Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-03306/USCOURTS-ca7-14-03306-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

---

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

Nos. 14-3306 & 14-3315 

JMB MANUFACTURING, INC.,

d/b/a SUMMIT FOREST PRODUCTS COMPANY, 

Plaintiff/Counterclaim-Defendant-Appellant/Cross-Appellee, 

v.

CHILD CRAFT, LLC, et al., 

Defendants-Appellees,

and 

HARRISON MANUFACTURING, LLC, 

f/k/a CHILD CRAFT, LLC, 

Defendant/Counterclaim-Plaintiff-Appellee/Cross-Appellant, 

v. 

RON BIENIAS, 

Counterclaim-Defendant-Appellant/Cross-Appellee. 

____________________ 

Appeals from the United States District Court for the 

Southern District of Indiana, New Albany Division. 

No. 4:11-cv-00065-TWP-WGH — Tanya Walton Pratt, Judge. 

____________________ 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
2 Nos. 14-3306 & 14-3315 

ARGUED APRIL 22, 2015 — DECIDED AUGUST 24, 2015 

____________________ 

Before FLAUM, MANION, and HAMILTON, Circuit Judges. 

HAMILTON, Circuit Judge. This case presents a merchant’s 

creative effort to avoid the limited remedies that contract 

law provides for a seller’s delivery of non-conforming goods. 

After the seller delivered about $90,000 worth of nonconforming wood products, the buyer sought recovery from 

both the seller and its president personally for tort damages 

on a tort theory, that they negligently misrepresented the 

quality of the delivered goods. 

The district court ruled in favor of the buyer and awarded damages of more than $2.7 million on the theory that the 

non-conforming goods caused the complete destruction of 

the buyer’s business. This damages theory echoed the proverb of Poor Richard’s Almanack (“A little neglect may breed 

mischief; for want of a nail, the shoe was lost; for want of a 

shoe the horse was lost; for want of a horse the rider was 

lost; for want a rider the battle was lost.”), and Shakespeare’s 

story of Richard III, where the loss of a horse led in turn to 

the loss of a battle, the death of a king, and the loss of a 

kingdom. Cf. Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 

145 (1854) (damages for breach of contract limited to consequences reasonably contemplated by both parties when they 

made contract). 

We reverse the award of damages against the seller and 

the seller’s president, but for reasons that do not depend on 

the flawed “want of a nail” theory. Under Indiana law, a 

buyer who has received non-conforming goods cannot sue a 

seller for negligent misrepresentation to avoid the economic 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 3

loss doctrine, which limits the buyer to contract remedies for 

purely economic losses. See Indianapolis-Marion County Public 

Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722 (Ind. 

2010). Second, there is no basis for transforming the buyer’s 

breach of contract claim into a tort claim for negligent misrepresentation to hold the seller’s president personally liable. 

See Greg Allen Construction Co., Inc. v. Estelle, 798 N.E.2d 171 

(Ind. 2003). In all other respects, we affirm the judgment of 

the district court. 

I. Factual and Procedural Background

A. The Parties and Their Contracts

Child Craft Industries, an Indiana business run by the 

Suvak family since 1911, manufactured furniture for young 

children and infants. At the height of its success in the 1990s, 

it employed approximately 1,200 workers. After changes in 

the industry and a devastating flood in 2008, Child Craft Industries was acquired by defendant and counterclaimplaintiff Child Craft, LLC, which is now known as Harrison 

Manufacturing, LLC. (Like the district court, we call this 

new entity “Child Craft.”) Counterclaim-defendant Ron Bienias is the owner and president of plaintiff and counterclaim-defendant JMB Manufacturing, Inc., which does business as Summit Forest Products Company. (Like the district 

court, we call the company “Summit.”) 

Before 2008, Child Craft Industries and Bienias had a 

long-standing business relationship. After Child Craft assumed control of Child Craft Industries, Child Craft contracted with Summit to supply raw wood components for 

Child Craft’s new planned line of high-end baby furniture 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
4 Nos. 14-3306 & 14-3315 

called the “Vogue Line.” Child Craft made clear that it had 

specific quality requirements and an inflexible timeline. 

Summit did not actually manufacture the wood components itself. Instead, it sourced the goods from an Indonesian 

manufacturer named P.T. Cita. Beginning in August 2008, 

Child Craft contracted with Summit through a series of purchase orders to buy raw wood components for cribs and 

“case goods” (such as bureaus and night stands). Child Craft 

and Summit understood that Summit would buy the components from P.T. Cita and re-sell them to Child Craft. Child 

Craft would then finish and assemble the components into 

furniture and sell the finished products to retailers. 

