inference is to be drawn by the trier of fact”). Accordingly, whether the rebate agreement exists
is a question for the jury.’

B. Implied Warranty Claims

Tn Counts II and III of its Second Amended Complaint, CPR alleges that Williams-
Hayward breached the implied warranties of merchantability and fitness. Williams-Hayward
contends that because CPR does not have contractual privity concerning the Thermalbond paint
purchased by NSC, CPR cannot bring these claims. CPR, on the other hand, contends that it falls
within the narrow class of plaintiffs that may assert implied warranty claims absent contractual
privity.

1. Privity Requirement & Exceptions

As opposed to an express warranty in which the warrantor has made the requisite
affirmation as part of a contract, an “implied warranty is derived from the interplay of a
transaction’s factual circumstances with the foreseeable expectations of a buyer or other person
who is protected by law in those expectations.” Collins Co. v. Carboline Co., 125 Ill.2d 498,
508-09, 127 Ill.Dec. 5, 532 N.E.2d 834 (Ill. 1988) (implied warranty arises despite seller’s actual
wishes). In general, Illinois law requires a plaintiff suing for breach of implied or express
warranties to establish contractual privity. See Reed v. City of Chicago, 263 F.Supp.2d 1123,
1125 (N.D.IIL. 2003). Section 2-318 of the Illinois Uniform Commercial Code, however,

contains exceptions to the general privity requirement. Jd. Section 2-318 reads in pertinent part:

' For the first time in its Reply Brief, Williams-Hayward contends that CPR’s claims are
nothing more than “thinly-disguised tort claims” barred by Moorman Mfg. Co v. National Tank
Co., 91 Il.2d 69, 61 Il.Dec. 746, 435 N.E.2d 443, 452 (Ill. 1982). Williams-Hayward waives
this argument because it was brought for the first time in its Reply Brief. See Carter v. Tennant
Co., 383 F.3d 673, 679 (7 Cir. 2004),

20



determine whether the plaintiff may have justifiably relied on the opinion as though it were a
statement of fact.” West, 846 F.2d at 393. When a speaker “holds himself out or is understood
as having special knowledge of the matter which is not available to the plaintiff,” the speaker’s
“opinion becomes in effect an assertion summarizing his knowledge.” Id. (citing Duhl, 102

I App.3d at 489). “Thus, the general rule is that it is not ‘the form of the statement which is
important and controlling, but the sense in which it is reasonably understood.” West, 846 F.2d
at 394 (quoting Prosser & Keeton on Torts § 109, at 755 (W. Keeton 5" ed. 1984)),

NSC, however, has presented sufficient evidence, under the clear and convincing
standard of proof, to establish that a genuine issue of material fact exists to whether Kurez’s
statements in his email of September 5, 2001, Kurez’s subsequent assurances made in September
2001, and Kurez’s email of December 18, 2001, contained false statements of material facts. For
instance, NSC has set forth evidence that Kurcz held himself out as experienced in developing
water based products for the rail and chemical industry for over 30 years and that Williams-
Hayward “know{s] of no company offering coatings systems in the corrosive services that can
produce the actual fleet data of over 90,000 units in service for over 15 years with such a success
rate.” (See Def.’s Stmt. § 178.) Kurez also stated that Williams—Hayward was the “oldest
supplier of water based products in the rail industry and we are confident we are also the best.”
(See Def.’s Stmt. 4 200.)

Furthermore, NSC has come forward with evidence of Kurcz’s assertion that Williams-
Hayward’s High-Rubber Thermalbond paint, if properly applied, would pose no problems for the
transport of the paper rolls. Kurcz also explained to NSC’s Todd Pafford that the High-Rubber

Thermalbond paint would do the job it was intended to do. Also, there is sufficient evidence in

41



barred from bringing its implied warranty claims based on the “examination” exception under
Comment 8 of Section 2-316 if the Illinois Uniform Commercial Code.‘

(on Promissory Estoppel Claims

NSC brings two counts based on promissory estoppel ~ promissory estoppel related to the
suitability of the paint and promissory estoppel related to the application of the paint. Williams-
Hayward contends that because there is a binding sales contract between the parties, NSC cannot
bring any claims of promissory estoppel. See Wagner Excello Foods, Inc. v. Fearn Int'l, Inc.,
235 Ill.App.3d 224, 235, 76 Ill.Dec. 258, 601 N.E.2d 956 (Ill. App.Ct. 1992) (plaintiff cannot
bring promissory estoppel claim when parties have entered into binding contract on same subject
matter). NSC, on the other hand, contends that the promises underlying its promissory estoppel
claims concern different subject matter than the sales contract. See Prentice v. UDC Advisory
Servs., Inc., 271 Ill App.3d 505, 512, 207 Ill_Dec. 690, 648 N.E.2d 146 (IIl_App.Ct. 1995); see
also Industrial Lift Truck Serv. Corp. v. Mitsubishi Int'l Corp., 104 UlApp.3d 357, 361-61, 60
Ill.Dec, 100, 432 N.E.2d 999 (IIl.App.Ct. 1982)(“general rule is that no quasi-contractual claim
can arise when a contract exists between the parties concerning the same subject matter on which
the quasi-contractual claim rests”).

Here, NSC has presented statements and recommendations made by Kurcz that pertain to
the circumstances after the pull-ahead car and paper car 220164 experienced paint sticking

problems. These allegations are different in subject matter than the sales contract. Williams-

® Again, Williams-Hayward makes the argument that the paint was merchantable because
it was not used for an “ordinary purpose.” As discussed in detail above, whether the use of High-
Rubber Thermalbond in the paper boxcars was “ordinary” is a question of fact for the jury. See
Check v. Clifford Chrysler-Plymouth of Buffalo Grove, Inc., 342 Ill.App.3d 150, 159, 276
Ill. Dec. 579, 794 N.E.2d 829 (Ill_App.Ct. 2003).

37



2. Promissory Estoppel Claims

Next, Williams-Hayward contends that the promissory estoppel claims are merely a
reiteration of the warranty claims; therefore, the proper damages are the “difference between the
value of the goods accepted and the value they would have had they been warranted.” See
illinois Uniform Commercial Code, Section 2-714(2). The Court, however, has rejected
Williams-Hayward’s argument that the promissory estoppel claims are based on the same subject
matter as the sales contract. Williams-Hayward’s argument concerning promissory estoppel
damages also fails.

3. Fraud Claim

Williams-Hayward asserts that NSC cannot recover damages for loss of reputation,
interest charges, and cost overruns from the repainting of the paper boxcars because these
damages were not a foreseeable result of Williams-Hayward’s alleged fraud. Williams-Hayward
discusses the law of proximate cause, but does not support its argument with facts in the record.
Without a more developed argument, Williams-Hayward has failed to establish that, as a matter
of law, NSC cannot establish damages based on its fraudulent misrepresentation and
concealment claim. Because proximate cause for tort damages is generally a question of fact,
this issue is for the jury to decide. Kavales v. City of Berwyn, 305 Ill. App.3d 536, 547, 238
Ill.Dec. 738, 712 N.E.2d 842 (Ill App.Ct. 1999),

Finally, Williams-Hayward contends that NSC cannot establish any entitlement to
exemplary damages because there is no evidence of Williams-Hayward’s fraudulent conduct. As
discussed, NSC has established a genuine issue of material fact as to its fraud claim against

Williams-Hayward, and thus Williams-Hayward’s argument regarding exemplary damages fails.

46



send someone to investigate paper car 220164 in Minneapolis. (/d. J 148, Pls’ Ex. 66.) On
November 4, 2001, Kurez forwarded Cheun’s email to Black and Ed Kurez of Williams-
Hayward and stating: “Check this out get photos and mill thickness readings. Immediately. Ed I
need you to go personally also this could be big trouble if it is not a mill thickness issue up stay
in contact with Norm. I have my mobile with me.” (/d.)

G. Changes to the Paint Application Process

Meanwhile, in late September 2001, Black recommended that NSC change its paint
application process and NSC subsequently implemented the recommended process. (/d. {§ 139-
142.) On November 14, 2001, Williams Hayward gave NSC a 10-page document entitled
“Facility Coatings Application & Cure Recommendations for Canadian Pacific Railroad Box
Cars for Hot Paper Service at National Steel Car, Hamilton, Ontario” that Kurez had signed. (/d.
4, 152.) This document contained detailed recommendations concerning the procedures for
applying the paint and NSC complied with these new procedures. (Jd. § 157.) The November
14, 2001, recommendation stated: “It is of critical importance that Williams Hayward Protective
Coatings representatives are permitted to audit the Process established to certify and write off on
the cars for shipment. Our method of write off on each car will be to certify in writing the
process at the beginning of each shift taking all necessary measurements and verifying against the
standards established.” (/d. 4 154.)

From November 14, 2001, to December 19, 2001, Black of Williams-Hayward monitored
the dry film thickness readings. (/d. § 158.) Williams-Hayward also reformulated the High-
Rubber Thermalbond by replacing a solvent to make it dry faster, and sent the reformulated paint

to NSC in mid-November 2001. (/d. § 162-63.)

14



instead needed chemical testing.” Comment 8 to 2-316 explains: “However, an examination
under circumstances which does not permit chemical or other testing of the goods would not
exclude defects which could be ascertained only by such testing.” In other words, latent defects
cannot be excluded from implied warranties by a parties’ mere examination of the product. Id;
Dacor Corp. v. Sierra Precision, Case No. 93-2708, 1994 WL 83303, at *4 (7 Cir, Mar. 14,
1994).

CPR has raised a genuine issue of material fact that the paint’s defects were not obvious
upon mere examination. Whether CPR’s examination precludes it from bringing the implied
warranty claims is a question for the jury.

Williams-Hayward also argues that because CPR is a “professional buyer” that examined
a product in their field, CPR “assumed the risk as to all defects which a professional in the field
ought to observe.” See UCC § 2-316, Comment 8. Williams-Hayward, however, does not fully
explain how a corporation that operates a railroad is a professional buyer of paint. Instead,
Williams-Hayward contends that CPR purchased “billions of dollars of goods and services each
year” and that Cheun had experience selecting paint for boxcars. Without more, Williams-
Hayward has not established that CPR is a professional buyer of paint. See R & L Grain Co. v.
Chicago Eastern Corp., 531 F.Supp. 201, 208 (N.D.III. 1981) (under Illinois law “it is the burden
of the party seeking to invoke a warranty exclusion to plead and prove its effect”).

Finally, the Court rejects Williams-Hayward’s argument that CPR did not rely on

Williams-Hayward’s conduct and assertions in selecting a suitable paint for the paper boxcars.

> Any examinations made by CPR after the contract was formed do not affect the
existence of the implied warranties, See White & Summers, Uniform Commercial Code § 12-6
(4" ed.)

24



the record that Kurez knew the problem of the paint sticking in the paper cars when he made
these statements.

