that the defendant was a tribal Corporation. It noted that most courts agree that Indian tribes themselves are not citizens of any state for diversity purposes. However, the 9th and 10th Circuits have held that a tribal Corporation is the equivalent of a Corporation created under state law. The Court agreed and concluded that there was no reason to treat a tribal Corporation that engages in commerce differently than its non-tribal counterparts. Turning to the merits, the Court noted that Congress passed the Act in 1988 to provide a comprehensive framework for tribal gaming. The Act requires that any management contract entered into by a tribe for the operation and management of the casino must be reviewed and approved by the Commission Chairman. Failure to do so renders the contracts void. The principal issue on appeal is whether the Indenture is a management contract under the Act. Unfortunately, the term is not defined in the statute. The Court turned to the language and overriding purpose of the Act. Although it conceded that some of the Act's provisions seemed directed at the more traditional management contracts, in which a third-party actually operates the facility, it also found some provisions that seemed to apply more broadly. Ultimately, the Court could find no strong indication that Congress intended to limit the breadth of the term. The Court also looks to statements from the Commission and from its Acting General Counsel, even recognizing that they were not entitled to any particular deference. In the end, it was clear to the Court that Congress was not simply concerned with traditional management contracts but was concerned about any agreement that allowed for some influence in management decisions. Examining the Indenture Agreement in that light, the Court concluded that it was a management agreement under the Act. In doing so, the Court focused on certain indenture provisions that gave Wells Fargo control over the trust account, limited capital expenditures, and allowed, in certain circumstances, the bond holder to retain experts to make recommendations concerning casino operations. The Court also concluded that the regulatory framework did not allow for reformation of the Indenture and removal of any offending provisions. The district court erred, however, in denying Wells Fargo leave to amend. It is premature, on the face of the complaint, to conclude that the bond documents are collateral documents under the Act or that the sovereign immunity waivers contained in those documents are also void as part of the same transaction. The Court remanded to allow Wells Fargo an opportunity to file an amended complaint.

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THE NATURE CONSERVANCY v. WILDER CORPORATION OF DELAWARE (September 1, 2011)

The Wilder Corporation of Delaware owned 6,660 acres of farmland in central Illinois. In 2000, it sold the property to The Nature Conservatory, which intended to use it as a nature preserve. As part of the agreement, Wilder promised to remove hazardous and toxic substances from the property. The Conservancy brought suit in early 2006 on a number of contract matters. During discovery, it discovered petroleum contaminated soil on the property and amended its complaint. Judge Mihm (C.D. Ill.) granted summary judgment to the Conservatory. Wilder appeals.

In their opinion, Seventh Circuit Judges Rovner, Wood, and Tinder affirmed. The only issue on appeal is Wilder's contention that the petroleum contamination claim should be barred by the equitable doctrine of laches because it was filed seven years after the property transfer and five years after Wilder vacated the property. The Court noted that, in Illinois, laches will bar equitable relief when a party fails to assert a right over a period of time and causes prejudice to the other party. Here, the Conservancy's claim for relief is not in equity but for damages. Although the Court conceded that Illinois’ distinction between law and equity has evolved over the years, it did not believe that an Illinois court would apply laches to a simple breach of contract case for money damages between private actors. It concluded that it did not have to definitively answer that question, however, as it found that Wilder's defense failed for lack of prejudice. The Court noted that the record was devoid of any evidence of prejudice. Although Wilder claimed that the delay prevented him from showing prejudice, he never attempted to discover any facts that would support his claim of prejudice, in discovery or otherwise.

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MARCATANTE v. CITY OF CHICAGO (August 24, 2011)

The City of Chicago had Collective Bargaining Agreements between 1999 and 2003 with a coalition of trade unions representing certain City employees. When the parties were unable to agree on 2003-2007 CBAs by the then-current CBAs’ expiration date, they entered into a letter agreement. The agreement extended the terms of the then-current agreements. The City also agreed that any wage increase it ultimately agreed to would be retroactive to July 1, 2003, unless otherwise agreed. Months later, while negotiations were still ongoing, the City offered certain employees an incentive to retire early. Some City employees took advantage of the offer and retired in early 2004. The City and the unions reached agreement on the 2003-2007 CBAs in July of 2005. Although the City agreed to a pay raise, it made the increase retroactive to 2003 only for certain employees. The early retirees were not included. A class of retired employees brought suit alleging due process and equal protection violations as well as state law claims for breach of implied contract and breach of express contract. On cross motions for summary judgment, Judge Kocoras (N.D. Ill.) found for the City on the due process, equal protection, and express contract claims but found for the plaintiffs on the implied contract claim and awarded over $1.7 million in damages. The City appeals on the implied contract claim. The plaintiffs cross-appeal on the due process and express contract claim.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Tinder affirmed in part and reversed in part. The Court first struck plaintiffs' cross-appeal as improper. A cross-appeal is appropriate only when a party wants to alter the district court's judgment. The plaintiffs are not seeking any modified relief on the breach of contract appeal. Although they did seek modified relief under the due process claim, they did not do so until their reply brief -- and so waived that claim. As an aside, the Court noted its agreement with the district court's dismissal of those claims on the merits. The Court turned to the implied contract claim, on which the plaintiffs prevailed. An implied-in-fact contract is created by law and is based on the parties' conduct. The contract is inferred from the surrounding facts and circumstances and gives effect to an unstated promise. However, an implied contract cannot exist where an express contract already governs the same subject. Here, the Court found that the subject matter -- plaintiffs' pay rate -- was governed by the Collective Bargaining Agreements. The fact that retroactive increases were given in similar situations in the past is irrelevant, as is plaintiffs' hope for such an increase. Given the existence of the express contract, there can be no implied contract. Furthermore, the letter agreement is unambiguous and only provided that agreed pay raises would be retroactive. Since the parties did not agree on a pay raise for the retirees, there was nothing to make retroactive. An implied-in-law contract is not really a contract but an equitable claim for unjust enrichment. But, just like an implied-in-fact contract, an implied-in-law contract cannot coexist with an express contract on the same subject matter.

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BOYD v. TORNIER, INC. (August 24, 2011)

Tornier, Inc. is a national medical goods manufacturer, particularly in the joint replacement field. In 2003, it entered into exclusive distribution agreements with Boyd Medical in Missouri and Addison Medical in Iowa. The agreements provided that Boyd and Addison had exclusive distribution rights in their respective areas, that they could not sell products that competed with Tornier products, that Tornier could set sales quotas, and that the failure to meet a sales quota was grounds for termination. Even when it entered into these agreements, however, Tornier was developing a plan to convert these distributorships into dedicated Tornier outlets. Tornier told both Boyd and Addison of its plan and represented to both that they would be exclusive distributors of its new and expanded product line. Boyd and Addison began preparing for that opportunity by dropping other product lines. The truth, however, was that Tornier was not satisfied with Boyd and Addison and had already found replacement distributors. When the time came, it increased the sales quotas for both distributors and terminated them when they failed to meet the new quotas. Both Boyd and Addison went out of business and sued Tornier for breach of contract, intentional misrepresentation, and negligent misrepresentation. Magistrate Judge Wilkerson (S.D. Ill.) dismissed the negligent misrepresentation count as to Addison pursuant to Iowa law limitations on such a claim and sent the other claims to the jury. The jury found against Tornier on all claims and awarded $1.4 million in compensatory damages to Boyd, $1.1 million in compensatory damages to Addison, and $2 million in punitive damages for each. The district court set aside the punitive damages but otherwise upheld the verdict. Both parties appealed.

In their opinion, Seventh Circuit Judges Bauer, Wood, and Sykes affirmed in part, vacated in part, and remanded. The Court first addressed the breach of contract claim, which was governed by Texas law under a choice of law clause. It found that the contract specifically excluded lost profits relief after termination. Texas law, however, provides that contractual limitations on damages are not enforced when there is a bargaining disparity between the parties. The district court allowed the jury to decide whether there was a disparity as a matter of fact. The Court disagreed and vacated the compensatory damage awards. Although Boyd and Addison were dependent on Tornier, they were so by choice. They were both sophisticated businesses and could have rejected Tornier's contract demands. The Court turned to the intentional misrepresentation claims, the elements of which are: a) a false, material representation, b) that the speaker knew was false, c) spoken with the intent to deceive, d) which was justifiably relied on, and e) causing damages. Tornier challenged both the justifiable reliance and the knowledge of falsity elements. The Court affirmed the district court, finding sufficient evidence of those two elements in the record to support the jury's verdict. On Boyd's negligent misrepresentation claim, Tornier argued that the same limitation that Iowa law imposed on Addison's claim (limiting it to professionals whose business is to give advice) should be imposed on Boyd's (which was governed by Missouri law). The Court found no Missouri case that imposed such a limitation and declined the invitation to expand state law. The Court turned to tort damages. The jury's actual damage award was based on six years of lost profits assuming a 20% annual growth rate. The Court had no difficulty with the six years of lost profits, even though the distributorship contracts were of a one-year duration. Both Missouri and Iowa allow tort damages beyond a contract term if there is an ongoing relationship. There was sufficient evidence of that relationship in the record for the jury's finding. On the other hand, the assumed 20% growth rate was not supported by anything other than conjecture and hope. The Court remanded for further damage calculation. Finally, the Court addressed the punitive damage award. An award of punitive damages requires a showing of actual or legal malice. It found that Tornier's behavior, although tortious, was not vindictive or so outrageous as to meet the punitive damages standard.

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INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE & AGRICULTURAL IMPLEMENT WORKERS OF AMERICA v. ZF BOGE ELASTMETALL LLC (August 19, 2011)

Prior to 2007, ZF Boge operated two manufacturing facilities in the United States. The one in Paris, Illinois was unionized. The workers were represented by the UAW. The company's second facility was in Hebron, Kentucky and was non-union. In early 2007, ZF Boge began to consider closing one facility and consolidating its operations in the other. The Paris plant manager approached the UAW and requested renegotiation of several provisions of the Collective Bargaining Agreement then in effect. The request was couched in terms of maximizing the long-term viability of the Paris facility. The company and the Union reached an agreement in mid-2007. The agreement took the form of a chart, with the CBA provisions in one column and the negotiated amendments in another. The agreement provided that the changes would not take effect unless Paris became the surviving facility and that, if it did not, it would continue to operate under the original CBA. ZF Boge announced its decision to close the Hebron facility and to consolidate its operations at the Paris facility. Before the consolidation was complete, ZF Boge and the UAW began to negotiate a new CBA, since the then-current one was due to expire in April 2008. The parties were unable to agree on a new CBA. The UAW members went on strike. ZF Boge reversed its decision and closed the Paris facility, consolidating its operations in Kentucky. The Union filed an action pursuant to § 301 of the Labor Management Relations Act, alleging that ZF Boge breached the midterm agreement. It sought damages and specific performance. Chief Judge McCuskey (C.D. Ill.) granted summary judgment to ZF Boge, concluding that the midterm agreement was a CBA modification that expired with the CBA in April 2008. The UAW appeals.

In their opinion, Seventh Circuit Judges Ripple, Kanne, and Sykes affirmed. The Court recited several familiar rules of contract construction: contract interpretation is normally a matter of law, CBAs are interpreted like other contracts, the starting point is the contract's language, and a document should be read as a whole with consideration to its structure. The Court found the contract's structure very significant in interpreting its meaning, particularly given that it had no independent expiration date. It was clear to the Court that the chart simply listed those CBA terms that were modified, identifying the original and amended approaches. It clearly was not meant to modify any unidentified terms, including an expiration date. The fact that the contract precluded any renegotiation of the amended terms in a future CBA is not inconsistent with that conclusion. The Court therefore concluded, as did the district court, that the midterm agreement was a CBA modification that did not change the expiration date. The Court also rejected the UAW's view that, even if the amendment expired, it created some vested rights. Although the Court acknowledged that a contract can create obligations that survive its expiration, it noted that courts are reluctant to interpret contracts that way without clear language illustrating the intent of the parties. It found no such clear language in the midterm agreement. Finally, the UAW presented extrinsic evidence in an effort to show that there was a latent ambiguity in the contract. The Court found the proffered evidence insufficient to create such an ambiguity.

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CITY OF YORKVILLE v. AMERICAN SOUTHERN INSURANCE COMPANY (August 12, 2011)

Ocean Atlantic Services was the real estate developer for the Westbury East Village subdivision in Yorkville, Illinois. Yorkville required Ocean to include certain public improvement projects in its plan, which would eventually be turned over to Yorkville. It also required Ocean to post a bond to ensure completion of the improvements. Ocean obtained a number of bonds from American Southern Insurance Company. Ocean ran into financial difficulties and was unable to complete the project. Several subcontractors, including Aurora Blacktop Incorporated, went unpaid. The City of Yorkville made a demand on American Southern. American Southern refused the demand but Yorkville did not pursue the matter further. Aurora filed suit against American Southern in the name of the City of Yorkville but for its own benefit. Judge Darrah (N.D. Ill.) concluded that Aurora had no standing to assert a claim on the bonds and dismissed the complaint. Aurora appeals.

In their opinion, Seventh Circuit Judges Rovner, Williams, and Hamilton affirmed. Aurora concedes it is not a party to the bonds but nevertheless asserts that is a third party beneficiary with standing to bring a claim. Relying on Illinois law and the Restatement (Third) of Suretyship and Guaranty, the Court distinguished between payment bonds and performance bonds. Illinois courts generally recognize third-party beneficiaries in the context of a payment bond, in which the surety is liable for the contractor’s promise to pay for all labor and materials. Illinois courts are less likely to find third-party beneficiary status in the context of a performance bond, where there is no promise to pay for labor and materials. The bonds at issue here contain no language suggesting that American Southern was liable to anyone other than the City of Yorkville. The district court did not err.

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DYNEGY MARKETING AND TRADE v. MULTIUT CORP. (August 4, 2011)

For years, Multuit purchased natural gas wholesale from Dynegy Marketing and Trade. Nachshon Draiman personally guaranteed Multuit's obligation. In 1997, Dynegy expressed interest in acquiring Multuit. Under a confidentiality agreement, it conducted its due diligence. Dynegy ultimately chose not to acquire Multuit but instead entered into a joint venture with one of Multuit's competitors. The relationship soured but Multuit continued to purchase from Dynegy. Multuit was unable to pay its current invoices, however and owed Dynegy in excess of $1.5 million by the end of 2000. On several occasions, Multuit attempted to reach agreement on a long-term price guarantee with Dynegy unsuccessfully. Dynegy ultimately stopped providing gas to Multuit in December 2002 and filed suit. Multuit responded with a host of counterclaims. Shortly after the complaint was filed, the FERC issued a report in which it identified efforts to manipulate price indices in the Western United States energy markets. Dynegy was implicated but the report was limited to the Western United States. In discovery, Multuit attempted to obtain information from Dynegy regarding its price index reporting and calculation. The magistrate judge did not allow it. Dynegy moved for summary judgment on some of its claims and all of Multuit's counterclaims. In response, Multuit submitted an excerpt from the FERC report and a lengthy declaration containing, for the first time, its damage estimates. Judge Nordberg (N.D. Ill.) excluded the declaration and granted Dynegy's motion. After denying Multuit's motion for reconsideration, the court entered judgment pursuant to Rule 54(b). The Seventh Circuit remanded for a prejudgment interest calculation. On remand, Multuit again moved for reconsideration and supplemented the record with additional affidavits. The court denied the motion and entered judgment for Dynegy. Multuit appeals.

In their opinion, Seventh Circuit Judges Kanne and Tinder and District Judge Herndon affirmed. Multuit was chastised by the panel for its "kitchen sink" approach (it presented nine issues) on appeal. The Court considered and rejected each: a) the district court did not err in excluding the declaration when it was the first time Multuit disclosed its damages theory, b) Dynegy's vague statements about "best price" did not amount to an enforceable oral contract, c) there can be no enforceable long-term price agreement when the record presents no evidence of either the price term or duration, d) Dynegy's mistake in failing to invoice Multuit for interest for a period of time did not amount to an implied agreement to forego interest, e) Dynegy offered sufficient proof of its own damages by presenting an expert who testified regarding the invoices and interest calculations, f) the record does not support a conclusion that any alleged price manipulation in the Western United States affected Dynegy's price and therefore its damages, g) Multuit cannot recover on its breach of contract counterclaim when it presented no evidence of damages, h) Multuit cannot recover on its Robinson-Patman Act counterclaim when it presented no evidence of damages, and i) Multuit waived its challenge to the denial of the motion for reconsideration by not addressing the grounds upon which the district court denied it.

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WHITE PEARL INVERSIONES S.A. v. CEMUSA, INC. (July 26, 2011)

Cemusa is a U.S. subsidiary of a Spanish company that places street furniture (bus shelters, trash bins, etc.) in the European market. Cemusa hired White Pearl Inversiones, a Uruguayan company, to help it break into the United States market. Cemusa and White Pearl collaborated informally in responding to opportunities in Miami and San Antonio. Cemusa was successful in both cities. They entered into a Letter Agreement in March of 2003 in anticipation of a similar opportunity in New York City. Cemusa agreed to pay $240,000 for White Pearl's guidance on strategy and professional introductions. The Letter Agreement also provided that the $240,000 would be deducted from any compensation owed under the anticipated Master Agreement. Cemusa and White Pearl did enter into a Master Agreement days later. The Master Agreement provided that the parties would enter into city-specific RFP Agreements for each project. It also provided that White Pearl would receive 3.75% of Cemusa's net revenue in any given project if an RFP Agreement did not provide otherwise. The right to the fee vested on the issuance of an RFP. The Master Agreement was terminable by either party on 30 days notice. Cemusa terminated the Master Agreement in February 2004, before any RFP had issued. New York City issued its RFP the following month. Cemusa was awarded contracts in each of the city's five boroughs. Cemusa refuses to pay White Pearl any more than the Letter Agreement's $240,000. White Pearl filed suit for breach of contract as well as numerous other state law claims. Judge Andersen (N.D. Ill.) dismissed the complaint. White Pearl appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Williams affirmed. The Court first addressed jurisdiction. The complaint states that White Pearl is a Uruguayan corporation -- but Uruguay does not have corporations like the U.S. It does have limited liability businesses, however. The Court ultimately found that it did not have to decide White Pearl's status. It would either be treated like a corporation or like a joint-stock company. Since its only equity investors are citizens of Brazil, complete diversity is established either way. The Court next addressed the source of applicable law. The Letter Agreement expressly provides that is it is to be governed by the laws of Spain. But neither party mentioned the law of Spain. They both cite Illinois and New York cases. As a result, the Court considered dismissing the appeal on forfeiture grounds. It decided not to do so, but warned that it could in a less straightforward case. It turned to the merits. White Pearl does not claim that it was not paid the $240,000 provided for in the Letter Agreement. Likewise, White Pearl does not contest Cemusa's termination of the Master Agreement. A court will not resort to quantum meruit or unjust enrichment to modify a contract's price term. White Pearl agreed to a set fee. Cemusa is not obligated to compensate it for effort that it voluntarily offered above anything required by the contract. The Court did briefly mention the Illinois remedy in quantum meruit when a party terminates a contract after most of the work has been completed. It gave as examples the attorney who is fired right before the jury's verdict or the real estate agent who is fired the day before closing. White Pearl's efforts are not analogous, however. It is more akin to the attorney or real estate agent who consults with a client and does some preliminary work but is not hired. White Pearl is entitled to the $240,000 – no more.

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TROVARE CAPITAL GROUP v. SIMKINS INDUSTRIES (July 20, 2011)

In late 2006, Leon Simkins decided to sell the family owned folding carton business and its affiliates, in which he was a controlling shareholder. He engaged Mesirow Financial to act as broker. Trovare Capital Group was interested and contacted Mesirow. In late May of 2007, Simkins and Trovare entered into a letter of intent ("LOI"). The agreement was generally nonbinding but did give Trovare a 90-day exclusivity period and obligated Simkins to pay a $200,000 fee if it breached the exclusivity period or gave Trovare written notice of a unilateral termination of the negotiations. The LOI included a termination date of September 30, 2007, after which neither party any obligations. Shortly afterward, the negotiations went south. Trovare's environmental consultant concluded that all real properties involved needed further environmental testing. Simkins and his family became more and more concerned about their own liabilities that would arise from a sale. At one point, Simkins told his own negotiating team that he did not want to go through with the deal. Although the parties continued to communicate, both Mesirow and Trovare began doubting the sellers’ sincerity. Trovare even demanded the breakup fee as early as August. After the communications stopped, Trovare brought suit against Simkins for the $200,000 fee. Judge Gettleman (N.D. Ill.) granted summary judgment to the defendants, concluding that the undisputed facts established that they did not terminate the negotiations and that they negotiated in good faith. Trovare appeals.

In their opinion, Circuit Judges Kanne and Evans and District Judge Clevert reversed and remanded. The Court quickly dispensed with Trovare's argument that it was entitled to the contractual $200,000 fee. The LOI imposed that obligation on the sellers only if they breached the exclusivity period or gave written notice of the termination of negotiations. Neither occurred here. Trovare also alleged, however, a breach of the implied covenant of good faith and fair dealing. The Court noted that Trovare could prevail on that claim if it proved that the sellers had decided to terminate negotiations but simply refused to provide a written notice. The Court disagreed with the district court that the undisputed record showed continued good faith negotiations beyond the termination date. The Court concluded that a reasonable trier of fact could conclude that the continued communications were not actually negotiations. The Court pointed to several parts of the record, including: a) Simkins’ statement that he “definitely" did not want to consummate the deal, b) Simkins later willingness to negotiate only if Trovare agreed to five demands, and c) the sellers’ misrepresentations that the second phase environmental inspections had already begun. Summary judgment for the defendants was error.

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CLARENDON NATIONAL INSURANCE CO. V. MEDINA (July 13, 2011)

Guillermo and Maria Medina's son gave his old truck cab to his mother. Although she could not drive it, Guillermo had a commercial license and experience. With Maria's authorization, Guillermo got a job with Town Trucking. Federal law requires interstate truckers like Town to either own their equipment or enter into a lease with the owner. Guillermo and Town entered into a operating agreement in which Guillermo purported to lease Maria's cab to Town. Although Maria never signed the agreement and was not familiar with its contents, she did know that Guillermo entered into a contract with Town and that he did it with her permission. Town had $1 million in insurance coverage for its drivers, including Guillermo, that provides coverage when they are using equipment on Town business. Guillermo also obtained a $750,000 policy to cover him while using the equipment not on Town business. In late November 2006 Guillermo delivered a load of shingles to a store in McHenry, Illinois and was returning with an empty trailer to pick up a second load for delivery. It was during this return trip that Guillermo lost control of his vehicle and struck a small truck, killing its driver. Town’s insurer settled the lawsuit brought by the driver's parents for the policy limits. Guillermo's insurer, Clarendon National, denied coverage. It relied on the policy’s exclusion for accidents that happen when the vehicle is in the business of anyone to whom it is rented. Clarendon filed suit, seeking a declaration of its obligations. The defendants claimed that the exclusion did not apply because the vehicle was actually never rented to Town by Maria, its lawful owner. Judge Kendall (N.D. Ill.) granted summary judgment to Clarendon, concluding that Guillermo entered into the agreement with Town with Maria's knowledge and permission. Defendants appeal.

In their opinion, Judges Rovner, Wood, and Tinder affirmed. In Illinois, the Court stated, an insurance agreement is a contract and the general rules of contract construction apply. If the language of the policy is unambiguous, it should be applied as written. The Court found no ambiguity in the Clarendon policy. The only question is whether the truck was rented to Town at the time of the accident. The Court recognized that the lawful owner of the truck did not sign the agreement. The Court nevertheless found that the truck was rented to Town, the exclusion applied, and Clarendon had no coverage obligation. First, federal regulations define "owner" as including someone who does not have title but has the exclusive use of the equipment. Second, Maria and Guillermo had an agency relationship and Illinois law allows an agent to act on behalf of an undisclosed principal. Third, the agreement between Guillermo and Town satisfied all the requirements for a written contract.

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COLLINS v. AMERICA'S SERVICING CO. (July 13, 2011)

In 2004, Phillip Collins bought a house in Lowell, Indiana. His lender assigned the mortgage servicing obligations to America's Servicing Company shortly after closing. Under the terms of the mortgage, Collins’s payment was due on the first of the month with a 15-day grace period, a late fee was assessed after the grace period, and any payment was always applied first to the oldest obligation. Collins missed his payments in September and October of 2006. He sought assistance from ASC. Collins and ASC entered into a forbearance agreement. Under the agreement: a) Collins did not have to make his November payment, b) the amount of his November payment was prorated over the following eight months’ payments, c) his due date was extended to the 15th of each month, d) the grace period was eliminated, and e) ASC would continue credit reporting. Collins apparently did not understand the agreement. He thought that he could avoid late fees and protect his credit under the agreement if he simply made his regular, though now slightly increased, monthly payments. Collins and ASC entered into a second agreement in April. ASC agreed not to accelerate the loan if Collins made his regular monthly payments for the following four months. Like the earlier agreement, there was no grace period and credit reporting continued. In fact, ASC charged late fees every month and reported him delinquent every month after September. Collins discovered this when he tried to refinance in August 2007. Collins sent a letter to ASC pursuant to the Real Estate Settlement Procedures Act (RESPA) and requested that ASC remove the late fees and retract any negative credit reports. ASE responded to the letter but refused his requests. He now faces foreclosure. Collins filed suit alleging violations of RESPA, the Indiana Home Loan Practices Act, and breach of contract. Judge Miller (N.D. Ind.) granted summary judgment to ASC on all counts. He concluded that ASC responded to Collins' RESPA request according to the statute. He concluded that Collins failed to prevent evidence of either a breach of contract or a material misrepresentation in violation of the Indiana statute. Collins appeals the latter two rulings.

In their opinion, Judges Bauer, Kanne, and Evans affirmed. The Court first addressed the breach of contract claim. The Court concluded that ASC fully complied with the terms of the mortgage, the first forbearance agreement, and the second forbearance agreement. After Collins missed his September and October payments, he was always in arrears. Even if he made every monthly payment, the monthly payments went to past due obligations. The fact that Collins understood otherwise, and may have even been told otherwise, does not help him. The language of the contracts is unambiguous and Collins cannot rely on oral modifications for a breach of contract under Indiana law. Likewise, Collins cannot succeed on his Indiana Home Loan Practices Act claim. The written agreements are very clear. Collins cannot prove that ASC made a knowing or intentional material misrepresentation.

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UNIVERSAL MORTGAGE CORP. v. WURTTEMBERGISCHE VERSIGHERUNG AG (July 11, 2011)

Ray Hightower worked for Universal Mortgage Corp., a company that originated mortgage loans and sold them to investors. When Universal sold the loans, it warranted that the loans complied with the Federal National Mortgage Corporation standards. For over a year, Hightower took kickbacks from an outside broker in return for ensuring that Universal approved non-compliant loans. Universal sold the loans without knowledge of their non-compliant status. Some of the loans went into default. When those investors realized that Universal had breached its compliance warranty, they exercised their rights to force Universal to repurchase the loans. Universal estimates that its exposure will be $4.5 million. Universal filed a claim under its bankers blanket bond issued by a consortium of Lloyds of London underwriters. The bond indemnified Universal for "[d]irect financial loss" it suffered "by reason of and directly caused by . . . dishonest acts by any Employee." The bond also excluded any loss "resulting from" a loan repurchase from an investor. The underwriters denied the claim. Universal brought suit for breach of contract and bad faith denial of an insurance claim. Judge Stadtmueller (E.D. Wis.) granted a motion to dismiss, concluding that Hightower's fraud did not "directly cause" the loss and that the repurchase exclusion applied. Universal appeals.