At Bienias’s request, Child Craft agreed not to have direct 

contact with P.T. Cita. Keeping its promise, Child Craft did 

not communicate with P.T. Cita, except on one occasion in 

September 2008, when Bienias and two Child Craft managers traveled to Indonesia together to inspect P.T. Cita’s manufacturing facilities and to explain Child Craft’s quality specifications. 

In late 2008 and early 2009 Child Craft issued several 

purchase orders to Summit calling for a variety of case goods 

and baby crib components worth about $90,000 in total. Each 

purchase order included a detailed list of specifications. For 

purposes of the lawsuit, the most relevant item was that the 

moisture content of the wood products needed to be between 6% and 8%. (Furniture made with moist wood is 

prone to warp and split.) 

A detailed rundown of the back and forth between 

Summit and Child Craft is not necessary for these appeals. 

Suffice it to say that the goods shipped to Child Craft never 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 5

conformed to its specifications, in spite of Bienias’s assurances that they would. Among other problems, many of the 

wood products had a moisture content well above the desired range of 6% to 8%. Child Craft identified the goods as 

defective upon receipt and refused to pay Summit for the 

shipments. It also spent considerable time trying to re-work 

the products before eventually giving up. 

By the end of their relationship in the spring of 2009, 

Child Craft had not received any usable cribs from Summit. 

As a result, Child Craft was forced to cancel orders it had 

received for its products and was never able to sell any furniture in the Vogue Line. Child Craft burned through its remaining capital and ceased operations in June 2009. 

B. Procedural History

Ironically, in light of the district court’s final judgment, 

this suit was filed initially by Summit, invoking the district 

court’s diversity jurisdiction under 28 U.S.C. § 1332, against 

both Child Craft and its owners for breach of contract and 

the tort of conversion based on Child Craft’s refusal to pay 

for the wood products shipped pursuant to the 2008–2009 

purchase orders. Summit even sought to pierce the corporate 

veil to hold Child Craft’s owners personally liable for the alleged wrongs. 

Child Craft counterclaimed for breach of contract against 

Summit and also for the tort of negligent misrepresentation 

against both Summit and Bienias. In its breach of contract 

counterclaim, Child Craft sought to recover its labor costs for 

re-working the defective products and for lost sales. In its 

negligent misrepresentation counterclaim, Child Craft alleged that it detrimentally relied on Bienias’s representations 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
6 Nos. 14-3306 & 14-3315 

that the delivered goods would and did conform to specifications. Child Craft sought to recover over $5 million in 

compensatory damages—a figure representing the total loss 

of its business—plus punitive damages of over $5 million. 

For procedural reasons we address below in Part III, the 

only claim that went to trial was Child Craft’s counterclaim 

for negligent misrepresentation against Bienias personally. 

The claim was tried to the court. The judge’s findings of fact 

and conclusions of law favored Child Craft, awarding initially over $4 million in compensatory damages, which the 

judge later reduced to just over $2.7 million, against both 

Bienias and Summit. Bienias and Summit have appealed the 

judgment against them. Child Craft has cross-appealed the 

reduction of compensatory damages and the judge’s decision 

not to award punitive damages. 

II. Child Craft’s Negligent Misrepresentation Counterclaim 

Against Bienias 

Child Craft’s negligent misrepresentation counterclaim 

against Bienias fails as a matter of law because it is barred by 

Indiana’s economic loss doctrine. 

A. Standard of Review

We review the district court’s factual findings for clear error and the court’s legal conclusions de novo. See Tax Track 

Systems Corp. v. New Investor World, Inc., 478 F.3d 783, 789 

(7th Cir. 2007); Mayer v. Gary Partners & Co., 29 F.3d 330, 334 

(7th Cir. 1994) (“When federal judges act as triers of fact in 

diversity cases, all questions concerning the standard of appellate review are governed by federal law.”). The decisive 

issue here is a legal one. 

 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 7

B. Indiana’s Economic Loss Doctrine

Indiana substantive law governs this case. Under Indiana’s economic loss doctrine, and subject to certain exceptions we discuss below, “there is no liability in tort for pure 

economic loss caused unintentionally.” Indianapolis-Marion 

County Public Library v. Charlier Clark & Linard, P.C., 929 

N.E.2d 722, 736 (Ind. 2010) (“Indianapolis Library”). The rule 

reflects the general principle that contract law is better suited 

than tort law to address the problem of commercial losses 

caused by mere negligence. See Miller v. U.S. Steel Corp, 902 

F.2d 573, 574 (7th Cir. 1990); accord, Indianapolis Library, 929 

N.E.2d at 729 (favorably citing Miller and discussing its rationale). 

