Court Opinion

ID: 2995137
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:18:37.534425+00
Date Added: 2024-06-11T15:48:45.377298
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

Nos. 00-1934 & 00-2055

Transportation & Transit
Associates, Inc.,

Plaintiff-Appellee, Cross-Appellant,

v.

Morrison Knudsen Corporation,

Defendant-Appellant, Cross-Appellee.

Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 2827--George W. Lindberg, Judge.

Argued November 7, 2000--Decided June 25, 2001

  Before Bauer, Coffey, and Easterbrook,
Circuit Judges.

  Easterbrook, Circuit Judge. Transportation
& Transit Associates (tta) worked as a
subcontractor for the railcar manufacture
and repair division of Morrison Knudsen
Corp. (mkc). A disagreement between the
firms was resolved in 1993 by a contract
promising tta at least $15 million in
business over the next five years, plus
status as "a most preferred vendor" for
other work. A downturn in its business
caused mkc financial distress: it lost
$350 million in 1994 and decided to spin
off its rail operations, the principal
cash drain. In 1995 mkc divested its
transit division to American Passenger
Rail Car Company, llc (Amerail), which was
formed and funded by firms that had
issued surety bonds for mkc’s transit
contracts. mkc delegated to Amerail the
obligation to tta--but tta was not asked
for, and did not consent to, a transfer
of mkc’s responsibilities under the
contract. Amerail hired tta for some work,
but not as much as the contract required.
Near the end of the five-year term tta
sued both mkc and Amerail under the
diversity jurisdiction. Amerail failed to
answer the complaint; a default judgment
was entered, and it has dropped out of
the case. On cross-motions for summary
judgment the district court ruled that mkc
is liable to tta for failing to meet the
award-value requirements of para.3 in the
contract, but is not liable for breach of
the most-preferred-vendor undertaking in
para.4. 1999 U.S. Dist. Lexis 2551 (N.D.
Ill. Feb. 23, 1999). The judgment of some
$863,000 in tta’s favor reflects the
parties’ agreement about damages (given
the court’s rulings on liability), to
which the judge added about $74,000 in
prejudgment interest. 2000 U.S. Dist.
Lexis 3070 (N.D. Ill. Mar. 7, 2000). Both
sides have appealed.

  The parties treat this as a dispute
about the meaning of para.3 and para.4 in
their contract, rather than about the
branch of contract law devoted to
delegation of duties. See E. Allan
Farnsworth, 3 Farnsworth on Contracts
sec. sec. 11.1, 11.10-11.11a (2d ed.
1998); Restatement (2d) of Contracts
sec. 318 (1979). The district court
applied the contract law of Illinois, and
as neither party protests on appeal we do
likewise. We analyze the contract in
light of the principle (present in
Illinois law) that "an effective
delegation does not relieve the
delegating party [mkc] of its duty; that
requires either consent by the obligee
[tta] or performance by the delegate
[Amerail]." Farnsworth at sec. 11.10 page
125. See also Restatement sec. 318(3); 810
ILCS 5/2-210(1) ("No delegation of
performance relieves the party delegating
of any duty to perform or any liability
for breach.").

  Here is what the parties agreed in 1993:

3. AGREEMENT FOR FUTURE WORK: mkc
agrees that, over the next five year
period it shall contract with tta a
work scope value of $15,000,000.00
largely to be performed by tta at
Hornell or other reasonable
location. The five year period shall
commence on the date of execution of
this Agreement. The scope of work
shall be compatible with the
business of tta at the time the
future contract arises. The contract
awards to tta shall be evenly
distributed as much as reasonably
possible on a value basis throughout
the five year agreement period. tta
agrees that its quality level and
schedule performance shall be
consistent with that of current
industry standards and mkc purchase
requirements.

In the event mkc loses some of its
current railcar projects and does
not have other offsetting projects
of the same approximate value, the
workscope value shall be reduced
proportionally.

In the event that mkc breaches this
agreement for future work, it is
agreed that because of the
difficulty of accurately estimating
the harm to tta, mkc shall pay to
tta, as reasonable compensation, a
fee of ten percent (10%) of the
unawarded contract sum.

4. TTA AS MOST PREFERRED VENDOR: mkc
agrees to treat tta as a most
preferred vendor for other work over
the next five (5) years.

mkc contends that plenty of words in this
agreement are ambiguous, requiring a
trial so that the parties can introduce
evidence about industry customs, course
of performance, and the negotiating
history. It points particularly to the
words "loses," "projects," "future work,"
and "future contract." But of these only
the word "loses" (in subparagraph 2 of
para.3) matters to liability; the others
concern the quantum of damages, which
have been stipulated. Unless the spinoff
of the transit division reduced mkc’s
obligation to zero, it cannot avoid some
liability. Only the proposition--mkc’s
principal argument on appeal--that by
delegating performance to Amerail mkc
"los[t all] of its current railcar
contracts", so that a "proportional"
reduction cuts the obligation to nothing,
requires attention. And that proposition
stretches language beyond the breaking
point. Illinois does not apply the
deconstructionist approach of Jacques
Derrida to the law of contracts. mkc did
not "lose" its book of railcar business;
it gave that business away in order to
stanch the flow of red ink. None of the
evidence mkc wants to present would
demonstrate that in the transportation
business "lose" means the same as "sell"
or "assign" or "delegate." The projects
remained; the firms that had hired mkc
still needed cars made or repaired; only
the identity of the firm doing that work
changed. What is more, para.3 refers to
the loss of "some of" the projects;
provision for selling the whole line of
business would have required different
language. Thus mkc’s argument implicitly
challenges the principle that delegation
of duties does not relieve the delegating
party of its responsibility to keep its
promises. Yet mkc does not take on that
principle directly; it is entrenched in
the law of contracts, and para.3 of this
contract does not suggest its
modification.

