Court Opinion

ID: 2999366
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:53:24.361905+00
Date Added: 2024-06-11T15:02:47.482336
License: Public Domain

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

Nos. 05-3242 & 05-3351
BIOMET ORTHOPEDICS, INC.,
                                              Plaintiff-Appellee,
                                               Cross-Appellant,
                                v.

TACT MEDICAL INSTRUMENTS, INC.,
                                          Defendant-Appellant,
                                               Cross-Appellee.
                         ____________
       Appeals from the United States District Court for the
        Northern District of Indiana, Hammond Division.
         No. 3:01 CV 895 PS—Philip P. Simon, Judge.
                         ____________
      ARGUED JUNE 8, 2006—DECIDED JULY 19, 2006
                     ____________

 Before EASTERBROOK, ROVNER, and EVANS, Circuit
Judges.
  EASTERBROOK, Circuit Judge. For 12 years TACT Medical
was the exclusive distributor in Japan of medical devices
made by Biomet Orthopedics. At the conclusion of its
distributorship in February 2001, TACT had a choice under
§2.3 of the contract:
   [After] this Agreement has been terminated . . .
   TACT may at its sole discretion continue distribu-
   tion of the Products and parts which TACT owns in
2                                   Nos. 05-3242 & 05-3351

    its inventories and/or request BIOMET to repur-
    chase those Products and parts back at the price
    equal to that paid by TACT to BIOMET, with the
    costs of carriage, insurance, duty and charges
    required for such return being borne by
    [Biomet] . . . .
TACT asked Biomet to repurchase its inventory, and it
agreed—provided that the goods were delivered to it in
Japan. Biomet did not want to import them a second time,
which would require not only extra customs duties but
also approval from Japanese medical-device regulators.
That process could delay by a year or more Biomet’s ability
to compete in the Japanese market. For strategic or spiteful
reasons, however, TACT refused to deliver to Biomet in
Japan. The entire inventory, worth about $7 million, was
shipped to O’Hare Airport in Chicago— where it sits to this
day in a customs warehouse.
  Biomet filed this suit under the diversity jurisdiction,
seeking damages on the theory that, while the distributor-
ship lasted, TACT had failed to use its best efforts to sell
Biomet’s products. TACT filed a counterclaim seeking
payment for the inventory in the warehouse at O’Hare
Airport. A choice-of-law clause in the contract makes
Indiana law controlling on these issues. Answering special
interrogatories, a jury concluded that: (1) TACT had exerted
best efforts and is not liable to Biomet; (2) Biomet was
required by the contract to repurchase the inventory on
TACT’s request; and (3) TACT’s refusal to honor Biomet’s
request to deliver that inventory in Japan, and its shipment
to the United States (effectively excluding Biomet from the
Japanese market for more than a year), was commercially
unreasonable and excused Biomet from the obligation to
repurchase the inventory. In a comprehensive and thought-
ful opinion, the district judge denied both sides’ motions
under Fed. R. Civ. P. 50. It also denied Biomet’s request for
attorneys’ fees. Both sides have appealed. TACT contends
Nos. 05-3242 & 05-3351                                       3

that Biomet must pay for the inventory. Biomet has
abandoned its contention that TACT violated the contract
by failing to employ best efforts to sell more products but
insists that it has a contractual entitlement to recover
attorneys’ fees.
  The district judge allowed the jury to decide whether the
word “request” in the passage we have reproduced above
means “require,” and that step is problematic. This contract
has an intrinsic ambiguity: if “request” is read literally then
the whole clause beginning with “and/or request” is point-
less, for TACT did not need a contract to “request” Biomet
to do something. Neither side offered any evidence about
the negotiations that led to the use of “request” rather than
“require” or about the customs of the trade; both sides have
staked their all on the contract’s text. Interpreting contrac-
tual language is a job for the court when no parol evidence
bears on its meaning. Allen v. Cedar Real Estate Group,
LLP, 236 F.3d 374, 380 (7th Cir. 2001); First Federal
Savings Bank v. Key Markets, Inc., 559 N.E.2d 600, 604
(Ind. 1990).
  But no harm was done: the jury understood the contract
exactly as the judge (rightly) did in the post-trial ruling.
Indiana prefers interpretations that avoid making contrac-
tual language surplusage. See Walb Construction Co. v.
Chipman, 202 Ind. 434, 442, 175 N.E. 132, 135 (1931);
Whitaker v. Brunner, 814 N.E.2d 288, 294 (Ind. App. 2004);
Robinson v. Century Personnel, Inc., 678 N.E.2d 1268, 1270
(Ind. App. 1997). In context—which is how all language
should be read—§2.3 gives TACT a choice between selling
inventory on hand (even though it has lost its exclusive
right to distribute Biomet’s products and cannot obtain new
items that its customers may require) and making a clean
break from the business.
  Having exercised the option to sell the inventory back to
Biomet, TACT had to make a delivery. Biomet wanted
delivery in Japan; TACT did not agree. The Uniform
Commercial Code (applied via the contract’s choice-of-law
4                                    Nos. 05-3242 & 05-3351

