Justia U.S. 7th Circuit Court of Appeals Opinion SummariesArticles Posted in Commercial Law
Taizhou Yuanda Investment Group Co., Ltd. v. Z Outdoor Living, LLC
Taizhou, a Chinese manufacturer, entered into a Cooperation Agreement with Z Outdoor, a Wisconsin company owned by Casual Products: Taizhou would manufacture outdoor furniture and other related items for Z Outdoor to sell to customers. Z Outdoor eventually stopped paying Taizhou. The Cornings, on behalf of Z Outdoor, made false statements about future business, forthcoming payments, and causes for the delays. Taizhou continued to fill customer orders without receiving compensation. In 2018, AFG (a Wisconsin LLC also owned by Casual) started submitting purchase orders to Taizhou. AFG never signed the Cooperation Agreement. Taizhou filled the orders and sent AFG invoices. AFG eventually stopped paying Taizhou and made false statements regarding payment delays. The total due from Z Outdoor and AFG accrued to $14 million for purchase orders sent, 2017-2019.The district court entered a default judgment against the corporate defendants on Taizhou's contract claims but ruled against Taizhou on unjust enrichment, fraud, and conversion claims, finding the fraud and conversion claims barred by Wisconsin’s economic loss doctrine and q “mere repackaging of Taizhou’s ‘straightforward breach of contract claim.’” The Seventh Circuit affirmed. Any fraud was interwoven with the Cooperation Agreement, so the economic loss doctrine applies. To the extent the damages amounted to lost profits or lost business, those are also economic losses under Wisconsin law. View "Taizhou Yuanda Investment Group Co., Ltd. v. Z Outdoor Living, LLC" on Justia Law
KR Enterprises, Inc. v. Zerteck Inc
Evergreen manufactured RVs and sold 21 RVs to several affiliated Boat-N-RV dealers. After delivering those RVs, Evergreen went out of business. The invoices for the 21 RVs totaled $808,663. The dealers resold at least 20 of them to retail customers but did not pay Evergreen or its secured creditor. Evergreen’s lender, with a first-priority blanket security interest in all Evergreen assets, including accounts receivable, filed suit. The lender assigned its rights to Evergreen’s owner.The district court found that the lender’s successor had standing as a secured party and had proven that the dealers had breached the contracts. The court granted the dealers certain setoffs for warranty and rebate claims, and denied prejudgment interest on the net amounts the dealers owed. The Seventh Circuit affirmed. The parties did not intend to erase the security interest at the heart of the transaction and the assignment transferred a priority security interest in the RVs, making the successor the proper plaintiff. Holding the dealers liable for the purchase prices of the RVs but to allowing them setoffs for the rebates and warranty payments that Evergreen ow was the right solution for Evergreen’s failures to pay rebates and warranty obligations; the dealers were not entitled to setoffs for diminished value. View "KR Enterprises, Inc. v. Zerteck Inc" on Justia Law
Rexing Quality Eggs v. Rembrandt Enterprises, Inc.
Rexing sought a ruling that Rexing was excused from its obligations to purchase eggs under its contract with Rembrandt. Rembrandt filed a counterclaim seeking damages for Rexing’s repudiation of the contract, attorneys’ fees, and interest. Following discovery, the district court granted Rembrandt summary judgment on liability but concluded that there were genuine issues of triable fact as to damages. A jury awarded Rembrandt $1,268,481 for losses on eggs it had resold and another $193,752 for losses on eggs that it was not able to resell. The court determined that the interest term in the parties’ agreement was usurious, so that Rembrandt was not entitled to contractual interest or attorneys’ fees.The Seventh Circuit affirmed the damages award. The district court properly concluded that the resale remedy under Iowa’s version of the Uniform Commercial Code, Iowa Code 554.2706, was the appropriate mechanism for calculating Rembrandt’s damages and Rexing waived its arguments challenging the award by not presenting them to the district court in a post-verdict motion. Reversing in part, the court held that the parties’ agreement fell within the “Business Credit Exception” to Iowa’s usury statute, Iowa Code 535.5(2)(a)(5), and remanded the denial of Rembrandt’s request for interest and fees. View "Rexing Quality Eggs v. Rembrandt Enterprises, Inc." on Justia Law
Next Technologies, Inc. v. Beyond the Office Door LLC
Next makes office equipment and refers potential customers to reviews that rate its products highly. Next's competitor, Beyond, published reviews critiquing Next’s standing desks. Instead of pursuing a claim under the Lanham Act, 15 U.S.C. 1125, Next sued in federal court under diversity jurisdiction, relying on Wisconsin’s common law of defamation. The district judge treated product reviews and political commentary as equivalent and cited the Constitution, holding that because Next is a “limited-purpose public figure”—made so by its own efforts to sell its wares—all criticism by a competitor is constitutionally protected unless the statements are knowingly false or made with reckless indifference to their truth. The court concluded that the standard was not met. The Seventh Circuit affirmed on other grounds, stating that it was “skeptical” about the trial court’s use of the Constitution. On the district court’s approach, few claims under the Lanham Act ever could succeed, and commercial advertising would be treated just like political campaigning. Next failed to state a claim under Wisconsin law. “Whatever one can say about whether both gray paint and polished metal should be called ‘silver,’ or whether two circuit boards are as good as one, these are not ‘false assertions of specific unfavorable facts.’” View "Next Technologies, Inc. v. Beyond the Office Door LLC" on Justia Law
Bell v. Albertson Companies, Inc.
