Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Seattle’s Duncan Place condominium complex was built in 2009, with Danze faucets in all 63 units. The faucets’ water hoses can corrode and crack in normal use. Several faucets failed, causing property damage and replacement costs. Danze’s “limited lifetime warranty” promises to replace defective parts. Danze refused to repair or replace the faucets. The Owners Association filed suit on behalf of itself, unit owners, and a proposed nationwide class, asserting claims under Washington law. The judge rejected all claims, holding that Washington’s independent-duty doctrine barred claims of negligence and strict product liability; the unjust-enrichment claim was premised on fraud but did not satisfy the FRCP 9(b) heightened pleading requirements. A Washington claim for breach of an express warranty requires that the plaintiff was aware of the warranty. Duncan Place was unable to make that allegation in good faith with respect to any unit owners.The Seventh Circuit reversed in part. The Washington Product Liability Act subsumes the negligence and strict-liability claims; the “independent duty doctrine” generally bars recovery in tort for direct and consequential economic losses stemming from the product’s failure (damages associated with the “injury” to the product itself) but does not bar recovery for damage to other property. Duncan Place alleged in general terms that the defective faucets caused damage to other condominium property, so the WPLA claim is not entirely blocked by the independent duty doctrine. View "Duncan Place Owners Associatio v. Danze, Inc." on Justia Law

Sanchelima contracted to serve as Walker’s exclusive distributor of silos in 13 Latin American countries. Walker agreed not to sell silos directly to third parties in those countries. The contract contained a limited remedies provision and a damages disclaimer and was subject to Wisconsin law. Walker assigned a representative to work with Sanchelima, but otherwise did not market its products in the relevant countries. In 2014, Walker nonetheless sold silos for a factory in Mexico and to a Nicaraguan company. In 2015, Walker sold silos to a Mexican plant; in 2017, Walker sold tanks to a Mexican company. Sanchelima notified Walker that it considered the sales a breach of the agreement, then filed suit. Walker terminated the agreement without cause. Sanchelima sought lost profits of more than $600,000. Walker cited the limited remedies provision as an affirmative defense. It explicitly precludes recovery of “any lost profits … arising out of or in connection with the Distributor Agreement.” The district court held that provision violates Wisconsin’s version of the UCC 2‐719, Wis. Stat. 402.719: Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in chs. 401 to 411... Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Because the limited remedy provision provided no relief for Walker’s breach of the exclusivity provision, the court held it failed of its essential purpose and awarded Sanchelima $778,306.70. The Seventh Circuit affirmed. The Wisconsin Supreme Court has interpreted UCC's limited remedy provisions; other states have interpreted those provisions differently. The Seventh Circuit declined to overturn state precedent as inconsistent with modern trends, “until and unless the Wisconsin Supreme Court decides to overturn it.” View "Sanchelima International, Inc. v. Walker Stainless Equipment Co., KKC" on Justia Law

Kreg, a medical-supply company, contracted with VitalGo, maker of the Total Lift Bed®, for exclusive distribution rights in several markets. A year and a half later, the arrangement soured. VitalGo told Kreg that it had not made the minimum‐purchase commitments required by the contract for Kreg to keep its exclusivity. Kreg thought VitalGo was wrong on the facts and the contract’s requirements. The district court ruled, on summary‐judgment that VitalGo breached the agreement. The damages issue went to a bench trial, despite a last-minute request from VitalGo to have it dismissed on pleading grounds. The court ordered VitalGo to pay Kreg about $1,000,000 in lost‐asset damages and prejudgment interest. The Seventh Circuit affirmed, upholding the district court’s rulings that the agreement allowed Kreg to make minimum-purchase commitments orally; that the minimum‐purchase commitment for the original territories was made in December 2010; that VitalGo breached the agreement by terminating exclusivity in June 2011 and by failing to deliver beds in September 2011; and concerning the foreseeability of damages. View "Kreg Therapeutics, Inc. v. VitalGo, Inc." on Justia Law