Merchants negotiating a contract can allocate between 

themselves the risk of commercial losses flowing from possible breaches. The economic loss doctrine recognizes this 

reality and prevents a commercial party from recovering in 

tort for commercial losses it could have protected itself 

against through contractual terms such as warranties, indemnification, or provisions for remedies. For the classic 

discussion of the justification for the economic loss rule, see 

Seely v. White Motor Co., 403 P.2d 145, 150–51 (Cal. 1965) 

(Traynor, C.J.); see also Wausau Underwriters Ins. Co. v. United 

Plastics Group, Inc., 512 F.3d 953, 957–58 (7th Cir. 2008) (collecting cases and discussing rationale); Progressive Ins. Co. v. 

General Motors Corp., 749 N.E.2d 484, 488 (Ind. 2001) (discussing rationale); KB Home Indiana Inc. v. Rockville TBD Corp., 

928 N.E.2d 297, 304 (Ind. App. 2010) (same). 

Indiana courts apply the economic loss rule to preclude 

recovery in tort for “purely economic loss—pecuniary loss 

unaccompanied by any property damage or personal injury 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
8 Nos. 14-3306 & 14-3315 

(other than damage to the product or service provided by 

the defendant).” Indianapolis Library, 929 N.E.2d at 730. Here, 

the damages sustained by Child Craft were purely economic. 

All of its damages flowed from the fact that Summit delivered non-conforming goods under the purchase orders. 

The rationale for the economic loss rule applies squarely 

to the facts of this case: in this contract for the sale of goods 

by one merchant to another, Child Craft could negotiate the 

scope of remedies for non-conforming goods. (In fact, it negotiated for a term in the contract entitling it to $30 per manhour in labor costs for re-working defective products.) Unless Child Craft can satisfy an exception to the economic loss 

doctrine, the doctrine bars any recovery on the negligent 

misrepresentation counterclaim against Bienias. 

C. Child Craft’s Arguments for an Exception

Indiana courts recognize several exceptions to the economic loss doctrine, but none fits this case. Child Craft’s first 

argument for an exception is based on the nature of the 

claim it is pursuing. Under Indiana law, negligent misrepresentation can qualify as an exception to the economic loss 

rule, but only in limited circumstances. 

The key case is U.S. Bank, N.A. v. Integrity Land Title Corp., 

929 N.E.2d 742 (Ind. 2010), where the Indiana Supreme 

Court held that the economic loss rule did not bar tort liability for commercial losses sustained in connection with a defective title search. There, a title insurance company failed to 

discover a foreclosure judgment on real property. It issued a 

title commitment to a lender representing that the title 

search had not uncovered any judgments against the seller 

of the real property. Eventually the plaintiff bank acquired 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 9

the lender’s interest in the real property and was forced to 

defend against the holder of the foreclosure judgment. The 

Indiana Supreme Court held that the economic loss rule did 

not bar the bank’s negligent misrepresentation claim against 

the title insurance company even though the bank’s losses 

were purely economic. Id. at 749–50. 

Two considerations were critical to the court’s decision. 

First, the court emphasized that the plaintiff bank and the 

defendant title insurance company were not in contractual 

privity with one another. See id. at 745 (“Integrity has argued 

at every stage of this litigation that it was not in contractual 

privity with U.S. Bank. This is a critical point. Were there to 

be a contract between Integrity and U.S. Bank, the parties in 

all likelihood would be relegated to their contractual remedies.”), citing Indianapolis Library, 929 N.E.2d at 729; see also 

id. at 749 n.6 (“we do not adopt the proposition that a tort 

claim for negligent misrepresentation may be brought where 

the parties are in contractual privity”). Second, the court 

emphasized the special factors that apply in the context of 

title insurance: “Title searches are frequently required in situations involving transactions in which the state of the title 

must be known accurately or the customer will foreseeably 

suffer harm that is both certain and direct.” Id. at 749. Neither of these considerations applies here. 