Based on this evidence, a reasonable jury could find that Kurez made false statements of
fact. Specifically, examining the emails in the context of the paper boxcar sticking problems that
occurred during the fall of 2001, a reasonable jury could find that Kurez had summarized his
knowledge of the paint systems based on his background and expertise, and that Kurez’s emails
contained false statements of material facts.

2. Scienter

Williams-Hayward also contends that NSC cannot prove that it intentionally made a false
statement of material fact. The Court notes that “evaluations of motive and intent are generally
inappropriate on a motion for summary judgment,” see Kyle y, Patterson, 196 F.3d 695, 698 (7"
Cir. 1999), and that “resolution by summary judgment of the issues raised by an allegation of
fraud is often difficult or impossible.” FDIC v. Lauterbach, 626 F.2d 1327, 1334 (7" Cir. 1980)
(summary judgment often inappropriate in fraud claims because district court would be required
to resolve subjective issue of fraudulent intent). There is no absolute rule, however, that
precludes summary judgment concerning fraud claims. /d.; see also Munson v. Friske, 754 F.2d
683, 690 (7" Cir. 1985) (“although summary judgment is usually not proper in a case involving a
weighing of conflicting questions of motive and intent, summary judgment is proper where the
plaintiff presents no indications of motive and intent supportive of his position”).

NSC has presented evidence upon which a reasonable jury could find by clear and
convincing evidence that Williams-Hayward made representations in reckless disregard or

culpable ignorance of their truth or falsity. See Hartmann Co. v. Capital Bank & Trust Co., 296

42



THIS WARRANTY IS IN LIEU OF ALL WARRANTIES, OR

MERCHANTABILITY, FITNESS FOR PURPOSE, OR OTHER

WARRANTIES, EXPRESS OR IMPLIED, EXCEPT OF TITLE AND

AGAINST PATENT INFRINGEMENT.
(Def.’s Stmt. 48; Def.’s Ex. 4.) Ina letter dated September 3, 1999, from Kurcz to Quintal,
Kurez provided prices for various Williams-Hayward paints for the rail cars that CPR was
contemplating building. (Def.’s Stmt. { 53.) The letter contained no references to any
warranties. (/d.)

The parties do not dispute that Quintal never signed the proposed purchase agreement.
(Pls’ Stmt. { 17; Def.’s Ex. 4.) At his deposition, Quintal testified that he could not accept
Kurez’s proposal on its terms because CPR could not give Williams-Hayward all of its paint
business. (Pls’ Stmt. § 17; Pls’ Ex. 6.) Instead, Quintal sent a letter to Kurez on October 1,
1999, which stated:

Please refer to your proposals dated August 30" and September 3”, 1999, which

includes [sic] rebates and prices for paint products related to our new freight car

program. This letter will confirm CPR’s desire to do business with Williams-

Hayward Protective Coatings, Inc. (WHPC).

As discussed, we will not be able to guarantee 90% of our business to WHPC. I

will however offer you our business in year 2000 relative to new bi-level racks,

using rebates offered by WHPC for these cars,

The first confirmed project consists in 243 bi-level racks to be built by Thrall

Manufacturing starting in January, 2000 (Job no. 99-0534). We have specified

WHPC’s Thermalbond paint in our car specifications to Thrall.

My understanding of your offer is that:

(1) a US $1.00/U.S. Gal. rebate will be remitted to CPR at the end of the program.

(2) WHPC will track volume of paint ordered by Thrall for this order and
gallonage shipped will be faxed to me for my records. A monthly report of the
rebate status will also be faxed to this office.



material and work covered by this order will conform to the specifications, drawings, samples or
other description, if any, furnished or specified by Buyer.” Further, NSC points to language in
the purchase order stating: “Suppliers are responsible for understanding the nature of the work
and the tolerances the parts must meet.”

Williams-Hayward’s argument that NSC waived any express warranty claims because
Williams-Hayward informed NSC that it would supply free epoxy paint to replace the High-
Rubber Thermalbond on the paper boxcars is a disputed fact. Accordingly, it cannot be the basis
for a finding of waiver. NSC has established a genuine issue of material fact as to whether
Williams-Hayward made express warranties to NSC and whether Williams-Hayward breached
those express warranties.

B. Breach of Implied Warranties

In Counts II and III of its Second Amended Counterclaim, NSC alleges that Williams-
Hayward breached the implied warranties of fitness and merchantability. Williams-Hayward
contends that NSC’s experience with Williams-Hayward’s paint and its opportunities to test the
paint preclude its claims for breach of implied warranties. See Trans-Aire Int’l, Inc. v. Northern
Adhesive Co., 882 F.2d 1254, 1259 (7" Cir. 1989).

First, Williams-Hayward argues that NSC is a professional buyer that examined a product

in its field, and thus NSC “assumed the risk as to all defects which a professional in the field

* Based on facts in dispute, Williams-Hayward makes the cursory argument that NSC did
not rely on the alleged verbal representations, and thus they were not the “basis of the bargain” as
required for a breach of express warranty claim. Because Williams-Hayward’s argument is
undeveloped, the Court considers it waived. See Estate of Moreland v. Dieter, 395 F.3d 747, 759
(7" Cir, 2005) (“Perfunctory or undeveloped arguments are waived”); see also Weng v. Allison,
287 Ill-App.3d 535, 538, 223 Ill.Dec.123, 678 N.E.2d 1254 (IIL.App.Ct. 1997) (burden on seller
to establish by affirmative proof that affirmations did not become part of basis of bargain).

35



“A seller’s warranty whether express or implied extends to any natural person who is in the
family or household of his buyer or who is a guest in his home if it is reasonable to expect that
such person may use, consume or be affected by the goods and who is injured in person by
breach of the warranty.” Although this section lists mandatory exceptions to the privity
requirement, this list is not exhaustive. Reed, 263 F.Supp.2d at 1125; see also Whitaker v. Lian
Feng Mach. Co., 156 Ill.App.3d 316, 321, 108 Il.Dec. 895, 509 N.E.2d 591 (1987) (UCC
warranty extends to buyer’s employee), The Illinois Supreme Court, however, has not
completely abolished the privity requirement in economic loss actions for breach of implied
warranties. Szajna v. General Motors Corp., 115 Ill.2d 294, 311, 104 Ill.Dec. 898, 503 N.E.2d
760 (Ill. 1986); see also Collins, 125 Ill.2d at 516 (Section 2-318 and its comments leave “a door
at least slightly ajar for future extension of some warranties in appropriate circumstances to
nonprivity plaintiffs.”).

CPR contends that because Williams-Hayward knew its identity, the purpose and
requirements of the Thermalbond paint to be applied to the paper boxcars, and then delivered the
paint to mect CPR’s needs, CPR can bring its breach of implied warranty claims despite its lack
of contractual privity. Indeed, Illinois courts recognize an exception to the privity requirement
“when the remote manufacturer knows the identity, purpose and requirements of the dealer’s
customer and manufactured or delivered the goods specifically to meet those requirements.”
Crest Container Corp. v. R.H. Bishop Co.,111 Tll.App.3d 1068, 1076, 67 Ill. Dec. 727, 445
N.E.2d 19 (IILApp.Ct. 1982) (quoting Frank's Maint. & Eng’g v. C.A. Roberts Co., 86 Il.App.3d
980, 992-93, 42 Ill.Dec. 25, 408 N.E.2d 403 (Il.App.Ct. 1980)).

Without a clear explanation or citations to legal authority, Williams-Hayward contends

21



express warranty. See Connick, 275 Ill.App.3d at 713. In other words, manufacturer documents
given directly to the buyer prior to a purchase may give rise to an express warranty because the
assertions become part of the basis of the bargain unless clear affirmative proof shows otherwise.
See Ampat/Midwest, Inc.,1988 WL 53222, at *4; Crest Container, 111 Ill.App.3d at 1074 (coil
manufacturer's catalog created express warranty).

Here, CPR does not explain how this exception to the privity requirement applies to the
circumstances at hand. For instance, CPR does not come forward with evidence of manufacturer
brochures, catalogs, or advertisements that were part of the basis of the bargain supporting their
claim for express warranties. Specifically, CPR has not established that Williams-Hayward
made specific, written promises or warranties via manufacturer’s catalogs or other marketing
materials. Without more, the Court would be hard-pressed to extend this exception to CPR’s
claims that Black and Kurcz made statements that constitute express warranties.

As discussed, there are very few exceptions to the privity requirement for a plaintiff suing
for breach of express or implied warranty, see Reed, 263 F.Supp.2d at 1125, and CPR has failed
to establish that it fits within any exception to this requirement regarding express warranties,
Accordingly, the Court grants Williams-Hayward’s summary judgment motion as to Count I of
CPR’s Second Amended Complaint.

D. Unjust Enrichment and Promissory Estoppel

Williams-Hayward contends that because it has established that the rebate agreement
governs the parties’ disputes, CPR cannot bring its claims of promissory estoppel and unjust
enrichment. Indeed, when a specific contract governs the parties’ relationship, quasi-contractual

theories, such as unjust enrichment or promissory estoppel, cannot form a basis for damages. See

27



(emphasis added). Black responded by suggesting certain interior and exterior High-Rubber
Thermalbond products. Black also testified that he knew of CPR’s plans to build boxcars and
that it would use some of the boxcars for paper services. Viewing the facts and inferences ina
light most favorable to CPR, CPR has established that there are genuine issues of material fact
whether Williams-Hayward (1) knew CPR was the ultimate consumer of the paint, (2) was aware
of the paint’s purpose, and (3) delivered the paint to meet CPR’s needs.
2. CPR’s Opportunity to Examine the Thermalbond Paint

Williams-Hayward contends that even if CPR and Williams-Hayward were in privity of
contract, CPR would not have claims for breach of implied warranties because CPR had the
opportunity to examine Williams-Hayward’s paint. See Trans-Aire Int'l, Inc. v. Northern
Adhesive Co., 882 F.2d 1254, 1259 (7" Cir, 1989) (citing Section 2-316 of the llinois Uniform
Commercial Code). Section 2-316(3)(b) provides in pertinent part, “when the buyer before
entering into the contract has examined the goods or the sample or model as fully as he desired or
has refused to examine the goods there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him.” Comment 8 of Section 2-316
explains: ““Examination’ as used in this paragraph is not synonymous with inspection before
acceptance or at any other time after the contract has been made. It goes rather to the nature of
the responsibility assumed by the seller at the time of the making of the contract.”

CPR admits that it examined the Williams-Hayward paint on various boxcars, but

contends that it could not have discovered the latent defects of the paint by mere observation, but

23



ought to observe.” See Illinois UCC Section 2-316, Comment 8. Williams-Hayward does not
completely explain how a rail car manufacturer is a professional buyer of paint. Indeed, in his
email of December 18, 2001, Kurcz admits that NSC did not have experience with Williams-
Hayward’s High-Rubber Thermalbond paint. Nevertheless, Williams-Hayward argues that
because NSC maintained a department devoted to the purchase of speciality items, including
paint, for the rail cars it manufactured, it is a “professional in the field.” This limited argument
simply does not satisfy Williams-Hayward’s burden of establishing the exclusion of claims based
on the implied warranty of fitness or merchantability. See R & L Grain Co. v. Chicago Eastern
Corp., 531 F.Supp. 201, 208 (N.D.IIL. 1981).

