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

Articles Posted in Contracts

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Under a 2014 agreement, MCFI, a non-profit organization that provides medical care for individuals with brain injuries, would operate a brain-injury center in MHC’s nursing facility. MHC would handle billing and collections for MCFI's services and remit the funds collected to MCFI after taking its cut. MHC instead redirected MCFI’s funds to pay its employees and other creditors. MCFI sued MHC and MHC’s principal, Nicholson. The district court entered summary judgment against MHC for breach of contract and against Nicholson for conversion and civil theft and awarded MCFI over $2 million in damages, interest, and costs against MHC and Nicholson, jointly and severally. It also awarded MCFI over $200,000 in attorney’s fees and costs against Nicholson alone. The Seventh Circuit affirmed. MCFI had an ownership interest in the BIRC Collections. At most MCFI’s acknowledgment of the security interests of MHC’s creditors only estops MCFI from contesting the interests of those creditors; it does not prevent MCFI from asserting its ownership of the property against MHC. The duty to refrain from converting or stealing the BIRC Collections was entirely independent of the contract. It arose from the common law and Wisconsin statutes. Nicholson was personally involved in the wrongful redirection of those funds through the actions of his agent. View "Milwaukee Center for Independence, Inc. v. Milwaukee Health Care LLC" on Justia Law

Posted in: Business Law, Contracts

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Emmis bought a directors-and-officers liability policy covering October 1, 2009 to October 1, 2010, from Chubb Insurance. Emmis later bought, from Illinois National, a policy covering liability from October 1, 2011, to October 1, 2012, with an exclusion for any losses in connection with “Event(s),” which included “[a]ll notices of claim of circumstances as reported” under the Chubb policy. In 2012, Emmis tried to gain control of enough of its shares to go private. Shareholders filed suit to stop Emmis’s effort. Emmis reported the suit to Chubb and also sought coverage under the Illinois National policy. Illinois National refused coverage. Emmis sued, seeking damages for breach of contract and breach of the duty of good faith and fair dealing. The district court granted Emmis summary judgment for breach of contract, rejecting Illinois National’s interpretation of the “as reported” language. The Seventh Circuit reversed. Illinois National’s proposed interpretation is correct. The phrase “as reported” has no discernable temporal limitations. Once Emmis reported a claim to Chubb, at any time, then that claim was “reported” and excluded. View "Emmis Communications Corp. v. Illinois National Insurance Co" on Justia Law

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Corbett’s businesses were governed by separate, substantively identical, Auto Driveaway franchise agreements. Each included non‐compete and non‐disclosure clauses and a 2016 expiration date. Those expiration dates passed. Both parties continued dealing as though the agreements were still in place until November 2017, when Auto Driveaway mailed an offer to renew the contracts for another five years. Corbett never responded but continued operating his franchises as before. Auto Driveaway subsequently learned that Corbett was building an app to compete against the app it had hired Corbett to build. Auto Driveaway suspected that Corbett was using its proprietary work product as a starting point. Corbett was set to launch his app through a new company, InnovAuto, in direct competition with Auto Driveaway. Auto Driveaway filed suit. Months later, Auto Driveaway discovered that Corbett had another competitive auto transport business, Tactical. Auto Driveaway obtained a preliminary injunction, stating that Corbett may not engage in any conduct that might violate the non‐compete clause of the franchise agreement. The court required Auto Driveaway to post a $10,000 bond as security for the injunction. The Seventh Circuit concluded that the district court must revisit the form of the injunction and the amount of security. Nothing covered by the order went beyond the controversy before the court or could have surprised Corbett but it is not a stand-alone separate document that spells out within its four corners exactly what the parties must or must not do. View "Auto Driveaway Franchise Systems, LLC v. Corbett" on Justia Law

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The agreement gave Division the exclusive right to purchase aged and customer-returned merchandise from Finish and provided for an 18-month term “commencing on March 1, 2001” that could be extended by written agreement of the parties “prior to the expiration of the term or any extension thereof.” The agreement was twice amended. Despite the 2008 agreement’s express ending date of December 31, 2013, Finish continued to ship products to Division in 2014. Finish eventually stopped dealing with Division and began dealing with other parties. In 2015, Division wrote to Finish asserting its exclusive right under the agreement to purchase Finish’s surplus products. Finish asserted that the agreement was no longer in effect. The district court dismissed Division’s suit, concluding that the agreement did not provide for perpetual self-renewal and the 2008 Amendment did not provide for an automatic extension. Since the plain language was not ambiguous, the court refused to consider extrinsic evidence of the parties’ intent—the 2014 shipments. The Sixth Circuit affirmed. The agreement is clear and unambiguous, Division’s extrinsic evidence cannot be considered. There was no automatic extension following the 2008 amendment extension; the agreement was no longer in force after December 2013 and Finish did not commit a breach when it began dealing with third parties in 2014. View "Division Six Sports, Inc. v. Finish Line, Inc." on Justia Law