Child Craft counters that the “privity” factor actually 

cuts in its favor. Although there was contractual privity between it and Summit, Child Craft contends Bienias should 

be considered an independent third party, personally liable 

for the statements he made about contract performance during the life of the contract. 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
10 Nos. 14-3306 & 14-3315 

Indiana law does not support this sweeping assertion. If 

it were accepted, it would open new vistas for commercial 

litigation freed of the contract law framework that has been 

built over the past couple of centuries. Bienias was a corporate officer and employee of Summit. He made each allegedly negligent misrepresentation about whether the goods 

would or did conform to the contract’s specifications in his 

capacity as an agent for the corporation. Under Indiana law, 

an agent acting within the scope of his authority is not personally liable in carrying out a contractual obligation of the 

principal. See Greg Allen Construction Co. v. Estelle, 798 

N.E.2d 171, 173 (Ind. 2003) (“The proper formulation of the 

reason Allen is not liable here is that his negligence consisted 

solely of his actions within the scope of his authority in negligently carrying out a contractual obligation of the corporation as his employer.”). In those circumstances, the plaintiff 

is “remitted to [its] contract claim against the principal,” and 

it “should not be permitted to expand that breach of contract 

into a tort claim against either the principal or its agents by 

claiming negligence as the basis of the breach.” Id. 

We recognize the possibility that an agent could exceed 

his authority by engaging in an intentional wrong (such as 

fraud) and thus become personally liable under tort principles. Cf. Indiana Civil Rights Comm’n v. County Line Park, Inc., 

738 N.E.2d 1044, 1050 (Ind. 2000) (discussing situations 

where corporate officer can be held personally liable for torts 

of the corporation, including fraud and unlawful intentional 

discrimination); Restatement (Second) of Torts § 552, cmt j. 

(1977) (discussing differences between fraudulent and negligent misrepresentations). Child Craft has never pursued a 

theory of intentional wrongdoing against Bienias. Child 

Craft has alleged and proved to the satisfaction of the district 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 11

judge that Bienias was negligent, but only negligent, in failing to discover that the raw wood components shipped by 

P.T. Cita failed to comply with the specifications demanded 

by Child Craft.

Child Craft argues that the rule of Greg Allen Construction

does not apply here because Bienias made “affirmative misstatements” about whether the goods would conform to the 

contract’s specifications. For example, Bienias told Child 

Craft that a shipment of cribs was “ready” even though Bienias personally doubted whether the cribs would conform to 

the specifications. 

There are two problems with this argument. First, even if 

Bienias made affirmative misstatements about whether the 

goods would or did comply with the contract’s specifications, he still made them within the scope of his authority as 

an agent for Summit. Holding Bienias personally liable for 

statements made within the scope of his authority as an 

agent to Summit would effectively “make the agent the 

promisor when the parties had arranged their affairs to put 

the principal, and only the principal, on the line.” See Greg 

Allen Construction, 798 N.E.2d at 173. Under Child Craft’s 

theory, however, a buyer bringing a breach of contract claim 

against a seller would always be able to bootstrap a negligent misrepresentation claim against any corporate employee who promised that the goods would conform to the contract’s specifications. That view of personal liability would 

work a dramatic change in Indiana law of business organizations and would effectively nullify the economic loss doctrine in cases of non-conforming goods. 

Second, we have found no Indiana case supporting Child 

Craft’s assertion that the economic loss rule should not apply 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
12 Nos. 14-3306 & 14-3315 

because Bienias made “affirmative misstatements” as opposed to simply remaining silent about whether the goods 

conformed to the contract’s specifications. Even with a silent 

delivery of goods, sellers are ordinarily treated as implicitly 

representing that the goods meet certain specifications. See 

Ind. Code § 26-1-2-314 (Indiana adoption of Uniform Commercial Code provision on implied warranty of merchantability in sales of goods). In any event, Indiana cases make 

clear that the economic loss doctrine applies in cases of explicit misstatements. See Prairie Production, Inc. v. Agchem Division-Pennwalt Corp., 514 N.E.2d 1299, 1304–06 (Ind. App. 

1987) (economic loss doctrine barred negligent misrepresentation claim where defendant negligently labeled pesticides); 

Martin Rispens & Son v. Hall Farms, Inc., 621 N.E.2d 1078, 

1090–91 (Ind. 1993) (favorably citing Prairie Production and 

holding that economic loss doctrine barred claim for negligent marketing of seeds infected with a disease), abrogated on 

other grounds by Hyundai Motor America, Inc. v. Goodin, 822 

N.E.2d 947 (Ind. 2005). If Child Craft’s theory were viable, 

though, we would expect to see many Indiana cases holding 

that the buyer can recover in tort for that type of “affirmative 

misstatement.” Child Craft has not cited any such case, and 

we have found none. 

In a final attempt to take its negligent misrepresentation 

counterclaim against Bienias outside the economic loss rule, 

Child Craft says that Bienias can be held personally liable for 

negligent misrepresentation because he was a “professional 

broker,” and that Indiana imposes tort liability on professional brokers notwithstanding the economic loss doctrine. 

