### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

No. 15

‐ 2659

D UAL

‐ T EMP OF I LLINOIS

, I NC

., Plaintiff

‐ Appellee

,

v.

H ENCH C ONTROL

, I NC

. and C AESAR

‐ V ERONA

, I NC

., Defendants

‐ Appellants

.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:09

‐ CV

‐ 595

— Sharon Johnson Coleman

, Judge

.

____________________

A RGUED M ARCH 29, 2016

— D ECIDED M AY 6, 2016

____________________

Before F LAUM

, E ASTERBROOK

, and S YKES

, Circuit Judges

.

F LAUM

, Circuit Judge

. Hench Control Corporation (“Hench

I”), the predecessor to defendants Hench Control, Inc.

(“Hench II”) and Caesar

‐ Verona, Inc., contracted with plain

‐

tiff Dual

‐ Temp of Illinois, Inc. to supply a refrigeration control

system. However, the Hench refrigeration control system de

‐

livered to Dual

‐ Temp did not work properly, and Dual

‐ Temp

brought suit against defendants for breach of contract. After

a bench trial, the district court held that defendants had2 No. 15

‐ 2659

breached the contract and awarded damages and attorneys’

fees to Dual

‐ Temp. Defendants appeal. We affirm the district

court’s conclusion that defendants breached the contract and

its award of damages.

I. Background

A. Factual Background

Dual

‐ Temp is a refrigeration contractor that installs refrig

‐

eration systems. A crucial component of a refrigeration sys

‐

tem is the refrigeration control system (“RCS”), which regu

‐

lates the temperature, humidity, and ammonia levels in the

refrigeration system and controls related equipment such as

compressors and condensers. The RCS must maintain com

‐

munication with the rest of the refrigeration system to func

‐

tion properly.

In 2006, Home Run Inn Pizza began the expansion of its

pizza manufacturing facility and hired Milord Company as a

general contractor. Milord subcontracted with Dual

‐ Temp to

update Home Run Inn’s refrigeration system. Dual

‐ Temp so

‐

licited bids from several companies to design an RCS for inte

‐ gration into Home Run Inn’s refrigeration system.

Hench I submitted a bid to supply an RCS to Dual

‐ Temp.

Dual

‐ Temp accepted this bid and issued a purchase order on

October 20, 2006. The purchase order states, in relevant part,

that the Hench RSC was to “meet design specifications and

function (1) as called for in the plans, specifications or ad

‐

denda, (2) as herein set forth, and (3) as published or war

‐

ranted by the manufacturer for the equipment involved.” The

purchase order also states that “[i]n the event that [the Hench

RCS] does not meet the foregoing requirements, [defendants]No. 15

‐ 2659 3

shall immediately, upon notice, replace or repair same or rem

‐ edy any deficiency without expense to [Dual

‐ Temp].” The

parties do not dispute that Dual

‐ Temp and Hench I entered

into a valid contract and were bound by the terms of the pur

‐

chase order.

On February 28, 2007, Caesar

‐ Verona acquired Hench I

and proceeded to do business as Hench Control, Inc. (“Hench

II”). The district court found that Caesar

‐ Verona and Hench II

implicitly assumed Hench I’s liability on the Dual

‐ Temp con

‐

tract. The parties do not appeal this finding.

The Hench RCS components were shipped to Dual

‐ Temp

beginning in January 2007. At the end of March 2007, Dual

‐ Temp received additional RCS parts. Dual

‐ Temp’s affiliate,

Spur Electric, Inc., installed the RCS at the Home Run Inn fa

‐ cility. Dual

‐ Temp asserts that problems arose with the RCS

immediately upon installation. For instance, Dual

‐ Temp dis

‐

covered that the wiring diagrams for the RCS were misla

‐

beled. Defendants sent replacement diagrams, but these were

also incorrect. Defendants eventually sent the correct dia

‐

grams. Defendants also sent Dual

‐ Temp a computer with in

‐

correct software but corrected this error as well.

After installing the RCS, Dual

‐ Temp had to connect it to

the refrigeration system in the Home Run Inn facility, a pro

‐

cess referred to as “startup.” In May 2007, defendants sent

their technician, Steve Halvorsen, to assist with startup.

Shortly after startup, the RCS began having frequent commu

‐

nication failures. This problem persisted for months and was

never resolved. A functional RCS would have been able to

communicate with the refrigeration system to control all parts

of the refrigeration system. Dual

‐ Temp and defendants sent4 No. 15

‐ 2659

technicians to troubleshoot the problem, but their efforts were

unsuccessful.

On April 29, 2008, Milord demanded that Dual

‐ Temp re

‐ place the Hench RCS. In May 2008, Dual

‐ Temp paid Select

Technologies, Inc. $113,500 to remove the Hench RCS and to

design, build, and install a replacement RCS. Dual

‐ Temp as

‐

serts that the new Select Technologies RCS has been operating

and communicating properly since installation.

