Court Opinion

ID: 3000751
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:08:42.896023+00
Date Added: 2024-06-11T11:59:06.996188
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 06-3766
F:A J KIKSON, a Swedish corporation,
JEAN KIKSON, a foreign citizen,
and KEVIN STEWART,
                                   Plaintiffs-Appellees,
                            v.

UNDERWRITERS LABORATORIES, INCORPORATED,
a non-for-profit Delaware corporation,
                                           Defendant-Appellant.
                         ____________
           Appeal from the United States District Court
      for the Northern District of Illinois, Eastern Division.
           No. 02 C 8265—Ronald A. Guzman, Judge.
                         ____________
      ARGUED MAY 2, 2007—DECIDED JUNE 28, 2007
                    ____________

 Before EVANS, WILLIAMS, and SYKES, Circuit Judges.
  EVANS, Circuit Judge. Jean Kikson is the inventor of
Eldfast, a ceramic-based chimney lining with an excellent
sales record in Europe. Eldfast was manufactured and
marketed, beginning around 1992, by Kikson’s company,
F:A J Kikson, a Swedish corporation. Kikson’s customers
included masons, chimney sweeps, and others connected
in some way to the chimney business. Although appar-
ently very successful in Europe, where Kikson’s profit
margin on sales of Eldfast was in the neighborhood of 80
2                                            No. 06-3766

percent, problems—and this lawsuit which resulted in a
jury verdict for $6,300,000—followed his attempt to move
into the American market in 2000.
  Kikson’s problems started when he contracted with
Underwriters Laboratories, Inc. (UL)—a nonprofit com-
pany that provides a “Good Housekeeping”-type seal of
approval to products that meet its standards—to evaluate
and certify Eldfast for the U.S. market. UL made a series
of mistakes and generally botched the testing process.
  Kikson claimed UL committed fraud, tortious interfer-
ence with his business prospects, negligent misrepresenta-
tion, and defamation as a result of certain statements and
omissions it made while evaluating Eldfast. A jury found
for UL on the fraud and defamation claims and for Kikson
on the tortious interference and negligent misrepresenta-
tion claims and awarded Kikson $3 million in punitive
damages and $3.3 million in lost profits. UL, obviously
distressed by this verdict, appeals.
  UL is the biggest player in the U.S. safety testing
industry, providing different types of certification for a
wide variety of products. The broadest and most common
is the “UL Listing,” which signifies that representative
samples of a given product meet its published safety
standards. Getting a Listing gives a company the right
to use a unique “UL Listed” mark. A “UL Classification,”
which also comes with a corresponding mark, demon-
strates that a product is approved for specific uses or
under limited or special conditions.
  Kikson contracted with UL in August of 2000 to have
Eldfast evaluated for a Listing as a chimney liner under
the applicable standard, UL 1777 (or so they thought—
No. 06-3766                                                        3

more on that later).1 UL scheduled Eldfast’s first test
for October at the Building Services Research and Infor-
mation Association (BSRIA) in London.
  Kikson and his team, excited about bringing Eldfast
to the United States market, decided to pitch it to the
chimney industry before testing started. A company called
Landy Vent USA (owned and operated by Kevin Stewart
and Eric Bramfitt) offered to help Kikson launch the
campaign in the United States. Landy Vent would act as
the general agent, exclusive importer, and distributor.
Around September of 2000, Landy Vent began advertis-
ing Eldfast at trade shows for chimney sweeps.
  One brochure passed out at these conventions jumped
the gun by proclaiming “At last a UL listed product that
works and makes the professional sweeps life easier!” on
the front page. The second page clarified that Eldfast
was in the process of getting its UL Listing and that it
would be completed very soon (“Eldfast is currently going
through its UL. Testing program and will soon be fully
listed to UL. 1777”) (emphasis in original). Before testing
began, then, Kikson and Landy Vent represented to
potential customers that Eldfast was already Listed (or
almost Listed) and could go to market very, very quickly.
The response at the trade shows was quite favorable, and
some 120 or so people expressed interest in the product.
  The first Eldfast evaluation, however, was not as
successful as Kikson and Landy Vent had hoped. Robert
Zimmerman, a UL engineer, and Kikson were present at

