Court Opinion

ID: 4409950
Source: CourtListenerOpinion
Date Created: 2019-06-25 18:00:24.681037+00
Date Added: 2024-06-11T14:27:42.072998
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
No. 18-3149
SELECTSUN GMBH,
                                                Plaintiff-Appellant,
                                v.

PORTER, INC., d/b/a THUNDERBIRD PRODUCTS,
                                       Defendant-Appellee.
                    ____________________

        Appeal from the United States District Court for the
        Northern District of Indiana, Fort Wayne Division.
       No. 1:14-cv-215 — Theresa L. Springmann, Chief Judge.
                    ____________________

       ARGUED APRIL 2, 2019 — DECIDED JUNE 25, 2019
                ____________________

   Before HAMILTON, BARRETT, and SCUDDER, Circuit Judges.
    SCUDDER, Circuit Judge. Contractual disputes can be messy
and present many tangled knots. A year ago in a similar con-
tractual dispute under Indiana law we observed that some-
times the harder questions can be avoided where the eviden-
tiary record shows that the plaintiﬀ “failed to prove its dam-
ages with anything close to reasonable certainty.” Entertain-
ment USA, Inc. v. Moorehead Communications, Inc., 897 F.3d 786,
797 (7th Cir. 2018). This same observation and evidentiary
2                                                 No. 18-3149

shortcoming resolves this appeal and leads us to aﬃrm the
district court’s judgment against SelectSun GmbH in this con-
tract and warranty dispute over whether the exhaust system
on a $1 million yacht manufactured by Porter, Inc. complied
with particular regulatory requirements imposed by the Eu-
ropean Union.
                              I
                              A
    Porter is an Indiana company that manufactures boats un-
der the Formula and Thunderbird trade names. At the center
of this dispute is a 40-foot Formula yacht custom manufac-
tured by Porter for a German businessman and boat enthusi-
ast, Erich Schwaiger. Only a general understanding of how
the sale and underlying contract came about is necessary here.
    In September 2012, Schwaiger attended a boat show in
Friedrichshafen, Germany, and met Alfred Zurhausen, the
owner of Poker-Run-Boats, one of Porter’s international deal-
ers of Formula boats. Impressed with a Formula display
model, Schwaiger expressed interest in ordering a Formula
yacht with supercharged engines and high-end accessories
and furnishings. Shortly thereafter Zurhausen met Schwaiger
in Munich to discuss these options and pricing in more detail.
Those discussions culminated in Schwaiger, through one of
his companies, executing a contract with Poker-Run-Boats on
October 1, 2012. The yacht and a custom-built lift cost
Schwaiger approximately $1 million. Porter, as the manufac-
turer, was not a party to the contract. The only parties were
Poker-Run-Boats and (following a substitution) Schwaiger’s
company, SelectSun.
No. 18-3149                                                   3

     By its terms, the contract required the boat to be “CE cer-
tified,” meaning authorized for operation in the European
Union. Porter did not manufacture the boat to meet this spec-
ification, and the reason seems to be because of communica-
tions during the ordering process that Porter had with one of
its domestic dealers, International Nautic. Based in Florida,
International Nautic had worked with Poker-Run-Boats (the
German dealer) to receive Schwaiger’s order and, in turn, to
transmit that order to Porter. The order conveyed by Interna-
tional Nautic called for the yacht to come with a switchable
exhaust system, one that would allow the operator to choose
to divert exhaust either above or below the water line. Exhaust
diversion above the water line results in a boat operating with
more noise. EU regulations, however, require exhaust expul-
sion below the water line. Porter caught this conflict and ex-
plained to International Nautic that the boat could not be both
equipped with the switchable exhaust system specified in the
original order and CE certified. In the end, and following di-
alogue on the issue, International Nautic authorized Porter to
proceed with manufacturing the boat with the originally de-
signed exhaust system. Apparently Schwaiger knew nothing
of International Nautic’s decision and therefore believed the
yacht would come CE certified.
    Schwaiger took delivery of the yacht in Germany in May
2013. He used the boat throughout much of the 2013 season
in Europe. (It is not clear whether he did so believing the boat
was CE certified or knowing that it was not.) During these first
few months, Porter covered a series of minor warranty repairs
at no charge to Schwaiger. By the end of August, however,
Schwaiger appeared fed up with the yacht, complaining to
Poker-Run-Boats of problems with the boat’s engines, steer-
4                                                  No. 18-3149