In their opinion, Judges Posner, Flaum, and Sykes affirmed. The Court noted that the bond form has been around for decades and that many of its terms have well-established meanings. But two camps have emerged on the proper meaning of "directly cause." One camp has adopted the proximate cause principle from tort law. But this case is governed by Wisconsin law, and Wisconsin has adopted a "direct means direct" definition of "directly cause." Here, Universal's liability is to a third party. Even if its loss from that liability is due to employee misconduct, the employee misconduct did not "directly cause" the loss. The Court rejected Universal’s argument that its loss arose when it initially approved the non-compliant loans. Even if it did, it recovered that loss when it sold the loans to investors. The loss it now seeks to recover is the loss from its obligation to those investors. Alternatively, the Court agreed with the district court that the repurchase exclusion applied and barred coverage.

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SCHREIBER FOODS v. LEI WANG (July 5, 2011)

Cade Wang lives in China and operates Mature Sky, a trading company. Wang’s cousin, Lei Wang, operates an automotive supply company in Chicago. When Cade was looking for a dairy products supplier in the United States, he approached Lei. Lei, in turn, approached Schreiber Foods. Mature Sky placed a small order for whey protein concentrate -- the transaction was a success. A few months later, Lei Wang negotiated a much larger order -- a $600,000 order for D70, an ingredient in infant formula. Without telling anyone, Schreiber substituted RMW-2 (which it claims is materially identical) for the D70. The end customer refused to accept the product or pay for it. Schreiber did not pursue either the end customer or Mature Sky. Instead, it filed suit against Lei Wang. Schreiber alleged that Wang fraudulently represented that the end customer had promised to buy the product from Mature Sky. Judge Griesbach (E.D. Wis.) granted summary judgment to Wang on the ground that the claim was barred by the economic-loss doctrine. Schreiber appeals.

In their opinion, Judges Posner, Kanne, and Hamilton affirmed. Under the economic-loss doctrine, a plaintiff cannot pursue a tort remedy when he has a contract and an adequate remedy under contract law. Some states do not apply the doctrine where, as here, there are fraud allegations. Wisconsin's fraud exception, however, is very narrow. It requires that the fraud be extraneous to the contract. Here, the alleged fraud is "interwoven" with the contract. The Court noted that the circumstances (two foreign companies with which Schreiber was not familiar, an automobile parts supplier intermediary, the product substitution) required Schreiber to deal with these uncertainties through the contract. The Court also rejected Schreiber's contention that its claim fell within the sale of services exception to the economic-loss doctrine. The Court noted that Wisconsin applies that exception only when the contract is predominantly one for the sale of services, which this is not.

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BRENNAN v. CONNORS (June 30, 2011)

For several years in the 1990s, attorney Edward Brennan represented tennis legend Jimmy Connors. Brennan's law firm dissolved in 1997. The next year, Brennan sued Connors, alleging that Connors terminated their agreement without fulfilling his obligations. Connors settled that suit years later for over $10 million. The settlement agreement contained an indemnification clause, pursuant to which both Brennan and Connors indemnified the other. Shortly after the settlement, Brennan's former law partner sued him. He alleged that Brennan committed fraud and breached his fiduciary duty by delaying Connors' payment until the firm dissolved. Brennan then sued Connors for a declaration that Connors should indemnify him for any liability he owed to his former partner. Judge Murphy (S.D. Ill.) dismissed the complaint, finding a) the indemnification failed because of its "infinitely repeating loop," b) contractual indemnification for intentional misconduct generally violates Illinois’ public policy, and c) the indemnification did not fit into any exception to the general rule. Brennan appeals.

In their opinion, Judges Bauer, Flaum, and Evans affirmed. The Court disagreed with the district court's interpretation of the contract. Instead of a repeating loop, the Court concluded that a better interpretation was that the indemnity language referred back to the first sentence of the agreement. In that sentence, both Connors and Brennan warranted that each was the sole owner of the rights at issue in the litigation. Therefore, the indemnification only kicked in if a third party claimed to be an assignee of one of them – which was not the case here. Alternatively, the Court held that the indemnity was unenforceable because Illinois public policy prohibits indemnities for intentional misconduct. The Court found Brennan's argument that indemnities for intentional past conduct are enforceable unsupported in Illinois law.

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MATTHEWS v. WISCONSIN ENERGY CORP. (June 1, 2011)

After almost 20 years at Wisconsin Energy Corporation, Bernadine Matthews left the company in 1999. In 2003, Matthews and WEC settled a lawsuit that she had brought regarding reference requests. As part of a settlement, WEC agreed to respond to any reference requests in accordance with its policy existing at the time of the request and agreed not to say that she had been fired. In 2005, Matthews filed suit alleging that WEC breached the agreement twice in 2004. At about the same time that she filed suit, Matthews hired a consultant, Howard Schwartz, to help her find a job through a federal program for disabled persons. She gave Schwartz permission to contact third parties, including her former employers, to gather personal information. Schwartz sent a letter to WEC requesting work history confirmation and job performance comments. He advised WEC that he was assisting Matthews in her job search and that she had authorized the release of the information. One of WEC's attorneys responded. She told Schwartz that she would only provide basic work history, not performance comments. She also told him that Matthews had sued the company regarding their responses to reference requests. The district court granted WEC's motion for summary judgment and awarded attorneys’ fees. The Seventh Circuit affirmed for the most part, but reinstated the breach of contract claim based on the conversation Schwartz had with WEC's lawyer. That count was tried to a jury. The jury found for WEC and Judge Stadtmueller (E.D. Wis.) again awarded fees. Matthews appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court first addressed Matthews' position that the district court erred in allowing WEC to argue that she waived the provisions when she allowed Schwartz to gather personal information. It rejected both her arguments: a) WEC was not required to plead the affirmative defense of waiver because Matthews did not include the facts giving rise to the defense in her complaint (in fact, the conversation had not yet occurred), and b) the settlement agreement's writing requirement applies only to joint waivers that would affect the meaning of the contract, not to a party’s unilateral right to waive a contract term. Second, with respect to the breach and damages instruction, the Court reviewed the substantive jury instructions as a whole and found no error. Third, the Court concluded that the evidence was sufficient to support an instruction that the jury could find that Schwartz was acting as Matthews agent. Matthews submitted the instruction in a joint pretrial report, she put into evidence a stipulation that presumed agency, and she granted Schwartz broad authority to gather information on her behalf. Although the Court concluded that the evidence was not enough to establish agency as a matter of law, it was enough for the jury to find agency. Finally, the Court affirmed the district court’s award of almost $600,000 in attorneys fees. Since the fee shifting provision was in a contract and not a statute, the Court applied a "commercially reasonable" standard. Given that WEC paid the fees before the jury verdict and that Matthews' final settlement demand was $500,000, the fees are commercially reasonable. The Court declined to reduce the amount of fees on the ground that WEC did not prevail in every single respect or on the ground that the award created a financial hardship for Matthews.

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LEWIS v. SCHOOL DISTRICT #70 (June 1, 2011)

After School District #70 fired Debra Lewis, she brought suit. She alleged, among other things, violations of the Family and Medical Leave Act. Although her employer prevailed in the district court, the Seventh Circuit reversed the FMLA and breach of contract counts. On April 25, 2009, on remand, the parties orally agreed to a settlement in the presence of a magistrate judge. Within weeks, however, Lewis learned that the school superintendent had been accused and was under investigation for child molestation. Lewis refused to sign the settlement agreement. Judge Stiehl (S.D. Ill.) granted defendants' motion to enforce the oral settlement and, when Lewis continued to refuse to sign the agreement, he dismissed the case with prejudice. Lewis appeals.

In their opinion, Circuit Judges Bauer and Williams and District Judge McCuskey affirmed. Illinois enforces oral settlement agreements if there is an offer, acceptance, and a meeting of the minds on its terms. Given the record in open court before the magistrate judge, the Court had no difficulty in finding each element. Lewis also argued that the agreement should be set aside because of the defendants' "fraud." The Court agreed that a contract could be set aside when there is evidence of fraud in the inducement but found the materiality element lacking here. Although the Court conceded that knowledge of the investigation could have given Lewis more bargaining power and possibly a more valuable settlement, it would have been unrelated to the defendants' conduct in terminating her employment. The Court turned to the sanction imposed by the district court. Although it believed the result "unfortunate" and noted that Lewis turned a substantial recovery into nothing, the Court found no abuse of discretion. The district court ordered Lewis to sign the settlement agreement several times and it warned her that not doing so could result in dismissal and sanctions. Only after eight months had passed did he dismiss the case.

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GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (May 31, 2011)

The Girl Scouts of the United States of America is the national Girl Scouts organization. It charters local councils, authorizing them to use the "Girl Scout" mark and sell Girl Scout cookies. One of those councils is the Manitou Counsel in eastern Wisconsin. Several years ago, the national organization decided to reduce the number of local councils. Manitou was one of the councils that would disappear under the reorganization. Manitou brought suit under the Wisconsin Fair Dealership Law. It obtained a preliminary injunction stopping the restructuring. However, on the merits, Judge Stadtmueller (E.D. Wis.) granted summary judgment to the national organization, concluding that applying the Wisconsin law to the national organization would violate their First Amendment freedom of expression rights. Manitou appeals.

In their opinion, Judges Posner, Kanne, and Tinder affirmed in part, reversed in part, and remanded. The Court rejected the First Amendment argument. Although the national organization's activities do include protected expression, that does not mean they are exempt from state laws that have a remote, at worst, impact on that expression. The national organization claims that its First of Amendment protection comes from its attempts to reorganize its structure to become more racially and ethnically diverse. The Court noted that there was actually no evidence in the record connecting diversity with the reorganization. Without that connection, the argument fails. The Court turned to the alternative argument, rejected by the district court, that the national organization's activities do not violate the Wisconsin Fair Dealership Law. The Court first refused to recognize a statutory exemption for non-profits. Next, the Court concluded that the statute required "good cause" to eliminate the council entirely, even though the national organization had the right to alter territory boundaries. They Court wrestled with a definition of "good cause" but ultimately found no need to resolve it. It concluded that: a) the national organization abandoned its argument that business reasons provided the good cause, and b) it found its argument that its expressive activity provided good cause unsupported by the record. The Court also affirmed the dismissal of the common law claims and ordered the reinstatement of the injunction.

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MERCATUS GROUP, LLC v. LAKE FOREST HOSPITAL (May 26, 2011)

Mercatus Group and Evanston Northwestern Healthcare planned to build a medical center in Lake Bluff, Illinois. A short distance away stood Lake Forest Hospital. Threatened by the competition the new medical center would create, the Hospital attempted to stop the project. Its strategy took several forms. First, it lobbied Lake Bluff officials to deny necessary approvals. Second, it encouraged Hospital employees and community members to do the same through a public relations campaign. Third, it disparaged Mercatus to its partner. Fourth, it offered incentives to two practice groups that intended to leave the Hospital, in order to get them to stay. The Hospital's campaign was quite successful. Mercatus never opened the medical center. Instead, it brought suit under the Sherman Act, alleging that the Hospital had monopolized or attempted to monopolize the market for physician services. Judge Manning (N.D. Ill.) dismissed some of the case for failure to state a claim and granted summary judgment to the Hospital on the rest. She concluded that the Hospital’s lobbying activity was protected by the First Amendment and that the other conduct did not violate the antitrust laws. Mercatus appeals.

In their opinion, Judges Bauer, Manion, and Hamilton affirmed. Mercatus concedes that the Noerr-Pennington doctrine would immunize the Hospital’s lobbying efforts if they were truthful, but asserts that they fall within the fraud exception and are not immunized. But the Noerr-Pennington fraud exception only applies to adjudicative proceedings. So the Court proceeded to consider whether the Village Board proceedings were legislative or adjudicative. Before considering the number of factors that bear on that question, the Court noted that it had to tread lightly because the fraud exception was an exception to a doctrine created on constitutional grounds. Ultimately the Court concluded that the Board acted legislatively, not adjudicatively. The Board: a) generally makes policy, b) is ill-equipped to conduct adjudicative proceedings, c) conducts its business informally, d) allows ex parte lobbying activity, e) does not follow rules of evidence or hear testimony under oath, and f) operates with significant discretion. Summary judgment on the claim based on the Hospital’s activities before the Village Board was proper. The Court reached the same result for much the same reason with respect to the public relations campaign. The Hospital’s conduct was protected by the Noerr-Pennington doctrine. With respect to the Hospital’s allegedly false communications with other businesses, the Court concluded that they were not related to the lobbying efforts and not immunized. However, the Court also found an absence of any coercive conduct. Even if the statements were false, they are not actionable under the antitrust law. Finally, with respect to the Hospital’s successful efforts to retain physician groups that had originally decided to leave, the Court found no evidence in the record of any anticompetitive conduct. The Hospital is not required to sit back and allow these groups to leave. They simply did what the Mercatus group did to get them to leave – it offered them incentives.

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DIGITECH COMPUTER v. TRANS-CARE, INC. (May 20, 2011)

When Trans-Care, a medical transportation company, decided to update its software, it approached Digitech. Digitech's first proposal contained a “satisfaction guarantee” – a provision that allowed Trans-Care to walk away from the contract in the first 90 days without paying any licensing fees. Several months later, after much negotiation, Digitech submitted a final agreement, which Trans-Care signed. The final agreement did not include the guarantee, although Trans-Care return the signed agreement with its own purchase order that purported to incorporate earlier proposals and promises. The final agreement also provided that: a) monthly licensing payments began 90 days after installation, b) Digitech could suspend services if payments became 60 days delinquent, c) Digitech could recover attorney's fees incurred in collecting unpaid balances, and d) both parties had to provide notice and an opportunity to cure prior to termination. Digitech completed the software installation on January 1, 2007. Trans-Care experienced substantial problems with the software and gave notice on March 1 that it invoking the 90-day guarantee. Digitech refused to honor the notice and eventually locked the system on April 3 for Trans-Care's payment delinquency. Digitech brought suit for breach of contract -- Trans-Care counterclaimed for fraud. Magistrate Judge Hussmann (S.D. Ind.) granted summary judgment to Digitech on the fraud claim and, at trial, found for Digitech also on its breach of contract claim. The court awarded damages based in part on its view that the contract had 33 months remaining. It also awarded Digitech its attorneys' fees for prosecuting the breach of contract case, but not for defending the counterclaim. Both sides appeal.

In their opinion, Judges Wood, Williams, and Tinder affirmed in part and vacated and remanded in part. The Court first affirmed the dismissal of Trans-Care's claim that Digitech committed fraud when it refused to honor the 90-day provision. The Court focused on the negotiation history. It pointed out that the provision existed in early draft proposals but dropped out during negotiations. The fact that it did not even appear in the final agreement was enough for the Court to conclude there was no fraud. The Court turned to Digitech's breach of contract claim. It concluded that Trans-Care breached the contract when it attempted to walk away from the deal without providing notice and an opportunity to cure. The Court rejected the notion that Trans-Care’s purchase order brought the guarantee back into the contract. The Court did part ways with the magistrate judge on damages, however. The magistrate judge calculated damages based on the remaining contractual term. But the Court noted that Digitech chose to terminate the contract on April 3. Since Trans-Care's licensing fee obligation did not begin until the 90-day period expired on March 31, Digitech is only entitled to licensing fees for the three days in April. With respect to attorneys' fees, the Court agreed that Digitech was not entitled to its fees for defending against the counterclaim since those fees were not incurred in connection with collecting an unpaid balance. Finally, the Court noted that the amount of fees awarded on the breach of contract claim should be reassessed in light of its significant reduction in damages.

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DENIL v. DEBOER, INC. (May 13, 2011)

Ronald DeBoer started a trucking business and managed it for 40 years. Then he decided to retire and sell the business. He entered into an arrangement with Peter Denil and Gerald Nardella, pursuant to which Denil and Nardella were to take over the business and prepare it for sale. DeBoer entered into employment agreements with Denil and Nardella, effective in October 2008. DeBoer had the right to fire either of them with or without cause, but had to pay a penalty if it was without cause. The parties also entered into a stock purchase agreement, pursuant to which Denil and Nardella agreed to purchase a certain amount of the company's stock. Their obligation to buy the stock was expressly conditioned on the execution of a buy-sell agreement, which the parties agreed to use their best efforts to conclude. Failure to conclude the stock purchase was defined in the employment agreement as "cause" for discharge. The parties were unable to conclude negotiations on the buy-sell agreement, Denil and Nardella never purchased the company stock, and DeBoer fired them. He treated it as a firing for cause on the ground that they failed to purchase the stock by the closing date set forth in the agreement. Denil and Nardella brought suit for reinstatement and damages. DeBoer brought a counterclaim for damages it incurred when it issued, and then reversed, a dividend in anticipation of the stock sale proceeds. Judge Crabb (W.D. Wis.) rejected all claims. Both sides appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court first addressed the best efforts clause. It rejected plaintiffs' argument that it amounted to an agreement to agree, which DeBoer violated. Wisconsin law does not honor such agreements. Since the contract did not define the term and neither party presented any evidence of intent, the Court treated it as a commitment to engage in good-faith bargaining -- and concluded that neither side violated it. Since the stock purchase agreement conditioned the obligation on the successful negotiation of the buy-sell agreement, the purchase obligation never arose. But the Court pointed out that the employment agreement did not contain the same condition-precedent language that the stock purchase agreement did. It simply stated that the failure to purchase the stock by the closing date was cause for termination. Denil and Nardella could have purchased the stock and kept their jobs (or at least avoided termination for cause) even though they were not obligated to do so under the stock purchase agreement. The Court also affirmed that the rejection of DeBoer's counterclaim. Denil and Nardella did nothing more than they were entitled to under their contracts. The fact that DeBoer incurred costs in issuing a dividend in anticipation of the stock purchase does not create any liability on their part.

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MARCUS & MILLICHAP INVESTMENT SERVICES OF CHICAGO v. SEKULOVSKI (March 23, 2011)

Marcus & Millichap Real Estate Investment Services (M&M) is a national commercial real estate brokerage firm with subsidiaries operating in several states. The subsidiaries operate independently, as distinct entities, and enter into their own contracts with their salespersons as independent contractors. The subsidiaries are required to incorporate M&M's independent contractor policies into these agreements. Tony Sekulovski worked as a salesperson with M&M’s Ohio subsidiary from 1999 until 2005, when he moved to Chicago and began working with the company's Illinois subsidiary. Contrary to the policy, Sekulovski never entered into a written independent contractor agreement. Salespeople were not paid a salary but were compensated with commissions. Generally, a salesperson and the subsidiary divide project commissions evenly. A salesperson can enjoy up to a 70/30 split, however, as he reaches certain annual sales thresholds. In addition, if more than one salesperson is involved in a deal, they split the salesperson's side of the commission based on an allocation reflecting the contribution each made to the deal. In 2006, Sekulovski and another agent, Mark Luttner, collaborated on many deals. Throughout most of the year, they shared the salespersons' commission equally. Once Sekulovski reached his commissions target, however, they began submitting allocations that attributed a much higher portion of the commission to Sekulovski. M&M claims that he did so in order to increase the salespersons' share of the total commission and that he kicked back an appropriate allocation to Luttner. Smith left M&M Chicago in June 2007. Before he did so, he directed two commissions be paid to him rather than the company. He also later retained commissions for deals that began while he was in Chicago but did not close until later. The company sued Sekulovski for breach of contract, unjust enrichment, conversion, fraud, and tortious interference. Sekulovski counterclaimed for breach of contract, unjust enrichment, unlawful withholding of wages, and tortious interference. At trial, Luttner testified that he and Sekulovski artificially inflated Sekulovski’s allocation in order to maximize the salespersons' commissions. Judge Leinenweber (N.D. Ill.) granted judgment as a matter of law to M&M on Sekulovski’s statutory wage claim and a jury found for M&M and against Sekulovski on all other claims. Sekulovski appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Kanne affirmed. As a preliminary matter, the Court concluded that the parties had an implied contract and that the terms of M&M’s independent contractor policy governed. The Court then addressed Sekulovski’s arguments on appeal, which it placed in four categories: evidentiary rulings, jury instructions, the Illinois Wage Payment and Collections Act, and post-trial motions. The evidentiary objections went principally to the district court's limitation on Sekulovski’s ability to cross-examine Luttner on bias. Although the Court conceded that witness bias is generally admissible for impeachment purposes, it concluded that the district court did not abuse its discretion. The district court found some of it to be of little value, some that would cause confusion, and some that was inadmissible hearsay. The Court added that the jury heard plenty of evidence of Luttner's hostility toward Sekulovski. The only jury instruction objection that Sekulovski preserved was his argument that M&M’s damages should have been calculated based on its loss rather than Sekulovski’s overpayments, arguing that part of the overpayments would have rightfully gone to Luttner. The Court concluded that the appropriate measure of damages was the amount of commissions that Sekulovski received that he would not otherwise have received but for his fraud. With respect to the Wage Payment Act, the Court questioned the district court's finding of fact that Sekulovski was an independent contractor rather than an employee. Notwithstanding its lack of confidence in the district court's rationale, the Court affirmed the dismissal on the basis of the jury's finding that Sekulovski was not due the commissions he claimed were due him under the Act. Finally, the Court found that the district court did not abuse its discretion in denying Sekulovski's post trial motions.

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MERRYMAN EXCAVATION v. INTERNATIONAL UNION OF OPERATING ENGINEERS (March 21, 2011)

Merryman Excavation and Local 150 of the International Union of Operating Engineers entered into a Memorandum of Agreement in 2000. The agreement basically adopted the terms of Local 150's Collective Bargaining Agreement. In addition to setting wages and describing working conditions, the agreement provided that all disputes were to be resolved by an informal process. The final phase of this process was a hearing before the joint grievance committee. The committee is comprised of an equal number of employer and union members. A majority decision of the committee on a dispute is final and non-appealable. On two different occasions in 2006, a joint committee heard a total of 13 grievances initiated against Merryman. Some of the grievances were settled, some resulted in a committee deadlock, and some were resolved in the union's favor. In total, Merryman was ordered to pay almost $100,000. At the two hearings, Merryman objected to the committee's jurisdiction, objected to proceeding with only two voting members on each side, objected to proceeding before an attempt to settle, and objected to "unbiased" committee members on the union side. Merryman brought suit pursuant to § 301 of the Labor Management Relations Act. The complaint alleged violations of the agreement and sought to set aside the awards. Local 150 counterclaimed for enforcement of the awards. Judge Kendall (N.D. Ill.) granted summary judgment to Local 150. Merryman appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Hamilton affirmed. The Court first identified some confusion in the briefing and even in its own jurisprudence. It pointed out that the joint committee proceeding is not an arbitration subject to the Federal Arbitration Act and its impartiality requirements. Rather, it is a creature of contract -- a failure to honor a valid award is simply a breach of contract. The Court categorized Merryman's arguments into three categories: procedural errors, orders to pay the union assistance fund instead of union members, and bias. The Court quickly disposed of the alleged procedural errors. First, most of the alleged "errors" were contract disputes and the joint committee had the absolute authority to resolve them without appeal. Second, with respect to the composition of the committee and whether a quorum was required, the Court concluded that Merryman received all the procedures to which it was entitled under the agreement. With respect to the awards to the assistance fund, the Court also concluded that the issue involved construction of the agreement and was within the joint committee's authority to resolve without appeal. Finally, with respect to bias, the Court conceded that bias is one of the few grounds to attack the decision of a supposedly unbiased arbitrator or panel. But the agreement here does not require a neutral committee members. Instead, it strives to achieve achieves fairness by requiring an equal number of voting members from each camp. There is no evidence that that requirement was not met in this case. Whether any particular voting individual lacked impartiality is irrelevant.

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ACTIVE DISPOSAL v. DARIEN (March 14, 2011)

Many Illinois municipalities have exclusive contracts for waste removal. These contracts limit the choices that consumers of waste removal services have and prevent other waste removal providers from competing for their business. Groups of waste removal companies and businesses wanting more choices banded together and brought suit against these municipalities, alleging violations of federal antitrust laws. Judge Kennelly (N.D. Ill.) dismissed the suit, concluding that the municipalities' actions were protected by the state-action exception to federal antitrust law. The plaintiffs appeal.

In their opinion, Circuit Judges Manion and Williams and District Judge Clevert affirmed. The Court first had to determine the provenance of the municipalities' power to contract with waste haulers. In the Illinois statute governing municipalities’ powers, § 1 (titled "Contracts") grants the power to make contracts relating to the "disposition . . . of garbage." Section 5 (titled "Method Of Disposition") grants the power to dictate an exclusive method for the "disposition of garbage," and adds that items intended to be recycled are not garbage. Plaintiffs argued that the municipality's power to enter into exclusive waste hauling contracts arose from § 5 and that the recycling exclusion prevented an exclusive contract when the waste material included recyclables. The Court rejected that argument for several reasons: a) § 5 never mentions contracts, b) the term "exclusive" refers to disposal methods , not contracts, and c) the titles of the sections are inconsistent with plaintiffs' argument. The Court also rejected plaintiffs' argument that the recycling exclusion in § 5 limited the power granted in § 1. Applying standard rules of statutory construction, the Court concluded that plaintiffs' proposal would lead to confusion, create anomalies, and render certain statutory terms superfluous. Having decided that § 1 covered the municipalities' contracting power, the Court applied the state-action doctrine test. Under that test, the Court asks if the statute authorizes the conduct and whether the anti-competitive effects were foreseeable. Both questions must be answered affirmatively for the state-action exemption to apply. Here, the Court already answered the first question affirmatively -- § 1 authorizes the garbage collection contracts. The Court also answered the second question in the affirmative. The power to contract implies a power to exclusively contract. Garbage collection is a traditional municipal concern. When a legislature grants contract authority to a municipality, it is certainly foreseeable that a municipality will enter into an exclusive contract that will affect competition. The state-action doctrine therefore applies.

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ARLINGTON LF, LLC v. ARLINGTON HOSPITALITY, INC. (March 3, 2011)

Arlington Hospitality, Inc. owned a number of hotels, mostly in the Midwest. Because of financial difficulties, Arlington filed for Chapter 11 bankruptcy in 2005. At about the same time, it entered into an agreement with a special-purpose entity, Arlington LF. Pursuant to the agreement, LF agreed to provide a $6 million revolving loan as well as other financing. Arlington agreed to two fees, "payable immediately" -- a $100,000 commitment fee and a $210,000 funding fee. The bankruptcy court approved the agreement with the caveat that LF had to give Arlington notice of any default and three business days to cure. A few weeks later, after Arlington had drawn down over $3 million of the loan, LF told Arlington's investment banker that it was unwilling to fund additional monies. LF also told the creditors’ committee did it would make no further loans. Only after those statements were made did tell LF actually send Arlington an invoice for the unpaid fees. When Arlington failed to pay, LF sent the required notice of default and gave Arlington three days to cure. Arlington still did not pay. Instead, with the court's approval, it sold its assets to a third party. It repaid the money it had borrowed from LF but not the fees. LF filed a motion in the bankruptcy court for its fees. The bankruptcy court denied the motion, ruling that LF was not entitled to the fees because it was guilty of an anticipatory breach. The district court reversed and remanded. It noted that, because the fees were "payable immediately," Arlington was already in default at the time of the breach. On remand, the bankruptcy court agreed with Arlington that it was not in default before LF’s breach because LF had not provided the required notice and opportunity to cure. It nevertheless felt bound by the district court's earlier opinion and awarded LF $842,000. The district court again reversed. It stated that the bankruptcy court had misunderstood the scope of its earlier ruling. It agreed that Arlington could not have been in default until it had an opportunity to cure. It remanded with instructions to enter judgment for Arlington. LF appeals.