1
   The contract stated UL had “no obligation or liability for
damages, including but not limited to consequential damages,
arising out of or in connection with the use of, inability to use, or
delay in receipt of the information resulting from this investiga-
tion.” Given this term, it’s not surprising that Kikson didn’t
sue UL under contract law.
4                                             No. 06-3766

the October 2000 BSRIA test. Zimmerman initially noted
and fixed several problems with the setup (for example,
some of the thermocouples were improperly connected).
Kikson complained that the chimney was built out of
“engineered” rather than common brick (although engi-
neered brick was OK by UL’s standards). According to
him, the atypical brick could skew Eldfast’s results. He
pointed this out to Zimmerman, who was interested but
did nothing about it. Eldfast failed the test. Zimmerman
acknowledged that the type of brick used was less than
ideal in a subsequent letter. He told Kikson to bring
Eldfast to the United States for retesting at UL’s
Northbrook, Illinois, facility.
  Zimmerman, who had a full workload, then passed the
project off to Raymond Sanders, a junior engineer. Sanders
worked with brick mason Daniel Fiocchi to prepare a test
chimney for a February 2001 test in Northbrook. In the
meantime, Landy Vent continued to promote Eldfast.
  There were several problems with Fiocchi’s February
chimney. Most notably, the mortar joints were four times
bigger than specified in the UL 1777 guideline. Kikson
called them “hilarious” at trial and commented at the time
of testing “they sure do things big in America!” The
chimney cured for less than the industry standard time of
28 days (though UL does not specify a particular curing
time). Also, there was zero inches of clearance between the
chimney and the ground instead of the 1-inch clearance
Kikson requested (UL 1777 allows either one).
  Additionally, a promised chimney cap was not sup-
plied by UL, and Kikson had to buy one at a local Home
Depot store. The only cap he could find was too small and
did not allow enough heat to escape. When the test was
run, the chimney’s temperature readings were too high.
Kikson, while angry about the mishaps, agreed to have UL
perform more tests on the same chimney in March.
No. 06-3766                                               5

Problems surfaced again, including UL’s failure to control
the ambient temperature in the room as required by UL
1777. Eldfast also came up short during the March test.
  Afterwards, UL offered to build a new chimney that
complied completely with UL 1777 and with Kikson’s
specific instructions. If Eldfast passed, the chimney would
be free. If it failed, he would have to pay for the test.
Kikson declined the offer.
  Kikson could have walked away at this point and cut his
losses, but he elected to take a different approach. He
revealed to Zimmerman on or about March 22, 2001, that
Eldfast did not have certain properties UL 1777 required
(emphasis in original):
   Hello Bob!
   I have been thinking a lot about the testing that we
   have done and it seems to me that there are a few
   things that we have been approaching the wrong way,
   (at least I have), so it is nothing that I hold you re-
   sponsible for in any way.
   First of all, Eldfast is not a “Liner” in the traditional
   way . . . . Eldfast is a repair material, and it does not
   in its present chemical structure have an aim for
   insulative properties. It is designed mainly to do
   four things: to reinforce, to withstand high temper-
   atures, to add acid resistance, and to seal cracks
   and fill fallen out joints, and that’s it! It will simply
   seal and repair an already existing chimney and give
   it better properties than it had before. But not neces-
   sarily make it less heat conductive.
   So with that in mind I was reading the 1777 test
   procedure description and found that it all deals with
   thermal conductivity.
   Eldfast is a material that is used to repair, (with an
   excellent result), already existing chimneys! Also to
6                                                   No. 06-3766