ing column, exterior gel coating, and interior furnishings. Ra-
ther than seek repairs, Schwaiger returned the yacht to Poker-
Run-Boats with instructions to sell it. When the boat did not
immediately sell, Schwaiger resorted to litigation.
                               B
    In January 2014, Schwaiger’s company SelectSun, the
party to the contract with the German dealer Poker-Run-
Boats, filed a complaint against Porter in federal court in New
York. SelectSun amended its complaint a month later to add
International Nautic, Porter’s Florida dealer, as a defendant.
On Porter’s motion, the district court in New York then trans-
ferred venue to the Northern District of Indiana, where Porter
is headquartered.
    SelectSun’s claims against International Nautic ended in a
default judgment. This resulted from International Nautic
shuttering its business in January 2015, and from there for-
ward failing to participate in the litigation. Equally notewor-
thy is that Porter’s German dealer, Poker-Run-Boats, ceased
operations sometime after this litigation commenced. These
developments left SelectSun with claims only against Porter
as the manufacturer of the yacht.
    Summary judgment resulted in a partial ruling in Porter’s
favor and SelectSun proceeding to trial on three particular
claims. First, and recognizing that Porter did not sign the Oc-
tober 2012 contract, SelectSun nonetheless sought to hold Por-
ter liable for breach of contract under a theory of agency based
on apparent authority. Second, SelectSun highlighted the
damage to the yacht that Schwaiger experienced during the
2013 season, as well as the absence of the boat being CE certi-
fied, as part of alleging that Porter had breached express and
No. 18-3149                                                    5

implied warranties and likewise violated the Magnuson-
Moss Warranty Act, 15 U.S.C. §§ 2301, et seq. Third, SelectSun
advanced a claim of unjust enrichment. In its amended com-
plaint, SelectSun sought damages for the full purchase price
of the yacht, the cost of the lift, and related financing costs—a
total exceeding $1,000,000.
    A four-day bench trial followed in the district court. Se-
lectSun focused much of its evidence on matters of contract
formation and, in particular, the facts pertinent to determin-
ing whether Porter could be held to the contract terms under
agency principles of apparent authority. The trial court, for
example, heard substantial testimony about Schwaiger’s di-
rect and indirect interactions with Porter personnel, other in-
dications that Poker-Run-Boats (Porter’s German dealer) and
International Nautic (Porter’s Florida-based dealer) acted
with Porter’s authority, and Schwaiger’s expectations that the
yacht would come CE certified.
    As for damages, and in keeping with the award sought in
its amended complaint, SelectSun (and by extension
Schwaiger) approached trial in an all-or-nothing manner: it
sought to recover either over $1 million (reflecting the full
purchase price of the boat, the cost of the lift, and financing
costs) or $0—nothing in between. Put diﬀerently, SelectSun,
despite oﬀering expert testimony about the cause of particu-
lar damage to the yacht, did not approach trial with a plan B
to recover the specific costs associated with the damage the
boat experienced during the 2013 season. Even more specifi-
cally, SelectSun oﬀered no evidence of the value of the yacht
at the time of trial, the costs to repair various items like the
cracked gel coating and damaged appliances, or the cost to
render the yacht CE certified.
6                                                  No. 18-3149

     For its part, Porter approached trial by oﬀering evidence
to explain why it did not manufacture the yacht to be CE cer-
tified. So, too, did Porter oﬀer competing expert testimony to
show that the damage the yacht sustained during the 2013
season was the product of misuse by Schwaiger. Porter also
oﬀered testimony that the yacht’s exhaust system could be
modified to be compliant with the requirements for CE certi-
fication for an estimated $2,000.
    The district court entered judgment for Porter on each of
SelectSun’s claims. In a thorough opinion, Chief Judge
Springmann determined that SelectSun’s breach of contract
claims failed because Porter neither was a party to the October
2012 contract nor could be bound to its terms by a theory of
apparent authority. On the latter point, the district court rea-
soned that the course of dealing between the parties “would
not cause a reasonable person, much less a sophisticated busi-
nessperson, to believe that Zurhausen was an agent of Por-
ter.” As to SelectSun’s breach of warranty claims, the district
court emphasized that Schwaiger’s all-or-nothing approach to
damages—insisting on recovering the full purchase price of
the boat instead of the more discrete repair costs—left him
outside of the scope of relief available under Indiana law. Fi-
nally, the district court rejected the unjust enrichment claim
based on the finding that Porter received no benefit at Select-
Sun’s (or Schwaiger’s) expense.
   Before concluding the case, and as part of quantifying the
amount of the default judgment against International Nautic,
the district court invited SelectSun to “provid[e] evidence es-
timating the cost to replace the exhaust system to bring the
Boat into compliance with EU standards.” SelectSun re-
sponded not by supplying a cost estimate to bring the vessel
No. 18-3149                                                    7

