Court Opinion

ID: 2998078
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:40:49.203611+00
Date Added: 2024-06-11T12:29:38.805424
License: Public Domain

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

Nos. 04-3100, 04-3232, 04-3841 & 04-3877
PFT ROBERSON, INC.,
                                          Plaintiff-Appellee,
                                           Cross-Appellant,
                             v.

VOLVO TRUCKS NORTH AMERICA, INC.,
and VOLVO TRANSPORTATION SERVICES, N.A., INC.,
                                  Defendants-Appellants,
                                        Cross-Appellees.
                       ____________
         Appeals from the United States District Court
                for the Central District of Illinois.
       No. 02-2096—Michael P. McCuskey, Chief Judge.
                       ____________
     ARGUED MAY 2, 2005—DECIDED AUGUST 25, 2005
                    ____________

 Before BAUER, EASTERBROOK, and EVANS, Circuit Judges.
  EASTERBROOK, Circuit Judge. PFT Roberson operates
a fleet of more than 1,200 long-haul trucks and trailers.
Freightliner supplies, maintains, and repairs Roberson’s
vehicles under a fleet agreement. A “fleet agreement” is
a comprehensive contract (or series of contracts) specify-
ing the number of trucks, the price of each, how much
maintenance costs per mile (a fee that increases as a truck
ages and becomes more subject to breakdowns), trade-in
and other repurchase details when trucks reach the end
2                                         Nos. 04-3100 et al.

of their useful lives, and provisions for winding up the
arrangement (the “exit clause”). Exit may be complex, for it
can entail early and large-scale replacements, repurchases,
or swaps of used trucks, as well as disputes about cause and
penalties.
  Late in 2001 Freightliner sent Roberson a termination
notice, which activated the exit clause. Litigation erupted
when the parties could not agree on how it worked; mean-
while Roberson went shopping for another supplier and
approached Volvo. The parties discussed a multi-year, $84
million arrangement for the purchase and maintenance of
new Volvo trucks plus the trade-in or repair of used
Freightliner trucks and trailers that Freightliner did not
repurchase. Lengthy drafts were exchanged from November
2001 until late January 2002. Many “Master Agreements”
were drafted; none was signed.
   In March 2002 Roberson and Freightliner patched up
their differences, settled the lawsuit, and extended their
fleet agreement. Roberson then sued Volvo for breach of
contract and fraud. According to Roberson, an email
containing 572 words is the contract that Volvo breached,
and the fraud consists in Volvo’s efforts to negotiate
additional or revised terms after sending the email. Volvo’s
email, dated December 6, 2001, and captioned “Confirma-
tion of our conversation”, recaps the negotiations’ status. It
identifies items that Roberson and Volvo had “come
to agreement on” and others that the parties needed
to “review and finalize.”
  Although the email states that the contract would be
complete only when these other subjects had been re-
solved and the package approved by senior managers, the
district judge held that a jury could find that the email
constituted Volvo’s assent to the items it mentioned even if
a full fleet agreement had not been signed. At the trial, the
judge allowed Roberson’s managers to testify that they felt
Nos. 04-3100 et al.                                         3

they had an agreement with Volvo. (The objection, which
the district judge rejected, was that only words exchanged
between the parties could create a contract and that private
thoughts are irrelevant.) The jury awarded Roberson more
than $5 million in damages for breach of contract. Volvo
appeals the district court’s denial of its motion for judgment
as a matter of law under Fed. R. Civ. P. 50 and contends
that it is entitled to a new trial if we reject this position.
Roberson has filed a cross-appeal in pursuit of damages on
its fraud theory, which the district judge did not submit to
the jury.
  According to the email, the parties “have come to agree-
ment on” the number of new Volvo trucks that Roberson
will purchase, the cost per mile of servicing the new trucks
and some of the Freightliner trucks, and an outline of an
exit clause. They had not agreed on the price per truck, on
the cost per mile for all of the older trucks, on the repur-
chase and trade-in terms for older trucks, or on the details
of the exit clause—and recall that the devil was in these
details for the arrangement between Roberson and
Freightliner. Roberson had not bound itself to buy a single
truck; it wants to treat the email as granting it a unilateral
option. No reasonable jury could conclude that the items
covered in the email were independent bargains to which
Volvo had bound itself. The parties were negotiating a
comprehensive arrangement, not a series of stand-alone
contracts. The email was not something to which Roberson
could respond “I accept” and move from the negotiation to
the performance stage. Nor did Roberson say “I accept” or
any equivalent; the parties negotiated for another two
months, and when Volvo submitted its comprehensive
proposal (at least 100 times longer than the email),
Roberson refused to sign.
  True enough, as Roberson stresses, truck purchases
can be separated from truck maintenance, and in principle
many subjects could be resolved one at a time. If people
4                                        Nos. 04-3100 et al.