In their opinion, Judges Bauer, Wood, and Williams affirmed. The Court concluded that it was faced with a rather simple question -- who breached the contract first? Under Illinois law, an unequivocal intent not to perform amounts to an anticipatory breach. The Court found no clear error (and, in fact, agreed with) the bankruptcy court's findings that the statements to the investment banker and the creditor's committee constituted just such a breach. Statements to the investment banker, Arlington’s agent, are the same as statements to Arlington. The Court also rejected LF's argument that the Statement of Account that it later sent to Arlington acted as a retraction of its breach. The only "retraction" was one line on the form indicating $2.5 million of available loan commitment. That statement is not sufficiently clear and unequivocal to constitute a retraction of the earlier breach. By the time LF provided the required notice, it was in breach. Its breach discharged Arlington's remaining obligations, including its obligation to pay the fees.

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INTEGRATED GENOMICS v. GERNGROSS (February 24, 2011)

Integrated Genomics is in the business of mapping organisms' genomes and selling the data for commercial and noncommercial uses. In 2000, Tillman Gerngross, a Dartmouth College bioengineering professor, formed a private company to develop commercial uses for the genetic modification of yeast. In 2002, Gerngross sought to obtain a license to use data IG had developed regarding a species of yeast organism. The parties dispute whether Gerngross disclosed that he was seeking a license for commercial, rather than academic, purposes (the district court concluded that he had not). In any event, IG treated him as an academic customer. IG usually charges more to its commercial customers. Gerngross refused to sign IG's standard academic agreement, but did agree to some data publication restrictions. Merck acquired Gerngross’ company in 2006 for $400 million. IG accused Merck of using its data for commercial purposes. When Merck refused to compensate IG more generously, IG filed suit against Gerngross. It alleged that Gerngross fraudulently misrepresented his status when he acquired the license, breached an oral agreement to use the data for academic purposes only, and breach the written agreement that restricted publication. Judge Kennelly (N.D. Ill.) granted summary judgment to Gerngross on the oral contract claim (finding insufficient evidence of a contract), granted summary judgment to Gerngross on the written contract claim (concluding that internal data sharing was not publication), and entered judgment for Gerngross on the fraudulent misrepresentation claim after a bench trial (finding that Gerngross did not misrepresent the purpose of the data and that he had no duty to affirmatively volunteer its purpose, and concluding that IG failed to carry its burden that it would have made a difference). IG appeals the rulings with respect to the written agreement and fraudulent misrepresentation.

In their opinion, Judges Bauer, Rovner, and Hamilton affirmed. With respect to the written contract claim, the Court had to interpret Gerngross’ promise not to "publish" more than a certain amount of data per year. Applying state law, and particularly Illinois' rule to give contracts their plain meaning, the Court concluded that "publish" means disclosure to the public. Therefore, Gerngross’ sharing with Merck did not constitute a publication and was not a breach. With respect to the fraudulent misrepresentation claim, the Court concluded that there was sufficient evidence to support the district court's finding – and also sufficient evidence to support the finding urged by IG. The district court did not commit error in resolving the dispute as it did.

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TRUSTMARK INSURANCE CO. v. JOHN HANCOCK LIFE INSURANCE CO. (U. S. A.) (January 31, 2011)

Trustmark Insurance Company agreed to reinsure certain risks underwritten by John Hancock Life Insurance Company. Their agreement contained a broad arbitration clause. When a dispute arose regarding one of the agreement's exclusions, the companies submitted it to arbitration. The arbitration panel consisted of one person selected by each company and a third person selected by the first two. The panel's award, which was affirmed by district court, supported Hancock. The parties entered into a confidentiality agreement that precluded them from discussing the proceedings or the award. When Trustmark refused to pay, Hancock instituted a second arbitration. Hancock named as its arbitrator the same person who had arbitrated the earlier dispute. The other two arbitrators were not involved in the earlier dispute. After the panel decided that it could consider the evidence and result from the first arbitration, but before it addressed the merits, Trustmark brought suit. It sought to enjoin any further arbitration while Hancock's chosen arbitrator remained on the panel. Its position was that the arbitration clause required "disinterested" arbitrators and that Hancock's arbitrator was not disinterested because of his knowledge of and participation in the first arbitration. Trustmark also argued that the panel could not interpret the confidentiality agreement from the first arbitration because that agreement did not contain its own arbitration clause. Judge Zagel (N.D. Ill.) issued the injunction. Hancock appeals.

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ENBRIDGE PIPELINES (ILLINOIS) L.L.C. v. MOORE (January 24, 2011)

Over 70 years ago, a predecessor to Enbridge Pipelines ("Pipeline") built 120 miles of 10-inch pipeline through central Illinois. The owners of the properties under the surface of which the pipeline ran granted easements for the pipeline "so long as such pipe lines . . . are maintained." When Pipeline acquired it, the line had been inactive for almost 25 years. Pipeline wanted to replace the line with a larger one and extend it by 50 miles. Several landowners objected, claiming that the pipelines were not "maintained," under the easement, and that the easement rights were no longer valid. Pipeline brought 25 different lawsuits in two different district courts in Illinois seeking a declaration that the easements were still in effect. Judge Baker (C.D. Ill.) and Chief Judge Herndon (S.D. Ill.) granted summary judgment to Pipeline in each case that was not settled. A number of the defendants appeal. The Court consolidated the appeals.

In their opinion, Circuit Judges Bauer and Posner and District Judge Pallmeyer affirmed. The Court first addressed the jurisdictional amount requirement, which several of the defendants denied, though without any evidence or argument in support. Pipeline introduced evidence that it would cost far in excess of $75,000 per property to reroute the pipeline. The Court rejected the defendants' theory that Pipeline would not have to reroute but could acquire new easements for less than $75,000 per property. If rerouting the pipeline would cost in excess of $75,000 per property and would also result in significant delays, a rational property owner would demand at least that much. The amount in controversy requirement is satisfied. On the merits, the Court concluded that the easement's use of the word "maintain" is ambiguous. Relying on the economic value of property rights and the undesirability of demanding significant investment simply to preserve those rights, the Court concluded that the more plausible meaning of "maintain" is simply to retain or occupy. Here, the pipeline owners never deliberately abandoned their property rights. They simply chose, as the owner of a property right can, not to use that property right for a period of time. That intention, in conjunction with the considerable maintenance that was performed during that period, is enough to satisfy any reasonable interpretation of "maintain."

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PROTECTIVE LIFE INSURANCE CO. v. HANSEN (January 19, 2011)

B&K Enterprizes, a Wisconsin limited liability company, operated a gasoline service station in Manitowoc, Wisconsin. Richard McDonald was a founding member of B&K and managed the station’s day-to-day affairs. B&K purchased a $1 million life insurance policy on McDonald from Protective Life Insurance Co. It then financed the operations by assigning its interest in the insurance proceeds as security for several loans. After an audit established that McDonald had misappropriated funds from and mismanaged B&K, the other LLC members removed McDonald -- but it was too late. The members hired Michael Culligan to wind up operations and liquidate the company. Culligan submitted a form to Protective to transfer ownership of the insurance policy from B&K to McDonald. Because the policy erroneously identified B&K as a corporation, Protective returned the form to Culligan for a second officer’s signature (one signature was sufficient for an LLC). Culligan never resubmitted the form. Under the impression that he was the new owner of the policy, McDonald submitted a change of beneficiary form substituting Megan Hansen, a woman he had been dating, for B&K. McDonald then committed suicide. Protective filed an interpleader action naming both B&K and Hansen. Judge Griesbach (E.D. Wis.) entered judgment for B&K. Hanson appeals.

In their opinion, Seventh Circuit Judges Bauer, Wood, and Williams affirmed. The Court noted that Hansen presented a multi-layered argument. She first asked that the original contract be reformed to accurately indicate B&K’s status as a limited liability company instead of a corporation. She then asks that Culligan's request to transfer ownership to McDonald be effectuated on the theory that Protective's policy was to grant such a request from a limited liability company on one signature. Finally, she asks to give effect to McDonald's request to change beneficiaries. The Court assumed, without deciding, that Hansen could succeed in reforming the policy to reflect B&K’s accurate corporate form. It rejected, however, her additional requests. Reformation is available only if the document fails to reflect the parties' intent. Hansen's requests to give effect to Culligan’s request to change ownership and McDonald’s request to change beneficiaries do not fit within that legal theory – and the Court could identify no other theory that could achieve Hansen's goals. What matters is what happened – not what Hansen speculates would have happened if the policy properly identified B&K. The Court also rejected Hansen’s third party beneficiary argument. Finally, the Court noted its agreement with the district court's conclusion that reformation, as an equitable remedy, would be inappropriate even if all of its elements were satisfied. Here, the equities heavily favor being B&K and reformation would be improper.

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GREENBERGER v. GEICO GENERAL INSURANCE CO. (January 10, 2011

The day after Stephen Greenberger got into a car accident, a GEICO insurance adjuster inspected his car and gave him a check for over $3200. Greenberger kept the money but never repaired the car. A few months later, in connection with the possible sale of the car, a mechanic estimated that the damage was closer to $5000. Greenberger eventually donated the car to charity. He brought suit against GEICO for breach of contract, fraud, and violation of the Illinois Consumer Fraud and Deceptive Practices Act. His claim is that GEICO purposely understates the value of necessary repairs in its estimates. Although he filed the action as a class action, the court never ruled on class certification. Judge Manning (N.D. Ill) dismissed the statutory fraud claim and granted summary judgment to GEICO on the contract and common law fraud claims. Greenberger appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Circuit Judges Kanne and Sykes affirmed. First, the Court concluded that the breach of contract claim was foreclosed by the Illinois Supreme Court's decision in Avery. That case stands for the proposition that a physical examination of the insured's automobile is necessary to prevail on a claim that one's insurer breached its promise to restore the automobile to its prior condition. Although Avery dealt with an insurer's practice of not using original equipment manufacturer parts, the principle is the same. The Court rejected Greenberger's attempts to distinguish Avery on the ground that he had an actual higher estimate. It also rejected his theory that GEICO failed to meet industry standards. With respect to the former, a higher estimate cannot establish the fact of a breach, although it may be admissible, supporting evidence. With respect to the latter, the Court noted that GEICO's promise was not to repair according to any industry standard. The Court also noted that Greenberger could not prove damages without the automobile. Second, the Court affirmed the district court's dismissal of the statutory fraud claim. The Act prohibits unfair and deceptive practices but does not apply to every simple contract dispute. Again, Avery controls. It held that a deceptive practice must include more than simply a promise and a breach. Here, Greenberger has only that. Finally, the Court addressed the common law fraud claim. That claim fails for the same reason the statutory fraud claim fails. Greenberger cannot identify a fraudulent act other than the breach. The Court noted that the claim also fails to the extent it alleges fraudulent concealment. Fraudulent concealment requires a fiduciary relationship. Insurers are generally not fiduciaries and Greenberger has not alleged with any specificity any reason why they should be considered so here.

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MMG FINANCIAL CORP. v. MIDWEST AMUSEMENTS PARK (January 5, 2011)

Cameron Motorsports entered into a joint venture called Team Hurricane with MMG Financial. Go-karts made in Italy are branded by Cameron and sold by Team Hurricane, while MMG provides financing to the purchasers. Midwest Amusements Park operated a go-cart racetrack in Shawano, Wisconsin. Team America represented to Midwest that Cameron would assemble and break-in the go-karts, as well as supply training materials. Midwest ordered 24 go-karts. MMG sent Midwest a document purporting to represent its oral agreement to finance the purchase. The agreement reflected a 24% annual percentage rate. Midwest never signed the documents. The go-karts were nevertheless delivered. Soon thereafter, Midwest began complaining about the go-karts and about the proposed interest rate. Midwest eventually sent MMG a document reflecting a 12% rate -- MMG never signed that document. Meanwhile, Midwest never made a payment. In mid-2006, MMG sued Midwest for breach of contract. Midwest counterclaimed on the grounds that MMG never paid Cameron and that MMG breached warranties because the go-karts did not work properly. Judge Griesbach (E.D. Wis.) granted summary judgment to MMG on the counterclaim. MMG's breach of contract case went to trial. The jury found for MMG, concluding that there was an oral contract with a 24% interest rate. Midwest appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Flaum, and District Judge Hibbler affirmed. The Court first addressed Midwest's challenge to the court’s award of summary judgment on its counterclaim. The Court agreed with the district court that Midwest's evidence -- statements of its employees describing the statements of Cameron employees -- was "classic hearsay" and properly excluded. Since this was the only evidence Midwest relied on, summary judgment for MMG was proper. Next, the Court addressed Midwest’s affirmative defense that it was entitled to a set off because MMG failed to pay Team Hurricane for the go-karts. Midwest’s theory was that MMG’s failure to pay Team Hurricane resulted in Team Hurricane not addressing the many problems Midwest was having with the go-karts. The problem with Midwest's position is that it relied exclusively on an e-mail from CRG to Cameron. The Court never addressed whether the district court properly excluded that evidence. Instead, it concluded that the e-mail was irrelevant because it bore no relation to MMG's payment of its obligations. Finally, the Court summarily rejected Midwest's arguments regarding the jury instructions, the verdict form, and its motion for a new trial.

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KIMMEL v. WESTERN RESERVE LIFE ASSURANCE CO. (November 23, 2010)

Richard Kimmell submitted an application for a $500,000 life insurance policy to Western Reserve Life Assurance Co. on November 13, 2006. He submitted a $385 premium with the application. The application provided that Western had 60 days to act on the application and, if it did not act, the application would be deemed declined. Kimmel received a conditional receipt from Western. The conditional receipt stated that the conditional coverage would terminate upon Western’s rejection, acceptance, offer of insurance on different terms, or the expiration of 60 days, whichever came first. The 60 day period expired without any action by Western. Kimmel died several weeks later. Western returned Kimmel’s premium and denied his widow June's claim. June Kimmel brought suit against Western. Magistrate Judge Cherry (N.D. Ind.) granted summary judgment to Western. June Kimmel appeals.

In their opinion, Seventh Circuit Judges Manion, Tinder, and Hamilton affirmed. A dispute centered on a life insurance policy is resolved like any other contract dispute. If the contract language is unambiguous, it controls. Here, the express, plain language of the conditional receipt provides conditional coverage for no more than 60 days, unless the company acts otherwise. Kimmel had no reasonable expectation of any broader coverage and the district court was correct in granting summary judgment on the coverage issue. The Court next addressed Kimmell's bad faith claim. Although Indiana law does impose a duty of good faith between an insurer and its insured, the Court did not believe that an Indiana court would impose such a duty between an insured and an applicant for insurance. The Court found Western's cavalier treatment of the application "inexplicable" and "a poor way to run an insurance company," but it concluded that it was not actionable under state law.

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RAIN v. ROLLS-ROYCE CORP. (November 18, 2010)

Among many other things, Rolls-Royce manufactures helicopter engines. A network of authorized repair and overhaul facilities supports that product line. Paramount International, owned by David Rain, competes with Rolls-Royce in the business of selling helicopter engine parts to those facilities. In 2006, Paramount and Rolls-Royce agreed to a non-disparagement clause as part of a lawsuit settlement. It simply stated: "None of the Parties will disparage the other." Rain brought suit in 2007, alleging a breach of the non-disparagement clause. He alleged two independent breaches: a) Rolls-Royce filed a RICO claim against a third party in which it alleged that Paramount and Rain were co-conspirators, and b) Rolls-Royce personnel asked him to leave a customer appreciation event held for its authorized network members, even though he was a guest of one of those members. Judge Lawrence (S.D. Ind.) granted summary judgment to Rolls-Royce, concluding that an Indiana absolute litigation privilege immunized it on the first claim and that the company's conduct with respect to the second claim did not amount to disparagement. Rain and Paramount appeal.

In their opinion, Seventh Circuit Judges Bauer, Flaum, and Hamilton affirmed. The Court first addressed the claims relating to the RICO allegations. Indiana does have an absolute litigation privilege and construes it liberally. It protects all "relevant" statements in the proceedings. Here, the Court concluded that the statements were relevant, given the pleading requirements for a RICO claim. Indiana courts, however, have only applied the privilege in tort liability, not contract liability, cases. With no Indiana authority, the Court looked elsewhere and adopted the rule applied in several other jurisdictions -- that the privilege does apply to contract claims, at least where its use is consistent with the purpose of the privilege. Here, the application of the privilege is consistent with the fair administration of justice and open expression by participants in a judicial proceeding. The Court further concluded that certification of the question was not warranted and affirmed the district court's application of the privilege. With respect to the claim based upon the company's conduct at the customer reception, the Court agreed that an Indiana court would look to a common dictionary definition of disparage -- that is, to dishonor, to unjustly discredit, to detract from one's reputation. The tougher question was whether the term referred to one's commercial reputation only or, as plaintiffs argued, to one's personal reputation. Relying on decisions from other jurisdictions, the Restatement, and the circumstances in which the clause appeared (the settlement of a commercial dispute), the Court concluded that the term should be applied to one's commercial reputation only. Since there was no evidence that Paramount or Rain suffered an injury in that sense, the Court affirmed.

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FEDNAV INTERNATIONAL v. CONTINENTAL INSURANCE CO. (November 1, 2010)

Three shipments of steel made their way across the Atlantic Ocean in 2001 and were delivered at Burns Harbor, Indiana. Each of the shipments was allegedly arrived damaged. Continental Insurance, the steel owner’s subrogee, brought suits against the carrier, Fednav, under the Carriage of Goods by Sea Act. The carrier agreement had a forum selection clause designating the federal district court with jurisdiction at the port of discharge (i.e., Burns Harbor) as the only available forum. Notwithstanding the forum selection clause, Continental filed the three suits in Illinois federal court. The court dismissed for improper venue. The Seventh Circuit affirmed. By that time, the statute of limitations had run and the cases were not refiled. Several years later, Fednav brought suit against Continental on a breach of contract theory. It alleged that Continentals’ breach of the forum selection clause allowed it to recover the costs and attorneys' fees it incurred in the earlier litigation. Judge Darrah (N.D. Ill.) dismissed the complaint as an impermissible attempt to recover attorneys' fees. Fednav appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Hamilton, and District Judge Springmann affirmed. The Court first discussed choice of law. As a diversity case, state law governs substantive issues -- federal law governs procedural issues. Fednav's claim of entitlement to fees is a substantive issue and is therefore governed by state law. Since neither party raised a conflict of law issue, the Court applied the law of Illinois as the law of the state in which it sat. Illinois law generally adheres to the American Rule, under which a litigant bears her own fees and costs unless otherwise provided for by a contract or statute. The Court stated that Fednav cited no such contractual or statutory provision. Therefore, Fednav is not entitled to recover those fees in a breach of contract case. The Court also addressed Fednav’s argument that federal common law permitted recovery of attorneys' fees. It rejected the argument, both because Fednav waived it and because federal common law also recognizes the American Rule.

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THE SMART MARKETING GROUP v. PUBLICATIONS INTERNATIONAL (October 28, 2010)

For years, Publications International operated ConsumerGuide.com, a website that provides free automobile price quotes. In turn, Publications transformed the price quote request into sales leads that they then sold to wholesalers, who turned around and sold them to local automobile dealers. In 2003, Publications decided to revise its business model and sell those sales leads directly to dealers. It turned to The Smart Marketing Group for help. They developed two programs – “Approved” and “Leads & Listings.” In Approved, dealers were designated as "approved" dealerships and obtained certain marketing advantages. Leads & Listings involved the actual delivery of specific sales leads to a dealer every month. Smart and Publications entered into a contract in October of 2003. Although the venture failed miserably, each party (not surprisingly) had a different story. According to Publications, Smart botched the Approved program from the beginning – and its failure put pressure to launch Leads & Listings sooner than it was ready. On the other hand, Smart claim that Approved was a big success and the reason some dealers and did not like it was because of Publication's failure to deliver the promised advantages of the program. Even after the October contract, Publications still had not finished the software necessary to deliver the sales leads. Publications decided to terminate its relationship with Smart. It purported to rely on a "termination for cause" provision in the contract. Smart filed suit for breach of contract. The case eventually went to trial. Because of certain pre-trial rulings, the only significant issue at trial was Smart's damages. Smart asked for $8.8 million. Its expert testified about each of the hundreds of dealer contracts and, making certain assumptions and estimations, projected the amount of lost profit. Although the court rendered him unqualified to testify as an expert, it did allow him to explain his calculations. Publication's experts testified that Smart's expert used unreasonable assumptions and estimations. The jury awarded lost profits of $5.6 million. Publications moved for judgment as a matter of law under Rule 50 (b) and, alternatively, for a new trial under Rule 59. Judge Gottschall (N.D. Ill.) denied the motions. Publications appeals.

In their opinion, Judges Wood, Evans, and Sykes vacated and remanded. Under Illinois law, the Court said, a plaintiff has the burden of proof in showing lost profits to a reasonable degree of certainty. This can sometimes be difficult even for established businesses, but at least they can rely on past profit history. New businesses have an even more formidable task. The Court concluded that the venture at issue was a new business even though Publications and Smart both had prior related experience. Neither, however, had experience in the web-based sales promotion venture they were attempting to create. The Court reviewed Smart’s evidence. It found the it "sorely lacking," "just guesses," "at best predictions," and "unreliable." Nevertheless, it concluded that the district court did not err in denying the Rule 50 (b) motion -- it found it conceivable that the entire record could support some damages for Smart. It did, however, find the verdict excessive under Rule 59 and remanded for a new trial on damages. Given the weaknesses in Smart's evidence, the Court concluded that the amount of the verdict was outside any reasonable range of just compensation. 

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LUMBERMENS MUTUAL CASUALTY CO. v. BROADSPIRE MANAGEMENT SERVICES (October 13, 2010)

Broadspire Management Services purchased an insurance administration business from Lumbermens Mutual Casualty Co. The parties agreed on a purchase price formula tied to the business’ success over the following four years. Under the contract, Broadspire calculated a proposed payment each year and submitted a report to Lumbermens. It used a different contract formula to calculate the expected earnings of any business sold during the first four years and submitted a similar report to Lumbermens. Lumbermens had 90 days to accept the calculation or submit a "Disagreement Notice" with a reasonably detailed basis for its disagreement. The agreement provided for binding arbitration in the event of a disagreement. Lumbermens ultimately disagreed with four Broadspire reports and sought arbitration. Broadspire claimed that the "Disagreement Notices" were deficient and refused to arbitrate. Lumbermens filed a Petition in Aid of Arbitration. Judge Leinenweber (N.D. Ill.) ordered arbitration, concluding that the sufficiency of the notice was a question for the arbitrator. Broadspire appeals.

In their opinion, Justice O'Connor and Judges Williams and Sykes affirmed. The only question before the Court was whether a court or an arbitrator should rule on Broadspire's "insufficient notice" argument. The Court concluded that the Supreme Court's decision in Howsam provided the answer. There, the Supreme Court held that a question relating to a grievance’s timeliness was a "gateway procedural dispute" for the arbitrator. The Seventh Circuit, following Howsam, has distinguished between substantive and procedural questions – the latter being questions for the arbitrator. Employers Insurance held that a consolidation question was a procedural one for the arbitrator. Zürich American likewise held that a question regarding the preclusive effect of a state court judgment was a procedural question for the arbitrator. Here, there is no disagreement regarding the existence of an agreement to arbitrate, which would be decided by a judge. The only disagreement is a procedural one and is properly in the hands of the arbitrator.

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COGSWELL v. CITIFINANCIAL MORTGAGE CO. (October 5, 2010)

In January 2001, the Patrick Group (PG) purchased a mortgage (and the underlying note) from CitiFinancial Mortgage Co. However, CitiFinancial could not locate the original note or mortgage. It gave PG a copy of the mortgage but could not locate even a copy of the note. PG ran into complications when it substituted for CitiFinancial in the pending foreclosure proceeding. A title search disclosed a gap in the recorded ownership of the mortgage. Because PG could not produce even a copy of the note, the court directed a verdict against PG. The appellate court affirmed. PG then brought suit for breach of contract against CitiFinancial. Judge Norgle (N.D. Ill.) granted summary judgment to CitiFinancial, concluding that the agreement did not require transfer of the note and that, even if it did, CitiFinancial’s failure to transfer was not the cause of PG's damages. PG appeals.

In their opinion, Judges Flaum, Ripple, and Sykes reversed and remanded. The Court first addressed whether the contract required the physical transfer of the note. The Court took issue with the district court's treatment of this as a question of law, as if it were a question regarding the existence of a contract. Here, there is no doubt that a contract exists. The only question concerns its terms -- and that is a question of fact. Relying on PG's offer letter, the contract itself, and an uncontested affidavit, the Court concluded that the contract was ambiguous. Although the district court's reading of the contract was plausible, it is not the only reasonable reading. The district court improperly resolved this factual dispute on summary judgment. It must go to a trier of fact. The Court turned to causation. Again, the Court disagreed with the district court and its holding that the failure to transfer was not the cause of damages because PG could have enforced its rights on alternative paths. The Court stated that Illinois applies a special rule to breach of contract cases when the alleged harm is a result of an adverse judicial outcome. In those cases, causation is a question of law and depends on an analysis of what a reasonable court would have done had the defendant not breached the contract. Here, the Court concluded that a reasonable Illinois court would have allowed PG to proceed with the foreclosure if it had a copy of the note. Thus, CitiFinancial's breach caused PG's damages. The Court also rejected CitiFinancial’s alternative paths argument, although it first re-categorized the arguments as "failed to mitigate," rather than failed to prove causation. It held that, under Illinois foreclosure law, a reasonable court would have ruled against PG on both the lost-note affidavit and the personal judgment theories.

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SPIVEY v. ADAPTIVE MARKETING (September 20, 2010)

Quinten Spivey ordered a diet product over the telephone from Adaptive Marketing in early 2003. Adaptive Marketing claims that its representative continued the conversation and told Spivey that she would send him a "risk free" 30-day membership in HomeWorks (apparently some kind of retail discount program), that he could cancel the membership within 30 days, that he would be billed $96 per year if he did not cancel, and that the membership would renew automatically each year. Spivey, on the other hand, claims that he does not recall the conversation and that he never received membership materials (or, if he did, that they were designed to look like junk mail). In any event, Adaptive Marketing charged Spivey's credit card $96.00 in 2003, $149.95 in 2004, $199.95 in 2005, $199.95 in 2006, and an unknown amount in 2007. Each charge was shown as "HomeWorks" and included a reference telephone number. Spivey brought suit for breach of contract and unjust enrichment. Judge Reagan (S.D. Ill.) granted summary judgment to Adaptive Marketing on the contract claim concluding, in the alternative, that a) there was both an oral and written contract that Adaptive Marketing did not breach, and b) Spivey's claim is barred by the voluntary payment doctrine. The court also granted summary judgment on the unjust enrichment claim on the alternative bases that a) unjust enrichment is not available where a contract exists, and b) recovery is barred by the voluntary payment doctrine. Spivey appeals.

