Court Opinion

ID: 2709153
Source: CourtListenerOpinion
Date Created: 2014-08-05 15:11:16.563872+00
Date Added: 2024-06-11T13:25:00.423127
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
No. 12-3115

APEX DIGITAL, INCORPORATED,
                                                 Plaintiff-Appellant,

                                 v.

SEARS, ROEBUCK & COMPANY,
                                                Defendant-Appellee.

        Appeal from the United States District Court for the
          Northern District of Illinois, Eastern Division.
           No. 1:09-cv-01452 — John W. Darrah, Judge.

 ARGUED SEPTEMBER 10, 2013 — DECIDED NOVEMBER 20, 2013

   Before KANNE, WILLIAMS, and TINDER, Circuit Judges.
   KANNE, Circuit Judge. This suit was brought by Apex
Digital, Incorporated, to collect money for goods they sold to
Sears, Roebuck & Company. Apex alleged that Sears breached
their contract by refusing to pay the total amount it owed to
Apex for goods delivered. Sears argued that this action was
barred by the four-year statute of limitations set forth in
Section 2–725 of the Uniform Commercial Code (the “UCC”).
Both parties moved for summary judgment. The district court
2                                                         No. 12-3115

found that Apex failed to file suit within the requisite time
period and granted Sears’ motion for summary judgment.
Apex filed this timely appeal. For the reasons set forth below,
we affirm the decision of the district court.
                             I. BACKGROUND
    A. The Universal Terms and Conditions
    Apex and Sears entered into the Sears Roebuck & Co.
Universal Terms and Conditions (the “UTC”) agreement on
September 12, 2003. The purpose of the agreement was to
allow Sears, a retailer, to place orders for goods with Apex, a
manufacturer of electronics.1 The UTC covered all merchandise
sold by Apex to Sears and “appl[ied] to, and is incorporated
into, all other Vendor Agreements.” The vendor agreements
were to “contain the entire understanding of [Apex] and Sears
with respect to the subject matter of such Vendor Agree-
ments[.]” Furthermore, the UTC stated that the agreements
“may not be supplemented or modified by course of dealing,
course of performance, any oral communication between the
parties, or any responses by [Apex], … unless such response is
in writing and executed or consented to in writing by Sears.”
According to the UTC, the vendor agreements and purchase
orders constituted a single agreement between the parties.

1
  Apex was in the business of purchasing products from overseas manufac-
turers and marketing and distributing these products in the United States
under the “Apex” brand name. These products included digital cameras,
televisions, DVD players, and other consumer electronics.
No. 12-3115                                                    3

   B. Payment of Invoices
    Following the delivery of goods, Apex sent electronic
invoices to Sears. Though not explicitly written in the UTC,
both parties’ records reflect a “Net 60“ payment term, meaning
payment was due sixty days from the date of the invoice. The
parties’ actions also indicate that they were operating under
this payment arrangement. Apex accounted for its invoices to
be due sixty days after issuance of each invoice. Sears’ Business
Exchange sets forth the payment terms between Sears and
Apex as “Net 60 Receipt of Goods.”
    Upon receipt of an invoice from Apex, Sears’ accounts
payable system confirmed the terms of the invoice and then
paid Apex according to the “Net 60“ payment term, though
Sears did not always pay the full amount owed. Sears withheld
money for expected returns and other deductions to which it
believed that it would be entitled in the future. Deductions that
were disputed by Apex were labeled “charge-back deductions”
on Apex’s Invoice Report. Apex alleges that Sears owes
$11,940,758.05 in charge-back deductions.
   Apex also contends that Sears owes $3,029,028.00 in unpaid
invoices. The last invoices listed by Apex that remain outstand-
ing are dated November 9, 2004, and constituted the final
transaction between the two parties. Thus, according to the
“Net 60“ provision, these invoices were due no later than
January 8, 2005. All of the other invoices for goods that Sears
purchased from Apex pre-date the November 9, 2004 invoices.
4                                                            No. 12-3115

    C. The Return Reserve
   On or about July 6, 2004, Sears implemented Program
Agreement 99671 (“PA 99671") to create a return reserve on
Apex’s account. The return reserve was an internal accounting
mechanism used to place a negative dollar deduction on
Apex’s account. In other words, Sears would hold back any
payment to Apex until the amount showing owed by Sears
exceeded the amount of the reserve.
    D. District Court Proceedings
    At the summary judgment proceedings, Apex argued that
it was entitled to collect money it believed Sears owed on the
unpaid invoices and charge-back deductions. Apex alleged
that Sears owed $8,185,302.24.2 The complaint alleged that
Sears withheld money and stopped paying Apex for goods that
Apex delivered.
    Sears asserted that Apex’s complaint was barred by the
four-year statute of limitations, as it was filed on March 6, 2009.
According to the “Net 60“ payment term, the latest expected
payment would have been due no later than January 8, 2005,
as the last invoice received was from November 9, 2004. Apex
maintained that the amounts in question could not have been
due earlier than January 2006 as Sears’ payments were ad-
vances against a debt. Apex also suggested that Sears’ payment