into compliance with EU regulations, but instead by summar-
ily positing that it is “impossible to assess cost of repair for
this Boat,” because “this Boat cannot be made CE compliant
and is a total loss.”
                               II
    On appeal SelectSun devotes substantial eﬀort to challeng-
ing the district court’s determination that Poker-Run-Boats
and International Nautic did not act with the apparent au-
thority requisite to bind Porter to the October 2012 contract
for the yacht. In much the same way, SelectSun spills mean-
ingful ink arguing that it oﬀered ample evidence to prove that
Porter breached its express and implied warranties by failing
to manufacture the watercraft to be CE certified. Along the
way, in advancing both contentions, however, SelectSun de-
votes little to no attention to explaining what we see as a plain
failure of proof under Indiana law—establishing damages to
a reasonable certainty—that independently defeats both its
breach of warranty and breach of contract claims against Por-
ter. It is on this alternative ground that we aﬃrm the district
court’s judgment in Porter’s favor. See Continental Ins. Co. v.
M/V ORSULA, 354 F.3d 603, 606 (7th Cir. 2003) (explaining
that “[w]e may aﬃrm a district court’s judgment on alternate
grounds found in the record”).
    Similar circumstances presented themselves in Entertain-
ment USA, Inc. There we confronted a contract dispute under
Indiana law regarding a customer referral agreement between
a cell phone wholesaler, Entertainment USA, and Moorehead
Communications, an agent for wireless service provider Ver-
izon. See 897 F.3d at 789–90. The agreement required Moore-
head to pay Entertainment USA a certain amount each time
8                                                   No. 18-3149

its referrals resulted in a new activation of a cell phone con-
tract. See id. After Moorehead stopped paying, Entertainment
USA filed suit but then in the ensuing litigation, including ul-
timately at trial, never developed evidence (in the form of a
traditional damages calculation or otherwise) of what Moore-
head had paid and still owed in light of the precise breach at
issue and terms and conditions of the governing agreement.
Entertainment USA, the trial record showed, “presented a
damages calculation [that] aligned with its broad theories of
liability, but it did not present an estimate or evidence that
could, with reasonable eﬀort, be disaggregated and recalcu-
lated in accordance with the district court’s much narrower
bases for finding liability.” Id. at 791. The evidentiary short-
coming left the district court without a reliable evidentiary ba-
sis from which to measure and assess damages. See id.
    The failing mattered—and indeed proved dispositive—
because, under Indiana law, a breach of contract claim re-
quires showing the existence of a contract, the defendant’s
breach, and damages. See id. at 793 (quoting Old Nat’l Bank v.
Kelly, 31 N.E.3d 522, 531 (Ind. Ct. App. 2015)). The burden for
establishing damages fell squarely on Entertainment USA,
and the company was required to do so with evidence at trial
“proving with reasonable certainty the damages which he in-
curred.” See id. (quoting Indiana Bell Tel. Co. v. O’Bryan, 408
N.E.2d 178, 183 (Ind. Ct. App. 1980)). But “Entertainment
USA’s presentation of damages fell well short” of the eviden-
tiary threshold—despite the district court’s oﬀering multiple
opportunities to do so, the company never presented an esti-
mate of damages that aligned with Moorehead’s actual liabil-
ity. See id. at 794. And because this failure of proof on dam-
ages was fatal, we stopped short on appeal of wading into the
merits of Entertainment USA’s challenge to the finding of a
No. 18-3149                                                   9