In their opinion, Associate Justice (Ret.) O'Connor and Circuit Judges Kanne and Rover affirmed. The Court did not address the contract theories, resting its holding solely on the voluntary payment doctrine. Under that doctrine, one cannot recover money that has been paid under a claim of right even if paid under a mistake of law, unless there is fraud, coercion or a mistake of fact. Spivey asserts a mistake of fact -- that he assumed for four years but the charges related to purchases made by his wife (she is a teacher and he thought a charge for “HomeWork” must be hers). The Court rejected the mistake of fact claim: each charge was properly identified and included a telephone number, each charge listed the name of the product that he was given in the original telephone call, he never asked his wife about the charges, and he never called the number on his credit card statement about the charges. Illinois law does not accept a mistake of fact claim when the true facts are not obscured and the mistake is a result of the plaintiff's failure to investigate or inquire.

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TEMME v. BEMIS CO. (September 13, 2010)

Hayssen Manufacturing Company operated a facility in Sheboygan, Wisconsin until 1985. A strike during the summer of that year led to the company's decision to close the plant. The company and the union representing its workers entered into a Plant Closing Agreement (the “Agreement”). The agreement terminated the strike, all employment relationships, and the union bargaining relationship. It also addressed employee benefits. With respect to health benefits, it provided that terminated employees who were not eligible for or who did not apply for retirement benefits could continue their medical coverage for 12 months, or until they were covered by another plan, by paying the full monthly premiums. It further provided that individuals who qualified and elected to retire were eligible for retired employee medical benefits. Although the agreement did not define the scope of "retired employee medical benefits," the final Collective Bargaining Agreement (CBA) did. Among other terms, it provided for: a) two $50 deductibles per year, b) 100% prescription drug coverage, and c) dependent spouse coverage after the death of a retiree. The company provided those benefits, even after being acquired by Bemis Company, until 2004. In 2005, the deductible was increased to $250. In 2007, prescription drug coverage was eliminated. A class action was filed on behalf of the retirees. Judge Stadtmueller (E.D. Wis.) certified the class and granted summary judgment to Bemis. The class appeals.

In their opinion, Circuit Judges Kanne and Williams and District Judge Springmann reversed and remanded. The Court laid out several principles of contract interpretation: a) if a contract is not ambiguous, there is no need for external evidence, b) contract terms are given their ordinary meaning, c) a contract is read as a whole and in conjunction with related documents, and d) welfare benefits contracts are presumed not to create a lifetime vested benefit unless specifically provided. Applying those principles, the Court looked to both the Agreement and the CBA. It rejected Bemis’ argument that the CBA was extrinsic evidence, citing language in the Agreement expressly permitting reference to the CBA "to effectuate the provisions" of the Agreement. Reading the agreements together, the Court concluded that they unambiguously provided retired employees with health benefits. Bemis further argued, however, that any benefits were not vested for life. The Court disagreed, noting that the presumption against vesting is not as strong in a plant closing agreement as it is in, for example, a short-term collective bargaining agreement. It found several indicia of an intent to vest. It identified the "stark contrast" between the terminated employee and retired employee benefits. The retired employee benefits do not have an end date, as do those for the terminated employees. In addition, the provision granting coverage to spouses after the death of a retiree strongly implied an intent to vest lifetime coverage. Although the Court concluded that the Agreement provided for lifetime medical benefits (and it reversed summary judgment in Bemis' favor), it did not conclude that Bemis breached the agreement. The Court found questions of fact regarding whether any changes could be made to the lifetime coverage and the impact, if any, of a reservation of rights clause in the underlying insurance contract. The Court remanded for further determinations. 

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BODUM USA v. LA CAFETIERE, INC. (September 2, 2010)

In 1991, Bodum Holding purchased the stock of a French company whose principal product was a french-press coffeemaker sold under the name “Chambord.” One of the principal investors in the French company also owned Household, a British company that sold a very similar looking French-press coffeemaker under the “La Cafetiere” name. The parties negotiated over Household's ability to continue selling its coffeemaker after the sale. An early draft of the sales agreement allowed it to sell the La Cafetiere only in England. The later, signed version allowed it to sell the La Cafetiere anywhere in the world except France. In 2006, Household began distributing the La Cafetiere in the United States. Bodum filed suit under state and federal law. Judge Kennelly (N.D. Ill.) granted summary judgment to Household. Bodum appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner (concurring) and Wood (concurring) affirmed. The only issue the Court addressed was the meaning of the contract, which was governed by French law. Although FRCP 44.1 allows the use of expert testimony as an aid to the interpretation of foreign law, the Court criticized the practice. Instead, it noted its preference for treatises. Here, the Court relied on the plain language of the contract and its "straightforward" negotiation history in concluding that Household was within its rights to sell its product in the United States. It rejected Bodum's argument that a provision in the French Civil Code required a trial to determine the actual intent of the parties.

Judge Posner agreed with the disposition on the merits but wrote a separate concurrence even more critical than Chief Judge Easterbrook of the practice of using experts to aid the court in foreign law interpretation. In his judgment, courts should rarely rely on expert testimony for the meaning of foreign law. Judge Posner has expressed this view in the past, as well (see his opinion in Sunstar, Inc. v. Alberto-Culver Co. - and my post).

Judge Wood also agreed with the disposition of the case on the merits and also wrote separately on the subject of Rule 44.1. Judge Wood, however, disagreed with the harsh criticism from her colleagues. In her judgment, experts are frequently necessary to ensure that a district court judge completely understands the nuances of foreign law.

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METAVANTE CORP. v. EMIGRANT SAVINGS BANK (August 30, 2010)

Emigrant Savings Bank wanted to expand its operations by launching an on-line bank. In early 2004, Emigrant met with Metavante Corp. The Metavante team presented its system, emphasizing its ability to service a great number of accounts. The Emigrant team knew that certain capabilities were still being developed and that the system lacked some desired traits. Nevertheless, Metavante submitted a proposal referencing existing clients and indicated that its product was in current use. It even identified Capital One as a client reference. The parties negotiated an agreement over the next several months and signed it in August. Under the agreement, Metavante was to provide electronic banking and funds transfer services. Metavante warranted that it would provide those services in a "commercially reasonable manner." Certain services were exempt from the warranty because they contained their own service-level target measurements. Finally, the agreement allowed termination for cause (but with broad cure rights), termination for convenience (for a fee), and termination for convenience and migrating the process to an in-house solution (with a lower termination fee). The program went live in early 2005. It had many flaws – for example, it could not ensure that a customer had sufficient funds to make a particular transfer, it generated error messages, it could not complete online applications, and it failed to process some transactions. On the other hand, Emigrant landed 250,000 new accounts and over $6 billion in deposits. It advertised its bank as "the most successful" bank of its type. Metavante brought suit against Emigrant in September 2005 and gave notice of termination for non-payment. Emigrant objected but made the payments. Several months later, Metavante again gave notice of termination for nonpayment. Emigrant countered that it was terminating for cause for Metavante 's "flawed and inadequate" performance. Metavante amended its complaint to add breach of contract claims. Emigrant counterclaimed for fraud in the inducement. After a bench trial, Judge Stadtmueller (E.D. Wis.) ruled that Metavante had not materially breached the contract but awarded the lower termination fee, finding that Emigrant had migrated the system to an in-house solution. The court also awarded approximately $10 million in attorneys' fees to Metavante. Emigrant appeals.

In their opinion, Judges Ripple, Manion, and Tinder affirmed. First, although criticizing the district court for its oral decision and verbatim adoption of many of Metavante 's proposed findings of fact, the Court declined Emigrant's invitation to apply a less deferential standard of review. Second, although criticizing the district court for its inadequate reliability determination with respect to Metavante's expert, its de novo review led it to conclude that the testimony was relevant and reliable. Third, with respect to whether Metavante breached its "commercially reasonable" warranty, the Court concluded that the district court did not err in considering the venture's success as probative evidence. Although a venture's success may not conclusively establish the commercial reasonableness of a party's performance, a court is certainly entitled to consider it. Here, the district court considered it as one factor, albeit a significant one, of many. Fourth, the Court found no clear error in the district court's finding of commercial reasonableness. The Court specifically cited the working relationship between the parties, the fact that both parties understood they were dealing with a new technology, and the fact that Metavante undertook diligent efforts to correct problems when they occurred. Fifth, the Court concluded that the record supported the district court's conclusion that there was no breach of the implied duty of good faith and fair dealing. Sixth, with respect to Emigrant's fraud claims, the Court found that Emigrant failed to prove reliance or falsity. The Court concluded that it was unreasonable for Emigrant to rely on any of the early "sales pitch" statements, given that these two sophisticated businesses proceeded to negotiate over several months a complex arms-length transaction. The negotiation process and the contract itself made the expectations and capabilities of the parties very clear -- Emigrant may not rely on any earlier inconsistent statements. With respect to falsity, the Court concluded that the district court did not err in its finding that none of the representations at issue amounted to fraud. Finally, the Court turned to the fee award. Several issues were presented related to the fee award. The fee shifting provision in the contract provided that the "prevailing party" is entitled to fees. The Court concluded that Emigrant's partial success in the court's awarding of the $3.8 million lower termination fee instead of the $20.7 million higher termination fee did not make it a prevailing party on that issue and entitle it to fees. The Court also concluded that the submission of redacted bills was sufficient under Medcom. Although a request for fees must be reasonable under a fee shifting provision, the Court noted that market considerations normally render unnecessary line by line scrutiny of individual time entries. The district court acted within its discretion in awarding the fees.

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REXAM BEVERAGE CAN CO. v. BOLGER (August 24, 2010)

Almost 50 years ago, David Bolger constructed a warehouse near Rockford, Illinois and leased it to Rexam Beverage Can Company. In 2005, Rexam attempted to renew the lease for another five-year term, but failed to give the requisite notice. Bolger advised Rexam that it would have to vacate the premises at the expiration of the lease in March of 2006. Bolger also requested that certain repairs be made. Rexam did not vacate the premises. Instead, it filed a declaratory judgment action. It also continued to pay all utilities and rent, although Bolger returned the rent checks. Eventually, Rexam found a new home, made some repairs to the Rockford warehouse, and returned possession to Bolger at the end of August, 2007. Although Rexam made significant repairs to the warehouse, it did not replace the roof as Bolger had requested. The roof repair estimate was approximately $400,000. Bolger sold the property within several months without replacing the roof. Shortly before Rexam vacated the warehouse, Judge Ashman (N.D. Ill.) ruled on the declaratory judgment action. He concluded that Rexam did not meet the lease's renewal notice requirements and that its continued occupation of the warehouse was "willful" under Illinois' Holdover Statute. After a bench trial, the court found for Bolger and awarded $1.1 million for the holdover, $400,000 for the roof replacement, $20,000 for other repairs, and over $800,000 in attorneys' fees. Rexam appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Tinder affirmed in part and vacated and remanded in part. The Court first addressed Rexam's liability for roof repairs under the lease. Under Illinois law, the lease is like any other contract and, if unambiguous, will be applied according to its terms. Using that analysis, the Court concluded that the lease language ("Lessor shall have no obligation with respect to the maintenance and repair . . .” and "Lessee shall be solely responsible . . . for keeping all of the [buildings] in good condition, order and repair, including all structural and extraordinary changes . . .") was unambiguous and placed the contractual burden of roof repairs on Rexam. With respect to damages for the roof, which the district court fixed at the estimated repair costs, the Court noted that Illinois law limits damages in such a situation to the diminution in property value. If the repair cost exceeds diminution in value, only the latter is awarded. The district court was presented with conflicting evidence on this issue and determined that the two measurements of damages were equal. The Court found no clear error. The Court turned to the award of damages under the Holdover Statute. It first concluded that there was no clear error in the district court's factual finding that the holdover was willful. Although the statute does not define willful, the Court relied on an intermediate Illinois case that rejected a "bad faith" test and instead adopted a test that excuses a tenant who remains in possession for a "colorably justifiable" reason. The Court agreed with the district court's conclusion that Rexam's holdover was not justifiable. With respect to damages, the statute assesses a penalty of "double the yearly value of the lands." The district court based its award on expert testimony establishing the monthly gross rental rate of the warehouse. The Court concluded that the use of the gross rental rate to measure damages was incorrect. Relying on the plain language of the statute, the intent of the legislation, and the dictionary definitions of "annual value" and "land," the Court concluded that holdover damages should be based on net rental value instead of gross rental value. The Court remanded for a determination of net rental value. Finally, the Court turned to the award of attorneys’ fees. Litigants in Illinois are generally responsible for their own attorneys' fees unless a statute or contract provides otherwise. The Court agreed with the district court's conclusion that the lease in question provided a basis for Bolger to recover fees associated with the repair issues but not the holdover issue. Fees for the holdover issue were not covered because the fee provision was limited to claims arising during the lease term. By its very nature, the holdover claim did not arise during of the lease term. The Court next rejected Rexam's argument that Bolger should be limited to recovering fees on those repair claims on which he was successful. The language of the lease's fee provision did not require success. With respect to the district court's efforts to disentangle fees associated with the repair issues and the holdover issues, the Court found no abuse of discretion although it did not endorse the district court's rather superficial approach.

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SUPERL SEQUOIA LIMITED v. THE CARLSON CO. (August 11, 2010)

In preparation for a Martha Stewart promotion, Macy's solicited bids for the furniture required to create the promotion settings and its installation. Carlson Company, a Wisconsin furniture manufacturer, wanted to bid but lacked sufficient capacity. Superl Sequoia, a Hong Kong manufacturer, and Carlson agreed to work together. Sequoia agreed to provide most of the furniture -- Carlson agreed to install the furniture and to fix or replace furniture, as necessary. They also agreed to split the profits 50-50. Sequoia quoted a $3.4 million price to Carlson. Carlson marked up the quote, added its anticipated cost, and submitted a $5 million bid. Macy's accepted the bid, was satisfied with the work, and paid the invoice. Carlson only paid Sequoia $2 million, however, claiming that it spent more on replacements and repairs for late or substandard furniture than it had anticipated. Sequoia brought an action for breach of contract. Judge Crabb (W.D. Wis.) concluded that Sequoia breached the contract because of late and substandard deliveries and that Carlson could recover its replacement and repair costs. She then held a bench trial to calculate those costs. She disregarded the $3.4 million quote, instead demanding that Sequoia provide evidence of its actual costs. At trial, the court first concluded that Sequoia's costs were $2.2 million and that Carlson's were $.4 million -- entitling each to approximately $1.15 million in profit. But the court then added that Carlson was entitled to an additional $1.16 million to cover its extra expenses and entered judgment for Carlson for approximately $10,000. Sequoia appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Kanne, and District Judge Kennelly vacated and remanded. The Court first concluded that the district court's calculations of damage amounts were not clearly erroneous. On the other hand, the Court questioned two legal decisions of the trial court. The first was the court's allowance of the $1.16 million in replacement and repair costs to Carlson, which was calculated to include overhead and profit. Although the agreement of the parties was documented in a group of e-mails without a formal contract, the Court concluded that the parties agreed that only Carlson's out-of-pocket repair and replacement costs were recoverable. The second legal decision addressed by the Court was the district court's treatment of the $3.4 million bid. Again interpreting a number of e-mails documenting the agreement with some difficulty, the Court disagreed with that treatment. First, the Court noted that Carlson accepted the quote long before the relevant e-mail exchange. The quote was the basis upon which Sequoia joined the venture -- Carlson cannot retroactively ignore it. Second, the quote was given as a fixed amount -- both the floor and the ceiling on Sequoia's costs. The later e-mails should not be viewed as fundamentally changing the structure of the deal. The Court remanded with instructions to the district court to recalculate the judgment.

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ROCK ENERGY COOPERATIVE v. VILLAGE OF ROCKTON (AUGUST 10, 2010)

Rock Energy Cooperative, a Wisconsin-based utility, and the Village of Rockton, Illinois were both interested when Alliant Energy announced its desire to sell certain power transmission assets. Rock Energy submitted a bid. Rockton voters approved a referendum authorizing the Village’s purchase of the assets. Rock Energy and the Village entered into an agreement that addresses a possible sale of the assets by Rock Energy to the Village. Rock Energy then purchased the assets from Alliant. On several occasions between 2007 and 2009, the Village repeated its desire to obtain the assets and even threatened to use the power of eminent domain. Rock Energy brought suit, seeking a declaratory judgment that Rockton violated state law in its referendum process and was not entitled to purchase the assets. Rockton, for its part, brought suit in state court seeking specific performance of the contract. The state court dismissed the suit with prejudice, concluding that the lack of a price term or formula in the agreement precluded an order of specific performance. Judge Kapala (W.D. Ill.) dismissed the suit, holding that Rock Energy lacked standing to challenge the referendum process. He also concluded that a forum selection clause in the agreement made venue improper for any claim Rock Energy was asserting under the agreement. Rock Energy appeals.

In their opinion, Judges Flaum, Rovner, and Wood affirmed. The Supreme Court has held that Article III of the Constitution, particularly in the declaratory judgment context, requires a substantial controversy "of sufficient immediacy and reality" to warrant declaratory relief. The Court applied that principle to both threats to Rock Energy -- eminent domain and the contract. With respect to eminent domain, the Court concluded that the record contained no evidence that such a proceeding was imminent. In fact, to the contrary, the only actions the Village has taken in years are a few letters indicating their interest in condemnation. The Court also noted that the lack of any hardship to Rock Energy would stand in the way of its pre-enforcement challenge. The Court also concluded that the contract claim could not meet the Supreme Court's test. A state court has found the contract unenforceable, it contains a facially valid choice of forum clause, and Rockton has disclaimed its desire to rely on the contract. The case is not appropriate for declaratory relief under either theory.

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YOUNG v. VERIZON'S BELL ATLANTIC CASH BALANCE PLAN (AUGUST 10, 2010)

In 1996, Bell Atlantic replaced its Bell Atlantic Management Pension Plan, a defined annuity pension plan, with the Bell Atlantic Cash Balance Plan. The old pension plan included a lump sum option for certain employees that used an enhanced discount rate. The new Plan contained provision for converting employees' benefits from the pension plan to the new Plan. One key to the conversion was an employee's "transition factor." The transition factor was a multiplier that increased as an employee's age and years of service increased. Unfortunately for Bell Atlantic, the Plan's formula for computing an employee's opening balance contained the transition factor twice. The Plan Summary and all communications to employees described the formula correctly -- using the transition factor only once. The company also recognized the error and corrected it in a 1998 version of the Plan. Cynthia Young retired in 1997 after 32 years of service. After receiving her lump sum benefit, Young sought administrative review. She made two claims: that the company failed to apply the transition factor twice and that the company improperly applied the enhanced discount rate from the earlier pension plan. The company denied Young's claim. Young filed suit pursuant to ERISA § 502(a). The company counterclaimed for equitable reformation to correct the "scrivener's error." Magistrate Judge Denlow (N.D. Ill.) upheld the company's denial of the discount rate claim as not arbitrary and capricious and granted the equitable reformation counterclaim. Young appeals.

In their opinion, Judges Bauer, Flaum, and Tinder affirmed. The Court first addressed both party's statute of limitations arguments. The parties and the Court agreed that Pennsylvania's four-year limitations period applies. At issue was when the claims accrued. The Court concluded that the complaint and counterclaims were both timely. Young's claim did not accrue until she had a "clear repudiation" of her demand, which occurred in 2005. Although the company knew about the drafting mistake in 1997, the Court concluded that its claim for reformation did not accrue at that time. It was not on notice of the need to reform because it had always treated the second transition factor inclusion as a mistake. It paid benefits and communicated with its employees on that basis. It corrected the mistake and no one complained until Young brought suit. On the merits, the Court noted that § 502(a)(3) of ERISA permits "appropriate equitable relief." Although the Court has never addressed the propriety of equitable reformation, other circuits have and have either concluded that it is available or at least not foreclosed. Relying on those cases and the Court's own cases on ambiguous plan language, the Court concluded that equitable reformation is permitted when there is clear and convincing evidence of a scrivener’s error that does not reflect participants' reasonable expectations. The Court found such evidence present here. It relied on the drafting history, the communications and course of dealing between the company and its employees, the plan statements to participants, and the lack of any complaint until Young. The Court then considered and rejected the traditional equitable defenses raised by Young (good faith, unclean hands, and laches). Finally, the Court used principles of contract construction and interpretation, particularly that specific provisions control general provision, to reject Young's enhanced discount rate claim. The Court found that the most reasonable reading of the Plan required the enhanced rate.

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IN RE: AIRADIGM COMMUNICATIONS, INC. (August 4, 2010)

Airadigm Communications' principal assets when it petitioned for bankruptcy in 1999 were fifteen mobile phone service licenses issued by the FCC. Pursuant to regulation, the FCC revoked the licenses and Airadigm's 2000 reorganization plan treated them as if they were not part of the bankruptcy estate. It did, however, petition for reinstatement of the licenses. The plan provided alternative treatment for the claims of two major creditors (Oneida and Ericsson), depending on whether the licenses were reinstated. Payment of both claims was going to be financed by loans from Telephone and Data Systems, Inc. ("TDS") -- and the claims have since been assigned to TDS. TDS also advanced additional funds directly to Airadigm pursuant to three loans. Each of the loans was to be repaid by collateral surrender. Several years after the reorganization plan was confirmed, the Supreme Court held that the FCC's license revocation rule was invalid. The FCC then denied Airadigm's motion for reinstatement as moot. Airadigm filed a new petition for bankruptcy protection in 2006. The FCC objected, arguing that the 2000 reorganization plan should be modified instead. The parties entered into a stipulation pursuant to which the new petition was recognized. Among other things, the stipulation provided that the 1999 "Allowed Claim(s)" of the FCC, TDS as assignee, and TDS would be allowed in the 2006 bankruptcy. The bankruptcy judge thought the stipulation was unclear and invited the parties to make the intent of the stipulation more clear, but they did not. TDS filed three claims in the 2006 bankruptcy (one each for the direct loans, the Oneida assigned claim, and the Ericsson assigned claim). The FCC objected to them all. The bankruptcy court allowed the claims based on the direct loans and the Ericsson assignment, and disallowed the claim based on the Oneida assignment. Judge Crabb (W.D. Wis.) reversed with respect to the Oneida assignment and allowed all of TDS's claims. The FCC appeals.

In their opinion, Circuit Judges Kanne and Evans and District Judge Dow affirmed in part and reversed in part. The Court first addressed the standard of review. It noted that it would consider matters of law de novo, but that it would grant much deference to the bankruptcy court's interpretation of the 2000 plan. It treated the interpretation of the plan like a court’s interpretation of its own order. On the merits, the Court turned to the claim on the direct loans. First, it concluded that the FCC did not preserve its argument that the claim should be disallowed because the financing arrangement was an asset sale agreement, not a loan. Next, it concluded that the parties' stipulation barred the FCC from proceeding on its argument that the advances should be recharacterized as equity. Although the stipulation was subject to multiple readings, the Court concluded that the best reading, particularly in light of the "last antecedent rule," allowed the FCC to contest only the amount of the loan and the interest calculation. Particularly in light of the FCC's failure to bring forth any extrinsic evidence that supported its interpretation of the stipulation, the Court affirmed the allowance of the direct loans claim. Alternatively, even if the FCC's challenge were allowed, the Court noted that the record did not support a claim for recharacterization. The Court next addressed the Oneida assignment claim. It agreed with the bankruptcy court that the FCC's objection to this claim should be sustained for two reasons. First, it concluded that the bankruptcy court's interpretation of the "thorny" issues presented by the plan and the Supreme Court's decision was not an abuse of discretion. Second, it concluded that TDS was judicially estopped from arguing otherwise. In earlier proceedings, TDS had successfully defeated Oneida's motion to fund its claim. Its later position is diametrically opposed to its successful argument at that time and there is no reasonable justification for their change in position. Finally, with respect to the Ericsson assigned claim, the Court affirmed the allowance of the claim. Unlike the Oneida claim, the 2000 plan did not extinguish Ericsson's rights. In fact, the plan specifically provided that Ericsson retained its liens on terminated licenses. That right survived the 2000 plan and supports a claim in the 2006 bankruptcy.

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JANIGA v. QUESTAR CAPITAL CORP. (August 2, 2010)

Alfred Janiga has lived and worked in the United States for over 20 years since his arrival from Poland. However, he still understands very little English. His brother, Weislaw Hessek, operates Hessek Financial Services and is a registered representative of Questar Capital Corp. After much prodding from Hessek, Janiga agreed to open a Questar account. He signed one piece of paper and claims that he never saw any of the documents related to his account. Just above his signature, however, in large letters, was a reference to an arbitration agreement in the contract and an admission that he had received a copy. Janiga was originally content with his investment. In fact, he increased his investment after a few months. After about a year, Janiga filed a complaint against his brother and Questar. His complaint included counts of securities violations, negligence, fraud, and others. The defendants moved to stay the proceedings and order arbitration. Judge Shadur (N.D. Ill.) denied the motions without prejudice until he determined whether a contract had even been formed. The defendants appeal.

In their opinion, Judges Wood, Evans, and Sykes reversed and remanded. The Court first commented on its appellate jurisdiction. Although the decision of the district court was not a final decision, the Federal Arbitration Act allows for an interlocutory appeal of the district court's refusal to stay and order arbitration. The Court turned to the merits -- whether the threshold question of the existence of a contract is a question for the court or the arbitrator. The Supreme Court has distinguished between challenges to the validity of an arbitration agreement and challenges to the validity of a contract. A court decides the former; the arbitrator decides the latter. At the time of the district court’s opinion (and even oral argument), the Supreme Court had not decided which decided the contract formation issue. On June 24, 2010, in the Granite Rock Co. case, the Supreme Court held that a courts, not an arbitrator, should decide issues of contract formation. The district court was therefore correct in not referring that issue to arbitration. The Court did take issue with the lower court's hesitation to decide the issue. The district court focused on issues such as Janiga's language barriers, whether he understood or read or even saw the contract, and whether the contract was valid under state law. But these are enforceability issues, said the Court. The fundamental point is that Janiga signed the contract and both parties performed under it for a year. Janiga clearly intended to open a brokerage account and his admittedly voluntary signature is evidence of his assent to the agreement. Contract formation has been established -- other questions may remain for the arbitrator. The Court was less confident of the resolution of the formation issue with respect to Hessek. If Hessek is an agent of Questar and the claims asserted are within the scope of that agency, he may receive the benefit of the arbitration agreement. Since the district court never addressed that issue, the Court remanded for further consideration.

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ALLIANCE 3PL CORP. v. NEW PRIME, INC. (August 2, 2010)

Loders Croklaan USA produces fats and oils used in the food industry. Until 2003, the company dealt directly with trucking companies to transport its product to its customers. One of the companies with whom it had such a relationship was New Prime, Inc. In 2003, Loders retained Alliance 3PL Corp., a transportation management services company, to manage its transportation needs. In turn, Alliance entered into a contract with New Prime to continue transporting Loder's products. The contract contained a back-solicitation clause which prohibited New Prime from soliciting any “traffic” from a company which it first learned about through Alliance. When Loders' contract with Alliance ended, New Prime submitted a successful bid directly to Loders. Alliance brought suit against New Prime for breach of the back-solicitation clause. A jury awarded Alliance $2.2 million in damages. Judge Bucklo (N.D. Ill.) denied New Prime's Rule 50 and 59 motions. New Prime appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Rovner reversed. The basic facts were not in dispute. The parties agreed that New Prime had a relationship with Loders before being retained by Alliance and that the amount of business available to New Prime increased during the Alliance era. The Court noted that the dispute arose regarding the meaning of the word "traffic" in the back-solicitation clause. The district court judge concluded that the word was ambiguous and allowed the jury to decide which meeting to apply. New Prime relied on the ordinary definition of the word in conjunction with the purpose behind the back-solicitation clause to conclude that, since it knew of the company and its general transportation needs before its contract with Alliance, it did not breach the clause. The Court found this position supported by Illinois restrictive covenant law. The Court added that a party that wants to divert from the normal definition of the term can do so with either parol or trade usage evidence -- and Alliance did neither. There is therefore no record support for Alliance's position that "traffic" should be defined as "amount of traffic" in order to hold New Prime liable.

