Opinion ID: 746462
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: 20 We adopt Illinois' standard of review when reviewing a directed verdict made under Illinois law. Suzik v. Sea-Land Corp., 89 F.3d 345, 348 (7th Cir.1996). We must therefore review de novo the district court's grant of Taylor's motion for judgment as a matter of law on Orix's breach of contract and negligent misrepresentation claims. See id. In doing so, we must determine whether the evidence, when viewed in the light most favorable to the non-moving party (i.e., Orix), so overwhelmingly favors the moving party (i.e., Taylor) that no contrary verdict can stand. See id.; Europlast, Ltd. v. Oak Switch Sys., Inc., 10 F.3d 1266, 1270 (7th Cir.1993).
21 The district court entered judgment in favor of Taylor on Orix's breach of contract claims because Orix presented insufficient evidence to demonstrate that Metts was authorized to enter into the repurchase agreement on behalf of Taylor. We agree that the uncontroverted evidence demonstrates that Metts had no authority to bind Taylor to the repurchase agreement. 22 The existence and scope of an agency relationship are questions of fact to be determined by the trier of fact [u]nless the parties['] relationship is so clear as to be undisputed. Mateyka v. Schroeder, 152 Ill.App.3d 854, 105 Ill.Dec. 771, 776, 504 N.E.2d 1289, 1294 (1987). In this case, Metts plainly had neither express actual authority nor apparent authority 1 to enter into a repurchase agreement on behalf of Taylor. Orix argues, however, that Metts had implied or inherent actual authority to enter such an agreement. Implied authority is actual authority that is implied by facts and circumstances and it may be proved by circumstantial evidence. Wasleff v. Dever, 194 Ill.App.3d 147, 141 Ill.Dec. 86, 92, 550 N.E.2d 1132, 1138 (1990); see also Mateyka, 105 Ill.Dec. at 776-77, 504 N.E.2d at 1294-95. Inherent authority is a related concept derived from the customary authority of persons in particular positions. See Cange v. Stotler & Co., 826 F.2d 581, 591 (7th Cir.1987). 23 We agree with the district court that nothing in the particular facts and circumstances of this case or in Metts's position as director of marketing demonstrates that he had the implied or inherent authority to bind Taylor to a repurchase agreement. Orix points out that Metts had authority to enter into exclusive dealer agreements, appraise Taylor-manufactured equipment, and approve pricing and trade-in values on sales orders. Orix additionally notes that as the director of marketing, Metts had control over Taylor's sales department including the power to enter into agreements creating sales territories and establishing marketing arrangements between Taylor and its dealers. These duties alone, however, do not imply that Metts had the authority to bind Taylor to a repurchase agreement. The mere fact that Metts had entered into working agreements with Taylor's dealers to market Taylor products does not suggest that Metts could bind Taylor to a repurchase agreement with one of its dealer's creditors. In fact, the uncontroverted testimony at trial from Metts and other Taylor employees revealed that Metts never had the authority to enter into a repurchase agreement to protect one of Taylor's dealers should it default on a loan. Moreover, Metts did not have the authority to sign checks, borrow money, or guarantee any other financial obligations on behalf of Taylor. The only information suggesting that Metts had the authority to bind Taylor to a repurchase agreement was the statements of Ron Gallo, who was not a representative of Taylor. Finally, we agree with the district court that there is nothing inherent in the title of director of marketing that gives Metts the power to bind Taylor to such an agreement. Cf. Chase v. Consolidated Foods Corp., 744 F.2d 566, 569 (7th Cir.1984) (noting that giving someone the title of president would not give him apparent authority to enter into an unusual or extraordinary contract on behalf of the corporation). Most telling in this regard is the fact that Orix wanted an officer of Taylor, rather than the director of marketing, to sign the repurchase agreement letter so that there would be no question of authority. For whatever reason, Orix approved the loan without an officer's signature, and in doing so, it sealed its fate on its breach of contract claims.