Posted in: Business Law, Contracts

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Porter custom built a 40-foot Formula yacht for German businessman Schwaiger. The yacht and its lift cost approximately $1 million. Porter, as the manufacturer, was not a party to the purchase contract. The parties were German dealer Poker-Run-Boats and Schwaiger’s company, SelectSun. The contract required the boat to be CE certified: authorized for operation in the European Union. The order placed by IN, Porter’s domestic dealer, called for a switchable exhaust system that would allow the operator to divert exhaust either above or below the water line. EU regulations require exhaust expulsion below the water line. Porter caught this conflict and explained that the boat could not be both equipped with the switchable exhaust system and CE certified. Nonetheless, IN authorized Porter to manufacture the boat with the switchable system. Apparently Schwaiger knew nothing of that decision and believed the yacht would come CE certified. Schwaiger took delivery of the yacht in Germany and used the boat throughout much of the 2013 season, then became disappointed with the yacht, complaining to Poker-Run-Boats of problems with the engines, steering, exterior coating, and furnishings. Rather than seek repairs, Schwaiger returned the yacht to PokerRun-Boats for sale then sued Porter and IN. Both IN and Poker-Run-Boats ceased operations. The Seventh Circuit affirmed the rejection of all claims. SelectSun focused its evidence on contract formation and apparent agency authority but, with respect to damages, only established the cost of the yacht, offering no evidence of the current value of the yacht, the costs of repairs or the cost to render the yacht CE certified. SelectSune failed to prove its damages with reasonable certainty. View "SelectSun GmbH v. Porter, Inc." on Justia Law

Posted in: Contracts

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Chicago awarded a construction contract to a joint venture formed by Gillen and other entities. The joint venture subcontracted some of the work to Gillen, which subcontracted with others for labor and materials. The joint venture obtained over $30 million in Fidelity performance and payment bonds. Fidelity received an indemnity agreement and a net worth retention agreement, both executed by Gillen. Gillen promised to maintain a net worth greater than $7.5 million. During 2012, several subcontractors sued Gillen in state court and named Fidelity as a co-defendant based on its bond obligations. Fidelity sued Gillen in federal court, alleging: breach of the indemnity agreement; a request for an accounting of contract payments; breach of the net worth retention agreement; quia timet; and a demand for access to books and records. Historically, litigants have used bills quia timet to pursue preemptive relief; on that claim, Fidelity sought $2.5 million from Gillen as bond collateral and an order requiring Gillen to satisfy all bond obligations and prohibiting Gillen from disbursing money without court approval. The parties settled all claims in mediation, except for Fidelity’s quia timet claim, agreeing their settlement would not impact the quia timet claim or Gillen’s defenses. The district court granted Gillen summary judgment on the quia timet claim. The Seventh Circuit affirmed. Fidelity negotiated for specific indemnification and collateralization rights, sued on those rights, and settled its breach of contract claims. It may not augment its contractual rights with the ancient equitable doctrine of quia timet. View "Fidelity and Deposit Co. of Maryland v. Edward E. Gillen Co." on Justia Law

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Illinois residents Matlin and Waring (Plaintiffs) co-founded Gray Matter and developed products. In 1999, with the company facing failure, Plaintiffs executed a Withdrawal Agreement, assigning Plaintiffs' intellectual property and patent rights to Gray Matter, but entitling them to royalties on sales. In the following years, Plaintiffs frequently brought Gray Matter to arbitration to enforce their royalty rights. In 2002, Gray Matter filed an assignment of the intellectual property rights with the U.S. Patent and Trademark Office, allegedly without Plaintiff's knowledge, by forging Waring's signature. Gray Matter then sold assets to Swimways, including patent rights. A 2014 binding arbitration determined that Gray Matter did not assign the Withdrawal Agreement to Swimways and that Plaintiffs were owed no further royalties. In 2016, Spin Master acquired Swimways and its intellectual property rights. Plaintiffs sued. Swimways is a Virginia corporation with its principal place of business in Virginia Beach. The Spin Master defendants are Canadian companies with their principal places of business in Toronto. None of the defendants are registered to conduct business in, have employees in, or have registered agents for service of process in Illinois. In response to defendants’ motion to dismiss for lack of personal jurisdiction, Plaintiffs' counsel submitted an online purchase receipt from Swimways’ website and a declaration that he purchased and received a patented product in Illinois. The court dismissed, reasoning that Illinois law governed whether it had personal jurisdiction over the defendants. The Seventh Circuit affirmed, holding that the defendants had insufficient contacts with Illinois to establish either general or specific personal jurisdiction in that state. View "Matlin v. Spin Master Corp." on Justia Law

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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

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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

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Telecommunications providers Peerless and Verizon entered into an Agreement, providing for lowered rates for certain switching services. If a contractual rate did not apply, Peerless billed Verizon its tariff rates, as filed with the FCC and state public utility commissions. The relationship failed. Verizon withheld payments. Peerless sued Verizon, alleging 12 counts, including breach of the Agreement and breach of tariffs. Verizon alleged that Peerless was an access stimulator and failed to reduce its rates as required by the FCC and that Peerless was billing certain services at inappropriate rates. The district court dismissed four counts and granted Verizon summary judgment on Count X. The district court referred the access stimulation and other counterclaim issues to the FCC under the primary-jurisdiction doctrine and stayed Verizon’s counterclaims. It nonetheless granted Peerless summary judgment on its breach-of-tariff claims, reasoning that Verizon’s defense could be adjudicated separately from the collection action; entered a partial final judgment on the breach-of-tariff claims pursuant to Federal Rule of Civil Procedure 54(b), finding that it would be “unjust” to make Peerless wait to collect the unpaid bills; and granted Rule 54(b) partial final judgment on claims regarding the breach of the Agreement, reasoning that Verizon had not disputed the breach, only the amount owed. The Seventh Circuit vacated in part. Rule 54(b) partial final judgment was improper, given the significant factual overlap with pending claims. A genuine issue of fact persists with respec breach-of-contract claims. View "Peerless Network, Inc. v. MCI Communications Services, Inc." on Justia Law