Second, Williams-Hayward contends that because NSC had the opportunity to examine
the High-Rubber Thermalbond paint in trial applications, it cannot bring its claims for breach of
implied warranties. See Illinois UCC Section 2-316, Comment 8. NSC, however, correctly notes
that the purpose behind the trial applications was for Williams-Hayward’s Black to explain how
to apply the paint safely and properly. In addition, there is no evidence in the record that NSC
examined the High-Rubber Thermalbond’s propensity to fuse with paper or its ability to perform
in paper service, because NSC contends that the paint’s propensity to stick was a latent defect.
Also, NSC asserts that it did not have the ability to load paper rolls into the paper boxcars after
they were painted. (See Pls’ Stmt. § 82.) Finally, after the pull-ahead car exhibited sticking
problems and NSC’s own “jack test” failed, Kurez of Williams-Hayward emailed NSC’s Wilson
explaining that he did not see a need for any paint testing if NSC proceeded with its process and
used the recommended cure parameters.

Based on this evidence, NSC has created a genuine issue of material fact of whether it is

36



A. Rebate Agreement

Central to Williams-Hayward’s arguments on summary judgment is whether CPR and
Williams-Hayward had a written “rebate agreement” containing disclaimers of warranties that
would bar CPR’s warranty claims and quasi-contract claims of unjust enrichment and promissory
estoppel. Williams-Hayward contends that the “rebate agreement” is memorialized in Kurcz’s
August 30, 1999, letter and attached purchase agreement. Williams-Hayward asserts that this
rebate agreement governs all of the parties’ projects.

In Kurcz’s August 1999 letter, he proposed an arrangement where CPR would agree to
purchase large volumes of paint from Williams-Hayward in exchange for long-term fixed
pricing. Kurcz suggested a fixed one-year pricing structure renewable at CPR’s option with a
rebate component. Kurcz attached a proposed purchase agreement to the letter that included a
rebate agreement signed by Kurez on behalf of Williams-Hayward. The proposed rebate
agreement included language that the warranty described within was “in lieu of all warranties, or
merchantability, fitness for purpose, or other warranties, express or implied.”

The parties do not dispute that Quintal never signed the purchase agreement attached to
the August 30, 1999 letter. CPR contends that Quintal rejected the offer and then made a
counter-offer in his October 1, 1999, letter to Kurcz. The October 1, 1999, letter concerned 243
bi-level auto racks that Thrall Manufacturing would build and for which CPR would specify
Williams-Hayward’s Thermalbond paint. It further provided that CPR may award Williams-
Hayward with additional projects if the initial project proved successful. The October 1, 1999,
letter did not contain any disclaimers of warranties or limitations of remedies. Kurcz responded

to Quintal in a letter dated October 4, 1999, stating that Quintal was correct as to the agreement.

18



TO ALL TERMS AND CONDITIONS APPEARING ON THE FACE AND BACK, THEREOF.
(Pls’ Ex. 56, at 1.)

E. Pull-Ahead Car and Subsequent Correspondence

On August 1, 2001, NSC delivered to CPR the first paper boxcar, also know as the pull-
ahead car. (Pls’ Stmt. § 108; Def.’s Stmt. § 173.) The newsprint paper supplier loaded the pull-
ahead car and shipped it to the Minneapolis Star Tribune. (Pls’ Stmt. 4 110, Def.’s Stmt. 4 173).
Upon unloading, it was discovered that the protective wrappers that covered the paper rolls were
sticking to the wall of the paper boxcar, tearing off the rolls, and thus exposing the paper rolls.
(Pls’ Stmt. § 111, Def.’s Stmt. ff 173-74.) After the pull-ahead car run, the supplier of the paper
rolls required a second test run before it would accept the fleet of rail cars into its business
service. (Pls’ Stmt. 4 115.)

Following his inspection of the pull-ahead car, Williams-Hayward’s Black informed
Alistair Wilson, Executive Vice President of NSC, that if NSC controlled its millage parameter —
the minimum and maximum thickness requirements — the sticking problem would be eliminated.
(ld, §§ 116-17.) During this time period, NSC requested Black’s approval to switch from the
High-Rubber Thermalbond to another paint for application to the paper boxcar’s interiors. (Id. q
119.) Black informed NSC that Williams-Hayward would not warrant the alternate coating. (Jd.
120.) Consequently, NSC asked Black for a letter of assurance that, if the High-Rubber
Thermalbond paint was properly applied and dried, the paint would not present the type of
sticking problems NSC experienced with the pull-ahead car. (/d.)

On September 5, 2001, Black emailed Kurez about the situation:

As you are aware CP reported to NSC that they had a problem with one of the cars

10



action under the UCC, plaintiff must show a breach of an affirmation of fact or promise that was
made a part of the basis of the bargain.” Hasek v. DaimlerChrysler Corp., 319 Ill. App.3d 780,
788, 253 Ill.Dec. 504, 745 N.E.2d 627 (Ill.App.Ct. 2001).

1 Verbal Assurances

Williams-Hayward contends that it made no verbal warranties to NSC that its High-
Rubber Thermalbond paint would be an acceptable treatment for the paper boxcars, Specifically,
Williams-Hayward argues that the information Norman Black, Williams-Hayward’s Director of
Canadian Operations, gave Dennis Ryan, NSC’s Managing Director, when NSC was preparing
its bid for CPR does not amount to “affirmations of fact or promises.” Williams-Hayward relies
on Black and Ryan’s first meeting when Black provided Ryan with information concerning
Williams-Hayward’s alleged recommendations for the exterior and interior paint for the boxcars.
(See Pls’ Stmt § 58; Pls’ Ex.10, Ryan Dep. at 63-64.)

NSC, however, contends that Williams-Hayward ignores other testimony in the record
that Ryan informed Black that some of the boxcars would be used in paper service and that the
elimination of damage to the paper rolls was a critical feature of the paper boxcars. For example,
Ryan testified that in his later meetings with Black, they discussed the specifics of the paper
boxcar projects, such as the type of loading, the importance of the interior lining, and that the
boxcars would be hauling newspaper service.

Nevertheless, Williams-Hayward contends that the parole evidence rule bars any evidence
of its alleged verbal recommendations made to NSC. Under Illinois common law, parol or
extrinsic evidence regarding a prior or contemporaneous agreement is not admissible to vary or

contradict a fully integrated contract. Eichengreen v, Rollins, Inc., 325 Ul.App.3d 517, 521, 259

33



on any of its claims. CPR contends that Williams-Hayward has waived this affirmative defense
because Williams-Hayward makes this argument for the first time in its motion for summary
judgment.

“Federal Rule of Civil Procedure 8(c) requires that defendants raise all affirmative
defenses that will defeat the allegations in the complaint in a responsive pleading. We have
stated numerous times that if a defendant does not raise defenses at the time of filing an answer,
those defenses are deemed waived.” Castro v. Chicago Hous. Auth., 360 F.3d 721, 735 (7® Cir.
2004); see also Perry v. Sullivan, 207 F.3d 379, 382 (7" Cir. 2000) (collecting cases). The
Seventh Circuit has further articulated that if “Rule 8(c) is not to become a nullity, we must not
countenance attempts to invoke such defenses at the eleventh hour, without excuse and without
adequate notice to the plaintiff.” Venters v. City of Delphi, 123 F.3d 956, 969 (7" Cir. 1997)
(emphasis added).

Williams-Hayward brings its statute of frauds defense for the first time in its motion for
summary judgment — approximately two months before trial is set to commence and well over
two years after CPR filed its original complaint. Williams-Hayward does not explain why it
brought this affirmative defense so late in the proceedings. Although Williams-Hayward
contends that it has given CPR adequate notice concerning its statute of frauds defense,
Williams-Hayward fails to take into account that the trial is scheduled to begin on May 2, 2005.
In other words, it is the eleventh hour. Under these circumstances, there is no excuse for
Williams-Hayward’s failure to raise its affirmative defense earlier in the proceedings. See Castro

360 F.3d at 735.

30



Cc Paper Boxcar Build

In 2000, CPR formed a project team to acquire a large number of boxcars. (Pls’ Stmt. §
35; Def.’s Sumt. § 86.) CPR management requested Cheun to draft the specifications for the
contemplated construction of three types of boxcars — paper boxcars, pulp boxcars, and oriented
strand board (OSB) boxcars. (Pls’ Stmt. { 36; Def.’s Stmt. 4 106.) The boxcar team concluded
that CPR needed a new boxcar designed for the purpose of carrying paper rolls to expand
capacity, reduce damage to the paper rolls, and make it easier to load and unload the lading.
(Def.’s Stmt. | 99.) The paper boxcars were to carry rolled paper used to print newspapers. (Pls’
Stmt. § 37.)

On July 18, 2000, CPR issued a Request for Quotation (“RFQ”) for the construction of
1,000 boxcars to several car builders in North America, including NSC. (Pls’ Stmt. 741.) The
RFQ stated that CPR’s objective was “to provide CPR shippers with a high quality, state-of-the-
art boxcar that not only ensures damage free transportation, but also accommodates 286,000 Ibs
loading.” (Def.’s Stmt. § 127.) CPR received bids from several manufacturers and in December
2000, CPR verbally awarded NSC the contract to manufacture the boxcar order. (Pls’ Stmt. § 42;
Def.’s Stmt. J 146.) On June 21, 2001, NSC and CPR entered into a written purchase agreement
for NSC’s construction of the OSB and paper boxcars. (Pls’ Stmt. | 45, Def.’s Stmt. § 147.)

Prior to awarding NSC the contract, Hugh Nicholson of NSC emailed Quintal and Cheun
about CPR’s approved listing of suppliers for waterborne paints. (Def.’s Stmt. F§ 148-150;
Def.’s Ex. 263.) Cheun responded to Nicholson indicating that they had three approved suppliers

— Sigma, Williams-Hayward, and Davis Frost. (Def’s Stmt. § 150; Pls’ Stmt. 4 52.) On July 20,

2000, Nicholson emailed Cheun stating that it was NSC’s intention to quote Williams-Hayward



(3) WHPC will perform unannounced audits at Thrall, at the minimum once, with
copies of the audits sent to this office.

(4) pro-rated warranty on this product is 5 years.

Please confirm that my understanding is correct.

As I might have hinted to you, CPR has other projects for 2000 such as coal cars,

boxcars and more bi-levels. If this initial project proves to be successful, I am

prepared to maximize the business given to WHPC for those projects. I will keep

you posted.
(Def.’s Stmt. § 54; Pls’ Ex. 25.)