24 The district court also granted judgment as a matter of law for Taylor on Orix's negligent misrepresentation claim. To recover for negligent misrepresentation in Illinois, a plaintiff must prove that the defendant making the negligent misrepresentation is in the business of supplying information for the guidance of others in their business transactions. 2 Rankow v. First Chicago Corp., 870 F.2d 356, 362 (7th Cir.1989) (quoting Moorman Mfg. Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 755, 435 N.E.2d 443, 452 (1982)); see also Fireman's Fund Ins. Co. v. SEC Donohue, Inc., 176 Ill.2d 160, 223 Ill.Dec. 424, 428, 679 N.E.2d 1197, 1201 (1997); Rozny v. Marnul, 43 Ill.2d 54, 250 N.E.2d 656 (1969) (establishing the tort of negligent misrepresentation in Illinois). In conducting a case-by-case analysis to determine whether a party is in the business of supplying information, see Rankow, 870 F.2d at 361, 364, courts focus on the nature of the information and its relation to the particular type of business conducted, Coleman Cable Sys., Inc. v. Shell Oil Co., 847 F.Supp. 93, 95 (N.D.Ill.1994). 25 The district court granted judgment for Taylor on Orix's negligent misrepresentation claim reasoning that Taylor is not primarily in the business of supplying information and that the appraisals it provided to Gallo Florida and Orix were merely incidental to its business of manufacturing and selling machinery. We agree with this assessment. Courts have consistently held that manufacturers of tangible noninformational goods--such as chemical compounds, roofing materials, or computer systems-are not in the business of supplying information. See, e.g., Coleman, 847 F.Supp. at 95-96; Knox College v. Celotex Corp., 117 Ill.App.3d 304, 72 Ill.Dec. 703, 706, 453 N.E.2d 8, 11 (1983); Black, Jackson & Simmons Ins. Brokerage, Inc. v. International Business Machines Corp., 109 Ill.App.3d 132, 64 Ill.Dec. 730, 732, 440 N.E.2d 282, 284 (1982), overruled in part on other grounds by Fireman's Fund Ins. Co., 223 Ill.Dec. at 427, 679 N.E.2d at 1200. In Coleman, for example, the court found that a manufacturer that provided product information to a non-profit company for advertisement purposes was not in the business of supplying such information. Coleman, 847 F.Supp. at 96. A company, however, need not be exclusively in the business of supplying information to be held liable for negligent misrepresentation. Id. In these mixed cases--i.e., situations where a company provides both information and non-informational goods--the dispositive question asks whether the information furnished with the non-informational goods was central to the business transaction. Id. 26 Orix argues that the present case involves a mixed situation. Taylor's primary business involves the manufacture and sale of machines, but Metts and Taylor admitted that they regularly provided appraisals of Taylor equipment to others. While making this concession, however, Metts and Taylor hastened to add that Taylor does not have an appraisal department, it does not charge a fee for providing appraisals, and it does not provide financial services. Looking at these facts, we cannot conclude that Taylor was generally in the business of supplying information--Taylor apparently provides appraisals of its own equipment so that it can sell that equipment or assist its dealers in selling that equipment. 27 We must admit, however, that Taylor's dealings with Orix appear to be primarily informational--in this case, it is not entirely obvious that the information (i.e., the appraisals) accompanied the noninformational goods (i.e., the marina forklifts) or otherwise assisted the recipient of the information in purchasing or using the noninformational goods. Moreover, the appraisals were plainly central to Orix's loan transaction with Gallo Florida. These factors suggest that Taylor should be classified, at least in this case, as being in the business of supplying information. 28 A closer look at Taylor's dealings with Orix, however, reveals that the appraisals provided by Taylor were inextricably intertwined with the goods Taylor sells. Like the defendant in Coleman, Taylor provided information about its goods so that somebody could determine whether to acquire the goods. In this case, Orix wanted the Taylor machinery as collateral--it wanted to take possession of the forklifts (and then resell them) if Gallo Florida defaulted on the loan. Taylor provided Orix with values (via Ron Gallo) for the forklifts so that Orix would know what and how many machines to ask for as collateral. Supplying such information to Orix is merely incidental to Taylor's main business of manufacturing and selling equipment--it does not fall into the same category of mixed sellers such as banks and stock brokers that are deemed to be in the business of supplying information because of the 'thin line between an exchange of information about finances and actual financial transactions.'  