2
  Apex’s Invoice Report contains a positive dollar entry of $15,108,074.55
and $2,960,474.79 of merchandise return credits to be applied against the
sum for a net positive dollar figure of $12,147,599.76. Apex stated in its
Complaint that Sears was entitled to an additional $3,962,297.52 in credits,
leaving a total balance of $8,185,302.24.
No. 12-3115                                                      5

obligations were held open until Apex determined the full
amount owed through a final accounting that was to be done
once the business relationship ended.
    Regarding the deductions, the district court found that
Apex’s argument was contrary to the explicit language found
in the UTC, which allows Sears to unilaterally deduct from the
amount it owed on the invoices. Rather than making advance
payments to Apex, Sears paid each invoice separately and took
deductions as it deemed appropriate. Each invoice and
deduction was its own transaction. The last deduction occurred
on December 21, 2004, which is when the statute of limitations
began to run. Therefore, Apex’s March 6, 2009 complaint was
filed four years too late and barred by the statute of limitations.
    As for the unpaid invoices, Apex argued that the “Net 60“
term, taken from invoices, did not apply. It argued that any
change to the UTC had to be in writing by Sears and, since the
invoices were not signed by Sears, the “Net 60“ provision was
invalid. The district court concluded that while the UTC
addressed electronic payment of Apex’s invoices, it did not set
forth a specific time that payments would be due. Thus, the
parties’ course of dealing was able to supplement the written
agreement.
    As a result, Apex knew or should have known that the
payment was due sixty days after the receipt of the goods.
Therefore, the district court found that the breach occurred no
later than January 8, 2005, and Apex’s March 6, 2009 complaint
was untimely filed and barred by the statute of limitations.
6                                                       No. 12-3115

                             II. ANALYSIS
    A. Standard of Review
     Summary judgment is appropriate when “the movant
shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). We review the district court’s decision to grant sum-
mary judgment de novo, and generally will construe all facts
and reasonable inferences in the light most favorable to the
non-moving party. Arizanovska v. Wal-Mart Stores, Inc., 682 F.3d
698, 702 (7th Cir. 2012). Apex, however, failed to properly
respond to Sears’ statement of facts in support of its motion for
summary judgment as mandated by Northern District of
Illinois Local Rule 56.1. It states, “All material facts set forth in
the statement required of the moving party will be deemed to
be admitted unless controverted by the statement of the
opposing party.” N.D. Ill. R. 56.1(b)(3)(C); Midwest Imports, Ltd.
v. Coval, 71 F.3d 1311,1313 (7th Cir. 1995). Thus, we depart
from our usual deference towards the non-moving party,
Apex, and accept all of Sears’ unopposed material facts as true.
Johnson v. Gudmundsson, 35 F.3d 1104, 1108 (7th Cir. 1994).
    B. Statute of Limitations
   There is no dispute that Section 2–725 of the UCC, 810 ILL.
COMP. STAT. 5/2–725, governs the outcome of this suit. It states,
“An action for breach of any contract for sale must be com-
menced within 4 years after the cause of action has accrued.”
810 ILL. COMP. STAT. 5/2–725(1). The central issue is when the
cause of action accrued. Apex brings this cause of action for
breach of contract for failure to pay invoices and also maintains
No. 12-3115                                                            7

that Sears owes for wrongful deductions it took when paying
the invoices.
    1. Invoices
   Apex argues that the UTC and PA 996713 demonstrate that
Sears’ payment obligations were advances against a debt and
payment was not due until after Sears’ final returns of Apex
products in 2006. According to Apex, a final accounting of
Sears’ and Apex’s business relationship was required and the
parties would settle any remaining debts at that unspecified
date in 2006.
    Apex seeks to disregard the “Net 60“ provision, notwith-
standing the fact that the term is found in its own invoices.
Indeed, the parties operated throughout the course of their
dealings with the understanding that payment of invoices was
due sixty days from the date of the invoice. Apex argues that
the “Net 60“ provision is not a part of the UTC, as the UTC is
to embody the whole agreement between Apex and Sears and
“may not be supplemented or modified by course of deal-
ing[.]” Supplementing the UTC with the course of dealing via
the “Net 60“ arrangement, Apex contends, contradicts the
explicit language in the contract.