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LOUIS AND KAREN METRO FAMILY, LLC v. LAWRENCEBURG CONSERVANCY DISTRICT (July 29, 2010)

Louis and Karen Metro Family, LLC is a limited liability company owned by Louis and Karen Metro. The company owns a number of parcels of property in Ohio and Indiana. One such parcel sat on a bank of Tanners Creek and was home to a pizza parlor. Because Tanners Creek had a long history of flooding, the City of Lawrenceburg and the Lawrenceburg Conservancy District agreed to jointly build a floodwall along the creek. The District notified Metro Family of its intent to acquire the Tanner Creek property through eminent domain. It offered $417,000 -- the appraised fair market value. Metro Family refused the offer but eventually agreed on the sale of the property for $417,000 plus an irrevocable option to purchase 1.4 acres back for $269,490. The option was exercisable for 18 months after completion of the floodwall. Unfortunately, the floodwall was never built. The City withdrew from the project and the District could not complete it on its own. The District conveyed the Metro Family parcel to the City. The property was converted to highway use. Metro Family brought suit against the City and the District for breach of contract. Magistrate Judge Hussman (S.D. Ind.) concluded that there was a breach but that Metro Family was entitled to no monetary recovery. Instead, he ordered reformation of the contract and gave Metro Family 18 additional months within which to exercise the option. The City and the District appeal. Metro Family cross-appeals.

In their opinion, Judges Cudahy, Wood, and Evans vacated and remanded. The only issue on appeal was the remedy for the breach. In Indiana, reformation of the contract is available when there is a mutual mistake. The Court noted that the problem was not really a mutual mistake but a failure to allocate risk in the event the underlying project was canceled. Nevertheless, the Court believed that an Indiana court would use the mutual mistake concept -- that the parties shared a common assumption regarding a fact that was the essence of the agreement -- to find for Metro Family. Therefore, the Metro Family is entitled to the value of the option. The Court opined that the magistrate judge's reformation approach would have been appropriate if the option parcel was still undeveloped. Since exercising the option is no longer a viable alternative, however, the Court concluded that the next best approach was to compare the option price ($269,490) with the appraised value of the option parcel prior to the construction of the highway. Metro Family is entitled to the excess (if any) of the appraised value over the option price.

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AUTO-OWNERS INSURANCE CO. v. MUNROE (July 22, 2010)

Joshua Munroe was driving his tractor-trailer northbound on an Illinois highway when he approached three southbound tractor-trailers, all owned by Wayne Wilkins Trucking. The middle truck attempted to pass but was unable to do so successfully. Munroe's truck first struck the middle truck and then collided head on with the trailing truck. Munroe suffered very serious burns and injuries. The southbound trucks were all insured under a single policy issued by Auto-Owners Insurance Company. The policy had a $1 million per occurrence limit and included a combined limit provision which limited its liability to $1 million per occurrence regardless of the number of vehicles involved in the accident. Munroe settled with the insurers for the million dollar limit, less the amount paid in property damage. The insurance company agreed to file a declaratory judgment action -- Munroe reserved the right to seek additional damages if they court ruled that coverage exceeded the million dollars. Judge Baker (C.D. Ill.) granted summary judgment to Auto-Owners. Munroe appeals.

In their opinion, Judges Ripple, Manion, and Sykes affirmed. The Court had no difficulty in first concluding that the insurance policy was not ambiguous and limited coverage to $1 million per occurrence. Only if there were multiple occurrences would the coverage exceed $1 million. Illinois uses the "cause theory" in analyzing the number of occurrences. Under that theory, there must be multiple "separate and intervening human acts" to create multiple occurrences. Here, although Munroe alleged that each of the three drivers was individually and separately negligent, the accident was a single, uninterrupted event without intervening causes. It was thus a single occurrence. The Court also rejected Munroe's argument that the Motor Carriers Act and the MCS-90 endorsement required combined coverage of $2.25 million. The Court was "skeptical" of the argument that the endorsement applied on a per vehicle basis but found it unnecessary to decide that question. By its own terms, the endorsement is triggered only by a final judgment. With no final judgment, the endorsement does not apply.

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INDIA BREWERIES v. MILLER BREWING CO. (July 21, 2010)

India Breweries, Inc. (IBI) is a "virtual brewer." On the one hand, it acquires the rights to brew a beer. On the other hand, it partners with other companies to actually brew and distribute the beer. One of those companies was Mohan Meakin, an Indian brewer with whom it entered into a joint venture to brew and distribute beer in India. IBI then entered into an agreement with Miller Brewing Company pursuant to which it hoped to market Miller's brands in India. The agreement required IBI to get written approval from Miller before it began commercial brewing at any brewery. If the brewing was going to take place with a contract brewer, the agreement required IBI to obtain Miller's approval of its contractual relationship as well. IBI proposed two breweries to Miller. A Miller team visited the breweries and advised IBI that they did not meet Miller's requirements. IBI continued to explore other options with limited success. On a few occasions, it sent Miller equipment lists from potential brewing partners. On each occasion, Miller concluded that the facilities did not meet its requirements. It refused to actually visit and inspect any facility until it received assurances of adequate equipment and specifications. IBI filed suit for breach of contract. It claimed that Miller was required to inspect each brewery it proffered. Miller counterclaimed for fraudulent inducement and negligent misrepresentation. Judge Clevert (E.D. Wis.) granted summary judgment to Miller on IBI's claim but denied summary judgment on the counterclaim. The parties then stipulated to a dismissal without prejudice of the counterclaim, under which Miller agreed not to refile it unless IBI was successful in its appeal. IBI appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Tinder affirmed. The Court first addressed its appellate jurisdiction. It noted that the stipulation of the parties that permitted the refiling of the counterclaim in certain circumstances destroyed the finality of the district court's order. Without finality, there is no appellate jurisdiction. However, because Miller agreed to an unconditional dismissal when pressed at oral argument, the finality requirement is satisfied and the Court proceeded to the merits. On the merits, the Court found for Miller. It rejected IBI's argument that the contract was ambiguous and could be read to require Miller to inspect any brewery it proffered. In fact, the Court found that interpretation "patently unreasonable." First, that requirement would not be rational since it would require Miller to go all the way to India to inspect a brewery that it already knew would not meet its requirements. Second, since Miller could reject a nonaffiliated brewer for any or no reason, requiring inspection in those circumstances would also be irrational. The Court also noted that the contract required Miller's approval of the contractual relationship with nonaffiliated brewers. Since Miller had not yet had an opportunity to review those relationships, it could also reject the brewers on that ground. Finally, although the Court conceded that Wisconsin law implies a duty of good faith in any contractual relationship, it found that Miller did not breach that duty.

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IN RE: SOLIS (July 9, 2010)

Luis Solis hired an attorney to bring a workers' compensation claim after he suffered serious spinal injuries on the job. The attorney settled the claim. Solis was to receive almost $110,000. Unfortunately, the attorney's assistant stole the settlement money (as well as over $1 million in other clients' finds). She later sent him a check for $62,000, representing to him that it was a partial settlement payment. Solis hired a second attorney to recover the unpaid settlement amount. He entered into a contingent fee agreement with the attorney under which he agreed to pay 40% of "any gross amount recovered." The attorney filed suit in state court seeking damages for the unpaid settlement amount as well as a declaration that Solis was entitled to keep the $62,000 he already had. The case settled -- the defendants paid $60,000 and relinquished all claims to the $62,000. Solis filed a bankruptcy petition before the settlement was consummated. The trustee in bankruptcy recovered the settlement amount. Solis’ attorney filed a claim for 40% of both the $60,000 and $62,000. The trustee objected. The bankruptcy court allowed the claim but only with respect to the $60,000 in new money. Judge Reinhard (N.D. Ill.) affirmed. The attorney appeals.

In their opinion, Judges Manion, Williams, and Hamilton affirmed. The Court interpreted the fee agreement under Illinois contract law, which construes contingent fee agreements strictly in favor of the client. The plain language of the contract obligates Solis to pay a contingent fee on any money "recovered." The Court had little difficulty in concluding that the $60,000 was the only money "recovered" by the attorney. Although the attorney may have conferred a benefit on Solis by clarifying his right to keep the $62,000, the contingent fee agreement does not address that situation. The Court assumed that the attorney could have drafted an agreement (in clear and explicit language) that provided a contingent fee for a successful resolution of any claims on the $62,000 -- it simply refused to stretch the definition of "recovered" under the existing agreement.

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CW CAPITAL ASSET MANAGEMENT v. CHICAGO PROPERTIES (June 29, 2010)

Blockbuster, the movie rental company, has been hurt by increasing competition and changing business models. As a result, it has abandoned some of its stores. One of those stores was leased from Chicago Properties, a commercial landlord. Blockbuster settled the ensuing breach of lease lawsuit for $161,000, although it owed Chicago Properties future rents of $471,000. The mortgage on the property was held in trust as part of a mortgage-backed security. Bank of America is the trustee and CW Capital Asset Management is the servicer. CW Capital has been granted comprehensive power and authority with respect to the management of the trust’s assets. It brought suit under the parties' "Subordination, Non-Disturbance and Attornment Agreement" (the “Agreement”) for the $471,000. Judge Zagel (N.D. Ill) found for the defendants after a bench trial but then dismissed the suit on the grounds that CW Capital, as servicer, was not the real party in interest. CW Capital appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans reversed with directions (still finding for the defendants but on the merits). The Court first addressed the real party in interest issue. It concluded, based on its review of the law and the documents, that the trust held legal title to the claim but delegated equitable ownership to CW Capital. That was enough to be a real party in interest. Alternatively, even if CW Capital is not a real party in interest, the Court noted that the case should proceed under Rule 17(a)(3) since the trustee ratified CW Capital's suit in the district court. On the merits, the court noted that the Agreement defines the rights of the parties in the event of a default. Here, notwithstanding Blockbuster's breach, Chicago Properties has not defaulted. Since it continues to meet its monthly obligations, the terms of the Agreement relied on by CW Capital have not been triggered. With respect to the claims based on the mortgage itself and the owners' guaranty, the Court concluded that the settlement with Blockbuster was not a violation. Finally, the Court upheld the district court's award of attorney's fees to Blockbuster under a "prevailing party" term of the Agreement. The Court concluded that the fact that Blockbuster did not prevail on an "unimportant" counterclaim did not change its status as a prevailing party under the Agreement. Although the defendants had prevailed in the district court (on the real party in interest dismissal), the Court reversed that dismissal with directions to enter judgment on the merits for the defendants.

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AMERICAN LAND HOLDINGS v. JOBE (May 6, 2010)

Peabody Energy Corporation is engaged in the strip mining of coal in Sullivan County in southwestern Indiana. Unfortunately for them, the owners of 62 acres of farmland right in the middle of the mining area are getting in the way. Peabody owns the coal beneath those 62 acres pursuant to a 1903 deed. Under that deed, the owners of the property transferred ownership of the coal and the right to mine it to Peabody. The deed also granted the use of the surface "as may be necessary" for certain mining operations and granted an option to purchase such surface area "as may be necessary" for the location of railroad tracks and buildings and other operations necessary for carrying on the mining business. Other parts of the deed limit Peabody's use of the surface to mining operations. Peabody brought an action for a declaration that it has a right to strip mine the land and for specific performance of its option to purchase. After a bench trial, the court entered judgment for the defendants. Peabody appeals.

In their opinion, Judges Posner, Rovner, and Tinder affirmed. The Court agreed with the district court that the deed was ambiguous in that it both granted the right to mine all the coal but put significant limits on Peabody's use of the surface. Because the deed is ambiguous, a court is allowed to look to extrinsic evidence to determine its intended meaning. Here, the district court heard evidence that, at the time of the deed, strip mining did not exist in Sullivan County and probably not in the United States. The Court concluded that the district court did not err in relying on that testimony in holding that the deed did not grant a right to strip mine – it only granted the right to mine the coal by underground mining and the right to use the surface for structures and activities related to the underground mining.

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NATIONAL INSPECTION & REPAIRS v. GEORGE S. MAY INTERNATIONAL (April 9, 2010)

National Inspection & Repairs (“NIR”) is a trucking company located in Topeka, Kansas. When one of its employees accidentally caused its accounting systems to crash, NIR sought help from George S. May International (" May"), a business consulting firm. The parties entered into a consulting agreement. The agreement required NIR to approve any effort recommended by May. It also prohibited NIR from hiring any May employee for a year after the date of the agreement. May submitted five progress reports over the course of the three-week engagement. Each report was approved by NIR. As soon as the engagement was complete, NIR hired the May project manager as its Controller. NIR alleges that the project manager embezzled hundreds of thousands of dollars from NIR while acting as its Controller. NIR brought a breach of contract action against May. It alleged that May breached the contract by failing to "implement" its duties and for negligently hiring and supervising the project manager. The district court granted summary judgment to May. NIR appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes affirmed. They Court first quickly addressed its appellate jurisdiction. The district court had dismissed without prejudice a claim brought by each of the parties, which made its order non-final. The Court noted its own precedent the lifts the jurisdictional bar when each party agrees at oral argument to treat the dismissals as with prejudice. Here, the parties were not explicit at oral argument. However, they were explicit in post-argument briefing. The Court concluded that that was sufficient to lift the jurisdictional bar. On the merits of the "failed to implement" allegation, the Court noted that NIR cannot prevail because it never pointed to a specific obligation or provision of the agreement that May is alleged to have failed to implement. On the merits of the negligent hiring claim, the Court concluded that it was NIR that in fact breached the contract by hiring the project manager. Finally, the Court addressed NIR's breach of implied warranty and negligence claims. NIR has a tort claim under Kansas law only if there is a violation of a duty imposed by law, as opposed to by agreement. Since Kansas law does not impose any duty on the parties to a consulting services agreement, there is no action for breach of a duty.

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ADVERTISING SPECIALTY INSTITUTE v. HALL-ERICKSON, INC. (April 7, 2010)

Advertising Specialty Institute (ASI) is in the promotional products business. It facilitates transactions between the buyers and sellers of corporate promotional materials. It has an affiliate, ASI Show, which puts on numerous trade shows throughout the year. Hall-Erickson and National Premium Show (NPS) put on The Motivation Show annually at McCormick Place in Chicago. In 2001, The Motivation Show and ASI entered into an agreement to co-sponsor a promotional product event at The Motivation Show. In the agreement, The Motivation Show gave ASI the right of first refusal regarding any other opportunity within the promotional products industry and also agreed that it would not extend the same opportunity to any other association or conference, specifically including by name ASI's close competitor, Promotional Products Association International (PPAI). Notwithstanding this agreement, The Motivation Show agreed to co-locate a show with PPAI. The district court determined that The Motivation Show breached its contract with ASI but, finding that ASI failed to offer sufficient proof of damages, awarded only nominal damages. ASI appeals the damages determination -- defendants cross-appeal the liability determination.

In their opinion, Judges Cudahy, Wood, and Tinder affirmed. The Court concluded that the right of first refusal was clear and unambiguous in the contract and that The Motivation Show violated that provision and breached the contract when it put on the show with PPAI. The Court also affirmed with respect to the damages issue, although it did express its view that the damages case was not as weak as described by the district court. Under Pennsylvania law, damages are not recoverable beyond that which is established with reasonable certainty by the evidence. The Court found portions of the evidence did provide some basis for the claim of damages. However, giving deference to the findings of the District Court, the Court also noted several gaps in the evidence. For example, ASI never introduced evidence of specific companies that either attended the joint show at issue or would have attended an ASI show, it did not introduce evidence of PPAI's own revenue or profits from the show, and it did not produce evidence of what PPAI would have done had it not shared the show with The Motivation Show. Given the ambiguities and gaps in the evidence, the Court found no clear error.

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MILWAUKEE METROPOLITAN SEWERAGE DISTRICT v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO. (March 10, 2010)

The Milwaukee Metropolitan Sewerage District ("District") provides wastewater treatment services and performs flood control work in the Milwaukee area. As part of its flood control responsibilities, the District developed a plan to control flooding on the Lincoln Creek. Execution of the plan required the District to purchase a nineteen-acre parcel of land along the Creek. The District decided to procure environmental liability insurance before purchasing the property. The District met in late 1998 with its insurance broker, Sedgwick of Illinois. The District discussed obtaining insurance for property it referred to as "Lincoln Creek" but provided very little information about the actual parcel. Sedgwick contacted Crump Insurance Services of Illinois, a wholesale broker, and inquired about coverage. In February of 1999, the District authorized Sedgwick to obtain insurance for five separate properties, including Lincoln Creek. Each of the properties other than Lincoln Creek was identified with a specific address. Lincoln Creek was not. Crump forwarded the order of insurance to AISLIC. Although AISLIC confirmed that it had bound coverage, it listed only the four properties that had specific addresses. When Crump noticed the absence of Lincoln Creek, it added the parcel to the binder and forwarded it to both Sedgwick and AISLIC. AISLIC objected to the inclusion and stated that it was not including Lincoln Creek as an insured property. After its receipt of the formal application, which included Lincoln Creek, AISLIC again stated that it was not willing to include Lincoln Creek. Crump informed Sedgwick that AISLIC was not including Lincoln Creek both because of the absence of an actual address and because the property was not then owned by the District. AISLIC eventually issued a policy for the four identified properties and a fifth added property. Although the District noticed the absence of Lincoln Creek, Sedgwick told the District that the fifth property was actually a reference to Lincoln Creek. The District proceeded with its purchase and discovered significant environmental contamination. It submitted a claim to AISLIC for over $700,000 for its cleanup of the contamination. AISLIC denied the claim. The District sued AISLIC for reformation of the contract. AISLIC brought a third-party indemnification action against Crump. After a bench trial, the district court granted reformation of the contract, concluding that Crump was AISLIC’s agent and that it was Crump’s failure to obtain necessary that led to the parcel being excluded from coverage. The court entered judgment for the District against AISLIC and for AISLIC against Crump. AISLIC and Crump appeal.

In their opinion, Judges Flaum, Manion, and Wood reversed and remanded the judgment against AISLIC and vacated the judgment against Crump. Applying Wisconsin law, the Court stated that an insurance policy can be reformed to reflect a prior agreement if: a) there is clear and convincing proof of a prior meeting of the minds, and b) the failure of the agreement to reflect the prior agreement results from either a mutual mistake or a mistake by the party seeking reformation combined with some inequitable conduct by the other. Here, the Court found both elements absent. The clearest description of the parcel ever given to AISLIC was its name and that it was located somewhere along several miles of the Creek. The Court found that evidence insufficient to identify the property for which the District sought coverage and that the evidence as a whole failed to amount to clear and convincing evidence of a prior agreement. In addition, the Court found that the evidence supported the proposition that the District knew the parcel was never covered. The District’s agent was well aware that AISLIC required an address before including the parcel and, in fact, refused to include the parcel because it was not owned by the District. Therefore, the District could not satisfy that it was operating under a mistake.

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REGER DEVELOPMENT v. NATIONAL CITY BANK (January 20, 2010)

Reger Development is an Illinois real estate development company. In 2007, the company opened a $750,000 line of credit with National City Bank. The company signed a promissory note and provided the personal guarantee of its principal, Kevin Reger. In several places, the note makes reference to the fact that it is payable "on demand." The company made its payments in a timely manner for the first year. Nevertheless, the bank asked it to pay down $125,000 of principal. Reger did so. A month later, the bank advised Reger that it was reducing the amount of the line of credit and also wanted to restructure some of the principal and secure it with a mortgage. The bank told Reger that it was possible that they would demand payment of the entire amount if he did not agree to the modifications. Reger brought suit, alleging breach of contract and fraud. The district court dismissed the case for failure to state a claim. Reger appeals.

In their opinion, Judges Flaum, Williams, and Sykes affirmed. The Court noted that Illinois law generally implies a covenant of good faith and fair dealing in a contract. It does not apply, however, to demand notes. Reger argued that general references to due dates and default provisions in the note were inconsistent with a demand instrument. The Court noted the repeated and explicit references in the instrument to National City's right to demand payment at any time. The note is clearly and unambiguously a demand note, concluded the Court. Since it is a demand instrument, the bank's insistence on modifications did not amount to a breach. With respect to the fraud count, the Court focused on the intent element. It stated that Reger must establish that the bank intended to and did induce him. In order to meet that element, Reger asked the court to infer that the bank intentionally drafted ambiguous documents so as to mislead him. The Court had already considered the ambiguity of the document with respect to the breach of contract claim. Not only had it not found it ambiguous, it found it rather straightforward. Reger failed to allege the element of intent with the particularity necessary in a fraud count -- the dismissal of that count is affirmed.

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WISCONSIN ALUMNI RESEARCH FOUNDATION v. XENON PHARMACEUTICALS, INC. (January 5, 2010)
 

Scientists at the University of Wisconsin discovered that suppressing a certain enzyme in the body reduced cholesterol levels. They disclosed their discovery to the Wisconsin Alumni Research Foundation, which manages patents for the University. They assigned all their rights to the Foundation. Xenon Pharmaceuticals was very interested in the same effort. Xenon and the University entered into a series of agreements under which Xenon sponsored various research projects; Xenon and the Foundation entered into an agreement giving Xenon exclusive licensing rights in return for a percentage of fees received; and Xenon entered into a series of agreements directly with the individual researchers to undertake various projects. Xenon and the Foundation filed for and received a joint patent. The relationship soured. Xenon did some related work with a third party and with an individual University scientist with whom it had a consulting agreement. When it filed a patent application covering the results of that work, the Foundation objected. It also licensed the technology covered by both the joint patent and the related patent to Novartis. The Foundation demanded its contractual percentage -- Xenon refused. The Foundation brought suit, claiming that both the Novartis license and the related patent violated the party's agreement. Xenon counterclaimed. In a series of rulings, the court held that Xenon breached the agreement by granting the sublicense to Novartis and that Xenon owed licensing fees to the Foundation. The court refused the Foundation's request for a declaration that the work on the related patent belonged to it and concluded that the Foundation's argument that it had a right to terminate the contract was not developed sufficiently in its briefs. At trial on damages, the jury awarded $1 million, which was reduced on remittitur to $300,000. The parties cross-appealed.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Sykes affirmed in part, reversed in part and remanded. The Court first addressed Xenon's transfer to Novartis. The Court agreed with Xenon that each joint patent holder, under federal law, is allowed to use the patented technology without regard to the rights of the other. However, that right is subject to modification by agreement of the parties. Here, the Foundation conditioned Xenon's right to license the technology on its payment of a fee. Interpreting the terms of their agreement, the Court concluded that Xenon owed the contractual fee upon its receipt of its fee and its failure to remit it was a breach of the agreement. The Court then rejected Xenon's argument that the Foundation presented insufficient evidence to support its damages claim. With respect to the Foundation's right to terminate the agreement, the Court concluded that the lower court was in error when it held that the right to terminate was contingent upon a judicial finding of a breach. The agreement specifically gives the Foundation the right to terminate the agreement upon a breach by Xenon and a failure to remedy the breach within 90 days after written notice. The Foundation considered Xenon's conduct a breach and gave appropriate notice. Even though it filed suit prior to the expiration of the 90 days, it's right to terminate after a failure to cure remains. It need not await a judicial determination. The Court concluded that the Foundation properly terminated the agreement. Finally, the Court addressed the Foundation's claim for a declaration of its ownership of the related technology. The Court concluded that the contractual terms were clear and that the scientist's work, although partially sponsored by Xenon, was owned by the Foundation.  

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NIGHTINGALE HOME HEALTHCARE v. ANODYNE THERAPY (December 21, 2009)

Anodyne Therapy manufactures and sells infrared lamps designed to improve circulation. The FDA approved it for that purpose. But Anodyne allegedly marketed the lamps as a treatment for peripheral neuropathy, which the FDA never approved. Nightingale purchased several of the lamps. The FDA sent Anodyne a warning letter about their marketing claims. Several months later, Nightingale stopped using the lamps, returned them to Anodyne with a demand for a refund, but then replaced them with almost identical devices. Nightingale brought a fraud case in state court. Anodyne removed the case to federal court on diversity jurisdiction grounds. Nightingale then added a federal Lanham Act claim. The court granted summary judgment to Anodyne on the Lanham Act claim, and later granted summary judgment to Anodyne on the fraud claim. The court relied on a contractual disclaimer of warranties as well as Nightingale’s failure to establish proof of damages. Nightingale appeals.

In their opinion, Judges Posner, Kanne and Rovner affirmed. On the merits, the Court disagreed with the warranty holding. It concluded that the only contractual limitation of liability related to a breach of warranty claim – not, as here, a fraud claim. The Court agreed with the district court, however, on the damages holding. Nightingale replaced the lamps with a virtually identical product. Both products served the same purpose, performed comparably and carried similar FDA approvals. The replacement of the lamps did not result in any damage to Nightingale.

The lack of any damage not only doomed the case on the merits – it showed that the jurisdictional threshold for diversity jurisdiction was not met. Ordinarily, the Court concluded, the lack of a good faith basis for meeting the threshold would result in a case being dismissed for lack of jurisdiction, even at a late stage of the case. Here, however, the fact that Nightingale added a federal claim after removal brought the case within the court’s federal question jurisdiction. The state claims were covered by supplemental jurisdiction. Even though the federal claim was later dismissed, the court had discretion to retain the state claims.

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CURIA v. NELSON (November 20, 2009)

Kenneth Nelson owned two car dealerships -- Auto Plaza and Auto Mall. In 1989, he and Richard Curia entered into an agreement whereby Curia agreed to pay $100,000 for 1000 (of 8180) shares in Auto Plaza and 144 (of 1200) shares in Auto Mall. The agreement also gave Curia three separate options to buy additional stock in both dealerships, up to 100% of each. Curia exercised the first of the options in 1990. A few years later, in 1993, Nelson and Curia modified the agreement, apparently because the total number of shares in the two companies had increased. The 1993 agreement also provided that Curia could purchase additional shares "upon those terms and conditions subsequently agreed upon." A later agreement terminated Curia's rights to acquire any additional Auto Mall stock. In 2005, however, Curia attempted to exercise his options to acquire all of the stock in Auto Plaza. Nelson filed a declaratory judgment action contesting Curia's right. Curia counterclaimed for breach of contract. The court granted summary judgment to Curia. Nelson appeals.

In their opinion, Judges Kanne, Williams and Sykes reversed and remanded. The issue identified by the Court was whether Curia's 1989 options survived the 1993 modification. The Court noted that both Nelson and Curia argued that the 1993 agreement was unambiguous and supported his own interpretation. The parties, however, do not control whether a contract term is ambiguous. It is a question of law for the court. Here, the Court found the 1993 language reasonably susceptible to more than one meaning -- and therefore ambiguous. Both of the interpretations are reasonable readings of the contract language. The ambiguity must be resolved with reference to extrinsic evidence -- not on summary judgment.