Coleman, 847 F.Supp. at 96 (quoting Rankow, 870 F.2d at 364). Therefore, we agree with the district court that Taylor, at its core, is a manufacturer that is not in the business of supplying information. 29 Orix offers an alternative ground why the court erred in taking the negligent misrepresentation claim from the jury. It claims that negligent misrepresentation can be shown by demonstrating that either the defendant was in the business of supplying information or the defendant had a pecuniary interest in the plaintiff's transaction with a third party. See Continental Leavitt Communications, Ltd. v. PaineWebber, Inc., 857 F.Supp. 1266, 1270 (N.D.Ill.1994) ([A] negligent misrepresentation plaintiff must show that the defendant was either in the business of supplying information, or that the defendant had a pecuniary interest in the plaintiff's transaction with a third party.); see also Restatement (Second) of Torts § 522 (1977) (One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions....). Relying upon this theory, Orix asserts that Taylor had a pecuniary interest in supplying the appraisals for Orix's loan agreement with Gallo Florida because Taylor believed Gallo Florida would use the financing from that loan to eventually help pay on its debt with Taylor. 30 Orix's argument makes sense, but we doubt that the pecuniary interest theory is viable in Illinois because the Illinois courts have not expressly recognized it. Only Continental Leavitt and Restatement § 522 discuss pecuniary interest. Although Continental Leavitt applied Illinois law, that district court decision cites no case law from Illinois or elsewhere when discussing the pecuniary interest theory. Moreover, Orix has not cited and we cannot find any Illinois precedent expressly applying the pecuniary interest concept to the facts of a particular case. Significantly, neither Rozny nor Moorman discuss the pecuniary interest theory. See Rozny, 250 N.E.2d at 662-63; Moorman, 61 Ill.Dec. at 755, 435 N.E.2d at 452. Rozny alluded only to the reasoning, not the language, of Restatement § 552 (which was then in draft form) in creating the tort of negligent misrepresentation in Illinois. The most recent Illinois Supreme Court decision discussing negligent misrepresentation similarly did not mention pecuniary interest: The focus of Moorman's negligent misrepresentation exception to the economic loss doctrine is whether the defendant is in the business of supplying information for the guidance of others, or whether the information that is supplied is merely ancillary to the sale or in connection with the sale of merchandise or other matter. Fireman's Fund Ins., 223 Ill.Dec. at 428, 679 N.E.2d at 1201; see also Advent Elecs., Inc. v. Buckman, 918 F.Supp. 260, 265 n. 4 (N.D.Ill.1996) (declining to expand the scope of negligent misrepresentation in Illinois as suggested by Restatement § 522). Finally, our prior case law discussing negligent misrepresentation in Illinois does not mention even the possibility that a plaintiff can prove its negligent misrepresentation claim by demonstrating that the defendant had a pecuniary interest in the plaintiff's transaction with a third party. See, e.g., Rankow, 870 F.2d at 360; Greycas, Inc. v. Proud, 826 F.2d 1560, 1565 (7th Cir.1987). 31 Even if the pecuniary interest theory is viable in Illinois, we find considerable force in the district court's conclusion that the application of that theory in this case would be inappropriate. The court considered Orix's argument that Taylor would benefit by providing the appraisals to Gallo Florida, and it further realized that Taylor benefits from the prosperity and health of any of its dealers. The court noted, however, that it is probably very rare that anyone engaged in business does anything from motives that are exclusively altruistic. Therefore, if any benefit or expectation of benefit removes the furnishing of information from the incidental category, then you have eliminated the rule. The exception would literally swallow the rule. Because we agree with this reasoning, we affirm the district court's judgment for Taylor on the negligent misrepresentation claim.