3
  Apex contends that PA 99671, the return reserve that Sears used to hold
back money from Apex from July 6, 2004 to March 31, 2005, held open the
obligation to pay until the end of March 2005. PA 99671, however, was not
a part of the UTC or any agreement between the two parties. Rather, PA
99671 was an internal accounting mechanism that Sears put forth to place
a negative dollar deduction on Apex’s account. Apex was not privy to PA
99671, nor would it want to be; the whole purpose of PA 99671 was to
withhold funds from Apex.
8                                                     No. 12-3115

     Under Illinois law, “the objective in interpreting a contract
is to ascertain and give effect to the intent of the parties.” Gore
v. Alltel Commc’ns, LLC, 666 F.3d 1027, 1033 (7th Cir. 2012)
(quoting Carey v. Richards Bldg. Supply Co., 856 N.E.2d 24, 27
(Ill. App. Ct. 2006)). Our interpretation of the agreement is
guided by “the objective manifestations of the parties, includ-
ing the language they used in the contract.” Id. Where the
language is plain, a contract should be enforced as written. Id.
     It is true that the “Net 60“ term does not appear in the UTC.
It is also true that the UTC prohibits supplementing or modify-
ing the UTC without the express written consent of Sears,
which was never provided. And while the UTC mentions how
invoices are to be paid, there is nothing that indicates when
they are due. Thus, under the UCC, the contract may be
supplemented to give full meaning to the parties’ intent. In the
absence of explicit contractual language, we look to the parties’
conduct to establish intent. Capitol Converting Equip., Inc. v. LEP
Transp., Inc., 965 F.2d 391, 396 (7th Cir. 1992) (“Where, as here,
an agreement is silent on a particular term, a course of dealing
may fill the void.”). The “Net 60“ payment term was imple-
mented by both Apex and Sears, in writing (on the invoices)
and through the course of their dealing. While the term may
not have been explicitly written in the UTC, the parties clearly
intended to operate under the “Net 60“ payment arrangement.
    Thus, payment was due sixty days after Sears received the
invoice from Apex. Sears received its last invoice from Apex on
November 9, 2004, which would render payment due on or
before January 8, 2005. After that date, Apex was aware that
Sears was not going to pay the invoice and the action was ripe
to bring suit. Once a party is apprised of a breach, the statute
No. 12-3115                                                    9

of limitations begins to run. Kozasa v. Guardian Elec. Mfg. Co.,
425 N.E.2d 1137, 1141 (Ill. App. Ct. 1981) (“The statute of
limitations begins to run when facts exist which authorize the
bringing of an action.”).
    In accordance with the “Net 60“ payment arrangement,
Apex knew that Sears was not going to pay the invoice sixty
days from the date that it was issued. Thus, on January 8, 2005,
Apex had a legal right to demand payment from Sears.
Armstrong v. Hedlund Corp., 738 N.E.2d 163, 169 (Ill. App. Ct.
2000) (“When a creditor may legally demand payment from a
debtor, a cause of action accrues and the statute of limitations
begins to run.”). Yet Apex waited until March 6, 2009 to assert
its claim against Sears, more than four years after the alleged
breach occurred. Its claim is therefore barred by the statute of
limitations.
   2. Charge-back Deductions
    Apex also alleges that Sears owes it for charge-back
deductions that date back to December 21, 2004. Apex noted
such deductions each time Sears withheld money from a
payment that Apex disagreed with. Again, Apex argues that
these deductions were not actionable at the time they were
taken; rather, a final accounting had to take place in order to
determine the final obligations of the parties. But the parties
were clearly operating under the “Net 60“ payment term and
therefore each invoice was being paid individually. Thus, each
deduction was actionable at the time it was taken. Hi-Lite
Prods. Co. v. Am. Home Prods. Corp., 11 F.3d 1402, 1408–9 (7th
Cir. 1993) (“Each partial breach is actionable and subject to its
own accrual date and own limitation period.”). Sears was not
10                                                No. 12-3115

making advance payments in anticipation of a final accounting.
Sears paid each invoice individually and decided for each
invoice how much money was to be deducted. It provided this
information to Apex and only sent the money that it believed
was owed.
   As a result, Apex was put on notice that Sears was not
going to pay the deductions after each invoice. Apex even
marked these “wrongful” deductions in its own Invoice
Report. Nonetheless, for more than four years, Apex sat on its
right to sue for money that it was allegedly owed by Sears.
This is the precise behavior that Section 2–725 of the UCC
prohibits. Apex’s claim has expired and it cannot prevail
against Sears.
                       III. CONCLUSION
    Apex knew that Sears owed it money for goods, yet failed
to take any action for more than four years, placing its claim
outside of the limitations period set forth in the UCC as
adopted in Illinois. Accordingly, we AFFIRM the district
court’s granting of Sears’ motion for summary judgment.