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BANDAK v. ELI LILLY AND COMPANY RETIREMENT PLAN (November 18, 2009)

Stephen Bandak was employed by an Eli Lilly company in England, his native country, from 1978 to 1995. He participated in the company's retirement plan. He was transferred to the United States in 1995. The company told him, upon his enrollment in the U. S. company's plan, that his benefits in that plan would be based on years of employment retroactive to 1978. The plan also provided that benefits would be reduced by the actuarial equivalence of any other benefits under a “qualified defined benefit plan” maintained by an Eli Lilly company. When Bandak retired in 2004, the company took the position that his benefits under the English company's plan were benefits under a qualified defined benefit plan and were thus properly deducted from his U.S. pension benefits. Bandak sued the company under ERISA. Judgment was entered in his favor for both damages and an injunction relating to future benefit payments. The court also concluded that Lilly's position was not substantially justified and awarded attorneys’ fees. Eli Lilly appeals.

In their opinion, Judges Posner, Rovner and Williams affirmed. The Court focused on the language "qualified defined benefit plan" in the plan document. The term is a technical term and it refers to a plan that has been afforded favorable tax treatment by the Internal Revenue Service. The Court concluded that it had no meaning outside that context. The Court applied the presumption that, when a technical legal term is used in the contract, it is given its technical legal meaning. If it had no meaning outside the United States, the English plan was not such a plan and it should not have reduced his benefits. Substantial evidence in the record supported the Court's conclusion. The Court also concurred in the district court's conclusion that the company's position was not justified.

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SCHROCK v. LEARNING CURVE INTERNATIONAL (November 5, 2009)

Learning Curve International ("LCI"), a producer and distributor of toys, has a license to market toys based on the "Thomas & Friends" properties. It hired Daniel Schrock to take photographs of those toys for use in promotional materials. LCI paid Schrock more than $400,000 for his effort. Although LCI stopped using Schrock's services in 2003, it continued to use some of his photos. Schrock registered the photos for copyright protection in 2004 and brought an infringement action against LCI and LCI’s licensor. The district court granted summary judgment to the defendants. It ruled that Schrock needed LCI's permission to copyright the photos, which he did not have. Schrock appeals.

In their opinion, Judges Flaum, Williams and Sykes reversed and remanded. The Court first noted that the copying element of an infringement action was not disputed – only whether Schrock had a valid copyright. Then, the Court briefly discussed the subject of derivative works but ended up assuming without deciding that each photo qualified as a derivative work. Next, the Court concluded that the photos met the requisite threshold of originality for copyright protection. That threshold is rather low – and the Court specifically rejected LCI’s argument that the threshold is higher for derivative works. If photographs are distinguishable from the underlying works, they qualify for derivative-work copyright. Schrock’s are and therefore do. In order to be copyrightable, a derivative work must itself not be infringing – that is, the owner of the copyright in the underlying work must have given permission to make the derivative work. The owner need not, however, have given actual permission to copyright the derivative work. The Court specifically rejected dicta in Gracen that suggested otherwise. Although Schrock’s right to copyright his work therefore arises by operation of law without the need for permission, Schrock is entitled to contract away his rights. The Court concluded that the record was insufficient to determine the merits of defendants’ arguments that he did just that. It remanded for further development of the record.

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LEWITTON v. ITA SOFTWARE (October 28, 2009)

ITA Software offers information technology and services to online travel agents. ITA began the development of a new product that would allow the agents to make reservations and purchase airline tickets online. Derrick Lewitton joined the organization in 2005 to supervise the development and marketing of the new product. In his employment contract, ITA granted Lewitton options to purchase up to 200,000 shares of ITA stock. Up to 150,000 of the options could be forfeited, however, based on a formula that was to be applied during an assessment period after product rollout. The assessment period was scheduled to run from mid-2006 through May 2007, but was to be deferred if the rollout of the new product was delayed. The product development turned into a failure and was scaled back considerably. In fact, it was never rolled out. Lewitton left ITA in mid-2007. Shortly thereafter, he sought to exercise the full amount of his vested options. ITA took the position that most of the options were forfeited as a result of the product failure. Lewitton brought an action for the options. The court granted summary judgment to Lewitton. ITA appeals.

In their opinion, Judges Bauer, Kanne and Evans affirmed. The Court stated that its primary goal was to give effect to the terms of the agreement. If it is unambiguous, the Court noted that it would enforce it as written. The Court agreed with the district court that the "deferred" term in the contract was unambiguous. Since it is not a technical term, it should be given its ordinary meaning -- significantly delayed. The Court found no dispute that the program had been delayed. In fact, the rollout of the new product had never occurred. Under the unambiguous terms of the contract, the assessment period never occurred and the forfeiture provision was never triggered. The Court rejected ITA's position that such a conclusion ignored the principal objective of the contract -- that Lewitton would be rewarded with options if he generated significant revenue. ITA's position relied on extrinsic evidence, which the Court would not allow given the unambiguous nature of the contract.

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SUNSTAR v. ALBERTO-CULVER CO. (October 28, 2009)

Alberto-Culver is a significant domestic producer of hair and skin-care products. In 1980, it transferred Japanese trademark registrations to Sunstar, a Japanese manufacturer of similar products. The deal required Sunstar to transfer the trademarks to Bank One Corporation in trust for 99 years. Bank One, in turn, licensed them back to Sunstar and was obligated to return the marks to Sunstar after the term of years. As trustee, Bank One could stop the use of the mark if it had reasonable grounds to think that Sunstar committed an act that created a danger to the value or validity of the marks. Alberto-Culver and Sunstar referred to the rights granted as a senyoshiyoken, the Japanese legal term describing a license under which the licensee has the exclusive right to use the marks in its geographic area and can sue infringers in its own name. Sunstar paid $10 million for the license. In 1989, Sunstar asked for permission to use a variant of one of the marks. Alberto-Culver refused. Sunstar ended up paying another $10 million for the rights to use the variant. In 1999, Sunstar again asked for permission to use a variation of one of the marks. This time, when Alberto-Culver refused, Sunstar filed suit. The suit sought a declaration that the requested variation was permitted by the license agreement. At trial, the district court refused to instruct the jury on the legal meaning of the term senyoshiyoken, concluding that it was irrelevant. The jury returned a verdict for Alberto-Culver but awarded no damages. The judge enjoined Sunstar from using the variation of the mark, terminated the agreement as a result of Sunstar's breach and ordered the marks returned to Alberto-Culver. Sunstar appeals.

In their opinion, Judges Posner, Manion and Evans vacated and remanded. The Court first disagreed with the lower court's conclusion that Japanese law was irrelevant. The Court stated that if sophisticated contracting parties use a foreign technical legal term in their contract, the presumption is that it is used in its technical legal sense. The issue for the Court, therefore, was whether the holder of the Japanese senyoshiyoken is permitted to use variants of licensed marks. The Court then criticized the general use of expert testimony to prove the content and meaning of foreign law. Noting that such testimony is not permitted when a federal court applies the law of a state or when the court of one state applies the law of another state, the Court expressed a strong preference for secondary materials over the testimony of expert witnesses. On the merits, the Court noted that American law does not consider a change in a mark's typeface or a modest change in the appearance or wording of a mark a material alteration. Japanese law is the same. Particularly here, where the license was for a period of 99 years, it may have even required modest changes in the mark over time to ensure its continued value and validity. The Court concluded that the holder of a Japanese senyoshiyoken is entitled to make minor changes in the mark. Although the Court expressed its temptation to order Alberto-Culver’s claims dismissed with prejudice, it declined to do so. Sunstar had not requested that relief and Alberto-Culver was not afforded an opportunity to respond. It did, however, vacate the judgments and remand the case.

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HOOSIER ENERGY RURAL ELECTRIC COOPERATIVE v. JOHN HANCOCK LIFE INSURANCE COMPANY (September 17, 2009)

Hoosier Energy Rural Electric Cooperative and John Hancock Life Insurance Company entered into a lease-leaseback of a Power Plant in order to take advantage of excess depreciation deductions held by Hoosier. Because the transaction exposed John Hancock to substantial financial risks, Hoosier arranged with Ambac Assurance Corporation to pay to Hancock $120 million upon the occurrence of certain events. One of those events was a reduction in Ambac’s credit rating. If that occurred, Hoosier had 60 days to replace the surety. It did occur. Even with an extension, Hoosier did not replace the surety. John Hancock demanded performance. Ambac was ready and able to perform but Hoosier filed suit and obtained a temporary restraining order and a preliminary injunction. Ambac’s performance would require Hoosier to cover the payment, which would drive Hoosier into bankruptcy. John Hancock appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Wood affirmed. The Court began with the requirements for equitable relief: irreparable injury, a plausible claim on the merits and the balance of equities. The Court accepted the district court’s finding of irreparable injury and proceeded to address the merits. The district court had found merit in two Hoosier arguments: that the transaction was illegal and must be unwound and that Hoosier is at least temporarily excused under the doctrine of "temporary commercial impracticability." The Court disagreed with respect to the first prong. Whether or not the IRS allows the parties to take advantage of the intended tax consequences, the Court believed that the parties were still bound by their contractual obligations. With respect to the second prong, the Court noted that New York courts do not recognize "temporary commercial impracticability." Although they do recognize the defense of impossibility, they take a dim view of it and do not excuse performance when the "impossibility" is the result of financial hardship. If, as Hancock claims, Hoosier had the option to replace the surety, the Court did not believe that an impossibility defense would stand. If, however, as Hoosier claims, it had a duty to replace the surety, an impossibility defense might prevail. The Court found enough uncertainty in the contract and the facts surrounding Hoosier's ability or inability to replace the surety that it concluded that the district court was correct with respect to Hoosier's prospect of prevailing. Finally, the Court required the district court to re-examine the amount of the injunction bonds to protect John Hancock and urged the district court to allow Hancock to realize its surety if Hoosier is not able to replace the surety within a few months.

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TWENHAFEL v. STATE AUTO PROPERTY AND CASUALTY INSURANCE CO. (September 14, 2009)

Roger Twenhafel owns a business that manufactures wood cabinets. He stores some of his wood inventory outdoors. Just before a violent storm hit in late 2006, he covered the inventory with a tarp and secured it with heavy blocks and beams. In spite of this effort, the storm lifted and carried the tarp away. The inventory was damaged. Twenhafel made a claim against State Auto Property and Casualty Insurance Company. The policy covered all losses except those specifically excluded. State Auto denied the claim, relying on an exclusion for rain damage to property "in the open." Twenhafel brought suit for breach of the insurance policy. The district court found that "in the open" was not ambiguous and it meant property that was exposed to the elements with no protection. The court granted summary judgment to Twenhafel and awarded prejudgment interest at 6.98% and postjudgment interest at .96%. State Auto appeals.

In their opinion, Judges Rovner and Evans and District Judge Van Bokkelen affirmed in part, vacated in part and remanded. The interpretation of the insurance contract, started the Court, is a question of law. A court's objective is to give effect to the intention of the parties. Ambiguity exists only if there are multiple reasonable interpretations. Here, the contract covered all losses except those specifically excluded. The relevant exclusion, for property "in the open," is not defined. The Court concluded that the common, unambiguous meaning of that phrase is "exposed to the elements." Since the property was not exposed, the district court correctly granted summary judgment against State Auto on the merits. The Court also affirmed the damage award. Twenhafel was unable to quantify the loss at his deposition, but did so later in an affidavit. State Auto did not object to the affidavit. Finally, the Court vacated the award of prejudgment interest. Although it agreed that prejudgment interest was appropriate, the award exceeded the statutory rate of 5% and was not supportable by any exception.

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INTERNATIONAL PRODUCTION SPECIALISTS v. SCHWING AMERICA, INC. (SEPTEMBER 2, 2009)

North Shore Sanitary District (NSSD) entered into a contract with Voest-Alpine Industries to build a wastewater treatment plant. Voest-Alpine in turn contracted with Schwing America to supply and install five silos and associated equipment. Schwing in turn agreed to pay International Production Specialists (IPS) almost $700,000 to fabricate and install the five silos. The original schedule provided that the silos were to be delivered by December of 2001, approximately 4 months after Schwing and IPS entered into their agreement. NSSD suspended work on the project prior to the delivery dates. Schwing instructed IPS to continue its fabrication effort with respect to the two silos with the earliest installation dates but to cease any work on the site. NSSD restarted the project two years later -- but changed the physical location of the plant. The change in location resulted in a dispute between Schwing and IPS. In fact, IPS advised Schwing that it would not complete the project. After further negotiations, the project was back on. Schwing advised IPS of a new schedule requiring installation of the first two silos in August of 2004 and the other three in December of 2004. Although IPS completed the installation of the first two silos almost on time, the other three became a problem. When the silos were still not delivered by February of 2005, Schwing terminated the contract and completed the work through other subcontractors at significant cost. IPS sued for breach of contract -- Schwing countersued. After a trial, the court concluded that Schwing both did not breach and was justified in terminating the contract. The court awarded damages of almost $500,000. IPS appeals.

In their opinion (PDF), Judges Flaum, Rovner and Williams affirmed in part and reversed in part. The Court noted that Schwing terminated the contract because of IPS's failure to satisfactorily complete the work within a specified time. If IPS's performance within a particular time was required and its failure destroyed an essential element of the contract, it would be a material breach. Under Wisconsin law, a material breach would release Schwing from its continuing performance. The Court looked to the contract. It concluded that the original agreement contained an expectation for performance within a particular time. Of course, the time frame was eliminated when NSSD put the project on hold. After the project started back up, a layout schedule contained expectations for completing the project. Considering the complexity of the project and the number of subcontractors, the Court concluded that the time frames in the layout schedule were reasonable contractual expectations. Alternatively, the Court stated that the law would imply a reasonable time for performance if the contract is silent. Given the original schedule of delivery and installation as well as the later layout schedule, the Court concluded that the schedule reflected a reasonable time for performance. Therefore, the Court agreed with the district court that IPS materially breached and that Schwing was entitled to damages. The Court also concluded that the district court did not err in its computation of damages, with one exception. At the time of IPS's breach, Schwing still owed approximately $50,000 on the contract. To put Schwing in an equivalent, but no better, position then it would have been without a breach requires it to credit IPS for the $50,000.

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LABORERS' PENSION FUND v. LAY-COM, INC. (September 2, 2009)

King & Larsen, Lord & Essex and Lay-Com are all in the development or construction business. Mike King is the owner of King & Larsen. Lord & Essex and Lay-Com are both owned directly or indirectly by members of the Popp family. King & Larsen had a collective bargaining agreement that required it to make contributions to the plaintiff fund. When it ran into financial difficulty, Lord & Essex and Lay-Com came to its rescue. They loaned money and paid some bills. The companies then entered into a complex series of transactions that resulted in the transfer of most of King & Larsen's assets to a new company, M. A. King. The tax and union pension fund liabilities of King & Larsen remained behind, in an otherwise empty shell. The pension fund sued King & Larsen, M. A. King and Mike King for the unpaid contributions. After obtaining default judgments, the funds added Lay-Com, Lord & Essex, the Lay Trust and John Popp as defendants. The district court found Lay-Com, Lord & Essex and the Lay Trust liable on a veil-piercing theory and dismissed John Popp. All parties appeal.

In their opinion, Judges Cudahy, Manion and Tinder affirmed in part and reversed in part. The Court identified the sole issue on appeal as whether it was appropriate to pierce the corporate veil of M. A. King, as successor to King & Larsen, to reach the other defendants. A primary purpose of the corporate structure is to limit liability. An exception to that limitation of liability occurs when a corporation is used as a mere instrumentality of another. The Court stated that the plaintiffs must both demonstrate that there exists a unity of interest in ownership between or among the companies and that honoring the corporate fiction would result in an injustice. A principal factor in addressing the former is whether the companies respected their separateness. A principal factor in addressing the latter is whether the company operates with sufficient capital. Addressing each of the four defendants, the Court concluded that the test was met with respect to Lay-Com. First, Lay-Com exerted substantial control over M.A. King and did not allow it to operate separately. Second, M.A. King was created with not only inadequate capital – it was created with no equity capital. The Court concluded no capital is inadequate as a matter of law. Although the Court found the analysis with respect to Lord & Essex more difficult, it also concluded that Lord and Essex was a important part of the scheme and did not maintain its separateness from M.A. King. The Court concluded that the Lay Trust and John Popp individually played no role in the scheme. It found neither subject to liability under veil-piercing.

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HABER v. BIOMET, INC. (August 20, 2009)

Biomet produces artificial joints. It contracted with Paul Haber to be its distributor in parts of Florida. Their relationship was governed by two contracts -- one made in 1995 and one made in 1999. The 1995 contract contained a forum selection clause favoring an Indiana court. The 1999 contract contained a clause requiring arbitration in Chicago. Biomet came to believe that Haber was in breach of the contracts and brought an action in Indiana state court. In response, Haber filed a complaint in the local federal court to compel arbitration. The federal court dismissed the complaint, concluding that venue for such an action was proper only in Chicago, the selected forum of the arbitration. Haber also moved to compel arbitration in the state court action. The state court compelled arbitration only on claims that arose under the 1999 agreement and ordered Biomet to identify which of its claims arose under that agreement. Haber did not appeal the state court decision -- Haber did appeal the federal court decision.

In their opinion, Judges Posner, Kanne and Wood affirmed. Before addressing the venue issue, the Court addressed res judicata. The Indiana court, although not resolving all matters, concluded that claims under the 1995 agreement were not arbitrable. The Court had to decide whether that ruling was of sufficient finality to be afforded res judicata effect. Indiana requires finality for issue preclusion. The factors a court should look at are whether: the parties were fully heard, the decision was rendered in a reasoned opinion, the order was appealable, and the order was appealed. The Court concluded that the state court’s order was final. The issue was before the court, was decided in a reasoned opinion and was appealable (though not appealed). Having found finality, the Court easily concluded that the order met the next four elements barring relitigation: a court of competent jurisdiction, an issue actually determined, identical parties, and a decision on the merits. The state court ruling was entitled to preclusive effect. The Court also briefly addressed the venue issue. Section 4 of the Federal Arbitration Act requires that, if an arbitration clause selects a forum for arbitration, a motion to compel the arbitration must be brought in a court in the forum selected. The venue decision was thus proper.

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SHARP ELECTRONICS CORP. v. METROPOLITAN LIFE INSURANCE CO. (August 18, 2009)

Sandra Rudzinski was an active employee of Sharp Electronics when she began experiencing fatigue and headaches. As a Sharp employee, she participated in its disability plan. Under the plan, Sharp paid short-term benefits during an initial 180-day period and Metropolitan Life Insurance Company ("MetLife") paid long-term benefits. Sharp paid premiums to MetLife on behalf of its employees. Rudzinski received short-term benefits from Sharp and applied for long-term benefits from MetLife. MetLife denied her application, first on the ground that she had a pre-existing disability and later on the ground that she had not completed the 180 days of short-term benefits. Rudzinski sued MetLife under ERISA. During the litigation, MetLife told Rudzinski that MetLife also denied her benefits because Sharp stopped remitting premium payments after her employment ended. She added Sharp as a defendant. She accused Sharp of interfering with her benefits, violating fiduciary duties, and for telling her that she could maintain her benefits by obtaining a conversion policy. Sharp cross-claimed against MetLife, alleging breach of fiduciary duty, equitable estoppel and indemnity. Rudzinski voluntarily dismissed her claim against Sharp and the court entered judgment in her favor in her claim against MetLife, leaving only Sharp's cross-claim. Sharp filed an amended complaint, alleging breach of fiduciary duty under ERISA, indemnification, negligence, negligent inducement, negligent misrepresentation, abuse of process and common-law breach of fiduciary duty. The court granted MetLife's motion to dismiss, concluding that MetLife had not breached a fiduciary duty and that the state law claims were preempted by ERISA. Sharp appeals.

In their opinion, Judges Kanne, Rovner and Wood affirmed with respect to ERISA and vacated and dismissed with respect to the state law claims. In order to recover under its ERISA claim, Sharp had to prove that MetLife owed it a fiduciary duty, that it was involved in fiduciary functions when it told Rudzinski about Sharp's failure to pay premiums, and that it was seeking damages for losses suffered by the plan (as opposed to the company). Although the Court agreed that Sharp and MetLife both occupied fiduciary roles, it concluded that MetLife did not owe a fiduciary duty to Sharp. It also concluded that Sharp's only losses were its fees and expenses in defending the suit brought by Rudzinski, losses not recoverable under ERISA. With respect to the state law claims, the Court disagreed with the district court that they were preempted by ERISA. ERISA does not preempt state law claims that are not related to a benefit plan. Here, Sharp's claims relate to its contractual relationship with MetLife. Even though the subject of that relationship is a benefit plan, claims relating to the contract are not preempted. The Court nevertheless dismissed the state law claims based on the lower court's alternative ruling that it would not exercise its discretion to hear the state law claims, considering that the only federal claim was dismissed. 

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WELLPOINT, INC. V. JOHN HANCOCK LIFE INSURANCE COMPANY (AUGUST 7, 2009)

In 1996, WellPoint and John Hancock Life Insurance Company (Hancock) entered into a complex business transaction. The transaction was documented with a series of contracts, each of which contained an express arbitration clause. A dispute arose. WellPoint and Hancock both demanded arbitration. Pursuant to the arbitration procedure agreed upon, each appointed its own party arbitrator. When the party arbitrator’s could not agree on a third arbitrator, the AAA made the appointment, again as provided in the agreements. After over two years of extensive discovery and procedural disputes, WellPoint's party arbitrator resigned. Hancock objected but the panel, including Hancock's party arbitrator, approved the resignation. Hancock again objected when WellPoint proposed specific names for the vacancy. Hancock's party arbitrator proposed a compromise that WellPoint accepted -- and Hancock supported. Under the proposal, the panel suggested several candidates from which WellPoint could choose. Again, Hancock objected but also agreed that the replacement arbitrator met the prerequisites for service. The panel awarded WellPoint almost $30 million. WellPoint filed a petition to confirm the award -- Hancock cross-petitioned to vacate the award. The district court confirmed the award. Hancock appeals.

In their opinion, Judges Bauer, Ripple and Wood affirmed. The Court rejected Hancock's argument that the panel "exceeded their powers" under § 10(a)(4) of the Federal Arbitration Act when they selected a third arbitrator in a manner not provided for in the agreement. Although the Court conceded that the party's agreements did not provide a process for filling a vacancy, it noted that § 5 of the Act does. Section 5 expressly provides that a district court can appoint an arbitrator in the event of a vacancy were no provision exists in the party's agreement. Given the express remedy in § 5, the Court was unwilling to interpret the act in a way that would allow a party to forgo its § 5 remedy but get the same relief under § 10 after the arbitration is complete -- and it loses. Hancock's failure to avail itself of the remedy under § 5 amounts to a forfeiture of its challenge to the third arbitrator.

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CARLISLE v. DEERE & COMPANY (August 7, 2009)

Carlisle and his partner operated an excavating business. In 2002, they purchased a used heavy-duty tree grinder called the Beast. The Beast already had a history. It was originally manufactured and purchased in 1999. The original owner replaced the engine with one manufactured by Deere & Co. From the moment Carlisle purchased the Beast, it was anything but. It lacked power, overheated, and generally underperformed. After many inquiries, Carlisle was eventually told to check the Performance Programming Connector (PPC), a component in the Beast's control mechanism. The PPC is also manufactured by Deere but sold separately from its engines. Carlisle discovered that a wire had been installed that limited the engine's rotations. Carlisle cut the wire with immediate effect -- the Beast was again worthy of its name. Carlisle sued Deere for breach of the warranty it inherited when it purchased the Beast. The district court granted summary judgment to Deere. Carlisle appeals.

In their opinion, Judges Kanne, Evans and Dow affirmed. The issue for the Court on appeal was whether the deficiency noted by Carlisle was covered by the warranty. The warranty covered "defective workmanship" but excluded from its coverage components that were not installed by Deere. Because the PPC is meant to be configured in a number of possible ways depending on the use of the engine it controls, it is manufactured and shipped by Deere in an unconfigured state. The Court concluded, therefore, that the unwanted wire could not be considered defective workmanship. Deere could still be liable if it installed, and configured, the PPC. The only admissible evidence in the record supported Deere's contention that it did not. Carlisle attempted to prove otherwise with his statement that the engine installer had told him that Deere configured the wiring. The Court concluded that the statement was classic hearsay and rejected Carlisle's contention that the installer was either authorized to make the statement or was an agent of Deere's under Rule 801(d).

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CRICHTON v. GOLDEN RULE INSURANCE COMPANY (August 5, 2009)

For almost ten years, John Crichton purchased group health insurance from Golden Rule Insurance Co. He did so as a member of the Federation of American Consumers and Travelers ("Federation"). He filed a class action in 2002, alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), class allegations under other states’ consumer fraud statutes, RICO and common law fraud. The basis of each of the claims was that Golden Rule failed to disclose, when it sold its insurance, that renewal premiums escalated dramatically. The district court dismissed the claims for failure to state a cause of action. Crichton appeals.

In their opinion, Judges Kanne, Evans and Sykes affirmed. With respect to the ICFA count, the Court relied on the Illinois Supreme Court's decision in Avery. Avery held that a non-resident of Illinois did not have a cause of action under the ICFA unless the transaction at issue occurred primarily and substantially in Illinois. Crichton lives in Florida and Golden Rule has its principal place of business in Indiana. Golden Rule is incorporated in Illinois and maintains an office in Illinois but that is not enough to support an ICFA claim. The Court also agreed with the district court that, to the extent Crichton was asserting a claim under Florida's statute, it failed because Florida does not allow suits against insurers. The Court then held that an element of the common law claim of fraudulent concealment was a duty to disclose. No such duty existed on the part of Golden Rule, either through its relationship with Crichton or its partial disclosures. Finally, the Court concluded that the RICO claim was properly dismissed. A RICO claim must identify the "enterprise." Crichton simply describes the marketing relationship between Golden Rule and the Federation. That relationship is insufficient to amount to an enterprise on which a RICO claim can be based. 

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TRADE FINANCE PARTNERS, LLC v. AAR CORP. (July 16, 2009)

Trade Finance Partners ("TFP") is, in essence, a broker that arranges business relationships for its clients. It charges a fee on any business it secures. AAR, an aviation support company, was a TFP client. The companies began working together in late 2004, and entered into a contract in January 2005. The contract allowed TFP to secure business from any "target accounts" which were identified by AAR in a written Request for Information ("RFI"). Just prior to and separate from its relationship with TFP, AAR responded to a Northwest Airlines Request for Proposal for an aircraft maintenance and repair contract. TFP alleges that AAR identified Northwest as a target account, even though they did not complete an RFI. Northwest and TFP did communicate in early 2005. In February, Northwest reissued its Request for Proposal and AAR updated its submission, all without the knowledge or involvement of TFP. Northwest selected AAR for the maintenance contract. TFP filed suit, alleging that its efforts caused Northwest to award the contract to AAR. The district court granted summary judgment to AAR. TFP appeals.

In their opinion, Judges Kanne, Wood and Sykes affirmed. The Court rejected each link in TFP's argument chain: a) the initial overtures between TFP and Northwest related only to a landing gear proposal and are not relevant to the maintenance contract inquiry, b) the record does not support TFP's assertion that there was a “barrier” of some sort between Northwest and AAR before its intervention, c) the record evidence does support the conclusion that Northwest rejected TFP's business model and independently awarded the maintenance contract to AAR, and d) the record does not support TFP's claims that it was responsible for Northwest's visit to AAR's facility or that the visit was relevant to the award of the contract. The Court conceded that it must construe the evidence and its inferences in TFP's favor -- but it found nothing but speculation. The Court also rejected TFP's claims that AAR's failure to complete an RFI was a breach of the contract, that AAR's intention not to fulfill its promise constituted fraud, or that it could recover in quantum meruit.

