Justia Contracts Opinion Summaries

A medical device distributor sued a former employee, alleging that he breached a non-compete agreement, his duty of loyalty, and misappropriated trade secrets after joining a competitor. The employee responded with counterclaims and third-party claims. During the litigation, the employee filed for Chapter 7 bankruptcy, which stayed the district court proceedings. In the bankruptcy case, the distributor filed a proof of claim for damages, which the employee did not contest. The bankruptcy court allowed the claim, and the distributor received a partial distribution from the bankruptcy estate. The employee also waived his right to discharge, leaving him potentially liable for the remaining balance.After the bankruptcy case closed, the United States District Court for the District of Vermont lifted the stay. The distributor sought summary judgment for the balance of its allowed claim, arguing that the bankruptcy court’s allowance of its claim should have preclusive effect. Initially, the district court denied this request, finding that using claim preclusion offensively would be unfair. Upon reconsideration, however, the district court reversed itself and granted summary judgment to the distributor for the remaining balance, holding that claim preclusion applied.On appeal, the United States Court of Appeals for the Second Circuit reviewed the district court’s grant of summary judgment de novo. The Second Circuit held that, even if claim preclusion could sometimes be used offensively, it could not be applied in this case because it would be unfair to the employee, who had less incentive to contest the claim in bankruptcy. The court vacated the district court’s judgment in favor of the distributor and remanded the case for further proceedings. The main holding is that claim preclusion cannot be used offensively to secure a judgment for the balance of an allowed bankruptcy claim under these circumstances. View "Thermal Surgical, LLC v. Brown" on Justia Law

Several individuals formed a corporation, each contributing initial capital and later making additional cash contributions to meet the company’s needs. These later contributions were documented as promissory notes, including three notes issued to one founder, which were subsequently held by a trust after his death. The notes specified a 24-month term, a fixed interest rate, and repayment terms, but did not explicitly state they were payable on demand. After the founder’s death, the trust demanded payment on the notes, but the company refused, arguing the notes were not yet due, were actually capital contributions, or were subordinate to other shareholder loans.The District Court of Albany County dismissed claims by other shareholders seeking priority repayment, finding no justiciable controversy, and resolved the remaining issues on summary judgment. The court determined the notes were loans, not capital contributions, and that all founders’ notes should be repaid equitably if any were repaid. However, it found the notes were not immediately due and payable, as they lacked a demand provision, and denied the trust’s request for immediate payment. The court did award attorney fees to the trust under the terms of the notes.The Supreme Court of Wyoming reviewed the case and reversed the district court’s finding that the notes were not due and payable, holding that the notes matured after 24 months and were enforceable at that time. The court affirmed that the notes were loans, not capital contributions, and declined to give priority to other shareholder loans, finding no contractual basis for subordination. The court also affirmed the award of attorney fees to the trust and upheld the dismissal of the other shareholders’ claims for lack of a justiciable controversy. The case was remanded for entry of judgment in favor of the trust and determination of reasonable attorney fees and costs. View "King v. Sheesley" on Justia Law

Two companies, HBKY and Elk River, each claimed rights to thousands of acres of timber in Kentucky based on their respective contracts with a third party, Kingdom Energy Resources. Kingdom had entered into a timber sales contract with Elk River, allowing Elk River to cut and remove timber from certain land. Separately, Kingdom obtained a $22 million loan from a group of lenders, with HBKY acting as their agent, and mortgaged several properties—including the timber in question—as collateral for the loan. Kingdom later breached both agreements: it ousted Elk River from the land, violating the timber contract, and defaulted on the loan, leaving both HBKY and Elk River with competing claims to the timber.After HBKY secured a judgment in a New York federal court declaring Kingdom in default, it registered the judgment in the United States District Court for the Eastern District of Kentucky and initiated foreclosure proceedings on the collateral, including the timber. Elk River and its president, Robin Wilson, were joined as defendants due to their claimed interest. The district court granted summary judgment to HBKY, finding that Elk River did not obtain title to the timber under its contracts, did not have a superior interest, and was not a buyer in the ordinary course of business under Kentucky law.The United States Court of Appeals for the Sixth Circuit reviewed the case de novo. The court held that the loan documents did not authorize a sale of the timber free of HBKY’s security interest, as the mortgage explicitly stated that the security interest would survive any sale. The court also found that Elk River failed to provide sufficient evidence to establish its status as a buyer in the ordinary course of business. Accordingly, the Sixth Circuit affirmed the district court’s grant of summary judgment in favor of HBKY. View "HBKY, LLC v. Elk River Export, LLC" on Justia Law

