Court Opinion

ID: 768850
Source: CourtListenerOpinion
Date Created: 2012-04-18 09:16:19+00
Date Added: 2024-06-11T17:55:38.714876
License: Public Domain

213 F.3d 960 (7th Cir. 2000)
Home Valu, Inc.,    Plaintiff-Appellant,v.Pep Boys  Manny, Moe and Jack  of Delaware, Inc.,    Defendant-Appellee.
No. 99-1168
In the  United States Court of Appeals  For the Seventh Circuit
Argued February 14, 2000
Decided May 24, 2000

Appeal from the United States District Court  for the Eastern District of Wisconsin.  No. 98-C-531--J.P. Stadtmueller, Chief Judge.
Before Bauer, Flaum, and Evans, Circuit Judges.
Bauer, Circuit Judge.

1
After a real estate deal  fell apart, Home Valu, Inc. sued Pep Boys   Manny, Moe & Jack of Delaware, Inc. for the torts  of negligent misrepresentation, strict  responsibility misrepresentation, and intentional  misrepresentation. Home Valu also brought a  breach of contract claim. Exercising jurisdiction  over this state law dispute under 28 U.S.C. sec.  1332, the district court dismissed Home Valu's  complaint for failure to state a claim upon which  relief can be granted. Home Valu appeals.

2
We  affirm.

I.  Background

3
Home Valu operated a retail store under the  name "Drexel" located at 8787 West Brown Deer  Road in Milwaukee, Wisconsin. Drexel sold repair  and home improvement goods. Although its Drexel  store was profitable, Home Valu decided to close  it and sell the property to Pep Boys--then a  rapidly growing retailer of automotive parts and  services--to accommodate Pep Boys' planned  expansion into Wisconsin.

4
Home Valu and Pep Boys executed a written  Agreement of Sale on May 15, 1997. The Agreement  gave Pep Boys 180 days to satisfy certain  contingencies, such as obtaining local and state  permits to operate its auto service business and  to verify environmental and other characteristics  of the property. Once the contingencies were met,  the parties were to close within 30 days. The  Agreement provided, however, that if Pep Boys  could not satisfy the contingencies, Pep Boys had  the option of terminating the Agreement, after  giving notice to Home Valu, or the right to waive  the contingencies and finalize without reference  to the contingencies.

5
About 30 days before the time the Agreement  gave Pep Boys to complete the contingencies, the  parties extended the closing date to December 31,  1997. Then, roughly a month later, the parties  entered into a written Amendment of their  original Agreement of Sale.1 The Amendment  extended the deal's closing date again, this time  until March 1, 1998.

6
At some point, Pep Boys experienced a downturn  in revenue. Shortly before it negotiated the  Amendment, Pep Boys' Chairman and CEO commented  in a written memorandum that "It is definitely  NOT business as usual at Pep Boys. Literally  everything we do is being revalidated--nothing is  sacred." Pep Boys' CEO also stated that the  company's 1998 expansion rate would be lower and  that Pep Boys did not know how many new states it  would enter because expansion plans were  undeveloped.

7
Pep Boys notified Home Valu in mid-February  1998 that it would not purchase the Drexel  property. The contract contained a liquidated  damages clause which limited Pep Boys' liability  for breach of the contract to $50,000. Pep Boys  invoked the liquidated damages clause and offered  to pay Home Valu $50,000 for the breach. Home  Valu refused the offer.

8
Home Valu was unhappy with the $50,000 offer  because, shortly after extending the closing date  until March 1, 1998, Home Valu began the  expensive process of closing its Drexel store.  Home Valu spent more than $800,000 closing down  Drexel in preparation for the scheduled March 1,  1998 sale. Rather than accepting $50,000 to  compensate it for $800,000 in expenses, Home Valu  filed suit against Pep Boys in Wisconsin state  court. Pep Boys removed the case to federal  district court and Home Valu filed an amended  complaint. Home Valu's seven-count amended  complaint alleged two counts of negligent  misrepresentation, two counts of strict  responsibility misrepresentation, two counts of  intentional misrepresentation, and one count of  breach of contract.

9
Home Valu's misrepresentation claims can be  divided into two groups. The first group  concerned statements Pep Boys made which induced  Home Valu into executing the Amendment. In these  pre-Amendment statements, Pep Boys repeatedly  assured Home Valu that it would purchase the  property if the closing date were extended to  March 1, 1998. Home Valu claimed that these  statements were false and that when Pep Boys made  them it had no intention of purchasing the  property. Home Valu claimed that Pep Boys made  these false statements for the sole purpose of  inducing Home Valu into executing the Amendment  and that Pep Boys had an economic interest in  extending the closing date. According to Home  Valu, these false statements constituted  negligent, strict responsibility, and intentional  misrepresentations.