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BKCAP, LLC v. CAPTEC FINANCIAL TRUST 2000-1 (July 13, 2009)

Quality Dining, Inc. has several subsidiaries (the "Borrowers") that own franchise restaurants, including Burger Kings, in several states. In 1999, as part of a significant refinancing initiative, the Borrowers obtain $49 million in financing in a total of 34 separate loans. One lender’s form agreement included a penalty for prepayment. At Borrowers’ insistence, the lenders modified the notes to allow a prepayment without penalty after 10 years. The notes included a formula for computing the new penalty. Eight years later, Borrowers prepaid 21 of the notes held by two of the lenders. The parties calculated the prepayment penalty as the difference between a stream of monthly payments through year 10 at the U.S. treasury rate versus at the actual rate. The Borrowers provided notice of prepayment with respect to the remaining notes, which were held by a third lender. Their notice was contingent on the lender accepting the same prepayment penalty formula. When the lender refused to so, the Borrowers filed suit seeking a declaratory judgment that their interpretation of the penalty provision was correct. The district court granted the lender's motion for summary judgment, concluding that the contract language was unambiguous and supported the lender's interpretation. The Borrowers appeal.

In their opinion, Judges Bauer, Sykes and Tinder reversed and remanded. The Court looked to state law to provide the substantive rules for resolving the contract dispute. Here, the contracts were governed by the laws of Michigan, Indiana and Pennsylvania. The Court first applied general rules of contract interpretation consistent in all the jurisdictions. The Court first looked at the plain meaning of the contract language with the goal of determining the intent of the parties. If the language is unambiguous, it would not consider extrinsic evidence. On the other hand, if the language is ambiguous, a trier of fact must examine extrinsic evidence to determine intent. Here. although the Court found the contract language clear, it also found that applying the clear language would produce absurd results. It concluded that the prepayment premium would always be negative, a result obviously not contemplated by these rational business entities. Even clear language can be ambiguous, said the Court, if it does not make economic sense. Both the lender and the Borrowers proposed interpretations that made economic sense. The Court rejected each, however, concluding that neither found support in the actual contract language. The Court concluded that the meaning of the formula is a question of fact to be determined after consideration of extrinsic evidence.

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U.S. NEUROSURGICAL, INC. V. CITY OF CHICAGO (July 9, 2009)

The City of Chicago entered into a contract with Global Health Systems, Inc. ("Global"), the predecessor to U. S. Neurosurgical, Inc. Global agreed to design, install and manage a computer information system. The purpose of the system was to implement case management and billing for the City’s Department of Health. At the time of the contract, the system only processed hand-entered data. Global represented, however, that its system was capable of processing scanned data. The contract provided that Global would assist the City in assessing the scanning function and modify the hardware and software if the City so desired. The City did decide to include a scanning function. The implementation turned out to be much more difficult and costly than anticipated. Global billed the City for the extra work, even though it did not follow the correct contract procedures. When the City refused to pay, U.S. Neurosurgical sued. After a bench trial, the court concluded that the work was required by the contract and denied relief. Alternatively, the court concluded that the extra work was not properly authorized, was not in writing, and did not comply with the contract procedures. U.S. Neurosurgical appeals.

In their opinion, Judges Bauer, Evans and Williams affirmed. The Court stated that any party doing business with a government entity is presumed to know a contract cannot be enforced unless it meets statutory requirements and is authorized by an appropriate official. Here, the City's procurement officer was the only person authorized to approve the contract. The Court rejected the argument that the City delegated such authority to the project manager. In addition, the Court stated that both the contract and a statute prohibited an oral modification. Although the Court conceded that a written contract can be modified orally notwithstanding a contractual prohibition, the same is not true for a statutory prohibition. The Court also rejected U.S. Neurosurgical's claims for relief based on equitable estoppel and account stated.

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DEBARTOLO v. HEALTHSOUTH CORPORATION (June 26, 2009)

Hansel DeBartolo was a surgeon and a limited partner in a surgical center in Joliet. The partnership agreement required DeBartolo to certify each year that he earned at least one third of his medical income from Medicare-approved procedures and he performed at least one third of those procedures at the surgical center in Joliet. The purpose of the certification was to qualify for a "safe harbor" in the Anti-Kickback Act, an act that makes criminal certain referral payments to physicians. When DeBartolo was unable to meet his certification obligations, the general partner exercised the contractual right to buy his interest. DeBartolo initiated an action for declaratory relief, claiming that the certification requirements of the partnership agreement violated the Anti-Kickback Act and, thus, were unenforceable. The district court dismissed for failure to state a claim. DeBartolo appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner vacated and remanded. Although both parties agreed that the district court had jurisdiction, the Court engaged in its own jurisdiction analysis. Section 1331 grants the power to hear matters "arising" under federal law. Here, DeBartolo cites the Anti-Kickback Act as a defense to an anticipated contract claim of the defendant. But, the Court said, a federal defense does not satisfy the "arising under" requirement of section 1331. When a party brings an action under the Declaratory Judgment Act, he must establish that the defendants have a claim "arising under" federal law. The Court vacated the dismissal order of the district court and remanded with instructions to dismiss for lack of jurisdiction.

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R. R. STREET & CO. v. VULCAN MATERIALS CO. (June 25, 2009)

R. R. Street has been the exclusive distributor for a dry cleaning solvent manufactured by Vulcan since 1961. Street alleges that Vulcan promised, in 1992, to and indemnify and defend Street for claims brought with respect to the solvent. Several lawsuits of that type are now pending against both Street and Vulcan. Several of Vulcan's insurers, including National Union, brought suit in California for a declaration that they are not required to defend Vulcan. National Union is also Street's insurer and has been defending Street in those lawsuits because Vulcan has refused to do so. Street and National Union sued Vulcan for breach of contract, promissory estoppel and indemnity. In addition, they asserted a claim for a declaration that Vulcan must defend and indemnify Street. Vulcan moved to either dismiss or stay the case pending resolution of the California case. The district court dismissed the case pursuant to theWilton/Brillhart doctrine. Vulcan appeals.

In their opinion, Judges Manion, Rovner and Tinder reversed and remanded. The Court noted that the relief provided in the Declaratory Judgment Act is discretionary. In Wilton and Brillhart, the Supreme Court held that district courts had much discretion in deciding whether to even entertain a declaratory judgment action. It is undisputed, the Court continued, that a district court can dismiss a complaint where only declaratory relief is requested. Here, however, plaintiffs seek both declaratory and non-declaratory relief. The Court noted that it had never ruled on that issue -- although several other courts of appeal had. The Fifth Circuit holds that Wilton/Brillhart is inapplicable when a non-frivolous claim for non-declaratory relief is present. The Second, Tenth and Fourth Circuits endorse similar results. The Ninth Circuit, on the other hand, rejects a bright line rule. It first asks whether non-declaratory claims exist that are independent of the declaratory relief requested. Independent claims are those that have a separate basis for jurisdiction and that can be resolved without the declaratory relief. If these independent claims exist, at least in the Ninth Circuit, the district court has almost no discretion to refuse to entertain them. The Court, upon reflection, thought the Ninth Circuit's approach was preferable and adopted a test whereby a district court should first determine whether the non-declaratory claims are independent of the declaratory claims. The Court defined "independent claim" as one which has its own jurisdictional basis and is viable without regard to the declaratory claim. If the non-declaratory claims are independent, Wilton/Brillhart doctrine should not be applied and the court should hear the claims. A court should also retain the declaratory claims for the sake of efficiency. Here, the non-declaratory claims are independent -- the district court would have diversity jurisdiction over the claims and declaratory relief is not a prerequisite for the resolution of the claims. The district court should have retained both the non-declaratory and declaratory claims.

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SMS DEMAG AKTIENGESELLSCHAFT v. MATERIAL SCIENCES CORPORATION (May 8, 2009)

Material Sciences Corp. ("MSC") is a large liquid-coating company. It pre-paints raw material used in commercial and industrial applications. During the 1990s, MSC began working with Terronics Development Corporation ("TDC"), a small research and engineering company that had developed a process for coating materials with a powder-based paint. In 1998, the parties entered into a technology agreement. Under the agreement, TDC assigned certain patents to MSC and MSC promised to purchase equipment and consulting services from TDC. By its terms, the agreement would expire in 2002 but could be renewed. After some initial successes, the technology did not pan out as expected. TDC covered some of its cost overruns by borrowing from MSC against its future profit expectations. The relationship of the parties came to an end in 2002. TDC sought millions in damages and a reassignment of its patents. The district court granted MSC's motion for summary judgment. TDC appeals.

In their opinion, Judges Cudahy, Flaum and Wood affirmed in part, reversed in part and remanded. The court first addressed TDC's damages claims: a) a $250,000 assignment fee, b) $143,000 in consulting services, and c) $1.7 million in fees for the years 2003 – 2006. The Court rejected each: a) the Court found no evidence in the record that MSC had renewed the agreement past 2002 and was liable for the $1.7 in annual fees for those years, b) the Court concluded that TDC had repudiated its obligation to provide consulting services and was therefore not entitled any payment, and c) the Court determined that MSC had credited the amount of the $250,000 assignment against a balance owed on TDC's note. The Court found that the lower court erred, however, in denying TDC the return of its patents. The contract on its face required MSC to return all patents to TDC upon termination of the agreement. Although another section of the contract required MSC to return the patents if MSC terminated the agreement (which it did not), the Court concluded that that provision was not enough to render the contract ambiguous and allow extrinsic evidence of the parties’ intent. The Court remanded because of confusion in the record regarding which patents TDC actually transferred and which patents MSC continued to possess.

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ILLINOIS INVESTMENT TRUST NO. 92-7163 v. AMERICAN GRADING CO. (April 8, 2009)

Resource Technology Corp. ("RTC") collected methane gas at landfills and converted the gas into energy. In 1995, RTC entered into a ten-year lease at the McCook landfill. RTC was to install and operate a methane collection and conversion system in exchange for royalties. Although the actual royalties were computed on the sale of electrical energy, the lease required RTC to pay a $100,000 royalty advance at the beginning of each year. RTC entered bankruptcy in 1999. The bankruptcy proceeded for several years. When the 2006 royalty advance payment became due, the trustee did not pay it. A few weeks later the owner of the landfill requested that the trustee refrain from entering the premises. In March of 2006, the trustee entered into a settlement agreement with some of RTC's creditors. Illinois Investment sought an order under the agreement compelling the estate to assume the McCook lease. The lessor objected, asserting that the ten-year lease term had expired. The court ruled that the lease had been extended for a five-year term. The lessor then sent a notice of termination of the lease. The bankruptcy court determined that the lessor validly terminated the lease as a result of RTC's failure to make the royalty payment. Illinois Investment appeals.

In their opinion, Judges Manion, Wood and Williams affirmed. The Court ruled that the failure to pay the advance royalty was a material breach and allowed the lessor to terminate the lease. Even if no royalties were generated during the year, as Illinois Investment argued, the Court concluded that the advance royalty was still required, as security for RTC's performance under the lease.

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REMAPP INTERNATIONAL CORP. v. COMFORT KEYBOARD CO. (March 24, 2009)

ReMapp International Corp. ("ReMapp") and Comfort Keyboard Co. ("Comfort") had done business together for several years. ReMapp provided electronic materials, including circuit boards. In 2006, the parties engaged in oral and written communications regarding the purchase of several thousand circuit boards and several thousand microprocessors. When Comfort did not pay for the material, ReMapp brought a breach of contract action. At a bench trial, the court awarded damages for Comfort's failure to pay for the circuit boards. Although the court also found that Comfort had breached the contract with respect to the microprocessors, the court also found that ReMapp had not mitigated its damages and so awarded no damages. Comfort appeals.

In their opinion, Judges Flaum, Williams and Kapala affirmed. The Court cited Wisconsin law for the proposition that contract may be formed in any manner that shows agreement, including the conduct of the parties. The Court determined that the evidence at trial supported the conclusion that the parties had an oral agreement for both the circuit boards and the microprocessors. Because the contract was not in writing and exceeded $500, the Court addressed the Statute of Frauds exceptions relied on below. With respect to the circuit boards, the Court concluded that the evidence supported ReMapp’s argument that they were specially manufactured goods and therefore not subject to the statute. The Court found the issue with respect to the microprocessors moot, because the court below awarded no relief on that issue. Alternatively, it found that the evidence supported the fact that Comfort had received written notice of the order and made no objection within 10 days, therefore taking that contract out of the statute as well.

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FMS, INC. v. VOLVO CONSTRUCTION EQUIPMENT NORTH AMERICA, INCORPORATED (March 4, 2009)

In 1997, FMS and Samsung entered into a dealer agreement under which FMS was authorized to sell Samsung construction equipment in Maine. The next year, Samsung sold its construction equipment business to Volvo. Volvo acquired the division, the factory, the design, and the franchise relationships -- but not the name. It was only authorized to sell under the Samsung name for three years. Volvo did manufacture and sell equipment under the Samsung name. In short order, however, it redesigned the equipment and rebranded it with the Volvo name. It then terminated the agreements with most of the Samsung dealers. FMS and other dealers brought an action against Volvo, alleging a breach of contract and wrongful termination. The District Court granted summary judgment to Volvo. On appeal, the Seventh Circuit affirmed in large part but reversed with respect to FMS's Maine franchise law claim. The Court held that there was a genuine factual dispute about whether Volvo had "good cause" under the Maine statute to terminate the franchise. On remand, a jury found for FMS. Volvo appeals.

In their opinion, Judges Flaum, Rovner and Sykes reversed and remanded. The court first considered the Maine franchise law. That law requires "good cause" for a manufacturer to terminate a franchisee. A manufacture’s discontinuation of the production of the franchise goods constitutes good cause under the statute. Volvo argued that it's redesign and rebranding of the equipment constituted a discontinuation of the franchise goods. The Court turned its analysis to the statutory definition of “franchise goods.” It found that the definition centered on the grant of a license to use a trademark or trade name. Considering that definition in conjunction with the dealer agreement, which defined the target of the franchise to be “all Samsung construction equipment,” the Court concluded that the contract only covered equipment that was branded Samsung. The Court then addressed whether the contractual inclusion of "later improved or superseding models" in its definition of “product” was enough to include the Volvo equipment. The Court cited the contract interpretation principle that when a contract refers to items “including” other items, the latter must be a subset of the former. It therefore concluded that that phrase included only later models that were branded Samsung. Concluding that the franchise covered only Samsung branded equipment, the Court had little difficulty in finding that Volvo met the good cause requirement when it discontinued the production of Samsung-branded equipment. Volvo is therefore not liable for improper termination under the Maine franchise statute and was entitled to summary judgment in its favor.

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WISCONSIN ELECTRIC POWER COMPANY v. UNION PACIFIC RAILROAD COMPANY (March 2, 2009)

Wisconsin Electric Power Company (WEPCO) and the Union Pacific Railroad Company (UP) entered into a contract for the transportation of coal from Colorado coal mines to WEPCO during the years 1999 -- 2005. The rate that UP could charge WEPCO depended on whether UP was able to reload its empty railcars with shipments of iron ore destined for a steel mill in Utah. The contract provided that UP could charge the higher rate if "an event of force majeure" prevented it from reloading its rail cars with iron ore. The steel mill was bankrupt when the parties entered into the agreement, though still operating. It shut down in 2001, but did not close for good until 2004. UP declared an "event of force majeure" after the mill’s final closure in 2004. WEPCO sued UP for breach of contract, alleging that it was not liable for the higher rate under the contract and that UP failed to perform its contractual obligation to ship requested tonnage to WEPCO. The District Court granted summary judgment to UP. WEPCO appeals

In their opinion, Judges Posner, Ripple and Rovner affirmed. The Court first rejected WEPCO’s argument that UP waived its rights by not providing the “prompt notice” required by the contract. UP did not assert its rights upon the plant’s first closing. But the contract included a “no waiver” clause, which provided that a party did not waive a right by not insisting upon it. A no-waiver clause can itself be waived, said the Court, but only with clear and convincing evidence. Such evidence was not present in the case. The Court also noted the lack of any evidence that WEPCO was harmed by the late notice. There was no dispute over the existence of the plant’s closing and WEPCO presented no evidence that it could have developed less expensive alternatives had it been put on notice. The Court even noted that WEPCO saved $7 million due to UP’s decision not to give notice of force majeure in 2001.

The Court also rejected WEPCO’s claim that UP’s failure to ship 100% of its requested tonnage was a breach of the agreement. The contract required UP to make “good faith reasonable efforts” to meet WEPCO’s demand. The Court concluded that UP’s decision to ship to other customers, even ones who might be paying more for the shipments, did not constitute a lack of good faith. A lack of good faith requires evidence of lack of diligence, a willful failure to perform, abuse of power, or interference with performance – none of which were presented here.
 

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A.T.N., INC. v. MCAIRLAID’S VLIESSTOFFE GMBH & CO. (February 25, 2009)

Yossi Azaraf is the sole shareholder of A.T.N. Azaraf became interested in products manufactured by McAirlaid’s Vliesstoffe GmbH & Co. (“McAirlaid’s”) and its related enterprises. After some negotiations, Azaraf and McAirlaid’s entered into an agreement. The agreement provided that Azaraf wished to develop sales of McAirlaid’s in the U.S., would install manufacturing equipment in the U.S., and would use its best efforts to create a market for McAirlaid’s products in the U.S. In return, A.T.N. got the exclusive right to manufacture the products in the U.S. The agreement also provided that A.T.N.’s customers would “remain exclusive” to A.T.N. as long as A.T.N. purchased product from McAirlaid’s. A.T.N. never set up a manufacturing facility in the U.S. but did procure a customer. After about a year, McAirlaid’s notified A.T.N. that it would no longer provide the product. It then notified the customer that it would have to purchase the product directly from McAirlaid’s. A.T.N. brought suit, alleging breach of contract and unjust enrichment. The lower court granted summary judgment to McAirlaid’s. A.T.N. appeals.

In their opinion, Judges Manion, Evans and Tinder affirmed. The Court noted the dispute regarding the meaning of the “remain exclusive” clause but concluded that it need not decide that issue. Under Illinois law, a contract that lacks a duration term is generally terminable at will by either party. The agreement between A.T.N. and McAirlaid’s did lack such a term and is therefore terminable at will. The Court recognized one exception to that general rule – when a contract is terminable upon the occurrence of an event. Here, either party could end the contract simply by not performing. Either party’s non-performance is not the kind of specific event that would bring the contract out of the terminable at will category.

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LINDQUIST FORD v. MIDDLETON MOTORS (February 25, 2009)

The Hudson brothers owned and operated Middleton Motors, Inc. (“Middleton”), a Ford dealership. The company was experiencing significant financial difficulties and sought assistance from Lindquist Ford, a dealership in a neighboring state. They discussed the possibility that Craig Miller, Lindquist’s manager, could help manage the operation. They also discussed the possibility of a cash infusion from Lindquist. In April 2003, the parties agreed that Miller would begin working at Middleton on a part-time basis and, in fact, he began working at Middleton on April 21. The parties had not yet reached an agreement although there was an understanding that Miller’s compensation would be based on net profits. Further discussions continued regarding a cash infusion by Lindquist and an understanding of Miller’s compensation but an agreement was never reached. Middleton fired Miller almost a year after he started – without any compensation having been paid or any cash infusion by Lindquist. Lindquist brought an action for quantum meruit and unjust enrichment. After a bench trial, the court found for Lindquist on both counts and awarded $152,332 in damages. Middleton appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder reversed and remanded. The Court first noted some confusion in Wisconsin case law on unjust enrichment and quantum meruit and reviewed the fundamentals of the claims. Both quantum meruit and unjust enrichment are quasi-contractual remedies applicable only when there is no enforceable contract. Both are governed by equitable principles in Wisconsin. The elements of unjust enrichment are: a) a benefit to the defendant by the plaintiff, b) appreciation by the defendant of the benefit, and c) retention of the benefit where it would be inequitable to retain it without payment. The measure of damages is the value of the benefit. Quantum meruit, on the other hand, does not require a benefit to be conferred on the defendant and damages are determined by the reasonable value of plaintiff’s services. Its elements are: a) proof that the defendant asked for the services of plaintiff, and b) proof that plaintiff reasonably expected compensation. The Court also discussed the Wisconsin case law regarding implied-in-fact contracts, which are different from quantum meruit and unjust enrichment, because it believed the trial court’s confusion stemmed from it. With respect to the quantum meruit claim, the Court concluded that the district court improperly relied on Wisconsin implied-in-fact contract principles. For example, the court excluded evidence of the contract negotiations, deeming them irrelevant because it was not a contract case. The Court disagreed, holding that, although not a contract case, evidence of the negotiations was relevant to the reasonable expectations of the plaintiff. With respect to the unjust enrichment claim, the lower court did properly identify the elements of the claim but the Court determined that it misapplied the equity element. The lower court looked only at the fact that Miller worked for eleven months without pay. The Court concluded that the inquiry should be much broader – the parties had significant negotiations about their expectations for Miller’s compensation and the need for a cash infusion. Again, much of the relevant evidence was disallowed by the court.

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KURZ v. FIDELITY MANAGEMENT & RESEARCH CO. (February 23, 2009)

Kurz and Heinzl both invested in portfolios managed by Fidelity Management & Research Co. (“Fidelity”). Apparently, some Fidelity employees placed trades with Jeffries & Co. in return for kickbacks from Jeffries. The SEC initiated a proceeding under the Investment Company Act and the Investment Advisors Act. Fidelity and the SEC entered into a consent decree. Kurz and Heinzl thereafter filed a class-action suit in state court, alleging that the employees’ conduct resulted in a breach of contract by Fidelity. Fidelity removed to federal court on the basis that their failure to disclose the employees’ misconduct was a securities law issue. The district court denied Kurz’ motion to remand and entered judgment for Fidelity. Kurz appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Kendall affirmed. The Court referred to the Securities Litigation Uniform Standards Act of 1998 (the “Act”). The Act generally bars class actions based on state law which allege an omission of a material fact “in connection with the purchase or sale of a covered security. The Court noted that there are exceptions to the bar (like a derivative action) but Kurz did not invoke any exception. Instead, his position was that the claim was a contract claim -- not one for a misrepresentation or omission. The Court agreed that a true action for breach of contract would not be barred by the Act but concluded that Kurz could not maintain an action for breach of contract. The principal reason for his inability to do so was the complete absence of any promise made by Fidelity to Kurz.

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DELTA CONSULTING GROUP v. R. RANDLE CONSTRUCTION (February 5, 2009)

R. Randle Construction Company and Ronald Randle (“Randle”) acted as a general contractor on a high school construction project. Disputes and delays resulted in Randle suffering a loss on the project. He retained Delta Consulting Group (“Delta”) to prepare and present a Request for Equitable Adjustment (“REA”). Delta estimated that the cost of their services would be $34,000. Delta prepared and presented an REA for $1.6 million. It was rejected. Delta prepared and submitted a second REA, this one for $1.7 million. Delta and Randle met with the school’s representatives to discuss the REA. Again, the school rejected the REA as unsupported by adequate documentary evidence. Randle met with the school once again, this time without Delta. He was again unsuccessful. Randle paid Delta’s periodic invoices through March 9, 2004, several days after this last meeting. Randle ultimately paid Delta a little more than $60,000 out of $144,000 billed. Randle and the school ultimately settled their dispute for $450,000. In October of 2004, Randle’s auditors sent a letter to Delta asking it to confirm an amount owed to Delta by Randle of $89,000. Delta replied to the letter – correcting the amount to $81,000. Randle did not object. When Delta sought to collect, Randle expressed his dissatisfaction with Delta’s services. Delta sued for the $81,000. Randle counterclaimed for breach of contract, alleging that Delta did not adequately present the REA. The district court granted summary judgment to Delta and awarded prejudgment and postjudgment interest. Randle appeals.

In their opinion, Judges Bauer, Wood and Tinder affirmed on the merits and remanded for recalculation of interest. The Court upheld the district court’s finding of an account stated. An account stated, said the Court, establishes the amount of a debt when two parties agree that an account exists representing the transaction between them. When one party states the amount and the other acquiesces by not objecting within a reasonable time, the amount is acknowledged and an agreement to pay is implied. The lower original estimate of Delta does not affect the outcome. Randle a) did not contract for the estimated amount, b) continued to pay invoices over the estimate, c) asked Delta to stop collection efforts while he tried to resolve the dispute through litigation, and d) asked Delta (through his auditors) to confirm the amount it believed it owed. Delta’s reply to the auditors’ letter and Randle’s failure to object is sufficient to create an account stated. The Court also rejected Randle’s argument that he was not personally liable. He never raised the defense in the district court and, in fact, counterclaimed in both his corporate and individual capacity. The Court concluded he waived any objection. The Court also agreed with the district court that Randle waived his breach of contract counterclaim, relying on the same facts and inferences – that Randle never objected to an invoice, never asked for the return of money, and continued to pay invoices. Finally, the parties agreed that the district court erred in applying Illinois, rather than federal, standards for postjudgment interest. The Court remanded for a recalculation.

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HK SYSTEMS v. EATON CORPORATION (January 28, 2009)

IBP owned a large beef-processing plant in Nebraska. It wanted to replace its material handling system at the plant. Alvey and an Eaton Corporation (“Eaton”) subsidiary submitted the successful joint bid. During the contract negotiations, Eaton sold its subsidiary to HK Systems, Inc. (“HK”). The contract of sale contained broad cross-indemnities. A month later, IBP and HK entered into a contract for the purchase of the system. IBP was not satisfied with the speed at which the system operated and sued HK in state court. IBP alleged fraud, based on a system-speed representation made by Eaton before it sold its subsidiary, and breach of contract, based on a system-speed provision of the contract. The suit was settled for $8 million, $5 million from Alvey and $3 million from HK. HK brought this suit against Eaton for indemnification. Eaton argued that HK’s loss had been caused by HK’s own actions, not Eaton’s. The court originally denied summary judgment and judgment as a matter of law. A jury awarded HK $3 million. The court reconsidered the earlier motion for summary judgment and granted it. HK appeals.

In their opinion, Judges Posner, Ripple and Evans affirmed. The Court first noted that there was nothing improper in the district court’s reconsideration of it summary judgment ruling. Eaton had not preserved its argument that HK was responsible for its loss in its motion for judgment as a matter of law. Although the doctrine of the law of the case normally counsels against a judge reconsidering an earlier ruling, the district court does have discretion to do so when it is convinced that its earlier ruling was wrong and no harm will result. Here, the Court observed that the trial judge ruled on the meaning of the indemnification clause, which he considered a question of law. On reconsideration, he ruled that Eaton was not liable for HK’s loss because the contract between HK and IBP was an intervening cause. The Court agreed with the district court’s view on reconsideration, although it preferred framing the issue in terms of responsibility rather than cause. In any multiple factor case, responsibility is determined by reference to policy. Sometimes intervening acts are enough to shield one from liability – other times not. The Court referred to the contract between HK and Eaton. It contained mirror-image indemnification provisions. If Eaton was liable to HK for certain losses due to its representations, then HK was liable to Eaton for the loss it suffered because of its act – signing the contract – that occurred after the sale. The Court found that the district court’s resolution of this dilemma by adopting a narrow reading of the indemnity was consistent with the Court’s earlier decision holding that an indemnity will normally not apply, without explicit language, to a breach of contract claim for a contract entered into after the indemnity. The Court explained the policy reasons for such a holding. A party is typically in control of its contracts and performance. One should not be able to insure or acquire an indemnity to protect against liability for a breach when the one most able to protect against a breach is the very person insured. Here, HK should have made sure that its new subsidiary was capable of performing its contractual obligations to IBP before entering into the agreement. It cannot shift that liability to Eaton.