In a letter dated October 4, 1999, Kurcz responded to Quintal’s October 1, 1999, letter:

Thank you for you response of October I", and you are correct as to our

agreement. As we had discussed, Williams-Hayward Protective Coatings, Inc. is

very interested in demonstrating the value of our waterborne products on your

hopper fleet, also, and would appreciate any assistance the Canadian Pacific

Railway can give us to do so at your Canadian manufacturers, Naturally, the

rebates will apply as stated in my earlier communique.
(Def.’s Stmt. § 57; Def.’s Ex. 7.)

At his deposition, Quintal testified that he had telephone conversations and meetings with
Kurez concerning their projects after the bi-level boxcar build. (Pls’ Ex. 6, Quintal Dep. at 100-
01.) Kurez and Quintal also discussed the rebates for the different car builds. (/d. at 101.)
Although Williams-Hayward gave CPR rebates on several different projects, the parties dispute
whether an agreement on a rebate applied to the boxcar project at issue in this litigation. (Pls’
Stmt. § 24; Def.’s Stmt. {1 74-78.) At his deposition, Kurcz testified that he believed that

Quintal’s October 1, 1999, letter “activated” the warranty provisions in the initial 1999 rebate

agreement and that the warranty provisions and disclaimers applied to all of the parties’

subsequent projects. (Pls’ Stmt. § 24; Pl.’s Ex. 1; Kurcz Dep. at 263-66.)



Based on this correspondence, CPR argues that it did not agree to the disclaimers of
warranty in the rebate agreements in the first instance. CPR also contends that the October 1,
1999, letter only pertains to the 243 bi-level racks to be built by Thrall Manufacturing, and not to
any of the parties’ subsequent projects.

In contrast, Kurez testified that the 1999 purchase agreement covered all sales relative to
CPR and applied to the paper boxcars at issue in this litigation. Williams-Hayward also contends
that because CPR’s filings in this matter are pleaded under Illinois law and the purchase
agreement expressly provided that the contract was governed by Illinois law, CPR has adopted
the purchase agreement, including the rebate agreement containing the disclaimers of warranties.

Viewing the evidence and reasonable inferences in a light most favorable to CPR, CPR
has established that a genuine issue of material fact exists as to whether CPR and Williams-
Hayward had a written agreement containing disclaimers of warranties that would bar CPR’s
warranty claims concerning the paper boxcars. In other words, CPR has presented evidence upon
which a reasonable jury could find that the parties did not have a written agreement containing
disclaimers of warranties, The parties’ correspondence after Kurcz’s August 1999 letter, plus
Quintal’s deposition testimony concerning future projects, calls into question whether Quintal
accepted Kurcz’s offer in the first instance and also whether the disclaimers of warranties applied
to the parties’ subsequent projects, including the paper boxcars at issue in this litigation. Under
Illinois law, when there is a factual dispute, the question of whether a contract exists is one for
the factfinder. Reese v. Forsythe Mergers Group, Inc., 288 Ill.App.3d 972, 979, 224 Ill.Dec. 647,
682 N.E.2d 208 (Ill. App.Ct. 1997); see also Glass v. Kemper Corp., 133 F.3d 999, 1001 (7" Cir.

1998) (“when the existence of a contract depends on inference from a series of documents, the

19



On at least five occasions, NSC performed trial applications of Williams-Hayward’s paint
at which Black attended. (/d. {77.) Some, but not all of these trial applications involved the use
of High-Rubber Thermalbond. (/d.) None of these trial applications were performed on boxcars.
(d.) At his deposition, Black testified that the main purpose of the trial applications was to go
over the “do’s and don’t’s” for using waterborne as opposed to solvent-based paints, educate the
painters, and remind them to use the correct techniques. (/d. | 78.) Black also attended the trial
applications to answer questions and oversee the application of the paint. (Jd.)

D. NSC’s Purchase Order

In May 2001, NSC issued a purchase order for the paint to be applied to the paper
boxcars, (Def.’s Stmt. § 6; Pls’ Stmt. § 85.) Conditions in the purchase order contained the
following language: “Unless otherwise specified, the Seller expressly warrants that all the
material and work covered by this order will conform to the specifications, drawings, samples or
other description, if any, furnished or specified by Buyer, and will be merchantable, of good
material and workmanship and free from defect.” (Pls’ Stmt. 96, Pls’ Ex. 56.) The purchase
order also stated: “Suppliers are responsible for understanding the nature of the work and the
tolerances the parts must meet.” (Jd. 4 98, Pls’ Ex. 56, at 9.) Also, the purchase order
specifically prohibited “any attempt by the Seller to impose any additional terms through
invoices.” (Id. ¥ 94, Pls’ Ex. 56, § 1(B)).

NSC mailed Williams-Hayward a signed copy of the purchase order and an
“Acknowledgment Copy” for Williams-Hayward to sign. (Pls* Stmt. § 101.) Williams-Hayward

signed the “Acknowledgment Copy” of the purchase order under language stating: WE

HEREBY ACKNOWLEDGE RECEIPT AND ACCEPTANCE OF YOUR ORDER, SUBJECT



As discussed throughout this opinion, CPR has established a genuine issue of material fact for
trial concerning whether it relied on Williams-Hayward’s assertions as to what was required for
the coating in the paper boxcar service.
3. Merchantability of Paint

Next, Williams-Hayward contends that CPR’s paint requirements for the paper boxcars
were not “ordinary,” and thus CPR’s claim does not fall within the warranty of merchantability.
To establish a claim for breach of the implied warranty of merchantability, a plaintiff must show
(1) a sale of goods, (2) that the seller of the goods is a merchant with respect to those goods, and
(3) the goods were not of merchantable quality, that is, the goods were unfit for the ordinary
purposes for which they are used. See Brandt v. Boston Scientific Corp., 204 Ill.2d 640, 645, 275
Ill. Dec. 65, 792 N.E.2d 296 (Il. 2003); Crest Container, 111 Ill.App.3d at 107.

Williams-Hayward has provided evidence that CPR’s paper boxcars were intended to be
state-of-the-art boxcars that would ensure damage free transportation. Based on this evidence,
Williams-Hayward contends that use of its paint was not for the ordinary purposes for which they
are used. See Brandt, 204 Ill.2d at 645. This evidence alone, however, does not unequivocally
establish that Williams-Hayward’s paint was merchantable. Instead, the question of whether the
paint’s use in the paper boxcars was “ordinary,” is a question of fact for the jury. See Check v.
Clifford Chrysler-Plymouth of Buffalo Grove, Inc., 342 Il_App.3d 150, 159, 276 Ill.Dec. 579,
794 N.E.2d 829 (IIl_App.Ct. 2003). The Court, therefore, denies Williams-Hayward’s motion for
summary judgment as to Count II of CPR’s Second Amended Complaint.

Cc. Express Warranty Claim

CPR also alleges a claim for breach of express warranties under Section 2-313 of the

25



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

CANADIAN PACIFIC RAILWAY COMPANY,
a Canadian Corporation,

Plaintiff, Counter-Defendant,

NATIONAL STEEL CAR, LIMITED,

a Canadian Corporation, Case No. 02 C 8800

Involuntary Plaintiff,
Counter-Defendant,
Vv.

WILLIAMS-HAY WARD PROTECTIVE
COATINGS, INC., an Illinois Corporation,

SS SS SS SH SS SH HE HS SSS

Defendant, Counter-Plaintiff.
MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:

In its Second Amended Complaint, Plaintiff, Counter-Defendant Canadian Pacific
Railway Company (“CPR”) alleges breach of express and implied warranties, unjust enrichment,
and promissory estoppel arising out of the use of Defendant, Counter-Plaintiff Williams-
Hayward Protective Coatings, Inc.’s (“Williams-Hayward”) High-Rubber Thermalbond paint on
its boxcars. In its Second Amended Counterclaim, Involuntary Plaintiff, Counter-Defendant
National Steel Car, Ltd. (“NSC”) alleges breach of express and implied warranties, unjust
enrichment, promissory estoppel, tortious interference with contract, and fraudulent
misrepresentation and concealment against Williams-Hayward. Williams-Hayward filed

Counterclaims against both NSC and CPR, including a breach of contract claim in Count !

against NSC. Before the Court is Williams-Hayward’s Motions for Summary Judgment as to all



use of the High-Rubber Thermalbond demonstrates that NSC never revoked its acceptance of the
paint. Illinois courts, however, reject the notion that use by the buyer constitutes irrevocable
acceptance. See North Am. Lighting, Inc. v. Hopkins Mfg. Corp., 37 F.3d 1253, 1259 (7" Cir,
1994); Frank’s Maint. & Eng’g v. CA. Roberts Co., 86 Ill_App.3d 980, 986, 42 Ill.Dec. 25, 408
N.E.2d 403 (IM-App.Ct. 1980).

Nonetheless, Williams-Hayward argues that NSC has failed to demonstrate that it
“experienced a substantial impairment of value after it accepted and consumed Williams-
Hayward’s paint.” To establish the substantial impairment of the value of goods, a buyer must
bring forward objective evidence that, with respect to his needs, the value of the goods was
substantially impaired. GNP Commodities, Inc. v. Walsh Heffernan Co., 95 Ill_App.3d 966, 978,
51 Ill.Dec. 245, 420 N.E.2d 659 (IIApp.Ct. 1981); see also North Am. Lighting, Inc., 37 F.3d at
1259.

NSC has provided ample evidence that due to the propensity of the High-Rubber
Thermalbond to fuse with the paper rolls, the paint had no value to NSC. For example, after
hauling newsprint paper rolls, the pull-ahead car and subsequent trial cars all exhibited sticking
problems, namely, the paint stuck to the paper rolls’ wrappings and exposed the paper rolls to
damage. Because of this damage, the newsprint paper supplier refused to accept the paper
boxcars for its service. A reasonable jury could find that the paint’s stickiness problems rendered
the boxcars unsuitable for paper service.

Next, Williams-Hayward contends that NSC exercised improper ownership over the paint
remaining on NSC’s premises after NSC determined that the paint was non-conforming. Section

2-603(1) of the Illinois Uniform Commercial Code explains that absent instructions from the

48



dry; this should not at all reflect on the viability of the product for the end use
intended. We know of no company offering coatings systems in the corrosive
services that can produce the actual fleet data of over 90,000 units in service for
over 15 years with such a success rate. Therefore we are confident with our
recommendation for the use of High Rubber Thermalbond products at NSC and to
our mutual customer Canadian Pacific Railroad. We will not Warranty a general
service version of Thermalbond in corrosive service for our Warranties are based
on real fleet data and not theoretical data. The histories of current industry
failures, not related to our products only add credence to our claims. If applied
and dried properly these systems have and will for National Steel Car pose no
problems in the service they are being used for. We are confident that NSC has
for the over whelming [sic] majority of the units fulfilled their requirements on
the application side. Once we see the unit in question we may better determine
what the causes are, in my 30 years of developing water based products for the rail
and chemical industry there have been times where neither the applicator nor the
coating are the cause. When push comes to shove we rely on our rich in service
fleet data and NSC can be confident that using these products will in the long run
reduce concerns rather than create them.

