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

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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CARROLL v. STRYKER CORP. (September 6, 2011)

Matthew Carroll was a commissioned sales representative for Stryker Corporation, a medical instrument manufacturer. Each year, Stryker sent its commissioned salespeople a compensation plan that sets sales targets and described the compensation structure. Carroll failed to meet his sales quotas in 2006 and 2007. Beginning in 2008, Stryker warned Carroll that he had to meet his sales quota each quarter or face termination. Although he was short of his quota on March 31, 2008, Carroll had a sale in progress that, if closed, would put him over his target. Stryker rejected the purchase order on March 31 because it sought to modify Stryker's normal terms and conditions. The company gave Carroll an extra day to submit a satisfactory purchase order. When he did not, Stryker fired him. Within a month, Stryker had resumed negotiations with Carroll’s potential customer, modified the financing term that it had earlier refused to modify, consummated the deal, and paid a commission to Carroll’s successor. Carroll brought suit in state court under a Wisconsin wage payment statute. He also asserted claims for quantum meruit and unjust enrichment. Stryker removed the case to federal court, asserting that the statutory claim plus attorneys fees met the $75,000 diversity jurisdiction amount in controversy threshold. But Stryker then asserted in its answer that the statutory claim was unavailable to Carroll because it did not apply to commissioned salespeople. When Stryker made the same argument in its motion for summary judgment, Carroll sought to withdraw the statutory claim and add a claim for breach of contract. Magistrate Judge Crocker (W.D. Wis.) granted summary judgment to Stryker, holding that the equitable remedies could not succeed in light of the written compensation contract, and denied the motion for leave to amend, citing delay and lack of good cause. Carroll appeals.

In their opinion, Seventh Circuit Judges Manion, Evans (who, as a result of his death, took no part in the decision), and Sykes affirmed. The Court first addressed the propriety of the removal, given that the statutory damages on which it was based appeared to be unavailable to a commissioned salesperson. The Court noted that it may have concluded that it lacked jurisdiction if the statutory claim was the only claim presented. It noted, however, that Carroll included claims for compensatory damages under the quantum meruit and unjust enrichment counts that satisfied the jurisdictional amount requirements. Turning to the merits, the Court stated that Wisconsin law permits quantum meruit and unjust enrichment claims only in the absence of an express contract. Although the Court conceded that Carroll had no employment contract and could be discharged at will, it also concluded that he did have an express compensation contract. Each year, the company sent out a compensation plan. Although the plan was not signed by the parties, Carroll continued to work and Stryker continued to pay him. That is all that is required for an express contract. The equitable claims were properly dismissed. Finally, the Court had little difficulty in finding no abuse of discretion in the district court's denial of Carroll's request to amend. It was filed seven months after a court-imposed deadline and less than a month before the end of discovery. Particularly given that Carroll was aware of the statutory problem from the very onset of the case, the denial was quite reasonable.

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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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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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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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