    do this without dramatically reducing the area of the
    flue. This is how it has been tested earlier in Europe
    and in Scandinavia. Always with a very good result. It
    is now very clear to me that this is what we should
    have done in the first place! And I feel that I should
    kill myself for not thinking of this before!
        ....
    This is not in any way a complaint, and I want to make
    that very clear, but rather a plea to you, to test Eldfast
    for what it is designed, and not for something
    else. . . . I also ask that if it is possible to find a “space”
    under which to test Eldfast I beg of you to find it.
    Eldfast is a repair material and not an insulation let’s
    give Eldfast a fair chance to do what it actually can do,
    and not again and again determine what it cannot do.
    Simply because it is not designed to do it. If the
    basis for evaluation of materials like Eldfast does not
    exist in UL 1777 at the moment, and if there are no
    standards for it, I personally think that it is something
    that needs to be implemented in your range of tests,
    because materials like this is definitely a “coming
    thing” . . . .
  As a result, Kikson and UL’s staff agreed to meet in
April of 2001 to create a special category for Eldfast and
plan out a new series of tests. The parties disagreed about
whether UL anticipated that this new phase would
result in a UL Listing or a narrower UL Classification
for Eldfast. The record shows both terms used, often
interchangeably. The new category, tentatively called UL
1777A, would be very similar to UL 1777 but would not
test for insulative properties.
  The first run under the new protocol was scheduled for
August 2001 on a four-foot chimney. Bramfitt was present
for Landy Vent. Things got off to a bad start when UL
No. 06-3766                                                 7

initially miscured the Eldfast material. As a result, part of
the Eldfast lining bubbled, pulling away from the chimney
surface. UL offered to restart from scratch, but Bramfitt
stated “this is what Eldfast was designed to do” and
scraped off and relined the bubbled portion. The chimney
was allowed to cure and the tests were rerun on August 30.
There was conflicting testimony as to whether “hollow
sounds” UL identified (indicating that Eldfast failed to
adhere to the chimney surface) were actually heard or
were fabricated after the fact. The noises prompted
another round of retesting.
   UL rescheduled testing for November 2001. Two six-foot
chimneys were prepared—one with brick and mortar
construction, and one lined with clay flue tiles, which are
apparently common in the United States. Kikson had no
problems with the brick and mortar chimney but ob-
jected to the clay flue tile chimney for two reasons: one, its
opening was smaller than he’d specified, and two, the clay
flue tiles were uncracked. Steven Kuscsik, UL’s supervis-
ing engineer, was on-site and listened to Kikson’s con-
cerns—since Eldfast was being tested as a repair system,
the tiles should be precracked before it was applied.
Kuscsik countered that in the field an Eldfast dealer
might well encounter both cracked and uncracked flue
tiles in the same chimney. UL ran both tests. Eldfast
performed well on the brick and mortar chimney but
flunked on the uncracked clay flue tiles. UL tentatively
approved Eldfast for Classification as a chimney repair
and relining system for brick and mortar chimneys in
March of 2002.
  The problems with UL’s testing procedures were
many and varied, as our brief summary demonstrates.
However, Kikson’s claims in his lawsuit also target
communications between UL and certain third parties
during the year-and-a-half-long testing process.
8                                              No. 06-3766

  Because it took longer than expected to get Eldfast
certified, potential customers got understandably anxious
as time went on. After all, Kikson and Landy Vent told
some of them as far back as September of 2000 that
Eldfast was either UL Listed or very close to it. Kikson
and other chimney professionals were also members of
an online chat group/listserv called Chimney-L, where
people exchanged trade tips and discussed new and
upcoming products. Naturally, the topic of Eldfast’s test-
ing status started coming up.
  Some commenters speculated that Eldfast had already
received its UL 1777 listing and/or was certified as a
chimney liner (not just a reliner). On August 1, 2001, UL’s
Kuscsik and Zimmerman posted an entry on Chimney-L
clarifying UL’s position:
    It has been brought to the attention of Underwriters
    Laboratories Inc. (UL), that comments have been made
    on the Chimney-L online discussion group relative to
    the status of a current investigation being conducted
    by UL. The comments have indicated that UL has
    provided information regarding the results of a cur-
    rent investigation to a third party. This inaccurate
    information has then been published posted on this
    discussion group.
    We wish to point out that UL considers information
    relative to the status of a product investigation to be
    proprietary only between UL and the product sub-
    mitter. UL will provide verification of Listing or
    Classification of a product upon request, but will not,
    however, provide information regarding the existence
    of or status of an ongoing evaluation. Verification of a
    Listing or Classification of a product may also be
    obtained by accessing UL’s Web site at www.ul.com.
  UL also received two phone calls from third parties
during the course of the Eldfast tests. At least one compet-
No. 06-3766                                              9