32 Orix next claims that the district court failed to instruct the jury regarding the proper legal standard for fraud in Illinois. Specifically, the court refused to instruct the jury that Orix could prove its fraud case by demonstrating that Taylor acted with a reckless disregard for the truth or falsity of its representations. Instead, the court only instructed the jury that Orix could prove its case by showing that Taylor knowingly or intentionally misrepresented material facts. Because we agree that the district court erred in refusing to instruct the jury about reckless disregard, we reverse and remand for a new trial on the fraud count. 33 Before we can discuss the merits of Orix's claim, however, we must consider whether Orix waived this argument by failing to object adequately to the special verdict questions and the court's refusal to give Orix's proposed supplemental instructions regarding the special verdicts. Taylor asserts that Orix waived any argument regarding the instructions and special verdicts because Orix's mere submission of proposed instructions does not sufficiently preserve an error in failing to give those instructions; the party who wants the instruction given must object to the refusal to give the instruction. Salazar v. City of Chicago, 940 F.2d 233, 242 (7th Cir.1991); see also Gordon v. Degelmann, 29 F.3d 295, 298 (7th Cir.1994). Federal Rule of Civil Procedure 51 requires such objections so that parties will alert the judge [of] their reasons, so that the court may resolve legal disputes with full information and avoid all errors that are avoidable. Hebron v. Touhy, 18 F.3d 421, 424 (7th Cir.1994). In Hebron, for example, we assumed that a proposed instruction served as an objection but nonetheless found waiver because the party that proposed the instruction did not discuss the relevant issues or otherwise furnish the district judge with the tools of decision. Id.; see also Gordon, 29 F.3d at 298. 34 This case is plainly distinguishable from both Hebron and Gordon. Here, Orix provided proposed instructions to supplement the special verdicts that had been previously drafted by the court and the parties. The court then refused to give Orix's supplemental instructions, stating that this is not a case of reckless disregard. At that point, Orix asked the court if it could comment on the court's ruling regarding the reckless disregard instructions corresponding to the first two special verdict questions. 3 Orix then argued at length that the facts of this case illustrate reckless disregard and that Illinois law deems such reckless and careless representations as actionable. The court responded, Okay, I have your point. Motion denied. Unlike the parties in Hebron and Gordon, Orix stated distinctly the matter objected to and the grounds of the objection, Fed.R.Civ.P. 51, and therefore provided the court with full information so that the court could avoid all errors that are avoidable, Hebron, 18 F.3d at 424. See also Gordon, 29 F.3d at 298. 35 If Orix had addressed the court using the word objection rather than comment, or if it had noted its objection to the original special verdicts on the record once the court continued the proceedings after the jury instruction conference, no one could have disputed that Orix would have preserved its right to appeal the court's rulings. We are not overly formalistic about the proper way to preserve issues for appeal-a proposition clearly demonstrated by this opinion--but we note that simple use of the words I object would likely have saved everyone from having to address the waiver issues in this case. 36 Now that we have determined that Orix did not waive its arguments regarding the reckless disregard instructions, we can entertain the merits of Orix's contention. Even though a district court has broad discretion to frame a special verdict question, we must reverse a judgment entered upon an answer to a question which inaccurately frames the issue to be resolved by the jury. Umpleby v. Potter & Brumfield, Inc., 69 F.3d 209, 214 (7th Cir.1995). We therefore review a district court's jury instructions and special verdicts as a whole and reverse when they convey an inadequate or misleading impression of the law that affects the jury's understanding of those issues to the prejudice of the complaining party. See Heller Int'l Corp. v. Sharp, 974 F.2d 850, 856 (7th Cir.1992). 