decision that the plant could handle the new line, whereas Loeffel
places blame on DBI’s inaccurate representations that Loeffel’s
plant had sufficient electrical capacity for the incoming DBI
equipment.

The next problem involved the new line’s installation. DBI
complains that Loeffel delayed shipment, and then hired a third-
party installer whose work caused significant problems.

Again, Loeffel deflects blame and faults pBI's failure to test the
machine and improper installation instructions. Also, Loeffel
claims that, during his escorted trip to Indiana, DBI assured
Loeffel that his line would be designed so that it could be
installed at floor-level, but delivered prints calling for a
pelow-ground installation.

Once installed, operational problems arose, and the parties
blame each other for the ensuing difficulties. Among its
complaints, Loeffel cites continuous problems with the line’s
stacker, even when processing “pristine” coils.” Additionally,
toeffel complains that the line’s leveler did not perform to its
represented range and created unsatisfactory products. Further,
Loeffel cites problems with the line’s slitting unit, in that it

lacks the represented tooling and/or software program. Finally,

_

2/pBI does admit problems with the line's stacker, but blames
a third-party component manufacturer, Industrial Magnetics, Inc.,
for supplying defective magnets. As a result, Industrial Magnetics
has been brought into this suit as a third-party defendant -

4


purchasing their equipment. Accordingly, DBI’s first argument for
summary judement is without merit.?

2. Moorman Doctrine

Next, DBI claims that the Moorman doctrine bars Loeffel’s
fraud claim, which sounds in tort. Illinois’ well-established
Moorman doctrine provides that a plaintiff that has not sustained
personal injury or property damage has a claim for contract
damages but cannot bring an action in tort. Moorman Manufacturing
Co. v. National Tank Co., 435 N.E.2d 443, 449 (1982). Of
particular relevance here, the Moorman doctrine denies tort
recovery for product defects when the loss is rooted in
disappointed contractual or commercial expectations. Mutual Serv.
Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 615 (7th Cir.
2001). But the doctrine is not without exception. A claim
alleging fraudulent or intentional misrepresentation falls within
an exception to the Moorman rule. See Rankow v. First Chicago
Corp., 870 F.2d 356, 362(7th Cir. 1989). As discussed above,
Loeffel has presented sufficient evidence to at least raise a
dispute of material fact regarding whether DBI fraudulently

misrepresented its product’s capabilities. Accordingly, if

SWhile the Court has focused on Loeffel's evidence regarding
the line's separator in denying DBI's motion, the Court also
acknowledges that Loeffel has also presented evidence of other
knowing misrepresentations, including the price of the line's
installation, the design for installation, the line's electrical
requirement, and various allegations. regarding the line's leveler
and slitter.


as a matter of law. Fed.R.Civ.P. 56(c) (2003). A genuine issue
of material fact exists if the evidence is such that a reasonable
jury could return a verdict for the nonmmoving party. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining
whether a genuine issue of material fact exists, the Court views
the facts in the light most favorable to the nonmoving party and
draws all reasonable inferences in the nonmoving party’s favor.
Shank v. William R. Hauge, Inc,, 192 F.3d 675, 681 (7th Cir.
1999).

The moving party in a motion for summary judgment bears the
initial burden of demonstrating that no genuine issue of material
fact exists, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the moving party’s burden is met, then the nonmoving party must
set forth specific facts showing that there is a genuine issue for
trial in order to survive summary judgment. Schacht v. Wisconsin
Dep't of Corrs., 175 F.3d 497, 504 (7th Cir. 1999). In a summary
judgment proceeding, the Court will disregard all facts not
properly supported by the record. Brasic v. Heinemann’s Inc., 121
F.3d 281, 284 (7th Cir. 1997).

DISCUSSION

1. Fraud

DBI claims that Loeffel cannot support its fraud claim for
two reasons. First, DBI contends that Loeffel has not produced

competent evidence to prove the claim’s elements, specifically


Loeffel claims that the new line required separators in the multi-
planking mode, which is directly contrary to DBI’s explicit
representations, While DBI does not specifically refute each of
Loeffel’s complaints, it claims that the line will meet production
expectations, so.long as Loeffel runs commercial quality steel
through the machine.

Faced with continuing operational difficulties, Loeffel
initiated the present action. Loeffel’s complaint fashions five
counts against DBI, including breach of contract (Count I), breach
of express warranty (Count IT), breach of implied warranty of |
merchantability (Count III), breach of implied warranty of fitness
for a particular purpose (Count IV), and fraud(Count V)?.
Following written discovery, DBI now moves for summary judgment on
Count V. DBI claims that Loeffel has not produced evidence to
sustain its fraud claim and that summary judgment is, therefore,
appropriate. DBI further moves the Court to reject Loeffel’s
prayer for consequential damages because, it claims, the Contract
specifically relieves DBI from liability for such damages.