We are not persuaded. It is true that Indiana recognizes 

an exception to the economic loss rule for certain special reCase: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 13

lationships. Integrity Land held that a title insurance company could be liable for commercial losses on a negligent misrepresentation theory, and it noted that the economic loss 

rule would not necessarily bar tort liability for commercial 

losses against lawyers, fiduciaries, and liability insurers. See 

929 N.E.2d at 745 (“However, we cautioned that the economic loss rule admits of certain exceptions for purely commercial loss in several special circumstances.”); see also Indianapolis Library, 929 N.E.2d at 736 (“But Indiana courts should 

recognize that the [economic loss] rule is a general rule and 

be open to appropriate exceptions, such as (for purposes of 

illustration only) lawyer malpractice, breach of a duty of care 

owed to a plaintiff by a fiduciary, breach of a duty to settle 

owed by a liability insurer to the insured, and negligent misstatement.”). Child Craft cites no authority, however, for the 

proposition that the corporate representative of a merchant 

in an ordinary dispute between a seller and a buyer of goods 

should be considered in the same vein. 

Instead, Child Craft seizes on Bienias’s trial testimony 

that he considered himself a “broker.” The district court 

placed great emphasis on this testimony as well, describing 

Bienias as a “professional advisor” to Child Craft. We defer 

as we must to the district court’s factual finding, but even so, 

the fact that Bienias considered himself a broker does not establish that he owed a special duty to Child Craft. This is the 

key portion of Bienias’s testimony: 

Q: Can you describe for Judge Pratt—

obviously, we have three entities here. We 

have Child Craft and then Summit and then 

Cita. What were the nature of the contractual relationships among those three? 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
14 Nos. 14-3306 & 14-3315 

A: Well, I acted as the broker, and they 

would—and I would sell it to them, and I 

would purchase it from Cita. 

Q: So you were essentially standing in the 

middle? 

A: That is correct. 

This is far too thin a read to support imposing a special 

duty on Bienias. He was simply a commercial supplier, positioned in the middle between an upstream producer of raw 

materials and a downstream manufacturer. Child Craft’s 

own manager confirmed as much when he testified: 

Mr. Bienias—I heard the name “broker” before. 

Mr. Bienias wasn’t a broker, because a broker 

typically gets two to four to five percent, a surcharge on top of anything you’re procuring. 

Mr. Bienias was getting a much greater cut of 

that, and Mr. Bienias was actually the supplier of 

record. There was never—there wasn’t even an 

entry in any of our business systems that referenced P.T. Cita. So, Mr. Bienias was the supplier.

Whether he chose to go to the one supplier, P.T. 

Cita, or the other supplier that he had in Indonesia, or some place in Chile, he would have to 

tell us that that was going on, but that’s his call, 

because we’re buying from him. 

(Emphases added.) 

True, Bienias had specialized education and a long history of experience in the wood processing industry. He holds a 

bachelor’s degree in forestry, a master’s degree in wood 

technology, and a degree in business, and he has held a variCase: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 15

ety of jobs in the industry, including quality control manager, manufacturing manager, and plant manager for several 

furniture manufacturing companies. But that expertise does 

not justify imposing a special duty of care on him as an 

agent of the seller. Commercial suppliers often know more 

about their products than their buyers. That discrepancy 

does not transform a garden-variety commercial relationship 

into something akin to a lawyer-client, fiduciary, insurerinsured, or employer-employee relationship. Cf. Integrity 

Land, 929 N.E.2d at 745–76; Indianapolis Library, 929 N.E.2d at 

736; Jim Barna Log Systems Midwest, Inc. v. General Cas. Ins. 

Co. of Wisc., 791 N.E.2d 816, 830 (Ind. App. 2003) (recognizing negligent misrepresentation claim in the context of employer-employee relationship). Bienias was not compensated 

by Child Craft for supplying information. He was compensated only as an employee and owner of the corporation that 

would receive payment under the contracts for the sales of 

goods. 

The only case the district court cited to support its conclusion that Bienias owed a special duty to Summit was Jeffrey v. Methodist Hospitals, 956 N.E.2d 151 (Ind. App. 2011), an 

unfortunate case involving an adoption. The plaintiffs were 

a married couple who planned to adopt a child. They asked 

a social worker employed by the defendant hospital about a 

prospective child’s health. The mother told the social worker 

that she would rely on her judgment in deciding whether to 

adopt the child. The social worker told her that the child was 

healthy and without any abnormalities. 