10
The second group of claimed misrepresentations  related to statements that Pep Boys made after  the parties executed the Amendment extending the  purchase date. In these claims, Home Valu said  that it became concerned about whether Pep Boys  would honor its obligation under the Amendment  and proceed with the purchase on March 1, 1998.  As a result of these concerns, Home Valu again  asked Pep Boys about its intent to finalize the  real estate transaction on the scheduled closing  date. In response to these inquiries, Pep Boys  told Home Valu on several occasions that it would  in fact purchase the property on or before the  closing date. According to Home Valu, these  statements were false and Pep Boys knew them to  be false when it made them. Home Valu asserted  that these untrue statements caused it to  continue closing its Drexel store when it would  have abandoned the process and averted  substantial financial losses if it had known that  Pep Boys was not going to consummate the deal.  Based on these facts, Home Valu stated that Pep  Boys had committed the torts of negligent, strict  responsibility, and intentional  misrepresentation.

11
In its breach of contract claim, Home Valu  first made the simple allegation that Pep Boys  breached the contract by failing to purchase the  property by March 1, 1998. In addition to this  claim, Home Valu alleged that Pep Boys violated  the covenant of good faith and fair dealing. Home  Valu stated that it began closing its Drexel store because Pep Boys waived the applicable  contingencies and this waiver required Home Valu  to begin shutting down Drexel. Home Valu asserted  that "in exercising its right to require Home  Value to undertake the expensive process of  closing down its profitable Drexel . . . store,  Pep Boys had a continuing duty to act in good  faith and fair dealing and to cooperate with Home  Valu." According to Home Valu, Pep Boys breached  this duty of good faith by repeatedly reassuring  Home Valu that it would purchase the property  even though "Pep Boys knew in 1997 and in January  and February of 1998 that it might not honor its  Agreement to close on the purchase of the  property."

12
The district court dismissed Home Valu's  complaint under Federal Rule of Civil Procedure  12(b)(6) for failure to state a claim upon which  relief can be granted. Home Valu now challenges  the district court's ruling.

II.  Analysis

13
We review the district court's grant of a  motion to dismiss under Rule 12(b)(6) de novo.  Henderson v. Sheahan, 196 F.3d 839, 845 (7th Cir.  1999). In reviewing a dismissal, we accept all  factual allegations in the plaintiff's complaint  as true and draw all reasonable inferences in the  plaintiff's favor. Klug v. Chicago Sch. Reform  Bd. of Trustees, 197 F.3d 853, 858 (7th Cir.  1999). We will affirm only if it appears beyond  a doubt that the plaintiff cannot prove any set  of facts that would entitle it to relief. Conley  v. Gibson, 355 U.S. 41, 45-46 (1957); Frederick  v. Simmons Airlines, 144 F.3d 500, 502 (7th Cir.  1998). Finally, by virtue of the parties'  agreement, we apply Wisconsin tort and contract  law to this dispute. See Harter v. Iowa Grain  Co., 211 F.3d 338, 352-53 n. 12 (7th Cir.2000) (we forego  choice of law analysis when the parties agree on  the law that governs a dispute and there is a  reasonable relation between the dispute and the  forum whose law has been selected).

14
Because resolution of the issues in this case  depends on Wisconsin law, "we must apply the law  that would be applied in this context by the  Wisconsin Supreme Court." McGeshick v. Choucair,  9 F.3d 1229, 1232 (7th Cir. 1993) (citing Green  v. J.C. Penney Auto Ins. Co., 806 F.2d 759, 761  (7th Cir. 1986)). If the Wisconsin Supreme Court  has not spoken on the issue, we generally treat  decisions by the state's intermediate appellate  courts as authoritative "unless there is a  compelling reason to doubt that [those] courts  have got the law right." Rekhi v. Wildwood  Indus., 61 F.3d 1313, 1319 (7th Cir. 1995). When  we are faced with two opposing and equally  plausible interpretations of state law, "we  generally choose the narrower interpretation  which restricts liability, rather than the more  expansive interpretation which creates  substantially more liability." Birchler v. Gehl  Co., 88 F.3d 518, 521 (7th Cir. 1996) (citing  Todd v. Societe Bic, S.A., 21 F.3d 1402, 1412  (7th Cir. 1994)).