37 As noted above, the district court refused to give Orix's proposed reckless disregard instructions to supplement the special verdict form. Illinois law, 4 however, provides that a party need not demonstrate an express fraudulent intent in order to prove its fraud claim. Duhl v. Nash Realty Inc., 102 Ill.App.3d 483, 57 Ill.Dec. 904, 911, 429 N.E.2d 1267, 1274 (1981); see also Gerill Corp. v. Jack L. Hargrove Builders, Inc., 128 Ill.2d 179, 131 Ill.Dec. 155, 161-62, 538 N.E.2d 530, 536-37 (1989). Rather, a party can satisfy the fraudulent intent element 5 by proving that a misrepresentation was made knowingly or with a reckless disregard for its truth or falsity. Gerill Corp, 131 Ill.Dec. at 161, 538 N.E.2d at 536; Duhl, 57 Ill.Dec. at 911, 429 N.E.2d at 1274. In other words, statements made in culpable ignorance of their truth or falsity are fraudulent. Duhl, 57 Ill.Dec. at 911, 429 N.E.2d at 1274. 38 Relying on its view of the evidence, the district court refused to give Orix's additional instructions concerning reckless disregard and prevented Orix from discussing the reckless disregard standard in its closing argument. In so ruling, the court stated that this is a case where Metts either knew or didn't know that the letters on the letterhead referred to wholesale values.... He didn't recklessly disregard anything in that conversation.... That is not a case of reckless disregard. For this reason, the court limited the jury's consideration to whether Taylor knowingly or intentionally misrepresented material facts regarding whether the appraised values were wholesale or retail. 39 While we understand the district court's laudable desire to narrow the issues in this complicated case through the use of special verdicts and although we agree that carelessness, by itself, cannot support an inference of fraud, see Brazell v. First Nat. Bank and Trust Co. of Rockford, 982 F.2d 206, 208 (7th Cir.1992), we nonetheless believe that Orix should have been able to present its reckless disregard theory to the jury. The district court appears to have excluded reckless disregard from this case because Spoczynski and Metts testified differently regarding the content of their June 19 telephone conversation. Specifically, the two provided conflicting testimony regarding whether Metts ever confirmed that the appraisals were at wholesale value. Based on this testimony, the court apparently reasoned that the jury could find one of two things--that Metts either lied or did not lie about his knowledge of whether the values provided to Orix were wholesale values. The district court thus thought that this was a case of either knowing misrepresentation or no misrepresentation at all. This view of the facts, however, overlooks another possible basis for liability--even if Metts did not lie about the wholesale value issue, Taylor and Metts may have been culpably ignorant about the truth or falsity of the representations made in the letter sent to Orix. 40 First of all, Metts sent Ron Gallo the blank Taylor letterhead with his signature and title, and he did so knowing that Gallo would use the letterhead to forward appraisals of Taylor-manufactured equipment that Metts never inspected. Despite giving Ron Gallo the blank letterhead, Metts never asked for copies of the appraisal letters sent to Orix, he never asked what language was used in these letters, and he never verified the exact equipment and corresponding value described in the letters. Even more telling, Metts commented that it was really no concern of his what Gallo did with the appraisal letters even though he was well aware of Gallo Florida's dire financial straights and desperate need for financing. 41 The June 19, 1991 telephone conversation between Metts and Spoczynski arguably provides further evidence of Metts's reckless disregard for the truth or falsity of the representations in the appraisal letters. In essence, Metts asked no questions and he informed Spoczynski that everything in the letters was accurate. According to Spoczynski, Metts assured him that he signed the appraisal letter, that he had the authority to sign the letter, and that he verified the wholesale prices in the letter. Metts disputes this testimony, claiming that their conversation was short and that he told Spoczynski only that he provided appraisals to Ron Gallo. Nonetheless, Metts failed to tell Spoczynski that he never saw the letters containing the appraisals, that the appraisal values were retail rather than wholesale, or that the appraisal values were based on the assumption that the equipment was rebuilt to factory specifications. 42 As a whole, the evidence reveals that Metts represented the values of various machines to Ron Gallo, Metts knew that Ron Gallo--whose company was in dire financial straits--provided those representations to Orix on Taylor letterhead, but Metts never checked to see what representations were actually made to Orix under his name. While this evidence may not convince the jury that Taylor and Metts recklessly disregarded the truth or falsity of their representations, we believe that the jury should have been able to make that determination. 