Opinion ID: 821020
Heading Depth: 3
Heading Rank: 1

Heading: The Deed of Settlement

Text: The Deed of Settlement comprehensively releases Beloit, its successors, and related companies from all claims arising from or relating to the “Disputed Contracts”—that is, the contracts for the construction, sale, and installation of the PPM3 and MPM11 machines. Importantly, however, the Deed of Settlement specifically preserves the obligation of Asia Pulp and its subsidiaries to pay on the notes. As Beloit’s assignee and successor 16 Nos. 10-3413 & 12-2123 on the notes, JPMorgan may assert Beloit’s rights under the notes and the Deed of Settlement. See Plumb v. Fluid Pump Serv., Inc., 124 F.3d 849, 864 (7th Cir. 1997) (“[E]lementary contract law provides that upon valid and unqualified assignment the assignee stands in the shoes of the assignor and assumes the same rights, title and interest possessed by the assignor.” (citation omitted)). Clause 10 of the Deed of Settlement contains the provisions relevant here. First, Clause 10(A) contains Beloit’s release of rights: Each of the Beloit Entities and Harnischfeger hereby releases the [Asia Pulp] Parties . . . from all claims and waives all rights against them, whether such claims or rights are known or unknown, accrued or to accrue, in connection with or in any way per- taining to the Disputed Contracts, except as set forth in Clause 10(C). Clause 10(B) contains Asia Pulp’s release of rights: Each of the [Asia Pulp] Parties hereby releases the Beloit Entities and Harnischfeger . . . from all claims and waives all rights against them, whether such claims or rights are known or unknown, accrued or to accrue, in connection with or in any way per- taining to the Disputed Contracts. [Asia Pulp] agrees to indemnify the Beloit Entities and Harnischfeger against any claims arising out of and in connection with the Disputed Contracts by the [Asia Pulp] Parties. Finally, Clause 10(C) unequivocally states that the settlement does not affect Beloit’s right to enforce the notes Nos. 10-3413 & 12-2123 17 and does not release the obligation of Asia Pulp and its subsidiaries to pay on the notes: The [Asia Pulp] Parties are not released from their obligations to pay or repay any promissory notes issued to [Beloit Corporation] or other financing or other loans relating to the PPM3 and MPM11 Contracts . . . . In addition, the Beloit Entities’ rights with respect to such promissory notes, financings and loans are not [a]ffected by this Deed. Our interpretation of the Deed of Settlement is governed by principles of contract law—here, the contract law of Illinois. Capocy v. Kirtadze, 183 F.3d 629, 632 (7th Cir. 1999). The scope and effect of the release depend on the intent of the parties, but we “determine this intent ‘from the language used and the circumstances of the transaction.’ ” Id. (quoting Carlile v. Snap-On Tools, 648 N.E.2d 317, 321 (Ill. App. Ct. 1995)). Absent ambiguity, the question presented is one of law. Id. (citing Gavery v. McMahon & Illiott, 670 N.E.2d 822, 824 (Ill. App. Ct. 1996)). There is no ambiguity here. Clause 10(C) expressly excludes the promissory notes from the release, so the obligation to pay survives the settlement and JPMorgan retains the right to enforce that obligation. In contrast, in Clause 10(B) Asia Pulp and its subsidiaries release all claims and waive all rights against Beloit and its successors without qualification. The release language is comprehensive, encompassing “all claims . . . known or unknown . . . in connection with or in any way pertaining to the Disputed Contracts.” (Emphases added.) This language covers the implied- 18 Nos. 10-3413 & 12-2123 warranty defenses and counterclaim asserted here. These claims are based on design and construction defects well known to the parties on October 3, 2000, when the Deed of Settlement was executed. Indeed, the whole point of the settlement was to resolve all claims pertaining to the myriad performance problems of the PPM3 and MPM11 machines. According to the uncontroverted evidence (much of it from Asia Pulp’s own employees), the machines had serious problems immediately following their installation in 1998—two years before the parties signed the Deed of Settlement. In 1997 Tjiwi Kimia hired away Beloit’s project manager Robert Prutzman, whose job was to oversee the installation and operation of the machines. In a sworn declaration, Prutzman stated that he was never able to get the PPM3 and MPM11 to work at their target speeds. Also in the record is a sworn declaration from Aarno Tuomenoja, who was apparently an engineer or supervisor in charge of technology at Asia Pulp during the relevant time period. He recounted that after the machines were received, “field level employees . . . reported that the machines would not run at the speeds required in the contract.” He itemized other defects as well. As such, Asia Pulp was well aware of possible warranty claims long before October 2000 when the Deed of Settlement was signed. The impliedwarranty affirmative defenses and counterclaim are plainly barred by the terms of the settlement. The same is true of the fraudulent-inducement defense, at least to the extent that this