Court Opinion

ID: 9539241
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:00:35.179196+00
Date Added: 2024-06-11T15:02:34.683525
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 22-1217
BEACH FORWARDERS, INC.,
                                                   Plaintiff-Appellee,
                                 v.

SERVICE BY AIR, INC.,
                                               Defendant-Appellant.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
             No. 1:21-cv-56 — Gary Feinerman, Judge.
                     ____________________

    ARGUED OCTOBER 25, 2022 — DECIDED AUGUST 7, 2023
                ____________________

   Before SYKES, Chief Judge, and FLAUM and LEE, Circuit
Judges.
    LEE, Circuit Judge. Service By Air, Inc., a shipping and lo-
gistics company, hired Beach Forwarders, Inc. as its exclusive
agent in Virginia. After ten years, the relationship soured, and
Beach Forwarders wanted out. Service By Air told Beach For-
warders it could not walk away without breaching their per-
petual contract. Beach Forwarders thought diﬀerently and
sought a declaratory judgment that it could and did lawfully
2                                                    No. 22-1217

terminate the contract. The district court sided with Beach
Forwarders and entered judgment on the pleadings, holding
that the contract was terminable at will. We aﬃrm.
                               I.
   The parties entered into a service and agency agreement
(Agreement) in 2010. The Agreement had a three-year term, a
continuous one-year renewal option, and a mutual nonre-
newal provision.
    Because it does not impact the outcome, we assume, as did
the district court, that the parties amended the Agreement in
2013. The amendment modiﬁed the Agreement to state that
the Agreement would renew perpetually for consecutive one-
year terms, unless Service By Air, in its sole discretion, notiﬁes
Beach Forwarders of its intention to terminate the Agreement
thirty days prior to each annual expiration date.
   The amendment, however, left untouched the following
cure provision in the Agreement:
       20. TERMINATION
       A. SBA [Service By Air] shall not be deemed to
       be in default of this Agreement unless Agent
       [Beach Forwarders] has provided SBA written
       notice of an alleged material breach of this
       Agreement and provided SBA with at least
       thirty (30) days to correct such claimed breach
       or if the breach cannot be corrected within said
       thirty (30) days but SBA has provided Agent
       with evidence of its eﬀorts to cure said breach,
       SBA shall be allowed time to cure said alleged
       breach which shall in no event be more than
       ninety (90) days after such notice. Upon
No. 22-1217                                                   3

       expiration of said period Agent may terminate
       this Agreement eﬀective ten (10) days after de-
       livery to SBA of notice thereof. A termination of
       this Agreement by Agent for any other reason
       shall be deemed a termination by Agent without
       cause.
    In August 2020, Beach Forwarders notiﬁed Service By Air
that it believed that the Agreement, as amended, was termi-
nable at will and that it wished to do so. By that time, Service
By Air had been acquired by Radiant Logistics Inc., a shipping
company. And Radiant’s counsel responded that: (1) only Ser-
vice By Air possessed the right not to renew, and (2) Beach
Forwarders had not notiﬁed Service By Air of any material
breach and, as such, Beach Forwarders could not terminate
the Agreement.
                             II.
   Beach Forwarders sought a declaratory judgment on sev-
eral points: ﬁrst, that the Agreement, as amended, was termi-
nable at will and had been terminated in a timely manner; and
second, that the amendment was void, unenforceable, and
subject to rescission. Beach Forwarders moved for judgment
on the pleadings under Federal Rule of Civil Procedure 12(c).
    In response, Service By Air conceded that the amended
Agreement was of indeﬁnite duration and that Illinois law
presumes that such contracts are terminable at will. But, as
Service By Air sees it, the presumption has been rebutted in
this case, because the Agreement provided that Beach For-
warders could end the Agreement only if Service By Air failed
to cure a material breach in a timely manner after notiﬁcation.
4                                                         No. 22-1217

    The district court disagreed. It held that, even if it were to
assume that the amendment was valid and enforceable, the
unambiguous language of the Agreement established that it
was terminable at will. Accordingly, the court granted a de-
claratory judgment on the pleadings that Beach Forwarders’
termination of the Agreement was lawful. 1
    On appeal, Service By Air argues that the district court
erred in granting judgment on the pleadings in Beach For-
warders’ favor because the amendment and the cure provi-
sion created a factual issue that requires discovery to deter-
mine whether a perpetual contract exists. For its part, Beach
Forwarders contends that Illinois Supreme Court and circuit
precedent instruct that the revised Agreement is terminable
at will, notwithstanding the cure provision.
                                III.
   We “review de novo the district court’s interpretation of a
written contract, including its conclusion that the contract was
terminable at will.” Burford v. Acct. Prac. Sales, Inc., 786 F.3d
582, 585 (7th Cir. 2015), overruled on other grounds by LHO Chi.
River, L.L.C. v. Perillo, 942 F.3d 384 (7th Cir. 2019). We may af-
ﬁrm on any basis supported by the record. S. Branch LLC v.
Commonwealth Edison Co., 46 F.4th 646, 649 (7th Cir. 2022).
     The parties agree that, pursuant to the choice-of-law pro-
vision in the Amended Agreement, Illinois law governs. “[I]n
Illinois, the construction, interpretation, or legal eﬀect of a
contract is a matter to be determined by the court as a question

