Articles Posted in US Court of Appeals for the Seventh Circuit

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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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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

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Plaintiffs, 39 former employees of Infinium Capital, voluntarily converted loans they had made to their employer under the company’s Employee Capital Pool program into equity in the company. A year later their redemption rights were suspended; six months after that, they were told their investments were worthless. Plaintiffs filed suit against Infinium, the holding company that owned Infinium, and members of senior management, asserting claims for federal securities fraud and state law claims for breach of fiduciary duty and fraud. The Seventh Circuit affirmed the dismissal, with prejudice, of their fifth amended complaint for failure to state a claim. Reliance is an element of fraud and each plaintiff entered into a written agreement that contained ample cautionary language about the risks associated with the investment. Federal Rule of Civil Procedure 9(b) provides that a party alleging fraud or mistake “must state with particularity the circumstances constituting fraud or mistake,” although “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Plaintiffs failed to identify the speakers of alleged misrepresentations with adequate particularity, failed to adequately plead scienter, and failed to plead a duty to speak. View "Cornielsen v. Infinium Capital Management, LLC" on Justia Law

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BankDirect and Capital make loans to finance insurance premiums. In 2010, Capital, having exhausted the line of credit, approached BankDirect, which was willing to purchase Capital's loans and pay Capital to service those loans. BankDirect had a right to purchase Capital’s business after five years. If BankDirect did not purchase Capital, either party could extend the term by notice before January 4, 2016; otherwise, the agreement would terminate on January 31, 2016. Any extension could not go beyond June 1, 2018. BankDirect exercised the option in November 2015, but Capital refused to honor it. BankDirect sued. Capital sought an injunction to require BankDirect to continue purchasing loans and paying it to service them. BankDirect continued the arrangement through May 1, 2017, when it seized several Capital accounts and stated that it would no longer buy Capital's loans. BankDirect withdrew its request for specific performance. The district court concluded that Capital was entitled to a preliminary injunction so that the purchase‐and‐service arrangement would continue pending a judgment but did not address the 2018 terminal date or other disputes; failed to enter an injunction as a separate document under Fed. R. Civ. P. 65(d)(1)(C); and did not require Capital to post a bond (Rule 65(c)). The Seventh Circuit declined to address the merits or Rules 65(c) and (d), stating that the “injunction” should have contained a terminal date: June 1, 2018, and remanded for a determination of whether damages are available. View "Bankdirect Capital Finance, Inc. v. Texas Capital Bank National LLC" on Justia Law

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In 2008, Fisker, a manufacturer of luxury hybrid electric cars, became part of a trend in venture capital investments toward green energy technology start-ups. The Department of Energy advanced Fisker $192 million on a $528.7 million loan, secured with assistance from the Kleiner venture capital firm, a Fisker controlling shareholder. Tech-industry rainmakers and A-list movie stars invested in Fisker, which was competing with another emerging player, Tesla. In 2009, before sales began on its first-generation vehicles, Fisker announced that its second-generation vehicles would be built in Delaware. Delaware agreed to $21.5 million in state subsidies. Vice President Biden and Delaware Governor Markell participated in Fisker’s media unveiling of the collaboration. Riding this publicity, Fisker secured funding from additional venture capital firms and high net worth investors, including the five plaintiffs, who collectively purchased over $10 million in Fisker securities. In 2011, Fisker began selling its flagship automobile. In 2012, it stopped all manufacturing. In April 2013, Fisker laid off 75% of its remaining workforce; the U.S. Government seized $21 million in cash for Fisker’s first loan payment. The Energy Department put Fisker’s remaining unpaid loan amount ($168 million) out to bid. Fisker filed for bankruptcy. In October 2016, the plaintiffs filed a class action, alleging fraud, breach of fiduciary duty, and negligent misrepresentation. The Seventh Circuit affirmed the dismissal of plaintiffs’ claims as precluded by Illinois law’s three-year limitations period. Those claims accrued no later than April 2013. View "Orgone Capital III, LLC v. Daubenspeck" on Justia Law

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Direct purchasers of containerboard charged manufacturers with conspiring to increase prices and reduce output from 2004-2010. The Seventh Circuit affirmed the certification of a nationwide class of buyers. Most of the defendants settled. Georgia‐Pacific and WestRock did not settle but persuaded the court that there was not enough evidence of a conspiracy to proceed to trial. The Seventh Circuit affirmed the dismissal; the Purchasers’ evidence does not tend to exclude the possibility that the companies engaged only in tacit collusion. Without something that can be called an agreement, oligopolies elude scrutiny under section 1 of the Sherman Act, 15 U.S.C. 1, while no individual firm has enough market power to be subject to section 2. Tacit collusion is easy in those markets; firms have little incentive to compete, “preferring to share the profits [rather] than to fight with each other.” Because competing inferences can be drawn from the containerboard market structure, the economic evidence did not exclude the possibility of independent action. No evidence supported the Purchasers’ accusation that the defendants lied in claiming to have independently explored a possible price increase. The supposedly coordinated reductions of output through mill closures and slowdowns do not necessarily suggest conspiracy. Conduct that is easily reversed may be consistent with self‐interested decision‐making. There is no evidence that the executives discussed illicit price‐fixing or output restriction deals during their frequent calls and meetings. View "Kleen Products LLC v. Georgia-Pacific LLC" on Justia Law

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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

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The Twenty-first Amendment to the U.S. Constitution, section 2, forbids the “transportation or importation” of liquor into a state in violation of that state’s law. The Supreme Court has decreed that states may not infringe upon other provisions of the Constitution under the guise of exercising that power and now is considering whether the Twenty-first Amendment permits states to regulate liquor sales by limiting retail and wholesale licenses to persons or entities that have resided within the state for a specified time (Tennessee Wine). Illinois allows retailers with an in-state physical presence to ship alcoholic beverages to consumers anywhere within Illinois but will not allow out-of-state businesses to apply for a similar shipping license. Plaintiffs claimed violations of the Commerce Clause and Privileges and Immunities Clause. Illinois argued that because all retailers are barred from shipping from out-of-state, the provision does not discriminate against out-of-state retailers, and that that the differential treatment is necessitated by permissible Twenty-first Amendment interests. The district court dismissed the challenge. The Seventh Circuit reversed, noting material contested issues about the necessity for and justifications behind the Illinois statute, and the possible impact of the Tennessee Wine decision. The court characterized some of the state’s justification as possible protectionism. View "Lebamoff Enterprises, Inc. v. Rauner" on Justia Law

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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

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The Seventh Circuit affirmed defendant's motion to dismiss an action alleging that defendant tortiously interfered with plaintiff's employment contract and knowingly misrepresented company policy, both of which resulted in plaintiff's termination. The court held that the corporate officer privilege was inapplicable here; plaintiff failed to allege facts sufficient to establish the element of intentional inducement; the district court accurately held that plaintiff failed to state a claim for tortious interference with contract; plaintiff failed to allege a common law fraud claim; plaintiff was not entitled to leave to amend at this stage; and plaintiff's counsel's actions did not warrant sanctions under Judicial Code 1927. View "Webb v. Frawley" on Justia Law