itor called UL directly. At some point prior to August 21,
2001, Zimmerman spoke with Ken Simons, chimney
distributor and Landy Vent competitor. During that
conversation, Simons asked Zimmerman whether Eldfast
was Listed by UL, and Zimmerman said “no.” Sanders, the
UL junior engineer, also had a conversation with an
unnamed potential customer and told him Eldfast was
undergoing testing.
  Finally, after testing was finished, Kuscsik sent an
e-mail to Landy Vent and Kikson about another problem-
atic posting on the Chimney-L forum (a member again
claimed that Eldfast was UL 1777 Listed and could be
used to line a chimney). He reserved UL’s option to clear
up the misunderstanding but suggested it would be
better if a correction came from Landy Vent. Stewart
posted part of Kuscsik’s e-mail to the Chimney-L forum on
March 29, 2002:
   While the word is getting out, from reading the posting
   below it appears that there is a misunderstanding,
   at least with the person who posted the message. They
   state:
   “The Eldfast product is more expensive than Ahrens
   but it is Listed with UL now, to UL. 1777 standard
   which means it can be used to line a chimney. Seems
   like if you could get fast at this you could make a heap
   of money. Right now we reline with stainless steel
   when needed.”
   As I’m sure you are aware:
   1. The product is NOT Listed to UL. 1777. It was
   evaluated for Classification (instead of Listing), and
   not to UL. 1777 but to an Outline of Investigation
   (temporarily labeled UL. 1777A, but which will proba-
   bly change to a different number before it is pub-
   lished).
10                                              No. 06-3766

     2. Of more importance, it seems that they presume it
     can be used to line a chimney, instead of using a
     stainless steel liner. This product is NOT classified by
     UL for use as a stand-alone liner. It was evaluated
     for use as a resurfacing or repair system only, not for
     use as a liner where a stainless steel liner would
     otherwise be required.
  According to Kikson, the Classification sounded the
death knell for Eldfast in the United States. No effort was
made to market it as a brick and mortar chimney reliner.
This lawsuit followed.
   Because Kikson prevailed at the trial, we will reverse
only if no reasonable jury could have found that he estab-
lished the elements of his claims. We must view the
evidence in the light most favorable to Kikson and draw all
reasonable inferences in his favor. Naeem v. McKesson
Drug Co., 444 F.3d 593, 605 (7th Cir. 2006). However,
despite this deferential standard of review, a mere scintilla
of supporting evidence will not suffice. Pearson v. Welborn,
471 F.3d 732, 737-38 (7th Cir. 2006).
  Illinois law applies, and the elements of a tortious
interference claim under its law are: (1) plaintiff ’s reason-
able expectancy of entering into a valid business relation-
ship; (2) defendant’s knowledge of that expectancy; (3)
defendant’s intentional and unjustifiable interference that
induced or caused a breach or termination of the expec-
tancy; and (4) damage to plaintiff resulting from defen-
dant’s conduct. Voyles v. Sandia Mortgage Corp., 751
N.E.2d 1126, 1133-34 (Ill. 2001).
   Actions that form the basis of a tortious interference
claim must be directed at third-party business prospects.
Galinski v. Kessler, 480 N.E.2d 1176, 1180 (Ill. App. Ct.
1985); Crinkley v. Dow Jones & Co., 385 N.E.2d 714, 722
(Ill. App. Ct. 1978). Kikson complains that UL tortiously
interfered with his business prospects by: (1) failing to
No. 06-3766                                               11