    1 Although Service By Air asserts that Beach Forwarders did not seek

a declaration that it had lawfully terminated the Agreement, Beach For-
warders sought a declaration that the Agreement was terminable at will
and that it had terminated the Agreement in a timely manner.
No. 22-1217                                                     5

of law.” Horne v. Elec. Eel Mfg. Co., 987 F.3d 704, 718 (7th Cir.
2021). “Under Illinois law, the goal of contract interpretation
is to ascertain the parties’ intent and, in doing so, we ﬁrst look
to ‘the plain and ordinary meaning’ of the contract language.”
Selective Ins. Co. of S.C. v. Target Corp., 845 F.3d 263, 267 (7th
Cir. 2016) (quoting Aeroground, Inc. v. CenterPoint Props. Tr.,
738 F.3d 810, 813 (7th Cir. 2013)). We interpret the contract “as
a whole, viewing each part in light of the others.” Aeroground,
738 F.3d at 813 (cleaned up).
    Turning our attention to the cure provision, we must read
it in the context of the original Agreement, which was for a
three-year term. During that term, neither party had discre-
tion to terminate. There was a mutual nonrenewal provision
at the end of the term, and, if the parties wished to continue
the relationship beyond the set term, there was a one-year re-
newal provision. Within that framework, the cure provision
was typical of an agency agreement with a ﬁxed term. See, e.g.,
FMS, Inc. v. Volvo Constr. Equip. N. Am., Inc., 557 F.3d 758, 759
(7th Cir. 2009); Morley-Murphy Co. v. Zenith Elecs. Corp.,
142 F.3d 373, 375 (7th Cir. 1998).
    But then the amended Agreement eliminated the ﬁxed
term and replaced it with language providing that the Agree-
ment would renew automatically for an additional one-year
term (presumably, without end) unless Service By Air stated
otherwise. In so doing, the amendment triggered the applica-
tion of Illinois law governing contracts of indeﬁnite duration,
which has long recognized that such contracts are presump-
tively terminable “at the will of the parties.” Jespersen v. Minn.
Mining & Mfg. Co., 700 N.E.2d 1014, 1015 (Ill. 1998). That said,
an agreement “without a ﬁxed duration but which provides
that it is terminable only for cause or upon the occurrence of a
6                                                    No. 22-1217

speciﬁc event is … terminable only upon the occurrence of the
speciﬁed event and not at will.” Id. at 1016. Service By Air be-
lieves that the amended Agreement falls in the latter category;
Beach Forwarders argues that Illinois’s default rule should
apply.
    In analyzing this question, we ﬁrst consider the Illinois Su-
preme Court’s holding in Jespersen. There, a contract between
a manufacturer and a distributor provided that the manufac-
turer “may … terminate this agreement for any of the[se] rea-
sons”: (a) “failure to reasonably promote [the company’s]
products”; (b) “breach of any term or condition of the agree-
ment”; (c) “failure to make payment”; (d) the distributor’s
“death, bankruptcy, or insolvency”; or (e) the sale or transfer
“of all or any part of the [d]istributor’s rights under th[e] con-
tract without the written approval and consent” of the manu-
facturer. Id. (emphasis added) (cleaned up). The court held
that the term “may” is “permissive and equivocal” and, thus,
the clear inference is that the enumerated “grounds are not
the sole or exclusive basis for termination.” Id. From this, it
concluded that, “[w]here a contract is indeﬁnite in duration,
the delineation of instances of material breach in the context
of a permissive and nonexclusive termination provision will
not create a contract terminable for cause.” Id. at 1017.
    The upshot of Jespersen is that, under Illinois law, a con-
tract without a set term is terminable at will, absent a clear
statement that the contract can only be terminated based
upon the occurrence of certain conditions or events. Id. at
1016–17; see Baldwin Piano, Inc. v. Deutsche Wurlitzer GmbH,
392 F.3d 881, 885 (7th Cir. 2004) (“The presumption of termi-
nability allows separation in the business world, unless the
parties clearly provide otherwise. It is the business equivalent
No. 22-1217                                                   7