defense is premised on Nos. 10-3413 & 12-2123 19 alleged misrepresentations about the PPM3 and MPM11 machines. Asia Pulp complains of two distinct misrepresentations. First, it contends that Beloit falsely represented that it had the experience and skill necessary to design and build the PPM3 and MPM11 to the desired specifications. Second, it claims that Beloit falsely represented that the promissory notes would be temporary or “interim” financing only, inducing Asia Pulp and its subsidiaries to believe that the notes would not have to be repaid. The first of these misrepresentations relates directly to the performance problems of the PPM3 and MPM11 machines. As factual support for this claim, Asia Pulp relies primarily on Prutzman’s declaration that Beloit had never designed or manufactured machines to the specifications and quality required by the PPM3 and MPM11 contracts. But Prutzman began working for Tjiwi Kimia in 1997, so Asia Pulp was aware of Beloit’s alleged misrepresentation on this score three years before the Deed of Settlement was executed. To the extent that the fraud defense is based on misrepresentations about Beloit’s design and construction experience, it falls squarely within the release in the Deed of Settlement and is therefore barred. The misrepresentation about the nature of the credit transaction is another matter, however. This aspect of the fraudulent-inducement defense does not pertain to the “Disputed Contracts” per se; it pertains to the associated construction financing. We do not need to decide whether the release language in the Deed of Settlement 20 Nos. 10-3413 & 12-2123 is broad enough to bar this part of the claim; we agree with the district court that it fails on the merits. To survive summary judgment, Asia Pulp needed clear and convincing evidence on the following elements: (1) Beloit made a false statement of material fact; (2) knowing it was false or in reckless disregard of its truth or falsity; (3) with intent to induce Indah Kiat and Tjiwi Kimia to enter into the credit agreement and issue the notes, and to induce Asia Pulp to guarantee repayment; (4) Indah Kiat, Tjiwi Kimia, and Asia Pulp reasonably believed the false statement to be true and acted in justifiable reliance on it; and (5) damages as a result of their reliance on the misrepresentation. See Kapelanski v. Johnson, 390 F.3d 525, 530-31 (7th Cir. 2004) (applying Illinois law); LaScola v. U.S. Sprint Commc’ns, 946 F.2d 559, 569 (7th Cir. 1991) (applying the clear-and-convincing evidentiary standard in affirming a summary judgment dismissing a fraud claim). Asia Pulp’s evidence falls far short on several elements of the claim; there are legal barriers as well. To repeat, Asia Pulp asserts that Beloit falsely represented that the notes were temporary or “interim” financing and that it would secure permanent financing elsewhere, and that this representation led Asia Pulp and its subsidiaries to believe that they would not have to repay the notes. There are several problems with this claim. First, it is a claim of promissory fraud; that is, Asia Pulp contends that Beloit made a promise—that it would secure permanent financing elsewhere—with no present intention of fulfilling it. But Illinois does not recognize a cause of action for promissory fraud. Indep. Trust Corp. v. Nos. 10-3413 & 12-2123 21 Fid. Nat’l Title Ins. Co. of N.Y., 577 F. Supp. 2d 1023, 103839 (N.D. Ill. 2008); see also BPI Energy Holdings, Inc. v. IEC (Montgomery), LLC, 664 F.3d 131, 136 (7th Cir. 2011). Although an exception exists for certain fraudulent schemes, it only applies if the misrepresentation is embedded in a larger pattern of deception or the deceit is particularly egregious. See Desnick v. Am. Broad. Cos., 44 F.3d 1345, 1354 (7th Cir. 1995). There is no evidence of that here. Asia Pulp alleges a garden-variety promissory fraud. Second, the evidence does not begin to show, let alone clearly and convincingly, that Beloit actually made the alleged false representation knowing it to be false. To the extent that the representation about permanent financing was actually made (the evidence of this is skeletal and lacking in specifics), there is no evidence that it was false when made or that Beloit knew it was false. Tuomenoja merely asserts that Beloit “had no intention of acting on its representation.” Asia Pulp has no evidence to back up this assertion. Proof of justifiable reliance is also lacking. Asia Pulp claims that it reasonably believed, based on Beloit’s misrepresentation about permanent financing, that it would not have to repay the notes. No record evidence supports this contention. To the contrary, Indah Kiat and Tjiwi Kimia paid on the notes for two years before defaulting. Asia Pulp has not explained why these payments were made if indeed it believed it did not have to repay the notes. Moreover, Asia Pulp and its subsidiaries expressly acknowledged their continued liability on the notes in the Deed of Settlement, which specifically 22 Nos. 10-3413 & 12-2123 preserved their obligation to pay. In short, whether or not it was barred by the Deed of Settlement, Asia Pulp’s fraudulent-inducement defense is legally and factually unsupported.