STANDARD OF REVIEW

The Court will grant summary judgment only if the pleadings

and supporting documents show that there is no genuine issue of

material fact and that the moving party is entitled to a judgment

the fraud count is also brought against Mr. Savariego
individually.



representing abilities of a product to perform certain functions
can form the basis of a viable fraud claim). Rather, they become
actionable misrepresentations if not followed through. See id.
Further, deposition testimony suggests that DBI knew that they
could not deliver such a product when negotiating with Loeffel or
was unaware as to whether such a technological feat could be
accomplished. If proven true’, this type of evidence could go
towards sustaining Loeffel’s burden of proving the claim's first
two elements.

Regarding the claim's final three elements, intent to induce
reliance, actual reliance, and damages, the Court finds that
Loeffel has also produced sufficient evidence to overcome summary
judgment. Certainly, specific representations regarding the
technological capabilities of a touted product are meant to induce
the buyer’s reliance. Lastly, evidence supporting the final two
elements, actual reliance and damages, is established by Mr.
Loeffel’s testimony that DBI‘s representations prompted the
purchase. And evidence of damages is provided by Mr. Loeffel’s
testimony that he received a product of less value than the
product he bargained for. Thus, the Court finds that Loeffel has
presented adequate evidence to at least raise a dispute of

material fact as to whether DBI fraudulently induced Loeffel into

—_—

“phe Court must stress that it expresses no opinion on the
veracity of these allegations at this stage of the proceedings.

8


er

Mingi¢ Order Farm (0697)

United States District Court, Northern District of Illinois

wemaeematnge | AvlanderKeys | Suen

CASE NUMBER 01 C 9389 DATE 2/25/2004
CASE Loeffel Steel Products vs. Delta Brands, Inc. et al.
TITLE

of the motion being presented.)

[fn the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION:

DOCKET ENTRY:

(i) a Filed motion of { use listing in “Motion” box above.]

(2) Q Brief in support of motion due.

G) oC Answer briefto motion due___- Reply to answer briefdue_

(4) Qo Ruling/Hearing on setfor_ at

(5) a Status hearing[held/continucd to] [set for/re-set for] on _ setfor at.

(6) aq Pretrial conference(held/continued to] {set for/re-set for]on set for_ at.

(7) Qo Trial{set for/re-set for]on at.

(8) oa (Bench/Jury trial] [Hearing] held/continued to __ at

(9) a This case is distnissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OOFRCP4(m) Local Rule 41.1 CLFRCP41(a)(1) [© FRCP41(a)(2).

qo) {Other docket entry] © Memorandum Opinion and Order entered. Motion of Defendants Delta

denied. AK

(il) W {For further detail see order attached to the original minute ordet.]

Brands, Inc. and Samuel Savariego for Partial Summary Judgment [ #37; amended as #40] is hereby

No notices required, advised in apen court.

No notices required,

o | Notices mailed by judge's staff.

Notificd counsel by telephone,

Docketing to mail notices.

Mail AO 450 form.

Copy to judgc/magistrate judge.

courtfoom i ere

FY? deputy’s
initials

Datestime received in
central Clerk's Office mailing deputy minds



plain reading of the Contract and the accompanying Annex, the
Court cannot conclude that the parties expressly agreed to itimit
Loeffel’s remedies in the manner that DBI advocates. For
instance, the limitation does not appear in the Contract’s main
body, nor does it take on any special prominence in the Annex,
Moreover, as Loeffel highlights, a careful analysis of the
chronological context in which this limitation originated, and the
text surrounding the disclaimer, seems to indicate that DBI's
interpretation indeed goes too far. Based on these observations,
the Court denies DBI’s request to find that the Contract
unequivocally excludes recovery for consequential damages.

In sum, the testimony and supporting documentary evidence
reveals that the parties are sharply at odds regarding the content
and intent behind DBI’s representations throughout the transaction
and, further, have irreconcilable interpretations regarding the
scope of the Contract’s consequential damages waiver. Because
numerous disputes of material fact exist, the Court must deny
DBI’s motion for summary judgment.

CONCLUSION

IT IS THEREFORE ORDERED that DBI’s Motion for Partial Summary
Judgment be, and the same hereby is, DENIED in its entirety.
DATED: February 25, 2004 ENTER:

OnOs0». Keys

ARLANDER KEYS
United Stats Magistrate Judge

11


Loeffel establishes fraud, the Moorman doctrine would not present
an obstacle to recovery. As such, DBI'S second argument for
summary judgment must also fail.
2. Consequential Damages

Loeffel’s complaint seeks recovery for consequential damages
suffered as a result of their alleged disappointed commercial
expectations. Such damages would conceivably include lost profits
resulting from disrupted production. DBI contends that the
Contract specifically excludes consequential damages should
problems with their machinery arise. In support, DBI cites a
provision contained in the Annex, which states “DBI is not
responsible for consequential damages.” DBI claims that this
disclaimer applies to all controversies relating to Contract
performance. Loeffel disputes DBI’s broad application and argues
that, when viewed in proper context, it is clear that the
consequential damages waiver is meant to only apply to 4 specific
aspect of Contract performance, namely installation. While the
Court does not wish to express an opinion favoring one position
over the other, it should be noted that Loeffel has presented some
evidence indicating that DBI‘ s broad interpretation 4s erroneous.