Thank your [sic] for using our unique High Rubber Thermalbond and

General Service Thermalbond products and if I may be of any further service

plead do not hesitate to contact me.
(Def.’s Stmt. § 178, Pls’ Stmt. § 124, Pls’ Ex. 58.)

On September 19-20, 2001, Wilson and Kurez exchanges a series of emails regarding the
sticking problem in the pull-ahead car. (Pls’ Stmt. §§ 128-29.) Initially, Wilson emailed Kurez
about the “jack test” NSC used to simulate roll pressure against the wall of a paper boxcar and
that the “jack test” had failed because paper fibers were stuck to the wall of the boxcar. (Jd. §
128.) Wilson stated to Kurez: “Because of our limited experience with this material we need
concurrence that this is the way the material is supposed to react.” (/d. § 129, Pls’ Ex. 33. )

Wilson further stated: “Based upon our observation of this test we have elected to discontinue

applying the interior coating until advised otherwise which will have an impact on our

production effectiveness. It is most important that we receive your confirmation or further



from the first 375 car order. The car was loaded with finished paper and after
unloading the first load from the subject car the customer reported that some of
the paper wrapping had stuck to the floor and walls. I think that the floor is an
issue with chalking. NSC’s records indicate that the walls of the subject car had
received considerable repairs after the initial coating application. I get the
impression that NSC are [sic] thinking that the problem may be an isolated case
and they may have contributed to the problem. As you may also be aware, NSC
approached me yesterday to see if we would supply General Service interior white
for the next group of CP boxcars (625 cars). They originally specified our high
rubber white (72-6427-CP). I spoke to Mark about this and have since informed
NSC that this is not a good idea and WHPC would not warranty this coating in
dedicated paper service. ] advised them about the recent Valspar/Gunderson cars
(that they were aware of). The next group of CP cars are in position to paint/coat
tonight or tomorrow. I have adequate stock of 72-6427 at NSC.

TO GET TO THE POINT — NSC requested a letter from WHPC that would assure them
that if this product is applied correctly and force cured it will not present the type of
problem they experienced with this one car. They would like some type of assurance that
we have used this product in paper service for X number of years etc. | offered to provide
them this letter but they requested that it come from higher up and longer tenure than I.
The reason I have to send this request to you.

Can you please provide such a letter/email to Mr. Todd Pafford at NSC, Todd’s
email address is, ; as soon as possible.

Give me a call if you have any questions or wish to discuss.
(Id. § 122, Pls’ Ex. 57.) On September 5, 2001, Kurcz wrote Todd Pafford via emai! in response
to Black’s request. (/d. 123; Def.’s Stmt. 4 178.) Kurcz stated:

Tam writing you this communique in response to you [sic] request of our
Director of Canadian Operations as to our recommendations for the interior of
Boxcars that are exposed to the chemical environment of Paper service.
Thermalbond High Rubber coatings were developed in 1984 as replacements for
viny!’s and epoxies in severely corrosive services. Since that time these products
have been successfully used in both acid and alkali services for tank car hopper
cars and interiors of boxcars and potash service. High rubber Thermalbond has
become the standard in the Cloro-Alkali business and the Sulfuric Acid business.
The chemical resistance has stood the test of time and this is the main reason we
recommend this system for such severe services. We believe the situation that has
been noted on one unit done by NSC for the CP is isolated and most likely
associated with the high mills in the repair areas that might not have been fully

11



relied on Williams-Hayward’s assurances and followed Black’s and Williams-Hayward’s revised
paint application process.
4. Fraudulent Concealment — Duty to Disclose

To establish a claim for fraudulent concealment, a plaintiff must show, in addition to the
elements of fraudulent misrepresentation, that the defendant concealed a material fact when it
was under the duty to disclose that fact to the plaintiff. W.W. Vincent & Co. v. First Colony Life
Ins. Co., 351 IlL.App.3d 752, 762, 286 Ill.Dec. 734, 814 N.E.2d 960 (Il.App.Ct. 2004), The duty
to disclose certain material facts may arise out of several situations, including if (1) plaintiff and
defendant are in a fiduciary or confidential relationship, or (2) plaintiff places trust and
confidence in defendant, thereby placing defendant in a position of influence and superiority.
Connick v. Suzuki Motor Co., Ltd., 174 Ill.2d 482, 250, 221 Ill.Dec. 389, 675 N.E.2d 584 (Ill.
1996) (citations omitted).

A genuine issue of material fact exists as to whether NSC placed trust and confidence in
Williams-Hayward. The record reveals that Williams-Hayward knew that NSC had no
experience with High Rubber Thermalbond prior to its contract with CPR to manufacture the
paper boxcars. Not only did Williams-Hayward develop the High-Rubber Thermalbond in the
first instance, but Kurez expressly stated that Williams-Hayward had extensive experience in the
industry. Specifically, Kurcz emailed Pafford: “We know of no company offering coatings
systems in the corrosive services that can produce the actual fleet data of over 90,000 units in
service for over 15 years with such a success rate. Therefore we are confident with our
recommendation for the use of High Rubber Thermalbond products at NSC and to our mutual

customer Canadian Pacific Railroad.” (Def.’s Stmt. ¢ 178, Pls’ Stmt. § 124, Pls’ Ex. 58.)

44



contracting.’ Williams-Hayward specifically argues that because it had no reason to know CPR’s
particular requirements for the paper boxcars, it cannot be liable for any losses resulting from
them. This argument is based on a fact in dispute, namely, whether Williams-Hayward knew of
CPR’s requirements for the paper boxcars. Because damages are determined by the factfinder
“in the exercise of sound discretion and in any manner reasonable under the circumstances,” see
id. at 660, Williams-Hayward’s argument fails.
IL Summary Judgment Motion Against NSC

In support of its motion for summary judgment against NSC, Williams-Hayward contends
that NSC cannot establish: (1) that Williams-Hayward made any express warranties; (2) its
claims for breach of implied warranties; (3) its promissory estoppel claims; (4) its tortious
interference with contract claim; (5) its fraud and fraudulent concealment claim; and (6) that
Williams-Hayward proximately caused its alleged damages. The Court discusses each argument
below.

A. Breach of Express Warranties

Count I of NSC’s Second Amended Counterclaim alleges a claim for breach of express
warranties under Section 2-313 of the Illinois Uniform Commercial Code. Under Section 2-
313(1)(a): “Any affirmation of fact or promise made by the seller to the buyer which relates to
the goods and becomes part of the basis of the bargain creates an express warranty that the goods

shall conform to the affirmation or promise.” In other words, “in a breach of express warranty

> For the first time in its Reply Brief, Williams-Hayward contends that CPR cannot
recover consequential damages. See Szajna v. General Motors Corp., 115 Ill.2d 294, 311, 104
Ill. Dec. 898, 503 N.E.2d 760 (111.1986). Williams-Hayward waives this argument because it was
made for the first time in the Reply Brief. See Carter v. Tennant Co., 383 F.3d 673, 679 (7" Cir.
2004), Also, Williams-Hayward’s reliance on the dicta in Szajna is misplaced.

32



seller with respect to the goods, a “buyer does not have a duty to return goods; rather the burden
is on the seller to repossess them if he wants them.” See Frank’s Maint., 86 IIL App.3d at 986.
NSC has set forth evidence that Williams-Hayward never provided instructions regarding the
disposition of the paint, nor did Williams-Hayward attempt to retrieve the paint. (Pls’ Stmt. bi
180-82.) Because NSC has raised a genuine issue of material fact concerning the disposition of

the paint, Williams-Hayward’s argument fails.

49



F. Damages

Last, Williams-Hayward argues that CPR cannot establish that its damages were
proximately caused by Williams-Hayward. First, Williams-Hayward argues that because CPR
failed to make a claim for the difference between the value of the goods accepted and the value
they would have if Williams-Hayward had warranted them, CPR cannot recover any damages in
this matter.

Under the {linois Uniform Commercial Code, Section 2-714(2): “The measure of
damages for breach of warranty is the difference at the time and place of acceptance between the
value of the goods accepted and the value they would have had if they had been as warranted,
unless special circumstances show proximate damages of a different amount.” Jd. Courts read
the “special circumstances” exception in conjunction with Section 1-106 of the UCC, which
provides that UCC remedies “shall be liberally administered to the end that the aggrieved party
may be put in as good a position as if the other party had fully performed.” Razor v. Hyundai
Motor Am., 349 Ill.App.3d 651, 659, 286 IlI.Dec. 190, 813 N.E.2d 247 (IIl.App.Ct. 2004). Also,
an aggrieved party may recover incidental and consequential damages under Section 2-714(3).
Td.

Based on these standards, “the difference between the value of the goods accepted and the
value they would have had they been warranted” is not the sole measure of damages as Williams-
Hayward asserts. Therefore, CPR’s claims of incidental and consequential damages flowing
from the breach are appropriate under the circumstances,

Second, Williams-Hayward contends that CPR cannot establish that its incidental and

consequential damages are reasonable or were foreseeable by Williams-Hayward at the time of

31



Thermalbond Acrylic TER Polymer paint. (Def.’s Stmt. § 151; Def.’s Ex. 398.) On July 21,
2000, Cheun emailed Norman Black, Williams-Hayward’s Director of Canadian Operations,
asking: “Can you advise if the Thermalbond Acrylic Terpolmer [sic] coating is the appropriate
one for our new paper boxcars or if there is a better coating that you would recommend?” (Pls’
Stmt. 54; Def.’s Stmt. § 152.) On July 25, 2000, Black responded by suggesting certain interior
and exterior Thermalbond products. (Pls’ Stmt. 455; Def.’s Stmt. 153.) Athis deposition,
Black testified that he knew that CPR planned to build boxcars and that some of the boxcars
would be used for paper service. (Pls’ Stmt. § 57, Pls’ Ex. 4, Black Dep. at 661.)

In July 2000, Black met with Dennis Ryan, NSC’s Managing Director. (Pls’ Stmt. § 56.)
Ryan testified that Black provided him with information concerning Williams-Hayward’s
recommendations for the exterior and interior paint for the boxcars and indicated that Williams-
Hayward was CPR’s supplier of choice. (Pls’ Stmt. | 58; Pls’ Ex.10, Ryan Dep. at 63-64.) The
information Black provided included the recommended part numbers, also known as “specs,”
and pricing. (Jd. at 64.) Ryan also testified that in later meetings with Black, they discussed the
specifics of the paper boxcar projects, such as the type of loading, the importance of the interior
lining, and that the boxcars would be hauling newspaper service. (Ud. at 69.)