breach of contract, emphasizing that “[i]t is not always neces-
sary to march through this entire process if a single issue
proves to be dispositive.” Id. (quoting Lesch v. Crown Cork &
Seal Co., 282 F.3d 467, 473 (7th Cir. 2002)).
    We chart the same course here. Substantial complexity ac-
companies SelectSun’s challenges to the district court’s rul-
ings. Take, for example, the apparent authority question and,
specifically, whether the trial evidence showed that Porter
was bound to the October 2012 contract by virtue of particular
actions the company took to allow Schwaiger to reasonably
believe that the German dealer (Poker-Run-Boats) was Por-
ter’s agent. See Rogers v. Sigma Chi Int’l Fraternity, 9 N.E.3d
755, 764 (Ind. Ct. App. 2014) (delineating the parameters of
apparent authority). The district court answered the question
not only by analyzing the particulars of phone calls between
the parties, Formula’s marketing materials, and other aspects
of the transaction, but also by making the related legal deter-
mination that only events before the contract signing date
were relevant. While the district court’s conclusion that no ap-
parent authority existed has much to support it in the record,
SelectSun has lodged a detailed, multipronged challenge to
that conclusion on appeal, including by contending the court
committed legal error by limiting its focus to interactions be-
fore the execution of the contract. The parties’ briefing on
these factual and legal issues is extensive.
   All of this is avoidable, though, because regardless of the
answers we would come to, the evidence presented by Select-
Sun at trial falls well short of its burden in proving damages
on either its breach of warranty or breach of contract claims.
The governing principles under Indiana law are straightfor-
10                                                   No. 18-3149

ward. Indiana warranty law required SelectSun to present ev-
idence of damages as to the cost of repairing the boat, replac-
ing it, or proving its fair market value. See Irmscher Suppliers,
Inc. v. Schuler, 909 N.E.2d 1040, 1050 (Ind. Ct. App. 2009). Like-
wise, Indiana contract law compelled SelectSun to oﬀer at
trial a reasonable calculation of damages resulting from the
breach that was “supported by evidence in the record” and
not “the mere basis of conjecture or speculation.” R & R Real
Estate, Co., LLC v. C & N Armstrong Farms, Ltd., 854 N.E.2d 365,
370–71 (Ind. Ct. App. 2006).
    Yet recall how SelectSun approached damages at trial, tak-
ing the position that the only appropriate award was not to
recover specific necessary repairs to the yacht, but instead to
return the vessel’s purchase price as well as the financing
costs and the cost of the lift—totaling approximately $1 mil-
lion. SelectSun, in short, insisted the yacht was worth $0—lit-
erally worthless, not even retaining scrap value—absent the
CE certificate called for by the contract.
   There is more. At trial a Porter representative testified that
the yacht’s exhaust system could have been made compliant
with EU regulations for an estimated $2,000. The district court
credited this testimony as part of finding that any warranty
damages would not exceed that estimate, and having pre-
sented no contrary estimate, SelectSun had no evidentiary
ground to stand on to challenge the finding as clearly errone-
ous.
    On this evidentiary record, we conclude that SelectSun did
not meet its burden of proving damages to a reasonable cer-
tainty on either its breach of contract or warranty claims. Not
only did SelectSun decline to present aﬃrmative evidence as
to the cost of specific damage or the current value of the boat,
No. 18-3149                                                   11

it failed to rebut Porter’s evidence that the boat could be made
CE compliant for only $2,000. While Indiana law aﬀords some
flexibility in proving damages, a plaintiﬀ must come forward
with an estimate rooted in evidence and demonstrated to a
reasonable certainty. See Stoneburner v. Fletcher, 408 N.E.2d
545, 550–51 (Ind. Ct. App. 1980); see also Indiana Bell Tel. Co.,
408 N.E.2d at 183 (explaining “the party asserting the breach
has the burden of proving with reasonable certainty the dam-
ages which he incurred”). Against this standard and on this
factual record, SelectSun failed to carry its burden in demand-
ing a return of the yacht’s entire purchase price.
                                III
    A failure of proof likewise plagued SelectSun’s claim of
unjust enrichment. Under Indiana law, SelectSun needed to
show that it conferred a benefit upon Porter, expected pay-
ment in return, and yet received none—yielding an unjust re-
sult. See Neibert v. Perdomo, 54 N.E.3d 1046, 1051 (Ind. Ct. App.
2016). The district court found that the trial evidence demon-
strated that this case was a poor fit for recovery on a theory of
unjust enrichment. Porter received no benefit, much less un-
just enrichment, by receiving partial payment for the yacht it
manufactured and then delivered to Schwaiger. Nor did Por-
ter bear any responsibility for, or receive any benefit from, the
financing costs or price of the boat lift. We cannot say these
conclusions reflect any error of fact or law.
   For these reasons, we AFFIRM.