After the parents completed the adoption, they discovered that the child had a large hole in the left side of his 

brain, a condition associated with severe neurological defiCase: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
16 Nos. 14-3306 & 14-3315 

cits. The parents sued the hospital for negligent misrepresentation, arguing that the social worker as an agent of the hospital owed a special duty to communicate “accurate and 

complete information” about the child’s medical status. Id. at 

153–54, 156. The court held that the plaintiffs had stated a 

viable claim for negligent misrepresentation against the hospital (not the social worker in her individual capacity), reasoning that the hospital had “superior knowledge and expertise with regard to the information its employees gave the 

Jeffreys, and it was in the business of supplying information 

of that nature.” Id. at 157 (internal quotation marks omitted). 

Jeffrey does not support Child Craft’s position here. First, 

there was no contract between the plaintiffs and the defendant hospital or the social worker. Unlike Child Craft, the Jeffreys were not in a position to protect themselves by insisting on warranties or other terms allocating risk among the 

parties to a contract. 

Second, the special relationship between two prospective 

adoptive parents and a social worker employed by a hospital 

is simply not comparable to an arm’s-length commercial 

transaction between two merchants for the sale of goods. 

The parents could not have been reasonably expected to discover abnormalities with the child. That is why they asked 

the hospital’s employee to advise them. Here, by contrast, 

Child Craft could have and in fact did send its employees to 

inspect P.T. Cita’s manufacturing facilities. If Child Craft did 

not have the expertise to inspect the products itself, it could 

have paid someone else, perhaps even Bienias, to perform 

the inspection. But it did not hire an expert and did not pay 

Bienias to supply information. 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 17

At bottom, in commercial settings the tort of negligent 

misrepresentation is designed to protect plaintiffs who reasonably rely on advice provided by defendants who are in 

the business of supplying that information. That is why Indiana recognizes the tort in situations involving lawyers, fiduciaries, and insurance companies. Bienias was not in the 

business of supplying information to Child Craft. He provided the information about whether the goods would conform to the contract’s specifications in connection with a contract for the sale of commercial goods. Cf. Restatement (Second) of Torts § 552, cmt. a (1977) (“[O]ne who relies upon 

information in connection with a commercial transaction 

may reasonably expect to hold the maker to a duty of care 

only in circumstances in which the maker was manifestly 

aware of the use to which the information was to be put and 

intended to supply it for that purpose.”). 

Here, one merchant agreed to sell goods to another. Child 

Craft’s losses flowed only from the receipt of nonconforming goods. Indiana’s economic loss rule bars its negligent misrepresentation counterclaim against Bienias, who 

acted and spoke within his authority as an agent to the principal. 

III. The Entry of Default Against Summit and Summit’s Claims 

Against Child Craft

We now turn to the second set of issues in these appeals, 

which stem from procedural problems that arose when the 

lawyer for Summit and Bienias moved to withdraw just a 

few weeks before the trial. That motion triggered a series of 

case-management decisions by the district court. These decisions culminated in the district court (1) entering default 

against Summit on Child Craft’s breach of contract and negCase: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
18 Nos. 14-3306 & 14-3315 

ligent misrepresentation counterclaims, and (2) dismissing 

Summit’s claims against Child Craft. The district court first 

dismissed Summit’s claims without prejudice, but the court 

eventually refused to reinstate the claims, thereby making 

the dismissal with prejudice. 

We set out the procedural history below and ultimately 

conclude that the district court abused its discretion in refusing to set aside the default on the negligent misrepresentation counterclaim against Summit. In all other respects, the 

district court did not abuse its discretion in managing the 

problems posed by counsel’s withdrawal. 

A. Procedural History 

After discovery and at least one continuance of the trial, 

the court set the trial date for June 10, 2013 and warned the 

parties that no further continuances would be granted without just cause. On April 22, 2013 Summit filed another motion to continue the trial date. The court denied the motion 

on April 25. On April 27, the lawyer representing Summit 

and Bienias moved to withdraw from the case. The district 

court denied the motion to withdraw because it did not conform to the local rules. The following day, counsel renewed 

the motion. 

On May 7, the district court held a telephone conference 

with counsel, but Summit’s and Bienias’s lawyer did not participate. During the call, the district court explained it would 

take the motion to withdraw under advisement pending verification that counsel had advised Summit that it could not 

represent itself because it was a corporate entity. See Scandia 

Down Corp. v. Euroquilt, Inc., 772 F.2d 1423, 1427 (7th Cir. 

1985). The following week, on May 13, the district court held 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 19

another telephone conference and asked the lawyer representing Summit and Bienias about his pending motion to 

withdraw. He told the court that both Summit and Bienias 

had consented to his withdrawal, that his clients did not 

have the money to go forward, and that he thought Summit 

intended to dismiss its claims against Child Craft (or at the 

very least to allow them to be dismissed without objection). 