choose to negotiate and agree item by item, that is their
privilege. But that is not what these negotiators were doing,
and the email was not an à la carte menu from which
Roberson could check off the items it wanted. The email and
the other writings these parties exchanged show that the
negotiations were global and that Volvo wanted a complete
and formal arrangement before being bound. Such caution
is to be expected in a multi-million-dollar deal that would
last for many years. See Central Illinois Light Co. v.
Consolidation Coal Co., 349 F.3d 488, 492 (7th Cir. 2003);
Mays v. Trump Indiana, Inc., 255 F.3d 351, 358 (7th Cir.
2001); Skycom Corp. v. Telstar Corp., 813 F.2d 810, 815-16
(7th Cir. 1987). Here, each item that Roberson and Volvo
“have come to agreement on” corresponds to a missing yet
required document:
    ! Termination clause. The email contains
        some elements of exit arrangements but
        also states that Volvo must later “provide
        an exit clause” and that the parties need to
        “review and finalize” a master agreement
        “w/exit clause.” In later drafts, the parties
        haggled over whether termination would
        be allowed at will or only for cause (a ques-
        tion on which the email was silent), and
        what penalties the party invoking the exit
        right must pay the other. These particulars
        were vital in light of the fight between
        Roberson and Freightliner about precisely
        such details.
    ! Truck purchases. According to the email
        Roberson would purchase at least 811 new
        Volvo trucks, yet a purchase order or simi-
        lar recitation would be required to bind
        Roberson to this provision (Volvo would not
        allow itself to be bound without a reciprocal
        commitment), and that was not possible
Nos. 04-3100 et al.                                       5

        until the parties agreed on the trucks’ price,
        trade-in value, purchase and delivery
        schedule, and buyer and seller’s remedies
        in case of breach, none of which the email
        covered.
    ! Maintenance cost per mile. According to the
        email, Volvo had agreed to maintain
        Roberson’s trucks for a specified cost per
        mile, but the email added that the parties
        still needed to reach a “Master CPM [cost-
        per-mile] agreement” and approve specifica-
        tion sheets to catalog the preexisting dam-
        age and condition of each Roberson truck.
        Drafts of a “Proposed Master CPM agree-
        ment” addressed something that the email
        did not: the cost per mile for trucks older
        than three years. (Trucks become more
        expensive to repair over time because of
        wear and tear, and pennies per mile add up
        to millions of dollars for a big fleet in which
        each long-haul truck can average 150,000
        miles per year.) At oral argument, Roberson
        contended that cost per mile could be calcu-
        lated by plugging data such as manufac-
        turer and length in service into a formula.
        No such formula appears in either the
        email or any later communication, however,
        and “[h]aving neither set a price, nor a
        mechanism to calculate a price, the draft
        cannot constitute a contract”. Feldman v.
        Allegheny International, Inc., 850 F.2d
        1217, 1223-24 (7th Cir. 1988).
    ! Trade-in     value. A major source of
        Roberson’s supposed damages was the
        generous (relative to Freightliner) trade-in
        allowance that Volvo offered for used
6                                         Nos. 04-3100 et al.