  mkc advances four affirmative defenses:
novation, waiver, estoppel, and laches.
Note that it does not assert the statute
of limitations: even if tta had cause for
insecurity, and therefore could have
brought suit as soon as mkc delegated
performance to Amerail in 1995, see
Central States Pension Fund v. Basic
American Industries, Inc., No. 00-3920
(7th Cir. June 5, 2001), it sued in time
under the ten-year period Illinois
provides for written contracts. 735 ILCS
5/13-206. The availability of laches is
legally doubtful. Does Illinois treat
laches as a defense to an action seeking
only damages? mkc does not point to such
a precedent. Anyway, the defenses of
estoppel and laches fail because mkc
cannot explain how it suffered prejudice
from tta’s decision to delay filing suit
until close to the end of the five-year
agreement, when the amount of shortfall
could be determined. What would mkc have
done differently to reduce the damages
had tta sued earlier? The contract does
not contain a notice-and-cure clause; and
mkc, having left the railcar business, was
in no position to cure even if tta had
started howling bloody murder in 1995.
Actually tta’s president did send a letter
near the time of the assignment reminding
mkc that tta would hold it to its
promises, but this was unnecessary;
promises are binding with or without
reminders. The letter helps squelch mkc’s
claim that tta waived its entitlement to
performance; a demand for performance is
the polar opposite of waiver. And the
plea of novation is hollow: mkc does not
point to any document evincing tta’s
consent to have Amerail substituted for
mkc under the contract. tta was, and is,
entitled to wait until the end of the
period to learn the extent to which
Amerail would perform and then hold mkc
responsible for its shortfall.
  The shoe is on the other foot in tta’s
cross-appeal, invoking para.4 of the
contract: "mkc agrees to treat tta as a
most preferred vendor for other work over
the next five (5) years." Now it is tta
that argues ambiguity and the need for a
trial. "Most preferred vendor" certainly
has a broad range of possible meanings.
The one tta prefers is that it was to
receive a "last look" at all bid
opportunities within the scope of its
operations. In other words, before mkc (or
Amerail) let a subcontract that tta could
perform, tta was to have the chance to
match the low bid; and if it did this tta
was to receive the contract. According to
tta, some $77 million of subcontracts that
mkc and Amerail awarded from 1993 through
1998 fit that description. On
tta’sunderstanding of what para.4 means,
mkc broke its promise; neither mkc nor
Amerail (after the delegation in 1995)
even once offered tta an opportunity to
meet another subcontractor’s bid. But
this does not matter unless tta can show
damages, and the district court held that
it could not do so.

  Challenged by mkc to show even one
subcontract (out of the whole $77
million) on which it could have made a
profit by matching the low bid, tta has
been reduced to silence. Although tta
wants to avoid that burden, the party
claiming injury from breach must
establish the amount of damages. The
demonstration need not be precise, see
Oakleaf of Illinois v. Oakleaf &
Associates, Inc., 173 Ill. App. 3d 637,
648-49, 527 N.E.2d 926, 933-34 (1st Dist.
1988), but the plaintiff must have a
sensible basis for its claim.
Subparagraph 3 of para.3 liquidates
damages at 10% of the shortfall; para.4
omits that crutch. tta’s submission that
it had a profit margin of 15% on its
subcontracts does not establish that it
would have had that, or any, margin if it
had to match the lowest bid on contracts
within the scope of para.4. There is no
point in litigating a case if the
plaintiff is unprepared to demonstrate
loss, so the district court was right to
grant summary judgment to mkc with respect
to para.4.

  Illinois provides for prejudgment
interest at 5% per year on "all moneys
after they become due on any . . .
instrument of writing". 815 ILCS 205/2.
This contract was an "instrument of
writing". mkc relies on a judicial gloss
limiting interest to situations in which
the amount due was liquidated or readily
ascertainable. See Alguire v. Walker, 154
Ill. App. 3d 438, 448, 506 N.E.2d 1334,
1341 (1st Dist. 1987). The liquidated-
damages clause in para.3 subparagraph 3
satisfies this requirement. See
Residential Marketing Group, Inc. v.
Granite Investment Group, 933 F.2d 546,
549-50 (7th Cir. 1991) (Illinois law).
Although para.3 contains variables that
could have led to disputation--how much
work did Amerail "lose" by customers’
cancellation of orders, for example, and
how much in "offsetting projects" did
Amerail generate?--the parties were able
to work this out for themselves once the
district court concluded that mkc is
liable for Amerail’s shortfall in
performance. mkc contends that because its
liability was not foreordained it may not
be required to pay interest. This is not
so; it is uncertainty of amount owed,
rather than uncertainty about liability,
that would preclude an award of
prejudgment interest. See Ash v. Georgia-
Pacific Corp., 957 F.2d 432, 439 (7th
Cir. 1992) (Illinois law); New Hampshire
Insurance Co. v. Hanover Insurance Co.,
296 Ill. App. 3d 701, 709, 696 N.E.2d 22,
28 (1st Dist. 1998). Anyway, if it
mattered, we would be inclined to say
that mkc’s liability was foreordained. Its
definition of "lose" was farfetched, its
four affirmative defenses feeble.

Affirmed