The district court granted the motion on May 14 and gave 

Summit five days to hire a new lawyer or to show cause why 

its claims should not be dismissed and default judgment entered against it on Child Craft’s counterclaims. 

Summit did not hire new counsel by the May 19 deadline. The final pretrial conference convened the following 

day, with Bienias and Summit unrepresented by counsel. 

The district court asked whether Summit was going to hire 

new counsel and Bienias, appearing pro se, did not give a 

clear answer. He seemed to suggest that his decision depended on whether Child Craft would agree to drop its 

counterclaims against him and Summit. The district court 

patiently explained (again) that a corporation could not proceed without representation. The court eventually continued 

the pretrial conference until May 28, giving Summit one last 

opportunity to obtain new counsel. The district judge suggested that Bienias talk things over with his recentlywithdrawn lawyer in the meantime. 

At the May 28 telephone conference, Summit and Bienias 

again appeared without counsel. The court dismissed Summit’s claims against Child Craft without prejudice and entered default against Summit on Child Craft’s breach of contract and negligent misrepresentation counterclaims. During 

the conference, Bienias orally moved to continue the trial 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
20 Nos. 14-3306 & 14-3315 

date on Child Craft’s remaining negligent misrepresentation 

counterclaim against him in his personal capacity, and the 

court denied the motion. 

On June 5, a little more than a week after default had 

been entered, new counsel appeared on behalf of both 

Summit and Bienias. The next day the new attorney filed 

motions to continue the trial, to set aside the “default judgment” against Summit, and to reinstate Summit’s claims 

against Child Craft. The court denied all three motions. In a 

written order, the court explained that Summit had failed to 

satisfy the standard under Federal Rule of Civil Procedure 

60(b) but did not address Rule 55(c). Summit appeals both 

decisions. 

B. Standard of Review

We first need to sort out a little procedural confusion on 

these issues. In its written entry on the May 28, 2013 hearing, 

the district court said it had entered “default judgment” 

against Summit on the counterclaims against it and that its 

claims against Child Craft were dismissed without prejudice. But the district court did not actually enter a judgment 

of any kind against Summit. 

A default judgment would have fully resolved the counterclaims against Summit, including the amount it owed, 

and to be final it would have needed to have been certified 

as a separate and appealable final judgment under Federal 

Rule of Civil Procedure 54(b). Here, no amount of damages 

was specified and no separate Rule 54(b) judgment was entered. See generally Sims v. EGA Products, Inc., 475 F.3d 865, 

868 (7th Cir. 2007) (explaining difference between default 

judgment and entry of default); Home Ins. Co. of Ill. v. Adco 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 21

Oil Co., 154 F.3d 739, 741 (7th Cir. 1998) (noting difference 

and its importance in a case against multiple defendants). 

When Summit’s new counsel moved to set aside the default 

on June 6, the court still had not entered a default judgment 

against Summit. 

Relief from a truly final default judgment must be sought 

under Rule 60(b). See 10A Charles Alan Wright et al., Federal 

Practice & Procedure § 2695 (3d ed. 1998). Without a final 

judgment, though, Summit’s motion to set aside the default 

should have been evaluated under Rule 55(c), not under 

Rule 60(b) as the district court did. Under either rule, the district court exercises discretion, but the Rule 55(c) standard is 

somewhat more lenient. As we explained in Sims, an entry of 

default may be set aside for “good cause,” which does not 

necessarily require a good excuse for the defendant’s lapse. 

475 F.3d at 868; see also Chrysler Credit Corp. v. Macino, 710 

F.2d 363, 368 (7th Cir. 1983) (standards are applied more leniently before judgment has actually been entered), citing 

Breuer Electric Manufacturing Co. v. Toronado Systems of America, Inc., 687 F.2d 182, 187 (7th Cir. 1982); 10A Wright et al., 

Federal Practice & Procedure § 2696 (“a default entry may be 

set aside for reasons that would not be enough to open a default judgment”). Summit also challenges the district court’s 

refusal to reinstate its claims against Child Craft, and that 

decision is also reviewed for abuse of discretion. E.g., 

McCormick v. City of Chicago, 230 F.3d 319, 326–27 (7th Cir. 

2000). 

C. The District Court’s Decisions

We apply a deferential standard of review because the 

district court is “the forum best equipped for determining 

the appropriate use of default to ensure that litigants who 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
22 Nos. 14-3306 & 14-3315 

are vigorously pursuing their cases are not hindered by 

those who are not in an environment of limited judicial resources.” Swaim v. Moltan Co., 73 F.3d 711, 712 (7th Cir. 1996) 

(citation and internal quotation marks omitted). The district 

court was not required to wait “indefinitely” for Summit to 

obtain new counsel. See Scandia Down Corp. v. Euroquilt, Inc., 

772 F.2d 1423, 1427 (7th Cir. 1985). Nor is a corporation entitled to grant itself a continuance by firing or failing to pay its 

lawyers. 