        trucks, yet the email makes the trade-in
        “subject to trade terms and conditions”
        derived not from industry practice but from
        a document containing “Volvo Trade Terms
        and conditions” that was never finalized.
Hundreds of pages eventually were needed to furnish these
and other details. A telling fact about industry practice and
business necessity is that the consummated fleet agreement
between Roberson and Freightliner was of length and
complexity similar to the final package that Volvo tendered
to Roberson in January 2002—and two orders of magnitude
longer than the email of December 2001.
  Illinois supplies the substantive law: on this, if nothing
else, the parties agree. When negotiators say that agree-
ment is subject to a more definitive document, Illinois
treats this as demonstrating intent not to be bound until
that document has been prepared and signed. See, e.g.,
Empro Manufacturing Co., Inc. v. Ball-Co Manufacturing,
Inc., 870 F.2d 423, 425 (7th Cir. 1989) (Illinois law);
Interway, Inc. v. Alagna, 85 Ill. App. 3d 1094, 407 N.E.2d
615 (1st Dist. 1980). Illinois is averse to enforcing tentative
agreements that are expressly contingent on the signing of
formal or final documents. See, e.g., Feldman, 850 F.2d at
1222; Chicago Investment Corp. v. Dolins, 107 Ill. 2d 120,
126-27, 481 N.E.2d 712, 715 (1985); Baltimore & Ohio
Southwestern Ry. v. People ex rel. Allen, 195 Ill. 423, 428, 63
N.E. 262, 263 (1902).
  And for good reason. Often the parties agree on some
items (such as how many trucks the buyer wants) while
others (such as the price) require more negotiation. If
any sign of agreement on any issue exposed the parties to a
risk that a judge would deem the first-resolved items to be
stand-alone contracts, the process of negotiation would be
more cumbersome (the parties would have to hedge every
sentence with cautionary legalese), and these extra negoti-
Nos. 04-3100 et al.                                        7

ating expenses would raise the effective price (for in a
competitive market the buyer must cover all of the seller’s
costs). See Richard Craswell, Passing on the Costs of Legal
Rules: Efficiency and Distribution in Buyer-Seller Relation-
ships, 43 Stan. L. Rev. 361, 367-68 (1991).
  Illinois permits parties to conserve these costs by reach-
ing agreement in stages without taking the risk that courts
will enforce a partial bargain that one side or the other
would have rejected as incomplete. We have recognized that
contracting parties often approach agreement in stages, not
that each fledged stage represents a full agreement. See,
e.g., Empro, 870 F.2d at 426. Thus parties may reach
agreement on elements A, B and C, with more negotiation
required on D and E. If elements D and E are essential to
the mix, Illinois does not bind the parties to A, B, or C
alone. Should agreement on essential elements fail, it is a
failure of negotiation not performance. And whether extra
elements are essential is for the parties themselves to
say—as Volvo said they were in the very email that
Roberson wanted to sift for favorable terms.
  A comprehensive fleet agreement depended on resolving
all issues that would affect the long-term dealings. The
email lists many documents that contain “more of the
required details” and are necessary “for each of us to review
and finalize”. The email offers a few subjects that the
parties agree about but principally is a negotiation
tool listing the subjects that the parties agree must be
agreed on in the future. See Ocean Atlantic Development
Corp. v. Aurora Christian Schools, Inc., 322 F.3d 983, 997
(7th Cir. 2003) (Illinois law). Its language demonstrates
that no contract has been reached.
  Roberson insists that, because the email does not state
that agreement is “subject to” these future negotiations and
documents, the email binds Volvo on all terms it recites.
This magic-words approach is not the law in Illinois; the
8                                         Nos. 04-3100 et al.