properly test Eldfast to applicable UL standards; (2)
reporting to a customer that Eldfast was undergoing
testing but concealing the fact that the test chimneys did
not comply with UL 1777; (3) publishing an e-mail to the
chimney industry providing no explanation for the delays
or problems with the testing; (4) intentionally delaying
and sabotaging tests; and (5) manufacturing “hollow
sounds” to justify further testing.
  To support a tortious interference claim, “Illinois courts
have consistently held that the plaintiff must allege
and prove facts which demonstrate that the defendants
acted with the purpose of injuring the plaintiff ’s expectan-
cies.” Panter v. Marshall Field & Co., 646 F.2d 271, 298
(7th Cir. 1981). Kikson offers no evidence that UL inter-
acted with a potential Eldfast customer or competitor to
purposefully disrupt Kikson’s business prospects. UL’s
contact with third parties consisted of two e-mails to
the Chimney-L group and two telephone conversations.
The e-mails from Kuscsik in August 2001 and March 2002
did not intentionally interfere with Kikson’s business
expectancy. The first made it clear UL’s policy is to provide
verification of a product’s Listing or Classification status
upon request but not information about the status of an
ongoing investigation. The second sought to correct the
misconception that Eldfast was already Listed or that it
was evaluated as a chimney liner rather than a reliner.
  As for the two telephone calls, one received by
Zimmerman and one by Sanders, neither demonstrated
UL’s intent to intentionally interfere with Eldfast sales.
Zimmerman’s truthful statement that UL had not Listed
Eldfast cannot establish the third prong of tortious
interference under Illinois law. Delloma v. Consolidation
Coal Co., 996 F.2d 168, 172 (7th Cir. 1993); Soderlund
Bros., Inc. v. Carrier Corp., 663 N.E.2d 1, 10 (Ill. App. Ct.
1995) (“There is no liability for interference with a prospec-
tive contractual relation on the part of one who merely
12                                                  No. 06-3766

gives truthful information to another”). Sanders informed
an unnamed potential Eldfast customer that the product
was still undergoing safety testing. Again, conveying this
truthful information (although it may have been a viola-
tion of UL’s stated policy) does not make UL liable for an
intentional tortious interference with Kikson’s business
prospects.
  Simply put, Kikson has not demonstrated UL made
statements directed at third-party potential customers
designed to induce those customers not to buy Eldfast. In
fact, on one level, this argument makes no sense: What
interest would UL, a nonprofit testing agency, have in
damaging Kikson’s potential business relationships?
Because Kikson only sought punitive damages on the
tortious interference claim, we vacate the $3 million
punitive damages award.2
  The negligent misrepresentation claim fares no better.
The elements of a negligent misrepresentation claim
under Illinois law are: (1) a duty on the part of UL to com-
municate accurate information;3 (2) false statements of

2
  Even if the tortious interference claim survived, the punitive
damages award here is problematic and probably would not
stand on its own. Illinois law requires that the underlying
conduct must involve an element of outrage similar to that
found in crime in order to support punitive damages. Homewood
Fishing Club v. Archer Daniels Midland Co., 605 N.E.2d 1140,
1148 (Ill. App. Ct. 1992); see also Hiatt v. Rockwell Int’l Corp.,
26 F.3d 761, 765 (7th Cir. 1994) (punitive damages are only
warranted when the underlying tort was committed with fraud,
actual malice, or a wanton disregard for the rights of others). We
do not think UL’s conduct here rises to that level.
3
   At least one court has determined that UL may owe the own-
ers of the products it tests a duty to provide accurate informa-
tion. Brookshire Bros. Holding, Inc. v. Total Containment, Inc.,
                                                   (continued...)
No. 06-3766                                               13

material fact; (3) carelessness or negligence by UL in
ascertaining the truth of the statements; (4) intention to
induce Kikson to act; (5) action by Kikson in reliance on
the truth of the statements; and (6) damages. First Mid-
west Bank, N.A. v. Stewart Title Guar. Co., 843 N.E.2d
327, 335 (Ill. 2006).
  The “false statements of material fact” of which Kikson
complains (many of which mirror the basis for the tortious
interference claim) include: (1) UL held itself out as an
expert when, in truth, its engineers were incompetent; (2)
UL misrepresented that its test chimneys complied with
UL specifications and intentionally withheld information
regarding defects in the test chimneys; (3) UL misrepre-
sented that it had created a new “standard” (UL 1777A) to
test Eldfast, when in truth that standard was a “moving
target”; (4) UL misrepresented that if Eldfast passed the
new standard, Kikson would receive a Listing; and (5) UL
manufactured “hollow sounds” during testing as a pre-
text for more delay.
  It seems clear from the record that Kikson would have
a strong case against UL for negligent testing. However,
that is not what was tried here. In order to show negligent
misrepresentation, Kikson needs to establish that UL
made statements intending to induce him to act in a
particular way that damaged his business prospects. First
Midwest Bank, 843 N.E.2d at 335. The best Kikson can
come up with is that UL made misrepresentations to
encourage him to keep testing Eldfast.