But even so, the district court abused its discretion in refusing to set aside the entry of default against Summit on the 

negligent misrepresentation counterclaim. As best we can 

tell, Summit was without a lawyer for no more than about 

two weeks before the court acted. The entry of what turned 

out to be a multimillion dollar damages award against it, 

without regard for the merit of the claim, gives us serious 

pause. See Degen v. United States, 517 U.S. 820 (1996) (finding 

abuse of discretion in defaulting litigant in $5.5 million civil 

suit given availability of lesser sanctions, even where litigant 

was fugitive outside the country). And when we consider the 

possible prejudice to Child Craft on the other side of the 

scale, we see very little. Allowing Summit to present its defense alongside Bienias’s defense would have caused no 

prejudice to Child Craft or to the court. That defense would 

have involved the same lawyer and the same evidence. As 

the district court observed in its entry on damages, the “evidence presented at the damages hearing as to Mr. Bienias 

also goes toward Summit,” and the court actually based its 

final judgment against Summit on that same evidence. 

The best reason supporting the district court’s entry of 

default was that there was so little time before trial. But lessCase: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
Nos. 14-3306 & 14-3315 23

er sanctions would have been much better suited to address 

the two-week gap in representation. For example, the court 

could have adjusted and/or enforced deadlines for final trial 

preparations to protect Child Craft from unfair delays or 

other prejudice without the ultimate sanction of default. 

Another option would have been to require Summit’s 

prior counsel to continue representing Summit at trial. After 

all, that lawyer had filed the case in the first place. He and 

his client were obliged to protect the court and Child Craft 

from prejudice resulting from problems in his relationship 

with his client. See Ind. R. of Prof. Conduct 1.16(c) (“When 

ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the 

representation.”); see also, e.g., Burns v. General Motors Corp., 

No. 1:06-cv-00499-DFH-WTL, 2007 WL 4438622 (S.D. Ind. 

Nov. 30, 2007) (denying motion to withdraw); Hammond v. 

T.J. Litle & Co., 809 F. Supp. 156, 159 (D. Mass 1992) (denying 

leave to withdraw: “An attorney who agrees to represent a 

client in a court proceeding assumes a responsibility to the 

court as well as to the client.”). 

Another important factor in our review of the entry of 

default against Summit is the strength of its defense on the 

merits of the negligent misrepresentation counterclaim. 

Summit’s defense on that claim is as strong as Bienias’s defense: the economic loss doctrine simply bars the claim as a 

matter of law. A multimillion dollar judgment on a specious 

legal theory is too heavy a sanction for a corporation’s twoweek gap in representation, especially when setting aside 

the entry of default would not have caused prejudice to the 

opposing party or the court’s docket. See Sims, 475 F.3d at 

868 (“Damages disproportionate to the wrong afford good 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24
24 Nos. 14-3306 & 14-3315 

cause for judicial action [under Rule 55(c)], even though there 

is no good excuse for the defendant’s inattention to the 

case.”). That is especially true where, as here, Summit’s new 

lawyer moved to set aside the entry of default a little more 

than a week after the entry of default. We find that the entry 

of default against Summit on the negligent misrepresentation counterclaim and refusal about a week later to set it 

aside added up to an abuse of discretion. We will direct the 

entry of judgment in favor of Summit on that counterclaim 

for the reasons discussed in Part II of this opinion. 

The result is different for the district court’s dismissal of 

Summit’s own claims for relief against Child Craft and the 

relatively minor breach of contract counterclaim against 

Summit. Where Summit was the complaining party, the district court was entitled to expect Summit to be prepared to 

pursue its case and not to keep Child Craft in suspense in 

the weeks before trial about whether Summit would be pursuing its claims. On Child Craft’s breach of contract counterclaim against Summit, where the judgment was for $11,000 

and Summit has not offered any plausible defense, the district court’s decision was not an abuse of discretion. 

We REVERSE the district court’s judgment on Child 

Craft’s negligent misrepresentation counterclaim against 

Ron Bienias and Summit and direct the district court to enter 

final judgment in favor of Bienias and Summit on that counterclaim. In all other respects, we AFFIRM the district court’s 

judgment. All parties shall bear their own costs on appeal. 

Case: 14-3306 Document: 38 Filed: 08/24/2015 Pages: 24