The defendants sell shaker tubes in grocery stores across the country, with labels advertising “100% Grated Parmesan Cheese.” The products are not 100 percent cheese but contain four to nine percent added cellulose powder and potassium sorbate, as indicated on the ingredient list on the back of the package. Plaintiffs claim that these ingredient lists show that the prominent “100%” labeling is deceptive under state consumer-protection laws. The Judicial Panel on Multidistrict Litigation transferred numerous similar actions to the Northern District of Illinois for consolidated pretrial proceedings. That court ultimately dismissed the plaintiffs’ deceptive labeling claims (100% claims) with prejudice.The Seventh Circuit reversed in part. Plaintiffs have plausibly alleged that the prominent “100%” labeling deceives a substantial portion of reasonable consumers, and their claims are not preempted by federal law. An accurate fine-print list of ingredients does not foreclose as a matter of law a claim that an ambiguous front label deceives reasonable consumers. Many reasonable consumers do not instinctively parse every front label or read every back label before purchasing groceries. For reasons specific to multidistrict litigation, the court concluded that it lacked appellate jurisdiction to review the dismissal of the 100% claims in two complaints because the appeals were filed too late. View "Bell v. Albertson Companies, Inc." on Justia Law
BRC Rubber & Plastics, Inc. v. Continental Carbon Co.
BRC and Continental signed a five-year contract. Continental agreed to supply BRC with “approximately 1.8 million pounds of prime furnace black annually” taken in “approximately equal monthly quantities.” The price of carbon black consists of a baseline price and “feedstock” adjustments. The contract listed baseline prices with instructions for calculating feedstock adjustments. In 2010, BRC bought 2.6 million pounds of carbon black. In early 2011, BRC bought about 1.3 million pounds. In April 2011, supplies were tight. Continental tried to increase baseline prices. BRC replied that the price increase would violate the contract. BRC placed new orders relying on the contract’s prices. Continental did not respond to BRC's protests. On May 11, Continental missed a shipment to BRC. Continental would not confirm future shipment dates or tell BRC when to expect a response. On May 16, BRC formally invoked U.C.C. 2-609, asking for adequate assurance that Continental would continue to supply carbon black under the existing contract, requesting a response by May 18. Continental gave contradictory responses and continued to demand that BRC accept the price increase. On June 2, BRC notified Continental that it was terminating the contract and had filed suit. BRC proceeded to “cover” by buying from another supplier at higher prices.The Seventh Circuit affirmed an order that Continental pay damages. The district court properly applied U.C.C. 2-609 to find that Continental gave BRC reasonable grounds for doubting that it would perform and that Continental repudiated by failing to provide adequate assurance that it would continue to perform. The court properly applied U.C.C. 2-712 to find that cover was commercially reasonable and awarded prejudgment interest. View "BRC Rubber & Plastics, Inc. v. Continental Carbon Co." on Justia Law
Continental Vineyard LLC v. Dzierzawski
Dzierzawski was vice-president of Forsyth's vineyard company. When Forsythe declined an opportunity to produce a custom wine for the Meijer grocery chain, Dzierzawski formed Vinifera and began doing business with Meijer, while continuing to work for Forsythe. Forsythe eventually became aware of the scope of Dzierzawski’s operation and filed suit.The district court granted summary judgment in favor of Dzierzawski on the corporate opportunity theory. A jury found Dzierzawski liable on the unfair competition contention but rejected unjust enrichment, fiduciary duty, and breach of the duty of good faith theories. The jury left the damages section on the verdict form blank. The court polled the jurors, who unanimously responded that it was their intention to award no damages. Forsyth did not object to the verdict at that time but later moved for a new trial. The court denied that motion but granted Forsyth’s request for disgorgement as alternative relief, and ordered Dzierzawski to pay $285,731, reasoning that “the jury’s verdict is merely advisory on the issue of equitable disgorgement, as it is an equitable remedy to be imposed by the Court.” The Seventh Circuit affirmed. The evidence does not support that Dzierzawski stole a corporate opportunity from his company and there was no reversible error in the disgorgement order. View "Continental Vineyard LLC v. Dzierzawski" on Justia Law
R3 Composites Corp. v. G&S Sales Corp.