ARC, a distributor of compressed gases, sold its assets to American. Because ARC leased asset cylinders to customers, it was not immediately able to identify the number of cylinders included in the purchase; the Agreement estimated 6,500 cylinders and provided that American would hold back $150,000 for 180 days to protect against a shortage of up to 1,200 cylinders, at $125 per cylinder. When American began billing the customers it acquired, it learned that many of them paid only to have cylinders refilled but did not pay rent on the cylinders they used. An audit revealed that ARC owned and transferred 4,663 asset cylinders--1,837 cylinders short of the 6,500 promised. In an ensuing breach of contract suit, ARC argued that American breached the contract because it did not complete its audit within the specified 180-day period. The district court disagreed, concluding that ARC extended that deadline and that, because only 4,663 cylinders were delivered, ARC was never entitled to receive any portion of the Cylinder Deferred Payment. The court granted American’s counterclaim for breach of contract, holding that American was entitled to the entire $150,000 and to recover $125 for each cylinder it failed to receive under the threshold of 5,300. The Seventh Circuit affirmed. Because ARC was not entitled to any of the Cylinder Deferred Payment in that it provided less than the 5,300 cylinders, it could not have been damaged by the delay in completing the audit. View "ARC Welding Supply, Co. Inc. v. American Welding & Gas, Inc." on Justia Law

NewSpin's “SwingSmart” product is a sensor module that attaches to sports equipment and analyzes the user’s swing technique, speed, and angle. Arrow representatives met with NewSpin several times in 2010-2011; NewSpin believed that Arrow knew how SwingSmart would function and understood its specifications. Arrow represented that Arrow had “successfully manufactured and provided substantially similar components for other customers.” NewSpin signed a contract with Arrow in August 2011. Arrow shipped some components to NewSpin in mid-2012. NewSpin alleges that those components were defective and did not conform to specifications. NewSpin used Arrow’s defective components to build 7,500 units; only 3,219 could be shipped to customers and, of those units, 697 were wholly inoperable. NewSpin paid Arrow $598,488 for these defective components and spent $200,000 for customer support efforts, testing, and repair, and that the defective components damaged its brand equity, reputation, and vendor relationships. The district court dismissed NewSpin’s January 2017 complaint as untimely, reasoning the Agreement was predominantly a contract for the sale of goods subject to the UCC’s four-year statute of limitations. The Seventh Circuit affirmed with respect to the contract-based claims and the unjust enrichment and negligent misrepresentation claims, which are duplicative of the contract claims. The court reversed the dismissal of fraud claims, applying Illinois’s five-year limitations period. As to procedural matters, the law of the forum controls over the contract's choice of law provision. View "NewSpin Sports, LLC v. Arrow Electronics, Inc." on Justia Law

In 2007, OFTI sold a mill to TAK. During the financial crunch, Goldman Sachs cut $19 million from the financing. OFTI had promised clean title, but with the reduced financing, was unable to pay off all security interests. TAK agreed to issue negotiable notes, aggregating about $16 million, to OFTI, which would offer them as substitute security. The creditors accepted the notes. The transaction closed. OFTI promised to pay the notes. The lenders who released their security had the credit of both companies behind the notes. TAK was to hire an OFTI construction firm to build new mills; if TAK did not arrange for this construction and did not pay the notes, OFTI could cancel the notes and acquire a 27% interest in TAK. Neither paid the notes. The new mills did not materialize. OFTI demanded a 27% equity interest in TAK. Some formerly secured creditors have not been paid and retain promissory notes; OFTI does not possess any of the notes. The Seventh Circuit affirmed the denial of relief. A hold-harmless agreement effectively prevents OFTI from enforcing the notes against TAK; whatever TAK gave to OFTI would be returned in indemnification. The notes were designed as security for third parties, not as compensation for OFTI. Additionally, under Wisconsin’s UCC applicable to negotiable instruments, OFTI is not entitled to enforce the notes because it is not their holder, is not in possession of them, and is not entitled to enforce them under specified sections. If OFTI could use nonpayment as a reason to cancel the notes, they would be worthless to the creditors. View "Tissue Technology LLC v. TAK Investments LLC" on Justia Law

JTE, distributed products for Bimbo around Chicago under an agreement with no fixed duration that could be terminated in the event of a non-curable or untimely-cured breach. New York law governed all disputes. According to JTE, Bimbo began fabricating curable breaches in 2008 in a scheme to force JTE out as its distributor and install a less-costly distributor. Bimbo employees filed false reports of poor service and out-of-stock products in JTE’s distribution area and would sometimes remove products from store shelves, photograph the empty shelves as “proof” of a breach, and then return the products to their shelves. Once, a distributor caught a Bimbo manager in the act of fabricating a photograph. Bimbo assured JTE that this would never happen again. In 2011, Bimbo unilaterally terminated JTE’s agreement, citing the fabricated breaches, and forced JTE to sell its rights to new distributors. JTE claims that it did not learn about the scheme until 2013-2014. The district court dismissed JTE’s suit for breach of contract and tortious interference. The Seventh Circuit affirmed. Under the primary-purpose test, the agreement qualifies as a contract for the sale of goods, governed by the UCC’s four-year statute of limitations, not by the 10-year period for other written contracts. With respect to tortious interference, the court reasoned that JTE knew about the shelving incidents and should not have “slumber[ed] on [its] rights” until it determined the exact way in which it was harmed. View "Heiman v. Bimbo Foods Bakeries Distribution Co." on Justia Law