parties need not recite a formula to demonstrate that a
definitive agreement lies in the future. Words expressing
contingency or dependence on a subsequent event or agreed-
on element will do. See Ocean Atlantic, 322 F.3d at 999;
Abbott Laboratories v. Alpha Therapeutic Corp., 164 F.3d
385, 388-89 (7th Cir. 1999) (Illinois law); Evergreen Invest-
ments, LLC v. FCL Graphics, Inc., 334 F.3d 750, 754-55 (8th
Cir. 2003) (Illinois law); El Reno Wholesale Grocery Co. v.
Stocking, 293 Ill. 494, 503-04, 127 N.E. 642, 646 (1920). See
also Skycom, 813 F.2d at 816 (Wisconsin and New York
law). Volvo and Roberson failed to agree on the details that
the email listed as necessary. So clear is this that there was
no need to ask a jury’s view.
  If Roberson had hit the reply button in the email program
and said only “we accept,” no contract would have been
formed because the email was not a definitive offer; it called
for negotiation of the many open details rather than
acceptance of any contract limited to a subset of the issues.
What Roberson actually did in response to the email was to
show enthusiasm (“Let’s roll”, it wrote), utter some empty
phrases (“we look forward” to “this long-term partnership”;
see Brian Fugere, Chelsea Hardaway & Jon Warshawsky,
Why Business People Speak Like Idiots: A Bullfighter’s
Guide (2005)), and propose a long list of changes and
additions. So even if the December 6 email was an offer,
Roberson rejected it—and could not “accept” it months later
by filing suit for damages. Roberson never signed anything
or tried to accept by performance (as by paying for 811
tractor-trailer sets); it treats the December 6 email as an
option. Yet Volvo did not give Roberson a unilateral option,
least of all one that could be exercised by suit rather than
by payment.
  Roberson’s position—that as soon as parties agree on
any term, it is a jury question whether there is a con-
tract on this term alone—would make negotiations far
too risky and is not the law in Illinois or any other juris-
Nos. 04-3100 et al.                                        9

diction of which we are aware. The give-and-take of negotia-
tions will leave parties with bargains on some terms that
must be made up for by others that benefit the trading
partner. Letting one side accept the favorable terms without
the compensatory ones would be like permitting the buyer
to say: “We have agreed on quantity but not price; I now
accept the quantity term and am entitled to the goods at
whatever price a jury thinks reasonable.” Firms do not (and
Volvo did not) put themselves at the mercy of their counter-
parts in that way. Cf. Fidelity & Deposit Co. of Maryland v.
Rotec Industries, Inc., 392 F.3d 944, 945 (7th Cir. 2004);
Kimco Corp. v. Murdoch, Coll & Lillibridge, Inc., 313 Ill.
App. 3d 768, 730 N.E.2d 1143 (1st Dist. 2000). Volvo
protected itself by stating in the email that many “required
details” remained to be “finalize[d]”; if the details were
“required,” there was no agreement without them. See also
E. Allan Farnsworth, Precontractual Liability and Prelimi-
nary Agreements: Fair Dealing and Failed Negotiations, 87
Colum. L. Rev. 217 (1987).
  Suppose we treat the email as an expression of intent
to reach agreement. The letter in Interway was even
stronger. It stated that “this will confirm our agreement”
and that “we have agreed” on certain issues, yet the Illinois
judiciary held that it did not create a contract on any term
because it showed that negotiations remained open. 85 Ill.
App. 3d at 1100-01, 407 N.E.2d at 620-21. See also Academy
Chicago Publishers v. Cheever, 144 Ill. 2d 24, 578 N.E.2d
981 (1991); Morey v. Hoffman, 12 Ill. 2d 125, 145 N.E.2d
644 (1957). Roberson’s arithmetic approach— add accords,
subtract discords, the remainder equals a contract—would
frustrate negotiations for all but the contemporaneous
exchange of commodities (a transaction that requires few
preliminaries). Parties may negotiate toward closing a deal
without the risk that a jury will think that some intermedi-
ate document is a contract, and without the “fear that by
reaching a preliminary understanding they have bargained
10                                          Nos. 04-3100 et al.

away their privilege to disagree on the specifics.” Empro,
870 F.2d at 426; Venture Associates Corp. v. Zenith Data
Systems Corp., 987 F.2d 429, 432 (7th Cir. 1993); Chicago
Investment, 107 Ill. 2d at 126-27, 481 N.E.2d at 715;
Whitelaw v. Brady, 3 Ill. 2d 583, 590, 121 N.E.2d 785, 790
(1954).
  This dispute should have been resolved in Volvo’s favor on
summary judgment. That conclusion makes it unnecessary
to address Roberson’s argument that Volvo committed
“fraud” by proposing new or changed terms after December
6. See Feldman, 850 F.2d at 1223 (self-interested negotia-
tion does not show bad faith or fraudulent negotiation).
                                                    REVERSED

A true Copy:
      Teste:

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

                   USCA-02-C-0072—8-25-05