B. Procedural Background

On January 30, 2009, Dual

‐ Temp filed suit alleging that

Hench I, Hench II, and Caesar

‐ Verona breached the contract

with Dual

‐ Temp to provide an operational RCS. Dual

‐ Temp

contended that the Hench RCS was defective because it inter

‐ mittently lost communication with the refrigeration system.

The district court conducted a bench trial in January 2014.

At trial, Dual

‐ Temp relied on circumstantial evidence that de

‐

fendants supplied a defective RCS. Defendants presented the

expert testimony of Ron Vallort, an expert in the area of re

‐ frigeration control. Vallort testified that external factors could

have caused the communication failures and that in his opin

‐

ion, the Hench RCS was not necessarily defective. According

to Vallort, other potential explanations for the communication

losses included installation errors, problems with the condi

‐

tions at the Home Run Inn facility, flawed wiring work done

by Spur Electric during installation, a faulty humidistat, dis

‐ ruptive radio waves, power surges and voltage drops, design

flaws in the refrigeration system, or continual additions and

modifications. Vallort stated that “the cause or causes of the

communication failures cannot be determined within a rea

‐

sonable degree of certainty.” Vallort also testified that theseNo. 15

‐ 2659 5

other factors could have damaged the Hench RCS, and that

this damage could have continued to cause communication

failures, even if the damage

‐ causing condition was later cor

‐

rected.

On September 30, 2014, the district court entered judg

‐

ment in favor of Dual

‐ Temp, holding Hench I, Hench II, and

Caesar

‐ Verona jointly and severally liable in the amount of

$113,500 (the amount Dual

‐ Temp paid Select Technologies for

the replacement RCS) plus interest and attorneys’ fees. Hench

II and Caesar

‐ Verona appeal the judgment of the district

court. 1

II. Discussion

On appeal, defendants argue that the evidence presented

at trial was not sufficient to permit a reasonable trier of fact to

find that defendants breached the contract. Following a bench

trial, we review the district court’s legal conclusions de novo

and its factual findings for clear error. Rain v. Rolls

‐ Royce Corp.

,

626 F.3d 372, 379 (7th Cir. 2010). “[D]ue regard shall be given

to the opportunity of the trial court to judge of the credibility

of the witnesses.” Anderson v. City of Bessemer City

, 470 U.S.

564, 573 (1985) (quoting Fed. R. Civ. P. 52(a)) (internal quota

‐

tion marks omitted). To prevail on its breach of contract claim,

Dual

‐ Temp must demonstrate: (1) the existence of a valid and

enforceable contract; (2) substantial performance by the Dual

‐

1 Hench I did not appeal. Defendants originally appealed the award of

attorneys’ fees. However, defendants later conceded that this Court does

not have appellate jurisdiction over this issue because the attorneys’ fee

award has not yet been quantified and thus is not a final appealable order.

McCarter v. Ret. Plan for Dist. Managers of Am. Family Ins. Grp.

, 540 F.3d 649,

654 (7th Cir. 2008).6 No. 15

‐ 2659

Temp; (3) a breach by defendants; and (4) resultant damages.

Reger Dev., LLC v. Nat’l City Bank

, 592 F.3d 759, 764 (7th Cir.

2010) (applying Illinois law). The only element defendants

challenge on appeal is whether a breach occurred.

The district court found that defendants breached the con

‐

tract because the purchase order stated that defendants were

to supply an RCS “to meet requirements of plan and specifi

‐

cations,” and the Hench RCS did not meet this requirement

since it could not properly communicate with the refrigera

‐

tion system. On appeal, defendants contend that the evidence

was insufficient to establish breach. They make two argu

‐

ments: one based on Vallort’s expert testimony, and one based

on the timing of the communication failures. We do not find

either argument persuasive.

First, defendants argue that they presented evidence of an

equally plausible cause of the communication failures—Val

‐

lort’s testimony that external factors caused the communica

‐

tion failures—and thus, there was not sufficient evidence for

the district court to find breach. According to defendants, the

district court accepted Vallort’s testimony and found that it

was equally plausible that the communication failures were

caused by external factors and not by a defect in the RCS. This

argument fails because it mischaracterizes the district court’s

opinion. The court stated: “[Defendants] argue [they] put for

‐

ward an equally plausible explanation for the communication

losses—namely Vallort’s expert testimony

... .” The district

court neither accepted Vallort’s testimony nor stated that it

found his theory to be equally plausible.