The UCC, which governs this commercial transaction, allows
parties to limit remedies, including consequential damages, but
requires that any such limitation must be “expressly agreed to be

exclusive.” See vec § 2-719(1) (b)- 810 ILCS 5/2-719(1) - After a

10



that DBI made any knowing material misrepresentations, and that
Loeffel reasonably relied on such representations. Second, DBI
asserts that the Moorman doctrine bars Loeffel’s tort-based fraud
claim because this lawsuit is a contract dispute.

1. Lack of Evidence

To prove fraud, Loeffel must establish: 1)a false statement
of material fact; 2) known or believed to be false by the person
making it: 3) an intent to induce the other party to act; 4)
action by the other party in reliance on the truth of the
statement; and 5) damage to the other party resulting from such
reliance. Hoseman v. Weinschneider, 322 F.3d 468, 476 (7th Cir.
2003).

Loeffel sufficiently presents evidence supporting the
allegation that DBI made a number of material misrepresentations
of fact when selling the new line. For instance, deposition
testimony suggests that DBI represented that the new line would
not require separators for multi-blanking when stacking blanks,
when, in fact, the machine as delivered required such separators.
Such representations, in the form of promised specifications, are
more than mere expressions of opinion. Peters v. Murphy-Knight,
618 N.E.2d 459, 463~64 (Ill. App. 1993) (distinguishing between
statement of fact and expression of opinion or mere “puffing”);
see also Walter Raczynski Prod. Design v. IBM Corp., No. 92 C

6423, 1993 WL 282722 *4,5 (N.D,I1l. July, 21, 1993) (statements


representations during an escorted trip to an Indiana warehouse to
view an existing DBI line, According to Loeffel, DBI promised
that Loeffel’s line would be designed so that it could be
installed at floor-level. Additionally, Loeffel claims that DBI
repeated the assurance that the line would not require separators.

After Loeffel confirmed its interest in DBI’s product, the
parties exchanged draft sales contracts. On or about March 1,
2000, the parties executed the final revision (the “Contract”).
The Contract contains an Annex A (the “Annex”), which attaches a
series of correspondence which were incorporated into the Contract
by reference. DBI contends that the Annex contains a provision
disclaiming DBI’'s responsibly for consequential damages. Loeffel
disagrees with DBI’s interpretation, and claims that the parties
intended to limit the consequential damages waiver only to issues
arising out of the installation of the equipment, Beyond the
Contract’s terms, the parties made certain contemporaneous oral
agreements. One such agreement regarded the line’s installation,
which Loeffel claims DBI estimated would cost $70,000.

After contracting, the parties discovered that Loeffel'’s
plant lacked the electrical capacity to maintain DBI’s equipment,
and Loeffel was, therefore, forced to incur additional,
uncontemplated costs to increase the plant’s on-site energy
intake. The parties disagree over who is to blame for this

oversight. DBI maintains that Loeffel’s plant manager made the


machinery, Defendants, Delta Brands, Inc. and Samuel Savariego
(collectively “pBI”}, move this Court for partial Summary Judgment,
pursuant to Rule 56 of the Federal Rules of Civil Procedure.’ For the
reasons set forth below, DBI’s motion is denied.

BACKGROUND FACTS

Plaintiff, Loeffel Steel Products (“Loeffel”), processes
steel and delivers finished product to various equipment
manufacturers. In late 1999, Loeffel began looking for a new
piece of equipment. Acting on Loeffel’s interest, a DBI
salesperson, Gautam Mahtani, contacted Loeffel in January of 2000
touting their new product, a multi-blanking line.

Purchase negotiations subsequently began and various
representations were made. The parties’ recollections of these
representations sharply diverge. For instance, DBI claims that
Loeffel represented that its primary business was processing prime
steel and that Loeffel only intended to run quality product on the
new line. Loeffel denies this, and says that DBI was aware that
Loffel also processed secondary steel. Loeffel also contends that
DBI represented that the new line would not require separator
disks in the stacker area and would have automatic blade gap
adjustment.

Further, Loeffel claims that DBI made additional

—_—

Mppird-Party Defendant, Industrial Magnetics, Inc., has also
filed a Motion for Partial Summary Judgment, which the Court will
address in a separate order.


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

Loeffel Steel Products, Inc., .
FEB 2 6 2004

Plaintiff,
Vv.

Delta Brands, Inc. d/b/a/ DBI;

Samuel F. Savariego, No. O1 Cc 9389

Magistrate Judge
Arlander Keys

Defendants.

Delta Brands,.Inc.,
Counter-Plaintiff,
Vv.

Loeffel Steel Products, Inc.,

Counter-Defendant.

Delta Brands, Inc.
and Samuel Savariego,

Third-Party
Plaintiffs,

v.
Industrial Magnetics, Inc.,

Third-Party
Defendant.

MEMORANDUM OPINION AND ORDER

In this diversity action arising out of the sale of industrial

lol