Justia U.S. 7th Circuit Court of Appeals Opinion SummariesArticles Posted in Contracts
Sterling National Bank v. Block
Sterling Bank purchased Damian Services. The stock purchase agreement set up a two-million-dollar escrow to resolve disputes arising after the purchase and established comprehensive rights, obligations, remedies, and procedures for resolving disputes. After the purchase, a former Damian employee called some of Damian’s clients to tell them of a billing practice that the sellers had instituted years earlier. When Sterling learned of the situation, it investigated with the help of a forensic accountant. Sterling concluded that under the sellers’ management, Damian had overcharged its clients by over one million dollars. Sterling refunded the overpayments to its current clients, then unsuccessfully demanded indemnification from the escrow, claiming that the sellers had misrepresented Damian’s liabilities and vulnerability to litigation.The district court granted the sellers summary judgment, reasoning that Sterling missed the deadline for claiming indemnification under the stock purchase agreement. The court denied the sellers’ request for statutory interest on the escrow money.The Seventh Circuit reversed. Whether Sterling’s demand for indemnification was late depends on disputed facts. Even if the demand was late, however, the agreement’s elaborate terms provide that any delay could be held against Sterling only “to the extent that [sellers] irrevocably forfeit rights or defenses by reason of such failure.” Undisputed facts show that the sellers have not irrevocably forfeited any claims or defenses. View "Sterling National Bank v. Block" 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
Apex Mortgage Corp. v. Great Northern Insurance Co.
The Dais obtained a loan from Apex secured by a mortgage on their laundromat. The laundromat ceased operations; the Dais defaulted. Apex agreed to accept a deed in lieu of foreclosure if the property was marketable. A December 2008 inspection revealed that it was in disrepair, exposed to the elements, and open to vagrants. Apex took measures to preserve the property and returned the deed to the Dais in April 2009. In December 2010, two Chicago firefighters lost their lives battling a blaze at the abandoned laundromat. Their estates sued Apex. Apex and the estates settled. Apex's insurer, Federal, denied coverage, citing a policy exclusion for any liability or loss "arising out of property you acquire by foreclosure, repossession, deed in lieu of foreclosure or as mortgagee in possession.” The district court granted Federal summary judgment.The Seventh Circuit vacated, applying Pennsylvania law. Summary judgment was inappropriate given the open question of material fact: who possessed the property at the time of the fire. Apex instructed its realtor to post a notice informing the Dais how to obtain keys for the new locks. Apex urged the Dais to inspect and secure the property. In July 2009, Dai ordered a handyman to board up the property after being cited for building code violations. In October 2009, Dai entered into a settlement to cure the code infractions by November 2010. He failed to do so and served 180 days in jail. Apex had no contact with the property after April 2009. View "Apex Mortgage Corp. v. Great Northern Insurance Co." on Justia Law
Smart Oil, LLC v. DW Mazel, LLC
DWM agreed to purchase 30 gasoline station-convenience stores from Smart for $67 million. It was understood that it was a "flip" because Smart did not yet own the properties. Both parties were represented by counsel. The Agreement requires DWM to deposit $300,000 into an escrow account. At the close of the due diligence period, DWM is to pay a second deposit of $450,000. DWM never paid the initial earnest money deposit but the parties continued their due diligence investigations and negotiations. The Agreement requires DWM to provide Smart with written notice to terminate the Agreement if, after its investigations, DWM disapproved of the purchase. If DWM did not provide that written notice, the Agreement states that Smart is entitled to keep the earnest money if the deal falls through. DWM failed to provide notice of disapproval and did not pay the second deposit. In the meantime, Smart executed contracts to acquire the properties. When the DWM-Smart deal fell through, Smart sued DWM for breach of contract, arguing it was entitled to $750,000 in earnest money as liquidated damages. DWM counterclaimed for breach of contract and fraudulent inducement, for failure to provide adequate due diligence materials.The Seventh Circuit affirmed holdings that DWM breached the contract, that DWM’s obligation to pay the earnest money remained, and that Smart was entitled to the earnest money as liquidated damages under Illinois law. View "Smart Oil, LLC v. DW Mazel, LLC" on Justia Law
Wallace v. Grubhub Holdings, Inc.