3
  (...continued)
No. 04-1150, 2006 WL 3095651, at * 4 (W.D. La. Oct. 27, 2006)
(“This Court cannot conclude that UL had absolutely no duty
to perform its tests with reasonable care.”). At any rate, UL
does not contest that it owes Kikson a duty.
14                                              No. 06-3766

  Kikson can only prevail if the act of continuing with the
testing was more harmful than calling it quits. Price v.
Philip Morris, Inc., 848 N.E.2d 1, 52 (Ill. 2005). By listen-
ing to UL and following through with the testing process,
Kikson got Eldfast a Classification for brick and mortar
chimneys under the newly developed UL 1777A—not
the Listing he’d hoped for, surely, but better than nothing
at all. Indeed, that Classification was a result of UL’s
willingness to think outside the box after Kikson revealed,
well after testing started, that Eldfast did not have the
properties UL 1777 required. No reasonable jury could
have found that Kikson’s choice to continue to work with
UL on getting Eldfast certified generated $3.3 million in
damages.
   Of course, since we reverse judgment on the tortious
interference and negligent misrepresentation claims, the
lost profits award must be vacated. However, it is doubtful
that the $3.3 million award could withstand independent
scrutiny. Illinois courts hold that “recovery of lost profits
cannot be based upon conjecture or sheer speculation.”
Midland Hotel Corp. v. Reuben H. Donnelley Corp., 515
N.E.2d 61, 66 (Ill. 1987) (citations omitted). In order to
recover, a “defendant’s breach must be plainly traceable to
specific damages.” Id. Per Zenith Elecs. Corp. v. WH-TV
Broad. Corp., 395 F.3d 416, 420 (7th Cir. 2005), lost profits
cannot represent “hopes rather than the results of scien-
tific analysis.”
  To prove projected profits and sales, a plaintiff must
present testimony from a qualified witness using “profes-
sional methods” to reach a “testable” dollar amount. Id.
Here, Kikson failed to use any recognized professional
method. He did not account for factors distinguishing
the United States and European markets, such as popula-
tion density, regulatory requirements, climate differences,
pricing variables, and distribution costs. His basis for
modeling future United States sales on past European
No. 06-3766                                                   15

sales—that in a small field one can grow ten potatoes,
while in a large field one can grow a thousand—was too
simplistic. Stewart’s testimony could not save the day
either. Consider his commentary on projected Eldfast
sales in the United States:
    We . . . were unsure of the total number of installers
    we would have. We were also unsure of the number of
    tons each installer would install, so what we were
    working on was pretty conservative numbers, and I
    think we envisaged starting the network with maybe
    80 to 100 installers using anywhere between two
    and six ton a year, so we thought about four ton a year
    was a good average.
          ....
    Anywhere between two and a half and five million
    dollars, I guess. I mean, it’s hard to say because the
    process wasn’t far enough down . . . .
A reasonable jury could not have awarded $3.3 million in
damages based on the record here. Id.4
  We reverse the tortious interference and negligent
misrepresentation verdicts and vacate the $6.3 million
damages award. The case is REMANDED to the district
court where judgment for UL must be entered. Costs are
awarded to UL.

4
  Kikson’s argument that UL’s conduct negatively affected
Eldfast sales in Europe is even more tenuous. He simply testified
that European sales “dropped dramatically during 2001 and
was absolutely nothing during 2002 due to the fact that I was
involved in this UL testing.” But he never explained why this was
the case. Kikson failed to separate out other key factors that
could have contributed to the sales decline—most notably the
bankruptcy of his European distributor. Isaksen v. Vermont
Castings, Inc., 825 F.2d 1158, 1165 (7th Cir. 1987).
16                                       No. 06-3766

A true Copy:
      Teste:

                   ________________________________
                   Clerk of the United States Court of
                     Appeals for the Seventh Circuit

               USCA-02-C-0072—6-28-07