Defendants insist that the district court accepted Vallort’s

testimony when the court found unavailing Dual

‐ Temp’s ef

‐

forts to discredit Vallort by pointing out that he was on painNo. 15

‐ 2659 7

medication and recovering from surgery while preparing his

report. But the fact that the district court was unpersuaded by

Dual

‐ Temp’s attacks on Vallort’s “state of mind and instinc

‐

tual rigor” does not mean that the court found Vallort’s theory

as persuasive as Dual

‐ Temp’s theory of breach. Although the

court did not find Vallort’s health issues, standing alone, to be

sufficient to discredit his testimony, it was still within the role

of the district court to consider Vallort’s overall credibility and

weigh his testimony against other theories posited at trial. See

Goodpaster v. City of Indianapolis

, 736 F.3d 1060, 1068 (7th Cir.

2013) (noting that in a bench trial, the district court judge must

determine the credibility of expert witnesses and that credi

‐ bility determinations are findings of fact reviewed for clear

error). Defendants have not shown that the district court’s

credibility determinations were clearly erroneous.

In any event, there is no evidence supporting Vallort’s

speculation that the communication failures were caused by

external factors. And Vallort did not testify that the commu

‐

nication failures were actually caused by one or more of the

external factors. He merely offered them as theoretical alter

‐

natives to breach and stated that “the cause or causes of the

communication failures cannot be determined within a rea

‐

sonable degree of certainty.” Thus, we are not convinced by

defendants’ contention that the parties’ alternative explana

‐

tions—Dual

‐ Temp’s argument that the RCS was defective and

defendants’ argument that external factors caused the com

‐

munication failures—are in equipoise.

In contrast to defendants’ lack of evidence supporting Val

‐

lort’s speculation, there is sufficient circumstantial evidence

for a reasonable factfinder to conclude that the communica

‐

tion failures were caused by a defect in the Hench RCS. See8 No. 15

‐ 2659

Michalic v. Cleveland Tankers, Inc.

, 364 U.S. 325, 330 (1960) (not

‐ ing that direct evidence of a fact is not required and that cir

‐

cumstantial evidence can be sufficient). Dual

‐ Temp experi

‐

enced problems with the Hench RCS from the start, the com

‐

munication failures of the Hench RCS were never fixed, and

the communication failures ceased once the Hench RCS was

replaced with the Select Technologies RCS. At trial, Dual

‐ Temp presented evidence that it worked with Spur Electric to

determine whether external factors interfered with the RCS

communication and found that they did not. 2 Additionally,

Milord independently contracted with AMS Mechanical Sys

‐

tems, Inc., an independent mechanical contractor, to review

and troubleshoot the Hench RCS. AMS Mechanical Systems

concluded that the communication failures were caused by

the Color Master, which is a software component of the Hench

system. Given this evidence, a reasonable trier of fact could

properly find that the communication failures were caused by

a defect in the RCS and not by external factors.

2 At trial, the Vice President of Spur Electric testified that the wiring had

been installed according to Hench’s standards. Dual

‐ Temp also contends

that the Select Technologies’ replacement RCS used the same wiring as the

Hench RCS. A former Dual

‐ Temp employee testified that he tried to alle

‐

viate the communication problems by checking the communication cable

between the compressors and the panels, examining the grounding of the

electrical system, and making sure that nobody was using a two

‐ way ra

‐

dio at the installation site that might cause radio wave interference, but

that his efforts did not fix the communication issues. Though one techni

‐

cian hired by defendants suggested that a faulty humidistat might have

caused the problem, a former Dual

‐ Temp employee testified that the hu

‐

midistat was replaced and had not affected the communication problems.No. 15

‐ 2659 9

Defendants’ second argument is that there is evidence that

the RCS functioned properly for one month before the com

‐

munication problems started, and therefore it is more likely

that something happened during the first month—a power

surge, for instance—that damaged the RCS and caused the

communication failures. In support of this argument, defend

‐

ants point to the testimony of Milord’s principal stating that

the RCS began experiencing communication problems

“within a few weeks after turning the system on.” Defendants

also emphasize the testimony of Home Run Inn maintenance

manager, Joe Bures, who stated that the communication prob

‐

lems began within a month after installation.

However, defendants seem to confuse installation with

startup. Installation occurred from the end of March through

April 2007. After installation, the RCS still had to be connected

to the refrigeration system through startup. Defendants’ in

‐

stallation technician assisted with startup in May 2007. The

communication failures also began in May 2007, shortly after

startup, and about one month after installation. Additionally,

the RCS had to be connected to the refrigeration system

through startup in order to communicate with the refrigera

‐

tion system. Thus, the communication failures could not have

commenced prior to startup. Finally, even if we assume for the

sake of argument that the Hench RCS did operate properly

for some time after startup, there is sufficient circumstantial

evidence, as discussed above, for a reasonable factfinder to

conclude that the communication failures were caused by a

defect in the Hench RCS. Therefore, the district court properly

concluded that defendants breached the contract.10 No. 15

‐ 2659

III. Conclusion

For the foregoing reasons, we AFFIRM the district court’s

conclusion that defendants breached the contract and its

award of damages.