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INEOS POLYMERS v. BASF CATALYSTS (January 13, 2009)

In 1992, Amoco Chemical Company (“Amoco”) and Catalyst Resources, Inc. (“CRI”) entered into a long-term supply agreement for polypropylene catalyst. CRI agreed to build a facility for production of the catalyst – Amoco agreed to fund it over time with its purchase commitments. The contract was quite long and detailed. Article 17 was a Right of First Refusal – it provided that neither CRI nor its parent could dispose of CRI or the plant without first giving Amoco a right to purchase. Article 17 did not apply to a disposition to another company wholly owned by CRI’s parent. Article 19 dealt with assignments. It provided that neither party could assign the agreement without the consent of the other. Article 19 permitted an assignment, without consent, by Amoco to any company owned 50% or more by its parent and by CRI to any company owned 100% by its parent. Both companies underwent significant changes over the following fifteen years. Among the many changes on the Amoco side was its sale by its then parent in 2005 to INEOS US Intermediate Holding Company. The company was renamed INEOS Polymers (“INEOS”). Meanwhile, on the CRI side, the assets were sold in 1993 to Mallinckrodt and sold again in 1998 to Engelhard. On both occasions, Amoco waived its Article 17 right of first refusal. In 2006, BASF acquired Engelhard and renamed it BASF Catalysts (“BASF”). INEOS advised BASF and Engelhard that the transaction triggered its Article 17 right of first refusal. BASF disagreed. INEOS brought an action, alleging breach of contract and tortious interference. The district court dismissed the complaint. It held that the sale of Amoco to INEOS was an assignment to a party not owned 50% or more by Amoco’s parent and thus triggered Article 19. INEOS was, therefore, an impermissible assignee of the contract and could not sue to enforce it. INEOS appeals.

In their opinion, Judges Ripple, Evans and Sykes reversed and remanded. In order to affirm the dismissal, the Court began, it must conclude that the plain and unambiguous meaning of Article 19 is that each party was required to get the other party’s consent to any change in control. That it could not do. First, the general rule is that a change in ownership has no effect on a corporation’s contractual obligations and does not constitute an assignment of those obligations. Second, there is nothing in the contract, contrary to BASF’s argument, that contractually modified the general rule. In fact, quite the contrary: a) Article 19 does not even mention change in ownership, b) Article 17, which does explicitly address changes in ownership, would be rendered moot if Article 19 applied to a change in ownership, and c) the contract treats successors and assigns separately – treating every successor as an assign would be inconsistent. The Court could not conclude that the clear and unambiguous terms of the contract led only to the conclusion reached by the district court. The Court noted also that the course of performance of the parties was inconsistent with the district court’s conclusion. Every prior change in ownership was treated by the parties under Article 17, not Article 19. The dismissal of the complaint was error.

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HOLMES v. POTTER (December 31, 2008)

Robert Holmes was an employee of the United States Postal Service (“USPS”) in Minnesota from 1970 until 1992. He sued the USPS under Title VII of the Civil Rights Act of 1964 (“Title VII”). The case settled in 1994. Shortly thereafter, he returned to the employ of USPS in Indiana. In 2003, Holmes filed a complaint with the EEOC that the USPS failed to accommodate a disability, in violation of the Rehabilitation Act. In mid-2004, Holmes and USPS resolved their dispute at an EEOC mediation. The settlement agreement a) placed Holmes on twenty hours per week administrative leave/twenty hours per week leave-without-pay status through October 2004 and retroactive to January 2003, b) specified his salary, and c) required him to retire or resign in October 2004. Holmes filed this suit to enforce the settlement agreement, complaining that several actions taken by USPS after the settlement violated its terms. The district court granted summary judgment to USPS. Holmes appeals.

In their opinion, Judges Bauer, Williams and Sykes affirmed. Addressing their jurisdiction, the Court noted that a suit to enforce a settlement agreement requires an independent basis for federal jurisdiction. Because this is a suit to enforce a pre-determination settlement enforceable under Title VII, jurisdiction lies. The Court also stated that it would apply Indiana law, not federal law. The settlement of a federal claim is enforced like any other contract under state law. The Court recited some of the Indiana rules of contract construction: a) the goal is to give effect to the parties’ intent, b) extrinsic evidence is not allowed to create an ambiguity, and c) extrinsic evidence is not admissible to vary or add to the terms of an unambiguous contract. Holmes complains that USPS breached the settlement agreement by recalculating his retirement benefit, by improperly calculating the amount of his leave, and by deducting health insurance premiums. In large part, Holmes relied on statements allegedly made to him by the mediator before settlement. The Court concluded that the agreement was unambiguous, that USPS had complied with its requirements, and that none of the conduct Holmes complained of was even addressed in the agreement. There was, therefore, no breach. If Holmes was correct in any of his complaints, the Court advised, his remedy was not in a breach of contract suit.

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GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (December 15, 2008)

Juliette Low founded the Girl Scouts of the United States of America (“GSUSA”) in 1912. GSUSA is run by a national council and its board of directors. In its almost 100 years of existence, GSUSA has developed a large network of local girl scout councils. GSUSA first chartered Girl Scouts of Manitou (“Manitou”) as a council in 1950. As of 2005, there were over 300 local councils. Each council has a charter issued by GSUSA that defines the relationship between the two and grants the council the right to maintain scouting throughout its jurisdiction. In 2005, GSUSA announced a plan to consolidate councils. It planned to reduce the number of councils to just over one hundred. Each council would be larger and, GSUSA hoped, more efficient. The plan would have required Manitou to merge 60% of its territory with six other nearby councils and cede 40% of its territory to two other councils. Manitou decided not to go along. It filed suit in February 2008 against GSUSA. It alleged breach of contract, tortious interference and a violation of the Wisconsin Fair Dealership Law. It sought to permanently enjoin GSUSA from altering its territory. The district court denied Manitou’s request for a preliminary injunction without a hearing. The court held that Manitou had failed to demonstrate that it would suffer irreparable harm in the absence of the injunction. Manitou appeals.

In their opinion, Judges Posner, Kanne and Tinder reversed and entered the requested order enjoining GSUSA. The Court led off with the familiar two-phase test for a preliminary injunction. A movant must demonstrate: a) irreparable harm, b) inadequate legal remedy, and c) a likelihood of success. The movant who succeeds in that first phase enters a second phase in which the court balances the injury to the plaintiff, its likelihood of success, the possible injury to the defendant if the injunction issues, and the public interest. The court uses a balancing test in which the greater the plaintiff’s likelihood of success, the less the balance of harm needs to be in its favor. Applying that test, the Court first addressed irreparable harm, the only of the first-phase factors addressed by the district court. The Court disagreed with the court below. It found that Manitou’s loss of jurisdiction would severely affect its ability to generate revenue and harm its goodwill. That harm would not be rectified if a final judgment were entered in its favor and the loss of jurisdiction reversed. The Court also disagreed with the court below on the application of the Wisconsin Fair Dealership Law, under which a “dealer” in Manitou’s circumstances enjoys a statutory presumption of irreparable harm. The Court found that Manitou fit within the statutory definition of “dealer” in the act.

Having found that Manitou established irreparable harm and also noting that the record contained sufficient information to address the rest of the two-phase analysis without remand, the Court proceeded to do so. The Court found that the timing of and difficulty in calculating a damages award established that Manitou’s legal remedies were inadequate. On the likelihood of success factor, the Court noted that it only had to find a “better than negligible” chance of success to satisfy this prong. The Court evaluated only the Wisconsin Fair Dealership Law claim and found that Manitou satisfied that minimal standard.

In addressing the balancing portion of the test, the Court found a “drastic imbalance” in favor of Manitou. The Court noted that the national GSUSA program to consolidate regions was not even scheduled to be completed for a year. Any delay in the Wisconsin part of that plan would not lead to any harm to GSUSA. In addition, any harm to GSUSA could be rectified later. The Court did not feel the need to conduct a deeper analysis of Manitou’s likelihood to succeed given the imbalance of the harm.

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AA SALES v. CONI-SEAL (December 9, 2008)

Gerald Saltzman, owner and sole employee of AA Sales, and Coni-Seal started working together in the early 1980s. Coni-Seal manufactured automotive parts. Saltzman was a sales representative. Early successes led to a written agreement in 1987. The contract provided AA Sales with a 6% commission on sales to approved accounts and with 5 years of post-termination commissions on accounts previously sold by AA Sales. AA and Coni-Seal later agreed to negotiate commissions on an account-by-account basis. In 1994, Coni-Seal approved AA to solicit AutoZone, a large retailer of automotive parts. Shortly thereafter, their relationship began to sour. In 1995, Coni-Seal reassigned several accounts away from AA. In return for releasing the accounts, AA agreed to a monthly fee and a 2% commission on sales to the accounts it released. Coni-Seal authorized a second sales representative for AutoZone in 2003. Coni-Seal began selling to AutoZone in 2004. It paid no commissions to AA on these sales. AA filed suit for breach of contract and violation of the Illinois Sales Representative Act (“ISRA”). The district court granted summary judgment to Coni-Seal. AA appeals.

In their opinion, Judges Cudahy, Flaum and Rovner affirmed in part and reversed in part. The Court agreed with the district court that AA was not responsible for the AutoZone sales but disagreed that that ended the inquiry. The issue for the Court was whether the parties’ contract entitled it to commissions. The Court determined that the contract required Coni-Seal to pay a commission: a) during the life of the contract on all sales to approved accounts, whether AA was responsible for the sale or not, and b) after termination of the contract, only on sales to accounts for which AA was responsible for sales during the life of the contract. The Court proceeded to address the issue of whether Coni-Seal’s sales to AutoZone were “sales to approved accounts.” The parties’ versions of the development of the AutoZone account differed considerably. The Court reversed and remanded for trial.

With respect to AA’s claims on the 1995 oral contract, the Court held that it was not a new contract, but a modification of the termination provisions of the 1987 contract. Since it did not include a term of years to apply to the new post-termination commissions, the Court applied the five year term from the 1987 contract. Since Coni-Seal had already paid the commissions for over ten years, the Court affirmed the district court’s judgment on the 1995 contract.

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MCKINNEY v. CADLEWAY PROPERTIES, INC. (November 13, 2008)

Versia McKinney’s sewer backed up in her Chicago home in 1996 and caused substantial damage. McKinney took out a disaster assistance loan of $5200 from the Small Business Administration (“SBA”). At some point, McKinney stopped making payments on the loan. The SBA sold the loan. It eventually was sold to Cadleway Properties, Inc. (“Cadleway”). Cadleway sent McKinney a letter in September 2004. The letter informed McKinney that Cadleway had purchased the debt and that McKinney should make payments to Cadleway. The back of the letter contained a “Validation of Debt Notice” intended to comply with the Fair Debt Collection Practices Act (the “Act”). The notice stated that: a) McKinney owed $4,370.02, b) McKinney had 30 days to tell Cadleway that she disputed the debt, and c) Cadleway would assume the debt was valid if McKinney did not so dispute. At the bottom of the form, McKinney was asked to confirm the amount of the balance as stated by Cadleway or to state what she believed to be the correct balance. McKinney filed an action against Cadleway alleging that the notice letter violated the Act. She only sought statutory damages and attorney’s fees. The court below held that: a) the obligation was a “debt” under the Act, b) Cadleway was a “debt collector” under the Act, and c) the notice letter was confusing on its face to an unsophisticated consumer and therefore in violation of the Act. The court granted summary judgment to McKinney. Cadleway appeals.

In their opinion, Judges Manion (concurring in part and concurring in the judgment), Rovner (concurring in part, dissenting in part), and Sykes reversed and remanded. The Court stated that the purpose of the Act was to protect consumers from deceptive and unfair debt collection practices. It applies only to “debt collectors,” as that term is defined in the Act. The substantive section relevant to McKinney’s complaint is the requirement that a debt collector notify a consumer of her right to dispute the validity of, and receive a verification of, the debt. The Court first addressed Cadleway’s status as a “debt collector.” The majority on that issue (Sykes and Rovner) relied on the language of the Act and the Court’s prior decision in Schlosser to hold that Cadleway was a debt collector. The Court stated that the terms “debt collector” and “creditor” in the Act are mutually exclusive. The determinative factor in deciding which term applies to Cadleway is whether the debt was in default at the time Cadleway acquired it. Since McKinney’s debt was in default, Cadleway was a debt collector. With respect to the notice, the majority on that issue (Sykes and Manion) stated that the Act requires the debt collector to provide an initial communication with certain disclosures to the consumer. The Act requires no particular form but the disclosures must not be confusing to the “unsophisticated consumer.” Normally, the majority noted, the plaintiff would bring forth evidence of confusion. Here, McKinney introduced no extrinsic evidence of confusion. In fact, McKinney testified that she herself was not confused by the notice. The majority conceded that a notice letter could be so clearly confusing on its face that summary judgment could be granted. However, it did not believe that McKinney’s notice was such a case. The Court specifically addressed the balance confirmation request that the district court had found to be confusing. The majority found the notice to be clear. It simply asked McKinney to confirm the amount of the debt or dispute it. The notice complied with the Act. The Court remanded with instructions to enter judgment for Cadleway.

Judge Manion concurred in part and concurred in the judgment. Judge Manion agreed with the Court’s opinion on the validity of the notice letter. He noted that, given the outcome on that issue, the Court need not have resolved the “debt collector” issue. Having done so, however, Judge Manion wrote to express his disagreement with the resolution of that issue. The exclusionary language in the definition of “creditor” and the definition of “debt collector” in the Act refer to a person who collects a debt “for another” or “due another,” respectively. Cadleway was not collecting the debt for another. Cadleway purchased the debt and was collecting it for its own account. Judge Manion conceded that Schlosser held that the person holding the debt was a “debt collector” in similar circumstances. He pointed out, however, that the issue of collecting for another never came up. Judge Manion would not have been found Cadleway to be a “debt collector.”

Judge Rovner also wrote separately, concurring in part and dissenting in part. Judge Rovner concurred with the majority’s resolution of the “debt collector” issue without additional comment. She disagreed with the resolution of the validity of the notice letter, however. Judge Rovner found the letter “clearly confusing” on its face. She focused solely on the balance confirmation request section. Judge Rovner found the paragraph confusing, particularly to a consumer who may believe she owes something but has no records or other way of computing a different amount. The letter implies that the confirmation is obligatory, and also implies that failure to do so will damage one’s credit rating. Under the terms of the Act, the creditor can simply respond that she disputes the debt collector’s proffered total. Judge Rovner found the letter different from, and at least to some degree contrary to, the terms of the Act and therefore a violation of the Act.

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BUSINESS SYSTEMS ENGINEERING, INC. v INTERNATIONAL BUSINESS MACHINES CORP. (November 10, 2008)

International Business Machines Corp. (“IBM”) contracted with the Chicago Transit Authority (“CTA”) to install a new computer system. The CTA conditioned IBM’s contract on IBM’s use of “disadvantaged business enterprises” as subcontractors to complete at least 30% of the dollar value of the contract. IBM entered into an agreement with Business Systems Engineering, Inc. (“BSE”) under which BSE would be one of those subcontractors. IBM and BSE first entered into a contract with standard terms and conditions that would generally govern their relationship. The contract described the procedures whereby IBM would identify tasks to be done and authorize BSE to perform those tasks. It specifically limited IBM’s obligation to authorized projects. IBM also was required to submit a schedule to the CTA that described BSE’s involvement in the project. IBM's final schedule listed BSE as being “prepared to provide” $3,624,550 in services. It also stated that IBM and BSE would enter into a formal contract for the work. During the course of the project, IBM “advertised” its needs to one or more of the approved subcontractors. When a subcontractor presented a suitable candidate to perform the work, IBM followed the procedure set forth in the standard terms and conditions by presenting a statement of work and work authorization. These documents described the task and the effort required, described the condition under which the project would be considered completed, and authorized payment for the task. IBM authorized statements of work for BSE totaling approximately $2.2 million. BSE filed suit alleging that IBM breached its contract with BSE by not paying the full $3.6 million listed in the final schedule. The district court dismissed on the ground that the schedule was not binding, but merely a document describing the parties’ anticipated future contracts. BSE amended its complaint by alleging that other documents, in addition to the contract and schedule, “evidence[d] the written agreement.” The court denied IBM’s renewed motion to dismiss but later granted summary judgment to IBM. It found no written contract for $3.6 million, holding that the collection of documents submitted by BSE were too vague and incomplete to establish a binding contract. The court also rejected BSE’s oral contract argument. BSE appeals.

In their opinion, Judges Manion, Wood, and Tinder affirmed. The Court found that the original contract, in conjunction with the work authorizations and purchase orders it contemplated, was the only contractual relationship between the parties. That agreement was clear that IBM was only responsible for services provided in response to statements of work specifically authorized by IBM. The Court rejected BSE’s oral agreement theory as well. The Court noted that the only term of the oral contract alleged by BSE is the $3.6 million price term. For a contract to be enforceable, a court must be able to look at agreed-upon terms to determine the obligations of the parties. The Court found the description of the services to be provided for the $3.6 million in the schedule and proffered e-mail too vague and generic to form the basis of an enforceable agreement.  

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MUHAMMAD v. OLIVER (November 10, 2008)

The Dennis Muhammad Community and Economic Development Corporation (“MDC”) is a Chicago-based minority business enterprise. It entered into a joint venture agreement with CDA Management (“CDAM”). The purpose of the venture was to bid on a contract to install air conditioners in Chicago Housing Authority (“CHA”) buildings. Their bid was successful but the relationship quickly soured. In 2002, MDC sued CDAM and the related non-profit Chicago Dwellings Association (“CDA”). MDC alleged, in a state court action, that the defendants breached the joint venture agreement by not allowing MDC to do the work it had agreed to do. The court granted CDA’s motion to dismiss on the ground that CDA was not a party to the agreement. Later, on MDC’s own motion, the court dismissed MDC’s complaint against CDAM without prejudice. In 2007, MDC brought suit in federal court against CDA, CDAM, and Christine Oliver. Oliver was the CEO of both CDA and CDAM. MDC repeated the same allegations it had made in the earlier state court suit. It added an allegation under § 1981 that the defendants had used MDC as a “minority front” to increase their chances of success on the bid for the CHA contract. The district court dismissed CDA and CDAM on res judicata grounds and dismissed Oliver because she was not a party to the joint venture. MDC appeals.

In their opinion, Judges Cudahy, Posner, and Rovner affirmed. The Court observed that, although the two complaints relied to some extent on different legal theories, they did both arise out of the same facts. When a prior case arising out of the same facts is abandoned after an adverse ruling, as the Court concluded the state court suit was, the judgment generally bars a later suit. When there are multiple defendants, as is here, the bar against one operates as a bar against all, if they arose out of the same facts. The Court found that all three defendants were alleged to be in violation of § 1981 for the identical conduct. The Court concluded that the earlier suit barred the federal complaint against all defendants. The Court also rejected MDC’s argument that there had been a stipulation to reserve all rights upon dismissal. The Court concluded that there was no evidence, or even allegation in the complaint, of such an agreement. Finally, the Court rejected MDC’s claim that the lower court erred by dismissing on res judicata grounds when a) the defendants never raised it and b) it is not one of the FRCP 12(b) defenses that are allowed to be raised by motion . The Court held that the dismissal was proper. The application of res judicata eliminates unnecessary lawsuits. It can be raised by the court on its own motion. Also, when an affirmative defense like res judicata is shown on the face of the complaint, it can be dismissed on motion.

The Court did conclude that the court below erred in dismissing Oliver on the grounds that she was not a party to the joint venture agreement. A claim of tortious interference with contractual rights on account of race does state a cause of action under § 1981. Nevertheless, Oliver is still entitled to dismissal. First, the Court pointed to its prior discussion of res judicata. The dismissal of the state court complaint barred a cause of action against any defendant arising out of the same facts. Oliver’s does. Second, when liability rests on the doctrine of respondeat superior, as it does here, the plaintiff cannot bring an action against the “servant” (Oliver) when judgment has already been entered for the “master” (CDA, CDAM). Third, and most significantly, the Court concluded that the complaint did not actually allege tortious interference on account of race. The Court stated that the allegation that the defendants included MDC to gain a bidding advantage, and then cheated them out of that advantage, did not allege racial discrimination. The Court observed that it was greed, not discrimination, that drove the defendants’ decision. The district court’s result was correct. 

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IOWA PHYSICIANS’ CLINIC MEDICAL FOUND. V. PHYSICIANS INSURANCE CO. (October 31, 2008)

Dr. Randall Mullin worked at a clinic in Geneseo, Illinois operated by the Iowa Physicians’ Clinic Medical Foundation under the name Iowa Health Physicians (“IHP”). Dr. Mullin provided anti-malarial therapy to his patient Dennis Goetz. Unfortunately, the treatment was not effective. Goetz contracted malaria and died. Goetz’ wife brought suit against Mullin and IHP. IHP provided malpractice insurance for Mullin through Physicians Insurance Company (“PIC”). PIC covered Mullin’s liability and defense up to $1 million. PIC did not insure IHP, however. Goetz’ widow offered to settle the case for $900,000 on more than one occasion before trial. When the defense’s own expert admitted in a deposition that Mullin’s treatment did not meet the standard of care, Goetz’ widow retracted the offer. At trial, the jury awarded Goetz’ widow $3.5 million in damages. PIC paid $1 million. IHP, under an agreement with Mullin, paid the rest. Mullin and IHP sued PIC in state court. They alleged that PIC breached its duty to settle in good faith. PIC removed the claim to federal court. The district court entered final judgment against IHP on the ground that PIC owed no duty to IHP. Mullin’s case remained pending. IHP appeals.

In their opinion, Judges Kanne, Evans, and Williams affirmed. The Court started with the “well-settled” recognition in Illinois of an insurer’s duty to settle in good faith. The duty arises from the covenant of good faith and fair dealing in an insurance contract. It arises when the insurer controls the litigation and the plaintiff seeks a settlement near the upper limits of the policy. The situation creates a conflict of interest for the insurer. Proceeding to trial presents little risk to the insurer and much risk to the insured. In fact, the Court observed that Mullin made out a good case for PIC’s breach of its duty. The Court had to consider, however, whether the Illinois Supreme Court would extend the duty of good faith to an uninsured policyholder, in addition to the insured himself. IHP argued that its contractual relationship with PIC supported such a duty. The Court pointed out that the Illinois Supreme Court has refused on numerous occasions to extend the insurer’s duty of good faith to contracts in general. Here, IHP could have purchased its own coverage. It chose not to. In addition, PIC did not control IHP’s defense. IHP could have settled the case before trial and limited its liability to Goetz’ widow. The Court concluded that the Illinois Supreme Court would not extend the good faith duty to settle to an uninsured policyholder.

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INTERACTIVE INTELLIGENCE, INC. v. KEYCORP (October 24, 2008) 

For seven years, KeyBank provided foreign exchange currency conversion services to Interactive Intelligence, Inc. (“Interactive”). The parties operated without a written contract for three years. They signed a written agreement in 2001, but the agreement was silent on how Interactive was going to compensate KeyBank. Apparently, Interactive believed it paid a service fee on each transaction. In fact, KeyBank charged Interactive a percentage mark-up on each transaction. The amount of the mark-up increased over time. Adam Ravens was the KeyBank employee who managed the Interactive account. Ravens never told Interactive that he was applying a spread. Interactive, on a couple of occasions, was troubled by the difference between the market rates for the transactions and what they were paying KeyBank. They inquired but never received an adequate response. Interactive brought this action against KeyBank to recover more than $2 million in alleged overcharges. The district court granted summary judgment to KeyBank. Interactive appeals. 

In their opinion, Judges Ripple, Rovner, and Evans affirmed. The Court first addressed Interactive’s principal argument that it was a third-party beneficiary of a contract between Raven and KeyBank. There was no employment contract between Raven and KeyBank of which Interactive could be a beneficiary. Although Raven did sign a Code of Ethics, which he allegedly breached, the Court observed that it would be against public policy for customers to be considered a third-party beneficiary of an ethics code. The Court was concerned that such an approach would encourage companies to weaken or eliminate codes of conduct. Thus, the district court properly granted summary judgment on this claim. Next, the Court upheld the court below on the negligent supervision, breach of fiduciary duty, and breach of contract claims. The Court held that: a) since Ravens had no duty to Interactive, KeyBank could not have been negligent, b) Ravens had no fiduciary duty to Interactive, and c) the oral contract that left the price term to be negotiated was too vague to be enforceable.  

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CLASSIC CHEESECAKE CO. v. JP MORGAN CHASE BANK  (October 17, 2008)

Classic Cheesecake Co. (“Classic”) is a bakery that successfully generated some interest from several Las Vegas casinos and hotels in its products. It needed additional capital to fund its expansion. In July of 2004, Classic’s principals made a pitch to Dowling, a vice president at JP Morgan Chase Bank (“Bank”). After receiving documentation, Dowling assured Classic that its loan would be approved, provided that one of its principals repaid an old student loan. Dowling continued to provide assurances to Classic as late as September 19. Meanwhile, as early as August 19, Dowling’s superior at the Bank advised her that he was “still declining” the request for funds. Dowling finally advised Classic on October 12 that the loan was not approved. [These are allegations of the complaint, taken as true.] Classic brought suit under the Equal Credit Opportunity Act (“ECOA”) and for breach of contract under Indiana law. It alleged losses of more than $1 million. The district court resolved the ECOA claim in Classic’s favor (with only modest relief) but dismissed the breach of contract claim.  Classic appeals. 

In their opinion, Judges Posner, Flaum, and Evans affirmed. The Court first rejected Classic’s attempts to cast the controversy as one of simple promissory estoppel or fraud. It limited Classic to its breach of contract remedy. The Court turned to the Indiana statute of frauds. Although the statute of frauds requires that contracts to lend money be in writing, Indiana courts have created an exception. Oral agreements unenforceable under the statute of frauds will be enforced if a failure to enforce the agreement would create an “unjust and unconscionable injury and loss” that is independent of the benefit of the bargain. The Court’s task was to decide whether the allegations of Classic’s complaint could meet that standard. The task was not an easy one, given the “vague . . . and redundant” nature of the test and the relative dearth of case law. The Court explored some history of the exception to the statute of frauds:

• The California Supreme Court’s (Traynor, J.) 1950 decision in Monarco that first allowed promissory estoppel as a defense to the statute of frauds but only if “unconscionable injury or unjust enrichment” would otherwise result
• Restatement (Second) of Contracts section 139(1) which allows promissory estoppel as a defense if “injustice” is avoided but which Indiana has not embraced
• The only two cases (Madison Tool & Die and Keating) that survived summary judgment under the Indiana formula

The Court noted that Monarco contained an element of unjust enrichment but neither Madison nor Keating did. Each of the cases contained significant “reliance” losses beyond the loss of the contract bargain, but the Court said that simple reliance losses (i.e., promissory estoppel) certainly does not meet the Indiana test. The Court held that the Indiana test, a compromise between the policy behind the statute of frauds and the desire to protect reasonable reliance, requires proof of "enhanced" reliance. The common thread among Monarco, Madison, and Keating was a time factor. In each case, the reliance continued for a longer time (20, 3, and 1.5 years) than the few months at issue for Classic. The Court also observed that Classic’s reliance may not have been totally reasonable. The Court concluded that Classic did not meet the enhanced promissory estoppel test and the complaint was properly dismissed.

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