Justia Contracts Opinion SummariesArticles Posted in US Court of Appeals for the Seventh Circuit
Crum & Forster Specialty Insurance Co. v. DVO, Inc.
DVO was to design and build an anaerobic digester for WTE to generate electricity from cow manure to be sold to the electric power utility. WTE sued DVO for breach of contract. Crum initially provided a defense under a reservation of rights, but a later advised DVO that it would no longer provide a defense. The court ordered DVO to pay WTE $65,000 in damages and $198,000 in attorney’s fees. DVO’s Crum insurance policies provided commercial general liability, pollution liability, and Errors & Omissions coverage. Under the E&O professional liability coverage, Crum is required to pay “those sums the insured becomes legally obligated to pay as ‘damages’ or ‘cleanup costs’ because of a ‘wrongful act’ to which this insurance applies.” An endorsement provides that the Policy does not apply to claims or damages based upon or arising out of breach of contract. DVO argued that the exclusion was so broad as to render the E&O professional liability coverage illusory. The district court disagreed. The Seventh Circuit reversed and remanded for contract reformation. The exclusion’s language is extremely broad. It includes claims “based upon or arising out of” the contract, thus including a class of claims more expansive than those based upon the contract, rendering the professional liability coverage in the E&O policy illusory. The court considered DVO's reasonable expectations in purchasing E&O coverage to insure against professional malpractice claims. View "Crum & Forster Specialty Insurance Co. v. DVO, Inc." on Justia Law
Karma International, LLC v. Indianapolis Motor Speedway, LLC
For the 100th Indianapolis 500 race in 2016, organizers engaged Karma, an event-planning company, to host a ticketed party. The party was a disappointment. Poor ticket sales prevented Karma from covering its expenses. Karma sued the racetrack for breach of contract, accusing it of failing to adequately promote the party. Karma sought $817,500 in damages, a figure apparently gleaned from conversations with Speedway officials who speculated that the party would generate $1 million in gross revenue “from ticket and table sales only.” The Speedway filed a counterclaim alleging that Karma failed to place the promised banner advertisement on Maxim’s website or provide marketing support on Maxim’s social-media channels. Karma is a licensee of Maxim’s, a men’s magazine. The district judge rejected Karma’s claim at summary judgment, ruling that the damages theory rested on speculation. A jury found Karma liable on the counterclaim, awarding $75,000 in damages. The Seventh Circuit affirmed. Karma’s evidence of damages was speculative, so its claim failed under Indiana law. The jury could award objectively foreseeable damages; it didn’t need to hear testimony on the subjective expectations of Speedway officials before awarding damages. View "Karma International, LLC v. Indianapolis Motor Speedway, LLC" on Justia Law
Driveline Systems, LLC v. Arctic Cat, Inc.
Driveline filed a breach of contract lawsuit against Arctic Cat over a supply contract for specially manufactured goods. Certain counts were resolved against Driveline by summary judgment. After a trial, the district court found that Arctic Cat was liable for $182,234.05; Driveline was liable for $163,481.04 on the Counterclaim; and Arctic Cat was due $27,700.50 in prevailing party attorney’s fees and costs. The court entered judgment for Arctic Cat and against Driveline in the amount of $8,947. The Seventh Circuit vacated summary judgment on one count, finding genuine dispute as to material facts. The relationship between the parties was governed by a mosaic of agreements. Factual issues remained concerning whether Arctic Cat’s delay in payment was or was not a breach and the circumstances surrounding Driveline’s suspension of shipments. View "Driveline Systems, LLC v. Arctic Cat, Inc." on Justia Law
Gupta v. Morgan Stanley Smith Barney, LLC
Gupta joined Morgan Stanley and signed an employment agreement containing an arbitration clause; an employee dispute resolution program (CARE) applied to all U.S. employees. The CARE program did not then require employees to arbitrate employment discrimination claims but stated that the program “may change.” In 2015, Morgan Stanley amended its CARE program to compel arbitration for all employment-related disputes, including discrimination claims, and sent an email to each U.S. employee, with links to the new arbitration agreement and a revised CARE guidebook. The email attached a link to the arbitration agreement opt-out form and set an opt-out deadline, stating that, if the employee did not opt-out, continued employment would reflect that the employee agreed to the arbitration agreement and CARE guidebook and that opting out would not adversely affect employment status. Gupta did not submit an opt-out form or respond to the email. He continued to work at Morgan Stanley for two years until, he alleges, the company forced him to resign because of military leave. Gupta sued for discrimination and retaliation under the Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. 4301–35. The court agreed with that Illinois law permits an offeror to construe silence as acceptance if circumstances make it reasonable to do so; based on pretrial evidence, Gupta could not dispute he received the email. The Seventh Circuit affirmed an order compelling arbitration under the Federal Arbitration Act, finding the existence of a written agreement to arbitrate, a dispute within the scope of that agreement, and a refusal to arbitrate. View "Gupta v. Morgan Stanley Smith Barney, LLC" on Justia Law
Posted in: Arbitration & Mediation, Contracts, Labor & Employment Law, US Court of Appeals for the Seventh Circuit
Sevugan v. Direct Energy Services, LLC
For decades, regulated, vertically-integrated utilities dominated the U.S. electricity market, generating, transmitting, distributing, and collecting payments for electricity. In Illinois that utility was ComEd; its rates are set by the Illinois Commerce Commission. Illinois restructured its electricity market by the Electric Service Customer Choice and Rate Relief Law of 1997, which allows alternative retail electric suppliers to compete with ComEd, setting their own rates and not regulated by the Illinois Commerce Commission. ComEd and alternative suppliers now serve as middlemen, purchasing electricity wholesale from PJM, a regional transmission organization that controls the electric grid covering northern Illinois and several other states, and reselling it to customers. Sevugan contracted with Direct Energy, an alternative supplier, in 2011. In 2013, Sevugan neither re-enrolled nor canceled service, which triggered a “Renewal Clause” with a variable price per kWh. Sevugan sued in 2017, alleging Direct deceived him (and others) with its four-page form contract. The Seventh Circuit affirmed the dismissal of Sevugan’s breach of contract claim, reasoning that Sevugan did not allege facts showing Direct’s rates were not “based on generally prevailing market prices,” or that its “adder,” a discretionary component of the electricity price, was “unreasonable.” View "Sevugan v. Direct Energy Services, LLC" on Justia Law
Milwaukee Center for Independence, Inc. v. Milwaukee Health Care LLC
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
Emmis Communications Corp. v. Illinois National Insurance Co
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
Auto Driveaway Franchise Systems, LLC v. Corbett
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
Division Six Sports, Inc. v. Finish Line, Inc.
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
SelectSun GmbH v. Porter, Inc.
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