Athis deposition, Quintal testified that he discussed the OSB and paper car builds with
Kurcz prior to CPR awarding the boxcar project to NSC. (Pls’ Stmt. 4 46; Pls’ Ex. 6, Quintal
Dep. at 158-59.) Cheun testified that both Kurez and Black had told him that other railways had
used Williams-Hayward paint in boxcar and paper service. (Pls’ Stmt. § 48; Pls’ Ex. 5, Cheun

Dep. at 283-84.) Before NSC commenced construction of the boxcar order, Kurcz gave NSC a

Power Point presentation on Williams-Hayward’s waterborne coating systems. (Pis° Stmt. 4 64.)



that it is doubtful that this exception survived the Ilinois Supreme Court’s decision in Szajna.
Courts in this district, however, have concluded that this exception did survive the Szajna
decision and have applied this exception after the Szajna decision was entered. See, e.g.,
Outboard Marine Corp. v. Babock Indus., Case No. 91 C 7247, 1995 WL 296963, at *5 (N.D.
Ill. May 12, 1995); Hirn v. Teledyne Cont’! Motors, Case No. 93 C 7787, 1994 WL 685071, at *3
(N.D. Ill. Dee. 7, 1994); Omni-Circuits, Inc. v. DRP, Inc., Case No. 85 C 9081, 1987 WL 7290,
at * 2 (N.D.IIL. Feb. 23, 1987).

In Omni-Circuits, Judge Hart noted that the Szajna court did not address this exception
and the Illinois court’s reasoning behind requiring privity in economic loss cases allows for this
exception to the privity requirement. /d, at *2-3. Also, as the Illinois Supreme Court recognized
after its Szajna decision, Section 2-318 of the UCC may allow for future extensions of some
warranties to nonprivity plaintiffs. See Collins, 125 Ill.2d at 516. Finally, after a thorough search
of Illinois case law, the Court has not found any Illinois cases that abrogate the Crest Container
exception subsequent to the Szajna holding. Accordingly, the Court concludes that the Szajna
decision did not abolish the exception articulated in Crest Container. The Court thus turns to
whether CPR has established a genuine issue of material fact relating to this exception.

Deposition testimony reveals that Quintal discussed the paper boxcar builds with Kurcz
prior to CPR awarding the boxcar project to NSC. Further testimony indicates that Kurez and
Black were aware of CPR’s specific paint needs because they told Cheun that other railways had
used Williams-Hayward paint in boxcars and paper service. In addition, Cheun emailed Black
asking: “Can you advise if the Thermalbond Acrylic Terpolmer [sic] coating is the appropriate

one for our new paper boxcars or if there is a better coating that you would recommend?”

22



64 Ill_Dec, 286, 291-92, 439 N.E.2d 537 (Ill.App.Ct. 1982) (citing Section 767 of the
Restatement (Second) of Torts)). Comment d. to Section 767 of the Restatement (Second) of
Torts explains that because interference with contractual relations is an intentional tort, “the
injured party must show that the interference with his contractual relations was either desired by
the actor or known by him to be a substantially certain result of his conduct.”

NSC does not argue either how Williams-Hayward desired to interfere with NSC and
CPR’s contract or how Williams-Hayward knew that CPR’s alleged breach would be a
“substantially certain result” of its conduct. In addition, NSC presents no arguments with
supporting evidence that CPR actually breached their contract. Without more, NSC’s tortious
interference with contract must fail.” Therefore, the Court grants Williams-Hayward’s motion
for summary judgment as to Count VI of NSC’s Second Amended Counterclaim.

E. Fraudulent Misrepresentation and Concealment

In Count VII of its Second Amended Counterclaim, NSC alleges fraudulent
misrepresentation and concealment against Williams-Hayward. Under Illinois law, a party must
prove the elements of fraud by clear and convincing evidence. In re Application of Rosewell, 106
TH.2d 311, 318-19, 88 Ill Dec, 28, 478 N.E.2d 343 (Ill. 1985); see also Bixby’s Food Sys., Inc. v.
McKay, 193 F.Supp.2d 1053 (N.D,II. 2002). At summary judgment NSC must establish the
elements of fraudulent misrepresentation and concealment by clear and convincing evidence
because it must carry this burden of proof at trial. See Celotex Corp, 477 U.S. at 322; Anderson

v, Liberty Lobby, Inc., 477 U.S, at 252-53.

” It is not the Court’s role to construct the litigants’ legal arguments, especially when the
parties are represented by counsel. See Doherty v. City of Chicago, 75 F.3d 318, 324 (7" Cir.
1996).

39



The elements of a claim for fraudulent misrepresentation are: (1) defendant made a false
statement of material fact; (2) defendant knew that the statement was false; (3) defendant
intended that the statement would induce the plaintiff to act; (4) plaintiff relied on the truth of the
statement; and (5) plaintiff's damages resulted from reliance on the statement. Davis v. G.N.
Mortgage Corp., 396 F.3d 869, 882 (7" Cir. 2005); Board of Educ. of City of Chicago v. A, C,
and 8, Inc., 131 Ill.2d 428, 452, 137 Ill.Dec. 635, 546 N.E.2d 580 (Ill. 1989). “In its general
sense, ‘fraud’ means anything calculated to deceive, including all acts, omissions, and
concealments involving a breach of legal or equitable duty, trust, or confidence resulting in
damage to another.” Tri-G Inc. v. Burke, Bosselman & Weaver, 353 Ill.App.3d 197, 216, 288
ill.Dec. 580, 817 N.E.2d 1230 (II_App.Ct. 2004),

1. False Statements of Fact

Williams-Hayward contends that NSC cannot establish that it made false statements of
fact because the asserted facts amount to nothing more than Williams-Hayward’s opinions. In
general, an expression of opinion will not support an action for fraud. See Duhl y. Nash Realty,
Inc.,102 Ml.App.3d 483, 489, 57 Ill_Dec. 904, 429 N.E.2d 1267, 1272 (IIl_App.Ct. 1981); see also
West v. Western Cas. & Surety Co., 846 F.2d 387, 393 (7" Cir, 1988) (“statement that merely
expresses an opinion or that relates to future or contingent events, rather than past or present
facts, does not constitute an actionable misrepresentation”). Whether a statement is one of fact
or opinion depends on the circumstances of a case. Prime Leasing, Inc. v. Kendig, 332
II App.3d 300, 309, 265 Ill.Dec. 722, 773 N.E.2d 84 (Ill. App.Ct. 2002). “A statement that,
standing alone, appears to be a statement of opinion, nevertheless may be a statement of fact

when considered in context. Courts focus on the circumstances surrounding the representation to

40



Hartigan v. E & E Hauling, Inc., 153 W1.2d 473, 497, 180 Il.Dec. 271, 607 N.E.2d 165, 177 (Ill.
1992); Wagner Excello Foods, Inc. v, Fearn Int'l, Inc., 235 Ill. App.3d 224, 235, 76 Ill.Dec. 258,
601 N.E.2d 956, 964 (IIlApp.Ct. 1992) (plaintiff cannot bring promissory estoppel claim when
parties have entered a binding contract on same subject matter),

1. Alternative Claims

CPR, however, has brought these quasi-contractual claims in the alternative to its breach
of warranty claims, a practice not only allowed under Federal Rule of Civil Procedure 8(e)(2),
but one that is common. See, e.g., Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376,
397 (7" Cir. 2003); see also Prentice v. UDC Advisory Servs., Inc., 271 Mll.App.3d 505, 512, 207
Ill Dec. 690, 695, 648 N.E.2d 146, 151 (Ill-App.Ct. 1995) (alternative claims for breach of
contract and promissory estoppel permissible). In Cromeens, the Seventh Circuit explained that
under the doctrine of pleading in the alternative, “a party is allowed to plead breach of contract,
or if the court finds no contract was formed, to plead for quasi-contractual relief in the
alternative. Once a valid contract is found to exist, quasi-contractual relief is no longer
available.” Id.; see also Prentice, 271 Il.App.3d at 512 (once enforceable contract exists, party
may no longer recover under theory of promissory estoppel).

CPR has established that a genuine issue of material fact exists as to whether there is a
contract between the parties, as discussed above. Because there is a factual dispute, the question
of whether a contract exists is for the jury to decide. See Reese, 288 Ill.App.3d at 979. As such,
CPR may maintain its alternative quasi-contractual theories at this procedural juncture.

2. Unjust Enrichment

Without a fully-developed explanation, Williams-Hayward contends that CPR cannot

28



B. Bi-Level Boxcar Build

In 1999, Williams-Hayward and CPR had an initial meeting concerning a bi-level boxcar
build at which Cheun, Quintal, and Kurcz discussed Kurez’s desire for CPR to specify Williams-
Hayward’s High-Rubber Thermalbond paint on a car build for bi-level auto racks that CPR was
planning to manufacture. (Pls’ Stmt. § 14; Def.’s Stmt. 4 44.) At the end of the meeting, there
was an understanding that Kurez would contact Quintal about their discussions. (Pls’ Stmt. §
14.) On August 30, 1999, Kurcz sent a letter to Quintal stating:

Based upon my discussions with you and Mr. Charles N. P. Cheun, we are

pleased to make the following proposals. Williams-Hayward Protective Coatings,

Inc.’s ultimate goal is to develop a long-term contract to freeze pricing for three to

four years, however, we understand the problem you may face projecting future

new car and repair business. We, therefore, will offer a one year contract

renewable at the Canadian Pacific Railway’s option. If we are able to stabilize

pricing through the time period then rebate values will remain the same. If not,

then your office will be notified 90 days prior to your renewal date.
(Def.’s Stmt. 9 46; Def.’s Ex 4; Pls’ Stmt. § 15.)

Kurcz attached a proposed purchase agreement, including a rebate agreement signed by
Kurcz on behalf of Williams-Hayward, to his August 30, 1999, letter. (Def.’s Stmt. | 46; Def.’s
Ex. 4.) The proposed rebate agreement contained a warranty provision that provided in pertinent

part:

PRO-RATED WARRANTY

All goods sold by WHPC are warranted to be free from defects in material and
workmanship pro-rated over the five (5) years on exterior, eight (8) years on the
interior from the date of application of paint on the railroad unit provided from the
date the paint was shipped from WHPC. The foregoing warranty is in lieu and
excludes all other warranties not expressly set forth herein, whether express or
implied by operation of Jaw or otherwise, including but not limited to any implied
warranties of merchantability or fitness...



I. Summary Judgment Motion on Williams-Hayward’s Count I of Counterclaim

In Count I of its Counterclaims, Williams-Hayward, relying on Illinois Uniform
Commercial Code Section 2-709, contends that, as a matter of law, it is entitled to the payment of
the purchase price and additional accrued charges for the paint accepted by NSC. For the
following reasons, Williams-Hayward’s argument fails.

NSC asserts that it properly revoked acceptance of the “non-conforming goods” under
Section 2-608 of the Illinois Uniform Commercial Code, and thus is not required to pay the
remainder of the purchase price as Williams-Hayward contends. Section 2-608 reads:

(1) The buyer may revoke his acceptance of a lot or commercial unit whose
non-conformity substantially impairs its value to him if he has accepted it

(a) on the reasonable assumption that its non-conformity would be cured and it
has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery before acceptance or by the seller's
assurances.