Grubhub, an online and mobile food-ordering and delivery marketplace, considers its delivery drivers to be independent contractors rather than employees. The plaintiffs alleged, in separate suits, that Grubhub violated the Fair Labor Standards Act by failing to pay them overtime but each plaintiff had signed a “Delivery Service Provider Agreement” that required them to submit to arbitration for “any and all claims” arising out of their relationship with Grubhub. Grubhub moved to compel arbitration. The plaintiffs responded that their Grubhub contracts were exempt from the Federal Arbitration Act (FAA). Section 1 of the FAA provides that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” 9 U.S.C. 1. Both district courts compelled arbitration.The Seventh Circuit affirmed. The FAA carves out a narrow exception to the obligation of federal courts to enforce arbitration agreements. To show that they fall within this exception, the plaintiffs had to demonstrate that the interstate movement of goods was a central part of the job description of the class of workers to which they belong. They did not even try to do that. View "Wallace v. Grubhub Holdings, Inc." on Justia Law
Ryze Claims Solutions, LLC v. Magnus-Stinson
RYZE, an Indiana business, employs remote workers across the U.S., including Billings, who signed an employment agreement with a forum‐selection clause providing for litigation in an Indiana state court or in the Southern District of Indiana. Billings filed suit in California state court. alleging state law claims and violations of the Fair Labor Standards Act, on behalf of himself and other current and former RYZE employees nationwide.RYZE removed the action to the Eastern District of California, which concluded that Billings had failed to show why the forum‐selection clause should not control and transferred venue under 28 U.S.C. 1404(a) to the Southern District of Indiana. That court granted RYZE summary judgment on Billings’s federal claims. The district court then, sua sponte, returned the case to the Eastern District of California, explaining that its docket was congested and that the California court was familiar with California labor law. When the case was docketed again in the Eastern District of California, RYZE petitioned the Seventh Circuit for a writ of mandamus directing the Southern District of Indiana to request that the Eastern District of California return the action to the Southern District of Indiana. The Seventh Circuit granted that petition, noting that forum‐selection clauses should be given “‘controlling weight in all but the most exceptional cases.’” No exceptional circumstances exist here. View "Ryze Claims Solutions, LLC v. Magnus-Stinson" on Justia Law
Soo Line Railroad Co. v. Consolidated Rail Corp.
Canadian Pacific filed a federal suit, alleging state-law claims under the court’s diversity jurisdiction. Its suit centered on a trackage rights agreement—a contract governing one railroad’s use of another’s tracks—that the Indiana Harbor had signed with its majority shareholders at a price that Canadian Pacific, which owns 49% of Indiana Harbor, alleged was detrimental to Indiana Harbor’s profitability.The Seventh Circuit affirmed the dismissal of the suit. The Surface Transportation Board (STB) has exclusive authority to regulate trackage rights agreements, or to exempt such agreements from its approval process, and had exempted Indiana Harbor’s agreement; 49 U.S.C. 11321(a) provides that “[a] rail carrier, corporation, or person participating in … [an] exempted transaction is exempt from the antitrust laws and all other law, including State and municipal law, as necessary to let that rail carrier, corporation, or person carry out the transaction.” Canadian Pacific did not contest that section 11321(a) preempted the claims. View "Soo Line Railroad Co. v. Consolidated Rail Corp." on Justia Law
Brian Hughes v. Southwest Airlines Co.
Hughes bought a ticket from Southwest to fly to Chicago. Just before the flight was to board, Southwest canceled it. Hughes, who chose an alternate flight through Omaha, claims that the cancellation was because Southwest ran out of de-icer and that no other airlines had a similar problem. He claims he incurred additional costs for lodging and similar expenses. The Seventh Circuit affirmed the dismissal of his breach of contract claim. There was no breach; the contract allows the airline to cancel and either reschedule the passenger or refund the fare. There is no implied duty to avoid cancellation. View "Brian Hughes v. Southwest Airlines Co." 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
Acheron Medical Supply, LLC v. Cook Medical Inc.
In 2014, Cook Medical entered a five-year agreement for Acheron to serve as the distributor of Cook medical devices and products to VA and Department of Defense Medical Centers. Sales to Defense are primarily made through a Distribution and Pricing Agreement (DAPA); sales to the VA require a Federal Supply Schedule (FSS). Cook already had a DAPA, but not an FSS; the agreement required Acheron to obtain an FSS. Cook refused to submit to a required audit of its commercial sales records as required by 48 CFR 515.408(b)(5) to obtain an FSS and refused to deactivate its DAPA, preventing Acheron from selling Cook products to Defense through Acheron’s own DAPA. Cook sent notice that Acheron was in material breach and terminated the agreement 30 days later due to Acheron’s failure to cure. Acheron filed suit.The district court granted Cook summary judgment; Acheron materially breached its obligation to obtain an FSS but owed no damages because the breach was excused by the force majeure clause. The Seventh Circuit affirmed. The Agreement does not expressly obligate Cook to submit to the VA audit or to deactivate its DAPA. The duty of good faith requires that a party perform its obligations under the contract in good faith but does not require a party to undertake a new, affirmative obligation. Neither party actively sought to sabotage the other party’s performance to escape its own obligations or obtain an unfair advantage. View "Acheron Medical Supply, LLC v. Cook Medical Inc." on Justia Law