43 Finally, the omission in the special verdicts was crystallized by defense counsel's closing argument, see Bronk v. Ineichen, 54 F.3d 425, 431 (7th Cir.1995), which maintained that Metts's actions may have been a mistake, but they did not constitute intentional fraud. Considering these factors, we find that the district court erred in refusing to permit Orix to present its reckless disregard theory to the jury. We additionally note that our decision here was not an easy one, and it admittedly requires both the district court and the jury in the next trial to make difficult determinations regarding Taylor's and Metts's recklessness throughout these communications. Nonetheless, we believe that Illinois precedent requires that a jury consider such recklessness. 44
45 Orix next claims that the district court erred in refusing to permit it to amend its complaint. At the close of the evidence, Orix sought to amend its complaint to conform to the proof at trial by adding an additional count against Metts for fraud and a count against both Taylor and Metts for a scheme to defraud. The court denied Orix's motion for leave to amend its complaint, stating that no new facts have surfaced in regard to Metts and therefore Orix had no reason for waiting so long to amend its complaint. More importantly, however, the court denied the motion because the new counts could have prejudiced Metts because they added the possibility of punitive damages, a consequence that Metts might have sought to protect himself against had the claims been raised earlier. 46 The Federal Rules of Civil Procedure provide that courts should freely permit parties to amend their complaints, even after judgment, where there is no harm to the defendant. See U.S. v. Security Pacific Business Credit, Inc., 956 F.2d 703, 707-08 (7th Cir.1992); see also Fed.R.Civ.P. 15(a), (b). We have further provided that courts should generally allow such amendments unless there is undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment. Ferguson v. Roberts, 11 F.3d 696, 706 (7th Cir.1993) (quoting Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962)). Generally, the decision whether to grant a party leave to amend the pleadings is a matter left within the discretion of the district court, Sanders v. Venture Stores, Inc., 56 F.3d 771, 773 (7th Cir.1995), and therefore we will reverse that decision only if the district court abused its discretion, Bisciglia v. Kenosha Unified Sch. Dist. No. 1, 45 F.3d 223, 226 (7th Cir.1995). 47 We believe that the district court did not abuse its discretion in denying Orix's motion for leave to amend. In its brief, Orix provides some valid reasons explaining its four-year delay in amending its complaint. For example, Metts did not answer the original complaint until the day of the trial and the court did not rule on Metts's prior motion to dismiss (based on the fiduciary shield doctrine) until January 9, 1996--a little more than five months before the trial. Orix's argument falters, however, because it asserts that the new counts could not have surprised Metts because the third amended complaint did not add any new facts or parties. In this assertion, Orix makes Metts's argumentbecause there were no new facts, there is no reason why Orix could not have amended the complaint at an earlier date. 48 Moreover, the new counts do add an element of surprise--they add the prospect of punitive damages for Metts. Metts persuasively points out that had he known of the fraud claim prior to trial, he may have taken different measures--such as retaining counsel independent from Taylor--to protect himself from the additional liability. The potential prejudice to Metts, coupled with Orix's undue delay in seeking to amend its complaint, provided the district court with adequate grounds to deny Orix's motion for leave to amend. We therefore find that the court did not abuse its discretion in doing so.
49 Based on the above errors, Orix filed a motion for a new trial, which the district court rejected. Orix's final appellate claim asserts that the court erred in denying this motion and that each of the above errors were substantial and severely prejudicial. As detailed above, we believe that the court erred only in refusing to instruct the jury regarding reckless disregard on the fraud claim, and we therefore Reverse that ruling and Remand for a new trial on fraud. We also believe, however, that the district court did not err in granting Taylor judgment as a matter of law on the contract and negligent misrepresentation claims or in refusing to permit Orix to file a third amended complaint, and we therefore Affirm the court's rulings in those respects.