The case involves a dispute between John B. Clinton, a former member and manager of CCP Equity Partners, LLC (CCP), and three other members and managers of CCP, Michael E. Aspinwall, Steven F. Piaker, and David W. Young. Clinton alleged that the defendants breached their contractual duties under CCP’s operating agreement by amending the agreement in 2008, removing him as a member in 2013, and maintaining an unnecessary $3 million capital reserve fund.The trial court, after a jury trial, found in favor of Clinton on his breach of contract claim, awarding him damages. The defendants appealed, arguing that the trial court incorrectly interpreted the second sentence of the duty of care provision in the operating agreement as imposing affirmative duties on them and improperly instructed the jury based on that interpretation. They also contended that the trial court abused its discretion by admitting the testimony of Clinton’s expert witness regarding the capital reserve fund.The Connecticut Supreme Court reviewed the case and agreed with the defendants that the trial court misinterpreted the second sentence of the duty of care provision, which is an exculpatory clause under Delaware law that limits liability rather than creating duties. The court found that the trial court’s jury instructions were incorrect and harmful, as they allowed the jury to find the defendants liable for acting in bad faith or with gross negligence or willful misconduct, which are not duties imposed by the agreement. The court also noted that the trial court improperly delegated the task of determining whether the contract provisions were ambiguous to the jury.The Connecticut Supreme Court reversed the trial court’s judgment and remanded the case for a new trial. The court also vacated the trial court’s awards of attorney’s fees, costs, and interest to Clinton. However, the court found no abuse of discretion in the trial court’s admission of the expert witness’s testimony regarding the capital reserve fund. View "Clinton v. Aspinwall" on Justia Law

Barbie Jean Schwinn and Deborah Schwinn Bailey filed a lawsuit against Robert Schwinn, TJ Schwinn, and Terry Ann Palazzo to wind up and terminate the Ignaz Schwinn Family Partnership Co. The district court found that the appellants wrongfully dissociated from the partnership, there were no grounds to terminate or wind up the partnership, and the appellants could no longer participate in the management of the partnership. The court granted the appellants a lien against the partnership’s assets for their interests, to be satisfied when the partnership eventually wound up.The district court held a bench trial and dismissed the appellants' claims for breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. The court also dismissed the appellants' claims to dissolve and wind up the partnership, finding it was a partnership for a definite term or particular undertaking under Illinois law. The court determined the appellants' dissociation was wrongful and that they were not entitled to payment for their interests until the completion of the undertaking. The court denied the appellees' other counterclaims.The Wyoming Supreme Court reviewed the case and found that the partnership was an at-will partnership, not one for a particular undertaking. The court held that the appellants' dissociation was not wrongful and that their withdrawal triggered the dissolution and winding up of the partnership under Section 801(1) of the Revised Uniform Partnership Act (RUPA). The court reversed the district court's decision and remanded the case for further proceedings to determine if the partnership agreement varied the RUPA's default rules and whether winding up was required under Section 801(5)(iii) due to a deadlock in management. The court also instructed the district court to determine if judicial supervision of the winding up was warranted. View "Schwinn v. Schwinn" on Justia Law

Golden View Ready-Mix, LLC (Golden View) supplied concrete to Grangaard Construction, Inc. (Grangaard) for a bridge project. Golden View alleged that Grangaard failed to pay for the concrete, breached the implied obligation of good faith and fair dealing, and committed fraud. A jury found in favor of Golden View on the breach of contract and good faith claims, awarding damages and punitive damages, but found no liability for fraud. Grangaard appealed the punitive damages award and the decision to submit the fraud issue to the jury.The Circuit Court of the First Judicial Circuit, McCook County, South Dakota, presided over the case. Grangaard moved for partial summary judgment on the fraud claim, arguing there was no independent tort duty outside the contract. The court denied this motion, allowing the fraud claim to proceed. During the trial, the court permitted the jury to consider punitive damages based on the breach of the implied obligation of good faith, despite Grangaard's objections.The Supreme Court of the State of South Dakota reviewed the case. The court determined that punitive damages are only recoverable for breaches of obligations not arising from a contract, as per SDCL 21-3-2. The court found that the implied obligation of good faith arises from the contract itself and does not constitute an independent tort that could support punitive damages. Consequently, the court vacated the punitive damages award. However, the court affirmed the lower court's judgment in all other respects, concluding that the error regarding punitive damages did not affect the jury's decision on the breach of contract and good faith claims. View "Goldenview Ready-Mix, LLC v. Grangaard Construction, Inc." on Justia Law

The Nelson Estate claimed an interest in a coin shop and alleged conversion of its property. Dr. Earl Nelson had provided funds for the business, resulting in a 50% ownership interest, which was confirmed by William Tinkcom. After Dr. Nelson's death in 2013, Tinkcom continued to operate the business and assured Nelson's heirs of their 50% interest. Tinkcom died in 2022, and the business was sold to Eddie Welch without including the Nelson Estate in the final agreement. The Nelson Estate sued the Tinkcom Estate, Welch, and Mere Coin Company, LLC, for breach of contract, unjust enrichment, and other claims, including conversion of valuable coins and collectibles.The Circuit Court of the Second Judicial Circuit in Minnehaha County, South Dakota, granted the defendants' motion for judgment on the pleadings, concluding that the statute of limitations barred all claims. The Nelson Estate argued that the statute of limitations had not expired and that equitable estoppel or fraudulent concealment should prevent the statute of limitations defense.The Supreme Court of South Dakota reviewed the case and affirmed the circuit court's determination that the first six business interest claims accrued upon Dr. Nelson's death in 2013. However, the court reversed the dismissal of these claims because the circuit court did not address the Nelson Estate's defenses of equitable estoppel and fraudulent concealment. The court also reversed the dismissal of the tortious interference and civil conspiracy claims, as these claims arose from the 2022 sale of the business. Lastly, the court reversed the dismissal of the conversion claim, noting that the record did not establish when the conversion occurred or when the Nelson Estate became aware of it. The case was remanded for further proceedings. View "Nelson v. Tinkcom" on Justia Law