Sabafon, a telephone company based wanted cards to provide prepaid minutes of phone use plus a game of chance. Both the number for phone time and the symbols representing prizes were to be covered by a scratch-off coating. Emirat promised to supply Sabafon with 25 million high-security scratch-off cards. Emirat contracted with High Point Printing, which, in turn, engaged WS to do the work. Emirat paid High Point about $700,000. Three batches of the cards tested as adequately secure, but the testing company indicated that, under some circumstances, the digits and game symbols could be seen on some cards in a fourth batch. Emirat rejected the whole print run. High Point was out of business. Emirat sued WS, arguing that its settlement agreement with WS, after an initial run of cards was not correctly shipped, subjects WS to Emirat's contract with High Point. The Seventh Circuit affirmed summary judgment for WS, noting that with a sufficiently high-tech approach, any security can be compromised, but no one will spend $1,000 to break the security of a card promising $50 worth of phone time. The contract is silent and does not promise any level of security, except through the possibility that usages of trade are read into every contract for scratch-off cards. Even if WS assumed High Point’s promises, neither promised any higher level of security than was provided. WS’s cards passed normal security tests repeatedly. View "Emirat AG v. WS Packaging Group, Inc." on Justia Law

In 2010, BRC and Continental entered into a five‐year agreement. Continental was to sell to BRC approximately 1.8 million pounds of prime carbon black, annually, in approximately equal monthly quantities, with baseline prices for three grades, including N762, “to remain firm throughout the term.” Continental could meet any better offers that BRC received. Shipments continued regularly until March 2011, when demand began to exceed Continental’s production ability. Continental notified its buyers that N762 would be unavailable in May. BRC nonetheless placed an order. The parties dispute the nature of subsequent communications. Continental neither confirmed BRC’s order nor shipped N762. BRC demanded immediate shipment. Continental responded that it did “not have N762 available.” BRC purchased some N762 from another supplier at a higher price. Days later, Continental offered to ship N762 at price increases, which BRC refused to pay. After discussions, Continental sent an email stating that Continental would continue "shipping timely at the contract prices, and would not cut off supply” and would “ship one car next week.” Continental emphasized that the Agreement required it to supply about 150,000 pounds per month and that it already had shipped approximately 300,000 pounds per month. Continental shipped one railcar. Within a week, Continental emailed BRC seeking to increase the baseline prices and to accelerate payment terms.BRC sued, seeking its costs in purchasing from another supplier following Continental’s alleged repudiation. The Seventh Circuit rejected the characterization of the agreement as a requirements contract. On remand, BRC, without amending its complaint, pursued the alternative theory that the agreement is for a fixed-amount supply. The Seventh Circuit reversed summary judgment and remanded, finding the agreement, supported by mutuality and consideration, enforceable. The agreement imposed sufficiently definite obligations on both parties and was not an unenforceable "buyer's option." BRC can proceed in characterizing the contract as for a fixed amount. BRC altered only its legal characterization; its factual theory remained constant and Continental is not prejudiced by the change. View "BRC Rubber & Plastics, Inc. v. Continental Carbon Co." on Justia Law

In 2003, Pain Center contracted with SSIMED for medical-billing software and related services. In 2006, the parties entered into another contract, for records-management software and related services. In 2013, Pain Center sued SSIMED for breach of contract, breach of warranty, breach of the implied duty of good faith, and four tort claims, all arising out of alleged shortcomings in SSIMED’s software and services. The district judge found the entire suit untimely. The Seventh Circuit affirmed on all but the claims for breach of contract. The judge applied the four-year statute of limitations under Indiana’s Uniform Commercial Code (UCC), holding that the two agreements are mixed contracts for goods and services, but the goods (i.e., the software) predominate. The Seventh Circuit disagreed. Under Indiana’s “predominant thrust” test for mixed contracts, the agreements in question fall on the “services” side of the line, so the UCC does not apply. The breach-of-contract claims are subject to Indiana’s 10-year statute of limitations for written contracts and are timely. Pain Center licensed SSIMED’s preexisting, standardized software but received monthly billing and IT services for the life of both contracts. View "Pain Center of SE Indiana, LLC v. Origin Healthcare Solutions LLC" on Justia Law