In essence, when a buyer has already accepted goods, he may revoke acceptance when a
nonconformity substantially impairs the value of the goods. See Sorce v. Naperville Jeep Eagle,
Inc., 309 HI_App.3d 313, 320-21, 242 Ill. Dec. 738, 722 N.E.2d 227 (IIlApp.Ct. 1999), Whether
an attempted revocation of acceptance is valid hinges on material questions of fact. Jd. at 321
(“trier of fact must determine whether the alleged nonconformities in the goods caused
substantial impairment to the buyer”)

Based on Williams-Hayward’s assurances that the paint’s stickiness problems would be
cured, NSC contends that it may revoke its acceptance under Section 2-608. Williams-Hayward,

7

however, contends that despite the alleged assurances made in the fall of 2001, NSC’s continued

47



Because NSC has established that a genuine issue of material fact exists as to whether it
placed trust and confidence in Williams-Hayward, the question of whether Williams-Hayward
had a duty to disclose material facts is a question for the jury.

F, Damages

Last, Williams-Hayward contends that NSC cannot establish that Williams-Hayward
caused its alleged damages.

1. Breach of Warranty Claims

Williams-Hayward argues that because NSC failed to make a claim for the difference
between the value of the goods accepted and the value they would have had they been warranted,
NSC cannot recover any damages in this matter. As discussed above, under the Illinois Uniform
Commercial Code, Section 2-71 4(2), “the difference between the value of the goods accepted
and the value they would have had they been warranted” is not the sole measure of damages as
Williams-Hayward asserts. Instead, an aggrieved party may recover incidental and consequential
damages under Section 2-714(3) and also damages if “special circumstances show proximate
damages of a different amount.” See Razor v. Hyundai Motor America, 349 Ill.App.3d 651, 659,
286 Ill.Dec. 190, 813 N.E.2d 247 (III_App.Ct. 2004).

Nonetheless, Williams-Hayward contends that it had no reason to know of NSC’s
particular requirements for the paper cars at the time of contracting, and thus it cannot be held
liable for any losses resulting from them. The Court, however, has already concluded that there
is a genuine issue of material fact concerning Williams-Hayward’s knowledge of the paint’s

requirements for the paper boxcars. Accordingly, Williams-Hayward’s argument fails,

45



H. Events of November 2001

Around November 16, 2001, paper boxcars were loaded with newsprint paper rolls and
then shipped to Lancaster, Pennsylvania. (/d. § 164.) After unloading the paper cars, it was
discovered that the paper rolls stuck to the interior paint. (/d.)

On or about November 21, 2001, CPR informed NSC that it would not accept any paper
boxcars with Williams-Hayward interiors unless they were lined with cardboard. (Id. $165.) On
November 21, 2001, NSC wrote Williams-Hayward and informed it that because NSC was in
full compliance with Williams-Hayward’s requirements, the cost of lining the paper boxcars with
cardboard would be held strictly to Williams-Hayward’s account. (/d. 4 166.) Williams-
Hayward replied that it would not accept any charges and therefore had no choice but to request
NSC to terminate use of the High-Rubber Thermalbond until they clarified the issue. (/d. | 167.)

1. Events of December 2001

On December 18, 2001, Kurez sent an email to Pafford at NSC that stated in relevant
part:

L received your voice mail and have put together some information that

may help you understand why one would choose or we would recommend

Thermalbond as the coating system for the insides of the boxcars. I guess after all

these years, I have taken for granted, that everyone in the rail industry knows of

Williams Hayward Protective Coatings [sic] position with water-based paints.

While for many years in the US we have been the major source of supply of these

products at all major railroads and car builders; that has most certainly not been

the case with National Steel Car. Not to take up too much of your time I put

together a little history of our High rubber Thermalbond as it relates to box car

interiors. As to our relationship with the Canadian Pacific Railroad it goes back

many years, for we have been the major supplier for Thrall Car Manufacturing

since the mid 1970s. For any freight cars, (auto-racks, coal cars, gondolas,

hoppers etc.), built for the Canadian Pacific Railroad or for that matter any other

Rail Road by Thrall since 1994, Thermalbond would be the coating system
applied.



SUMMARY JUDGMENT STANDARD
Summary judgment is proper when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Fed.R.Civ.P. 56(c). A genuine issue of material fact exists only if “the evidence
is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 417 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The party
seeking summary judgment has the burden of establishing the lack of any genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265
(1986). The Court considers the evidence in a light most favorable to the non-moving party and
draws all reasonable inferences in its favor. See Anderson, 477 U.S. at 255.
ANALYSIS
I. Summary Judgment Motion Against CPR
In support of its motion for summary judgment against CPR, Williams-Hayward makes
the following arguments: (1) the rebate agreement between Williams-Hayward and CPR
disclaims all warranties; (2) CPR cannot assert claims for breach of implied warranty because it
is not in contractual privity with Williams-Hayward; (3) CPR cannot assert its claim for breach
of express warranty because it is not in contractual privity with Williams-Hayward; (4) CPR
cannot establish a claim for unjust enrichment; (5) CPR cannot establish a claim for promissory
estoppel; (6) the statute of frauds bars CPR’s claims; and (7) CPR cannot establish that

Williams-Hayward proximately caused its damages. The Court addresses each argument in turn,



corporation that manufactures paint. (Pls’ Stmt. § 4; Def.’s Stmt. § 1.)

Wayne Kurcz is Williams-Hayward’s Executive Vice President and is responsible for
Williams-Hayward’s internal operations. (Jd. 45.) Kurcz has a Masters Degree in chemistry and
has worked at Williams-Hayward since 1973. (/d.) William-Hayward’s technical service staff
includes Norman Black, who also serves as Williams-Hayward’s Director of Canadian
Operations. (/d. 6.) Prior to working at Williams-Hayward, Black worked for a company in
the business of constructing, repairing, and leasing rail cars and for another company that is a
coating supplier and competitor of Williams-Hayward. (/d. 97.)

Martin Quintal has served as CPR’s sourcing manager since 2002. (Def.’s Stmt. § 17.)
Between 1999 and 2002, Quintal was CPR’s senior sourcing specialist and from 1997 until 1999,
Quintal was the purchasing manager for freight cars. (/d.) As purchasing manager, Quintal
handled new freight car purchases, replenished freight car parts, and supervised six subordinates.
(Id. 19.) As senior sourcing specialist, Quintal continued to handle the purchasing of freight
cars and car parts. (/d. 20.) Quintal’s duties as sourcing manager are similar to his
responsibilities as a senior sourcing specialist, except that he also supervises a sourcing specialist
and two buyers, (/d. §21.)

CPR has employed Charles Cheun since 1997 as a car equipment engineer. (/d. § 26.)
From 1981 until 1997, Cheun held the positions of quality system engineer, senior quality
assurance, manager of quality assurance, supervisor of quality assurance, and assistant supervisor

of quality assurance. (/d.) Cheun has a Bachelors Degree in mechanical engineering and a

certificate of general management from the University of Calgary. (/d.)



Hayward’s “promises” include Kurez’s assurances made to Pafford and Wilson in the fall of
2001 and Williams-Hayward’s recommended changes to the process in which NSC would coat
and cure the paint. Based on this evidence, NSC has established a genuine issue of material fact
that its promissory estoppel claims concern a different subject matter than the sales contract.

Finally, Williams-Hayward contends that the statute of frauds prohibits NSC from
bringing its promissory estoppel claims. The Court notes that Williams-Hayward’s alleged
promises to NSC that form the basis of its promissory estoppel claims are in writing. The Court
rejects Williams-Hayward’s statute of frauds defense for the reasons stated in detail above.

D. Tortious Interference with Contract

NSC brings a claim of tortious interference with contract, which requires a plaintiff to
show (1) the existence of a valid and enforceable contract between the plaintiff and a third party,
(2) defendant’s awareness of the contract, (3) defendant’s intentional and unjustified inducement
of a breach of the contract, (4) defendant’s wrongful conduct caused a subsequent breach of the
contract by the third party, and (5) damages resulting from the breach. Purmal v. Robert N.
Wadington & Assocs., 354 Ill.App.3d 715, 289 Ill.Dec, 578, 820 N.E.2d 86 (IIl.App.Ct, 2004).

Williams-Hayward contends that NSC cannot establish that it intentionally and
unjustifiably induced CPR to breach its contract with NSC, NSC does not address Williams-
Hayward’s argument, instead, NSC argues that sufficient evidence exists to establish fraudulent
intent. A claim of tortious interference with contract, however, does not require that the actor
have “fraudulent intent.”

“The tort of interference with existing or prospective contractual relations requires that

the interference be both intentional and improper.” LaRocco v. Bakwin, 108 Ill.App.3d 723, 730,

38



Illinois Uniform Commercial Code. Section 2-313(1)(a) states: “Any affirmation of fact or
promise made by the seller to the buyer which relates to the goods and becomes part of the basis
of the bargain creates an express warranty that the goods shall conform to the affirmation or
promise.” The Illinois Supreme Court has explained that an express “warranty arises only
because the warrantor has willed it into being by making the requisite affirmation as part of a
contract to which it is an adjunct.” Collins, 125 Ill.2d at 509. In general, because an express
warranty is a “creature of contract,” a party must have privity to the contract before bringing a
breach of express warranty claim. See id. at 510-11; see also Collins Co., Ltd. v. Carboline Co.,
837 F.2d 299, 301 (7" Cir. 1988) (applying Illinois law).

Williams-Hayward contends that because CPR has no privity of contract to the sales
contract between Williams-Hayward and NSC, CPR cannot bring any express warranty claims.
CPR argues that despite its lack of privity to the paint contract, express warranties are
enforceable by those to whom the warranties are made. In support of this argument, CPR relies
on case law involving the purchase of automobiles with express written manufacturer warranties
or implied warranties under the federal Magnuson-Moss Act. These cases are both factually and
legally distinguishable from this matter. See Rothe v. Maloney Cadillac, 119 Ill.2d 288, 116
Il.Dec. 207, 518 N.E.2d 1028 (Ill. 1988); Connick v. Suzuki Motor Co., Ltd., 275 Il.App.3d 705,
212 Ill.Dec.17, 656 N.E.2d 170 (IIl-App.Ct. 1995), rev'd on other grounds, 174 Ill.2d 482, 221
Ill.Dec. 389, 675 N.E.2d 584 (Ill. 1996); see also Ampat/Midwest, Inc. v. Illinois Tool Works,
Inc., No. 85 C 100029, 1988 WL 53222 (N.D. Ill. May 12, 1988).