clause) spells out what happens if the parties to a sale do
not specify a place of the delivery. Section 2-308 (enacted in
Indiana as Ind. Code §26-1-2-308) says that “[u]nless
otherwise agreed: (a) [t]he place of delivery of goods is the
seller’s place of business”. Section 2-504 (Ind. Code §26-1-2-
504) adds that, when delivery does not occur by an on-
premises exchange under §2-308, then “unless otherwise
agreed [the seller] must (a) [p]ut the goods in the possession
of a carrier and make such a contract for their transporta-
tion as may be reasonable”. So if shipment was required,
TACT had to make reasonable provision for delivery; if
shipment was not required, TACT had to make the inven-
tory available at its own place of business in Japan. It did
not do the latter, and what is “reasonable” is a classic jury
question.
  This jury determined that shipment to the United States
was not a “reasonable” provision for delivery and excused
Biomet from any obligation to pay. That decision was well
supported by evidence about Biomet’s reasons for wanting
delivery in Japan. Commercial norms point the same way.
A person who orders an automobile to drive in Japan need
not pay if the seller ships it to Chicago; just so with medical
equipment. TACT relies heavily on Beanstalk Group, Inc. v.
AM General Corp., 283 F.3d 856 (7th Cir. 2002), for the
proposition that business dealings (including contracts)
should be read to make business sense. That does far more
to support Biomet’s position than TACT’s.
  TACT has never argued that delivery to Chicago was
“reasonable.” Instead it maintains that the parties agreed
to delivery in Chicago, activating the “unless otherwise
agreed” clauses in §2-308 and §2-504. But where is that
agreement to be found? Biomet insisted from the get-go on
delivery in Japan. Section 2.3, which gave TACT a put
option on its inventory, does not say where goods should be
sent. Nor does §1.12, captioned “Return of Products”, which
allows TACT to sell any product back to Biomet at a 20%
Nos. 05-3242 & 05-3351                                      5

discount (called a “restocking charge”). TACT locates the
“agreement” in the contract’s Exhibit C.5, captioned
“Shipment and Risk of Loss”. This reads:
    All goods are sold F.O.B. U.S. airport and/or U.K.
    airport in accordance with the prices set forth in
    Exhibit B. The method and route of shipment are at
    Biomet’s discretion, unless TACT timely supplies
    explicit instructions otherwise. Biomet shall tender
    delivery of all goods to a carrier for transportation
    to TACT’s place of business, but all remaining costs
    of transportation and shipment shall be borne by
    TACT, and all risks of loss shall pass to TACT when
    the goods are made available to the carrier at U.S.
    and/or U.K. airport including, without limitation,
    all risks of loading, transportation and shipment.
    All claims for loss, damage or delay against the
    carrier shall be borne by TACT.
TACT maintains that Biomet has agreed to a return to the
goods’ point of origin (an airport in the United States or the
United Kingdom). But this is not at what Exhibit C.5 says.
It governs shipment from Biomet to TACT but not the other
direction. An F.O.B. term is a risk-shifting provision, not a
designation of destination. See Ind. Code §26-1-2-319. (The
proprietors of the UCC deleted §2-319 from the Official
Version in 2003, deeming F.O.B. and F.A.S. terms to be
obsolete; Indiana has not responded to this recommenda-
tion, so §2-319 remains in force in that state.) Products are
to be “free on board” the carrier (so Biomet bears the cost
and risk to that point); expense and risk on the remaining
journey are, as the clause adds (redundantly, given the
meaning of F.O.B.), the recipient’s. If, however, we treat
this part of the contract as reversible, then the second
sentence (with the parties switched) supplies the answer:
“The method and route of shipment are at [TACT’s] discre-
tion, unless [Biomet] timely supplies explicit instructions
6                                 Nos. 05-3242 & 05-3351

otherwise.” Biomet gave TACT timely, explicit instructions
for delivery; TACT wilfully ignored them.
  Biomet’s cross-appeal relies on §3.2 of the contract, in
which TACT agrees to pay “costs and attorney’s fees arising
from any breach of this agreement by TACT.” The problem
with Biomet’s argument, as the district judge aptly ob-
served, is that TACT did not break the contract. The
contract called on TACT to use its best efforts to sell
Biomet’s products; the jury found that TACT had done so.
TACT’s failure to deliver the inventory to Biomet in Japan
was not a “breach” of the contract, which gave TACT the
option but not a duty to sell the inventory back to Biomet.
TACT had paid for the goods; once the distributorship (and
the best-efforts obligation) came to a close, TACT was free
to drop the products into the Sea of Japan or the crater
of Fujiyama without violating any duty owed to Biomet.
By shipping the inventory to O’Hare Airport TACT lost
$7 million; it did not also undertake to pay Biomet’s
lawyers. Indiana law uses the American Rule, which
presumptively requires litigants to bear their own legal
expenses. See Shumate v. Lycan, 675 N.E.2d 749, 754-55
(Ind. App. 1997). Because TACT did not violate any contrac-
tual duty, there is no basis for departing from that norm.
                                                AFFIRMED
Nos. 05-3242 & 05-3351                                 7

A true Copy:
      Teste:

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

                 USCA-02-C-0072—7-19-06