of no-fault divorce, with the possibility of covenant marriage
if the parties make the necessary declarations.”); Burford,
786 F.3d at 586 (“This presumption in favor of indeﬁnite con-
tracts being terminable at will can be overcome if the parties
clearly agree to place limits on when termination may take
place.”).
    Baldwin Piano presents the type of clear statement that Jes-
persen requires. There, a licensing agreement provided: “Ex-
cept as herein provided, … this Agreement shall continue in
force without limit of period but may be cancelled by the Li-
censor for material breach.” 392 F.3d at 882. Although the pro-
vision used the word “may,” we focused on the preceding
clause and held that a material breach was “indispensable to
cancellation” because “[a] phrase beginning ‘except’ implies
that the following language limits the parties’ options; other-
wise it is a waste of ink and paper.” Id. at 882–83.
    Burford is another example. There, a corporation termi-
nated its contract with its sales representative, and, when the
sales representative sued, the company argued that the con-
tract was of unlimited duration and presumptively termina-
ble at will. 786 F.3d at 584–85. We held that the statement,
“APS cannot terminate this agreement unless it is violated by
Burford,” was clear enough to overcome the presumption. Id.
at 587. Distinguishing Jespersen, we explained: “There is a de-
cisive diﬀerence between saying that A may terminate if B
breaches and saying that A may terminate only if B breaches.
Here, the diﬀerence is between reading a sentence out of a
contract or not, and between the right to terminate at will or
only for cause.” Id. (cleaned up).
    Additionally, Service By Air cites Lichnovsky v. Ziebart In-
ternational Corp., 324 N.W.2d 732 (Mich. 1982). In that case, a
8                                                    No. 22-1217

franchise agreement provided it would remain in “full force
and eﬀect indeﬁnitely, unless terminated at an earlier date
should licensee fail to perform any of the terms, conditions or
provisions of the agreement and remain in default for a pe-
riod of 30 days after the receipt of a notice from Ziebart.” Id.
at 736 (cleaned up). The Supreme Court of Michigan held that
“an agreement without a ﬁxed term or duration but which
provides nevertheless that it is terminable only for cause has in-
deed an indeﬁnite term or duration, but a provision that the
agreement continues unless terminated for cause is enforcea-
ble.” Id. at 740 (emphasis added).
    Pointing to the cure provision, Service By Air contends
that the amended Agreement contains language just as clear
as that used in Baldwin Piano, Burford, and Lichnovsky. We dis-
agree. At best, when the contract is viewed as a whole, the
language of the cure provision is vague and unclear.
    The cure provision provides that Service By Air shall not
be deemed to be in default unless Beach Forwarders has pro-
vided written notice of an alleged material breach and has
given Service By Air an opportunity to cure, which under cer-
tain conditions may be extended up to ninety days. At the ex-
piration of the ninety-day period, Beach Forwarders “may ter-
minate this Agreement eﬀective ten days after delivery to Ser-
vice By Air of notice of termination.” The last sentence reads:
“A termination of this Agreement by [Beach Forwarders] for
any other reason shall be deemed a termination without
cause.”
    Conspicuously absent from this provision is any language
of limitation or exclusivity, such as “except as herein pro-
vided” or “unless.” Without it, the cure provision falls short
of the requirement in Jespersen that the contract contain a clear
No. 22-1217                                                   9

statement that a material breach is the sole or exclusive basis
for termination by Beach Forwarders. In fact, the wording is
permissive: Beach Forwarders “may terminate” the Agree-
ment for cause. It also recognizes the possibility that Beach
Forwarders might terminate the Agreement without cause.
But nowhere does the Agreement expressly state that it can be
terminated only for cause, nor does it impose a penalty for
terminating without cause. Perhaps this lack of clarity might
be forgiven in a contract with a deﬁnite duration (as this
Agreement was originally). But it falls well short of the clear
and speciﬁc language required by Jespersen now that the
Agreement has no set end date.
   For its part, Service By Air asks: Why have a cure provi-
sion at all if a party could just terminate for convenience? But
there are myriad economic reasons why a terminable-at-will
contract may contain a cure provision that guides the parties
when one party thinks the other is in default.
    For instance, the parties may wish to establish a procedure
by which one party may obtain the other’s compliance before
cutting bait. Or the parties may prefer a set time frame to en-
courage compromise. Alternatively, the parties simply may
want to promote the mitigation of damages. All of these con-
cerns are particularly relevant where, as here, coordination
between the parties is pivotal in order to provide seamless
and cost-eﬀective shipping services over an extended period.
See Baldwin, 392 F.3d at 885 (“Because these long-term rela-
tions produce continuing proﬁts for both sides, both have
something to lose by taking the exit option without trying to
work out diﬀerences ﬁrst.”).
  All this to say, the amended Agreement lacks a clear state-
ment that the contract can only be terminated based upon the
10                                                    No. 22-1217

occurrence of certain conditions or events. Thus, Service By
Air has not rebutted the presumption under Illinois law that
this contract of indeﬁnite duration is terminable at will. Be-
cause this issue is dispositive of the appeal, the district court’s
entry of judgment on the pleadings in Beach Forwarders’ fa-
vor is AFFIRMED.