A wholesale food supplier, Vista Food Exchange, Inc. ("Vista"), sued Comercial De Alimentos Sanchez S De R L De C.V. ("Sanchez") for breach of contract, alleging that Sanchez failed to pay for over $750,000 worth of meat products. Vista claimed that Sanchez was required to make payments to Vista's headquarters in New York, but Sanchez contended it had paid the invoices in cash to Vista's salesman, Eduardo Andujo Rascón, in Tijuana, Mexico. Sanchez supported its claim with declarations and documents, including an affidavit from Rascón stating he received the cash payments.The United States District Court for the Southern District of New York granted summary judgment in favor of Sanchez, dismissing Vista's breach-of-contract claim. The court found that Sanchez provided unrefuted evidence of cash payments to Rascón, fulfilling its contractual obligations. It also ruled that even if paying Rascón in cash breached the contract, Vista could not show that its damages were proximately caused by the breach because Rascón's theft of the money was unforeseeable. The court dismissed Vista's other claims for breach of implied contract, promissory estoppel, and unjust enrichment, citing New York law that forecloses such claims when an enforceable contract exists.On appeal, the United States Court of Appeals for the Second Circuit found that genuine disputes of material fact existed regarding Sanchez's claimed performance, the modification of the contract, and the foreseeability of damages. The appellate court vacated the district court's judgment dismissing Vista's claims for breach of contract and unjust enrichment and remanded the case for trial on those claims. The appellate court affirmed the dismissal of Vista's claims for implied contract and promissory estoppel. View "Vista Food Exchange, Inc. v. Comercial de Alimentos Sanchez" on Justia Law

The City of Fort Collins contracted with Open International, LLC, for software services, which led to mutual breach-of-contract claims. The City also alleged that Open's precontractual statements were negligent or fraudulent misrepresentations. A jury found that Open fraudulently induced the City to enter the contract. The City elected to rescind the contract, and the district court held a bench trial on restitution, ordering a judgment of nearly $20 million against Open.The United States District Court for the District of Colorado denied Open's motions for judgment as a matter of law, which argued that the City’s tort claims were barred by the economic-loss rule and the contract’s merger clause. The court also denied Open's motion to require the City to elect a remedy before trial. The jury found in favor of the City on the fraudulent inducement claim, and the City chose rescission, leading to the dismissal of the jury and a bench trial on restitution.The United States Court of Appeals for the Tenth Circuit reviewed the case and affirmed the district court’s rulings and the jury’s verdict. The court held that the City’s tort claims were not barred by the economic-loss rule or the contract’s merger clause. The court found sufficient evidence to support the jury’s finding of fraud, particularly regarding Open’s grading of the functionality matrix and the use of a different software portal. The court also upheld the finding that the City did not waive its right to rescind the contract, as there was conflicting evidence about when the City discovered the fraud. Finally, the court affirmed the district court’s denial of Open’s Rule 50(b) motion, which argued that Open Investments could not be liable for rescission. View "City of Fort Collins v. Open International" on Justia Law

James E. Carroll, Jr. signed a contract with Isle of Palms Pest Control, Inc. and SPM Management Company, Inc. for termite protection services for his home. The contract specified the use of the Exterra Termite Interception and Baiting System, with a liability limit of $250,000 for new termite damage. However, the respondents abandoned the bait station system without informing Carroll and began using a liquid application, which was allegedly done negligently. Carroll continued to renew the bait station contract, unaware of the change, and discovered significant termite damage to his home ten years later.Carroll sued the respondents for negligence and breach of contract. The Circuit Court granted summary judgment to the respondents on the negligence claim, citing the economic loss rule, which confined Carroll's remedy to the breach of contract action. The Court of Appeals affirmed this decision.The Supreme Court of South Carolina reviewed the case and reversed the lower courts' decisions. The court clarified that the economic loss rule applies only in the product liability context when the only injury is to the product itself. Since the contract did not involve the sale of a product, the economic loss rule did not apply. The court found that the respondents' conduct in secretly switching to a liquid termiticide application was beyond the contract's scope, creating a duty of due care. The court held that there was sufficient evidence to create a genuine issue of material fact regarding the respondents' negligence and its proximate cause of the termite damage. The case was remanded for further proceedings, with the $250,000 liability limitation applying only if the verdict is based solely on the breach of contract claim. View "Carroll v. Isle of Palms Pest Control, Inc." on Justia Law