G&S had a written contract to work as a representative for a manufacturer, R3. The critical term dealing with sales commissions did not show any agreement on commission rates. It said that the parties would try to agree on commission rates on a job-by-job, customer-by-customer basis. While the original 2011 “agreement to agree” would not have been enforceable by itself, the parties did later agree on commission rates for each customer and went forward with their business. In 2014, changes made by customers in their ordering procedures led to disputes about commissions.The district court granted summary judgment for R3, relying primarily on the original failure to agree on commission rates. The Seventh Circuit reversed. A reasonable jury could find that the later job-by-job commission agreements were governed by the broader terms of the original written contract. The rest of the case is “rife with factual disputes that cannot be resolved on summary judgment.” View "R3 Composites Corp. v. G&S Sales Corp." on Justia Law
Beardsall v. CVS Pharmacy, Inc.
Defendant manufactures aloe vera gel, sold under its own brand and as private‐label versions. Suppliers harvest, fillet, and de-pulp aloe vera leaves. The resulting aloe is pasteurized, filtered, treated with preservatives, and dehydrated for shipping. Defendant reconstitutes the dehydrated aloe and adds stabilizers, thickeners, and preservatives to make the product shelf‐stable. The products are 98% aloe gel and 2% other ingredients. Labels describe the product as aloe vera gel that can be used to treat dry, irritated, or sunburned skin. One label calls the product “100% Pure Aloe Vera Gel.” An asterisk leads to information on the back of the label: “Plus stabilizers and preservatives to insure [sic] potency and efficacy.” Each label contains an ingredient list showing aloe juice and other substances.Plaintiffs brought consumer deception claims, alleging that the products did not contain any aloe vera and lacked acemannan, a compound purportedly responsible for the plant’s therapeutic qualities. Discovery showed those allegations to be false. Plaintiffs changed their theory, claiming that the products were degraded and did not contain enough acemannan so that it was misleading to represent them as “100% Pure Aloe Vera Gel,” and to market the therapeutic effects associated with aloe vera. The Seventh Circuit affirmed summary judgment in favor of the defendants. There was no evidence that some concentration of acemannan is necessary to call a product aloe or to produce a therapeutic effect, nor evidence that consumers care about acemannan concentration. View "Beardsall v. CVS Pharmacy, Inc." on Justia Law
Whirlpool Corp. v. Wells Fargo Bank, N.A.
In 2011 Wells Fargo entered into a loan and security agreement with hhgregg to provide the retailer with operating credit. Wells Fargo had a perfected first-priority, floating lien on nearly all of hhgregg’s assets. In 2017, hhgregg petitioned for Chapter 11 bankruptcy, owing Wells Fargo $66 million. Wells Fargo agreed to provide debtor-in-possession (DIP) financing in return for a priming, first-priority security interest on substantially all of hhgregg’s assets, including existing and after-acquired inventory and its proceeds. The bankruptcy judge approved the DIP financing agreement and the super-priority security interest. Whirlpool had long delivered home appliances to hhgregg on credit for resale. Three days after the approval of the DIP financing, Whirlpool sent a reclamation demand seeking the return of $16.3 million of unpaid inventory delivered during 45 days before the petition date and filed an adversary complaint, seeking a declaration that its reclamation claim was first in priority as to the reclaimed goods. Reorganization proved unsuccessful. The bankruptcy judge authorized hhgregg to sell its inventory—including the Whirlpool goods—in going-out-of-business sales and entered summary judgment for Wells Fargo.The Seventh Circuit affirmed. Reclamation is a limited remedy that permits a seller to recover possession of goods delivered to an insolvent purchaser, subject to significant restrictions, 11 U.S.C. 546(c). A seller’s right to reclaim goods is “subject to the prior rights of a holder of a security interest in such goods or the proceeds thereof.” Whirlpool’s later-in-time reclamation demand is “subject to” Wells Fargo’s prior rights as a secured creditor; its reclamation claim is subordinate to the DIP financing lien. View "Whirlpool Corp. v. Wells Fargo Bank, N.A." on Justia Law