In the context of a buyer purchasing a product from a dealer and not the manufacturer,

Illinois courts have concluded that brochures, documents, and advertisements may be the basis of

26



of CPR’s claims in its Second Amended Complaint and all of NSC’s claims in its Second
Amended Counterclaim. Williams-Hayward also moves for summary judgment against NSC on
Count I of Williams-Hayward’s Counterclaim. For the following reasons, the Court grants in
part and denies in part Williams-Hayward’s motions.
BACKGROUND

1 Northern District of Illinois Local Rules

Northern District of Illinois Local Rule 56.1 governs the admission of facts in this
background section. Local Rule 56.1(a)(3) requires the moving party to provide “a statement of
material facts as to which the moving party contends there is no genuine issue.” Local Rule
56.1(b)(3) requires the non-moving party to admit or deny every factual statement proffered by
the moving party and to concisely designate any material facts that establish a genuine dispute for
trial. If a responding party does not admit or deny each fact presented by the movant, the
movant’s statement may be deemed as admitted. See Brasic v. Heinemann’s Inc., 121 F.3d 281,
284 (7" Cir. 1997). If the responding party denies the movant’s facts, he must also provide
citations to evidentiary material supporting the denial. Smith v. Lamz, 321 F.3d 680, 683 (7" Cir.
2003). With these standards in mind, the Court turns to the relevant facts in this case.
IL. Relevant Facts

A. Parties and Individuals Involved

CPR is a Canadian corporation that operates a Class I railroad through the United States
and Canada, and is headquartered in Calgary, Alberta, (R. 282-1, Plaintiffs’ Joint Statement of

Facts, J] 1; R. 250-1, Defendant’s Statement of Facts, 43.) NSC is a rail car manufacturer located

in Hamilton, Ontario. (Pls’ Stmt. 42; Def.’s Stmt. 92.) Williams-Hayward is an Illinois

2



CONCLUSION
For these reasons, the Court grants in part and denies in part Defendant’s Motions for
Summary Judgment.
Dated: April 6, 2005

ENTERED

(i. \w.%

AMY J. ST. WK |
United States ct Court Judge

50



MlDec. 89, 757 N.E.2d 952 (Ill. App.Ct. 2001).

NSC, however, brings its express warranty claim under the Illinois Uniform Commercial
Code. Relying on the Restatement (Second) of Contracts, Section 214, the Illinois Supreme
Court expressly stated that in UCC cases, as opposed to claims based on Ilinois common law,
parol evidence is admissible to determine whether an agreement is completely or partially
integrated and also to explain the meaning of a fully integrated contract, McMahon Food Corp.
v. Burger Dairy Co., 103 F.3d 1307, 1314 (7" Cir, 1996) (citing J & B Steel Contractors, Inc. vy.
C. Iber & Sons, Inc., 162 Il.2d 265, 271-72, 205 Ill.Dec. 98, 642 N.E.2d 1215 (IIL. 1994)). In
addition, courts need not decide that the a contract is ambiguous as a condition for the admission
of parol evidence in UCC cases. See Hessler v, Crystal Lake Chrysler-Plymouth, Inc., 338
Ill_App.3d 1010, 1020-21, 273 Ill.Dec. 96, 788 N.E.2d 405 (Il.App.Ct, 2003). As such, the parol
evidence rule does not bar evidence of Williams-Hayward’s alleged verbal assurances or
recommendations,

2. Written Warranties
NSC has also establish that the purchase order contains express written warranties.’ For

instance, conditions to the purchase order include that “the Seller expressly warrants that all the

* Williams-Hayward argues that its invoices following the shipments of paint, and not the
purchase order, are the controlling contractual documents. Williams-Hayward, however, signed
the acknowledgment copy of the purchase order under language stating: WE HEREBY
ACKNOWLEDGE RECEIPT AND ACCEPTANCE OF YOUR ORDER, SUBJECT TO ALL
TERMS AND CONDITIONS APPEARING ON THE FACE AND BACK, THEREOF. By
signing this acknowledgment, Williams-Hayward accepted NSC’s offer set forth in the purchase
order, See Outboard Marine Corp. v. Babock Indus,, Case No. 91 C 7247, 1995 WL 296963, at
*5 (N_D. Ill. May 12, 1995) (citing UCC Section 2-207.) Furthermore, because the purchase
order prohibits any attempts to impose additional terms to the contract through invoices,
Williams-Hayward’s subsequent invoices are not part of the contract for the purchase of the
paint. See id.

34



HLApp.3d 593, 602, 230 Ll.Dec. 830, 694 N.E.2d 1108 (IllApp.Ct. 1998). Specifically, NSC
has set forth evidence that while Williams-Hayward was making assurances that the High Rubber
Thermalbond paint, if applied properly, would pose no problems for the transport of the paper
rolls, Kurez admitted to Black and Ed Kurcz that the paint sticking problem “could be big trouble
if it is not a mill thickness issue.” (Pls’ Stmt. § 148.) Despite Kurez’s assurance to NSC’s
Pafford that they never had one paper sticking complaint in all Williams-Hayward’s years of
service, there is evidence in the record that during the December 21, 2001, telephone conference,
Kurcz stated that some of the boxcars from the other railroad companies that had used High-
Rubber Thermalbond for transporting paper had experienced paper sticking problems, but that
this was an accepted industry problem.

3. Reliance

Next, Williams-Hayward contends that NSC cannot establish that it relied on Kurez’s
statements made in his fall of 2001 emails. To establish justifiable reliance, NSC must show that
it reasonably relied on Williams-Hayward’s representations in light of the facts within NSC’s
actual knowledge and any facts NSC might have discovered by the exercise of ordinary prudence.
See D.S.A. Fin. Corp. v. County of Cook, 345 Il.App.3d 554, 559, 280 Ill.Dec.130, 801 N.E.2d
1075 (Ill-App.Ct. 2003). Justifiable reliance is typically a question of fact for the jury. Jd.

Here, NSC has established that there is a genuine issue of material fact as to its reliance
on Kurcz’s assurances and statements. There is evidence in the record that because of NSC’s
limited experience with High-Rubber Thermalbond paint, NSC needed full “buy-off” from
Williams-Hayward that NSC’s application was in accordance with Williams-Hayward’s

technical requirements and was fit for the service intended. NSC also presents evidence that it

43



establish that it was unjustly enriched because NSC still owes it money for the paint. Williams-
Hayward does not provide the Court with any legal authority supporting its argument that
because it has not been paid the full amount for NSC’s purchase, it has not unjustly retained any
benefits to CPR’s detriment.

To establish unjust enrichment, CPR must show that Williams-Hayward has unjustly
retained a benefit to CPR’s detriment and that Williams-Hayward’s retention of that benefit
violates fundamental principles of justice, equity, and good conscience. HPI Health Care Servs.,
Inc. v. Mount Vernon Hosp., Inc., 131 I.2d 145, 160, 137 Tll.Dec. 19, 545 N.E.2d 672 i.
1989).

Here, CPR sets forth evidence that Williams-Hayward allegedly recommended paint for
the paper cars that was more expensive than Williams-Hayward’s general service paint. (Pls’
Stmt. 4119.) Further, CPR has provided evidence that NSC paid Williams-Hayward a
“significant sum” for the paint. (/d. § 185.) Thus, CPR contends that it would be fundamentally
unjust for Williams-Hayward to retain the benefit of selling a more expensive product when CPR
did not receive the benefit of a superior coating for the paper boxcars.

Viewing the facts and inferences in a light most favorable to CPR, the Court concludes
that CPR has established a genuine issue of material fact as to whether Williams-Hayward was
unjustly enriched. Accordingly, the Court denies Williams-Hayward’s motion for summary
judgment as to Count IV.

E. Statute of Frauds

Williams-Hayward argues that because the sale of paint was in excess of $500, any

alleged contract must be in writing to satisfy the statute of frauds, and thus CPR cannot succeed

29



instructions as quickly as absolutely possible.” (/d.) Wilson also explained to Kurez: “Again
because of our limited experience with this material we need full “buy-off” from Williams
Hayward that our application is being applied in accordance with your technical requirements
and is fit for the service intended.” (/d. J 130, Pls’ Ex. 33.)

During Kurez and Wilson’s email exchange, Kurez responded to Wilson’s concerns
stating the following:

There is absolutely nothing wrong with our product and your test cars will prove
it.

Williams Hayward Protective Coatings will take no exceptions and warranty our
product as to your process.

Williams Hayward Protective Coatings feels no need for you to perform any tests.
We are satisfied NSC may proceed with your currant [sic] applications as long as
you are following the recommended cure parameters we have given you. Norm
[Black] will work very close with your people to ensure these procedures are
followed and any concerns you may have are addressed.

If you listen to us then you will be successful and if we mislead you it is our
responsibility and liability.

(Ud. § 133, Pls’ Ex. 33.)

F. The Second Trial Car

On October 12, 2001, NSC released another trial boxcar — paper car 220164. (Pls’ Stmt.
4145.) In November 2001, the newsprint paper supplier loaded paper car 220164 and then
shipped the paper rolls to the Minneapolis Star Tribune, where the paper rolls were unloaded.
Ud. 146.) Again, there was a problem with paint sticking to the paper rolls and the interior

walls of the boxcar, and thus the Star Tribune would not sign-off on the paper cars’ usage at that

time. (/d. §{ 146-47, Pls’ Ex. 62.) Cheun of CPR then emailed Kurcz requesting that Kurez



So the total number of boxcars we can prove had our Thermalbond Interior
product in, over the years is 12,000. Whether you wish to believe it or not there
has not been “ONE” paper sticking complaint over the years and we are still
supplying to this day, the Union Pacific Rail Road, the Canadian National/IC Rail
Road and the Canadian Pacific shops.

Any and all things I have stated can be substantiated, for Williams Hayward

Protective Coatings is the oldest supplier of water based products in the rail

industry and we are confident we are also the best. The system given to The [sic]

CP and applied by you is a time tested excellent product with a long pedigree.

The product will do the job it was intended to do and give the customer the extra

chemical resistance they need in pulp services.
(Def’s Stmt. 4 200, Pls’ Stmt. § 172, Pls’ Ex. 64.)

According to NSC’s Wilson, in December 2001, CPR informed NSC that it would no
longer accept or pay for any paper cars whose interiors were coated with High-Rubber
Thermalbond. (Pls’ Stmt. | 173.) On December 20, 2001, NSC stopped processing the paper
cars. (/d. 4174.) On December 21, 2001, NSC, CPR, and Williams-Hayward participated in a
conference call. (/d. § 175.) The parties dispute that during the conference call, Kurcz stated that
some of the boxcars from the other railroad companies that had used High-Rubber Thermalbond
for transporting paper had experienced paper sticking problems, but that it was an accepted
industry problem. (/d.; Wright’s Dep. at 249-255, Kurcz’s Dep. at 729-735.) Further, the parties
dispute that Kurcz stated that had he known that paper sticking was not acceptable to CPR, he

never would have recommended the High Rubber Thermalbond paint for the interior of the

boxcars. (/d.)

16