A.  Misrepresentation Claims

15
The district court dismissed all six of Home  Valu's misrepresentation claims as barred by  Wisconsin's economic loss doctrine. The Wisconsin  Supreme Court has followed "the majority of  courts across the country in applying the  economic loss doctrine to commercial  transactions." State Farm Mut. Auto Ins. Co. v.  Ford Motor Co., 592 N.W.2d 201, 208 (Wis. 1999).  Under the economic loss doctrine, Wisconsin law  bars tort claims which seek only "economic  losses" related to a commercial transaction.  Wausau Tile, Inc. v. County Concrete Corp., 593 N.W.2d 445, 451 (Wis. 1999). Wisconsin's highest  court draws the line between economic and non-  economic loss by emphasizing that economic loss  is damage "which does not cause personal injury  or damage to other property." Daanen & Janssen,  Inc. v. Cedarapids, Inc., 573 N.W.2d 842, 845  (Wis. 1998). In contrast, non-economic damages,  which are recoverable in tort, involve some  "physical harm" or other "unreasonable risk of  injury to person or property." Northridge Co. v.  W.R. Grace and Co., 471 N.W.2d 179, 185 (Wis.  1991).

16
In reviewing the district court's dismissal of  Home Valu's several misrepresentation claims, we  do not write on a clean slate. Rather, we have  previously upheld the dismissal of tort claims  for negligent misrepresentation and strict  responsibility misrepresentation as barred by  Wisconsin's economic loss doctrine. See Badger  Pharmacal, Inc. v. Colgate-Palmolive Co., 1 F.3d 621, 628 (7th Cir. 1993). In Badger Pharmacal, we  applied Wisconsin law and reasoned that "'tort  law provides no remedy in a case in which the  plaintiff is seeking to recover for a commercial  loss rather than damage to person, property, or  reputation.'" Id. (quoting Midwest Knitting  Mills, Inc. v. United States, 950 F.2d 1295, 1300  (7th Cir. 1991) (also applying Wisconsin law)).  Since our holding in Badger Pharmacal, no  Wisconsin court has ruled to the contrary. We  therefore adhere to our view that the Wisconsin  Supreme Court would not recognize tort claims for  negligent or strict responsibility  misrepresentation "when two corporations, with  the benefit of counsel, negotiate a commercial  transaction at arms length." Badger Pharmacal, 1 F.3d at 627.

17
Having found that Judge Stadtmueller correctly  dismissed the negligent and strict responsibility  misrepresentation claims, we consider Home Valu's  two allegations that Pep Boys committed the tort  of intentional misrepresentation. However, this  issue, too, has been addressed before now. In  Cooper Power Systems, Inc. v. Union Carbide  Chems. & Plastics Co., Inc., 123 F.3d 675, 682  (7th Cir. 1997), we noted that this court "has  already predicted that Wisconsin would not allow  a negligence or strict [responsibility]  misrepresentation claim seeking to recover  economic damages. We perceive no basis for  treating . . . [an] intentional misrepresentation  claim any differently." Our decision in Cooper  Power dooms Home Valu's two claims of intentional  misrepresentation.

18
Home Valu tries to avoid the economic loss  doctrine and preserve at least one of its tort  claims by citing Douglas-Hanson Co., Inc. v. BF  Goodrich Co., 598 N.W. 262 (Wis. Ct. App. 1999).  In Douglas-Hanson, the Wisconsin Court of Appeals  reviewed a jury verdict in the plaintiff's favor.  After concluding that the jury had found that the  plaintiff was fraudulently induced to enter a  contract, the court confronted the issue of  "whether the economic loss doctrine prohibits a  plaintiff from recovering tort damages when an  intentional misrepresentation fraudulently  induces a plaintiff to enter a contract." Id. at  268. The court answered this question in the  negative and held that "the economic loss  doctrine does not bar claims for intentional  misrepresentation when the misrepresentation  fraudulently induces a party to enter a  contract." Id. at 270-71. In reaching this  conclusion, the court noted tension with our  decision in Cooper Power, but found that the  "better public policy" was to allow such tort  claims. Id. at 270. Armed with this decision,  Home Valu asserts that Douglas-Hanson saves its  intentional misrepresentation claim that Pep Boys  fraudulently induced it into signing the  Amendment which extended the closing date to  March 1, 1998.

19
Although we usually treat decisions by state  intermediate appellate courts as authoritative,  Rekhi, 61 F.3d at 1319, we are nevertheless  required to rule as we believe the Supreme Court  of Wisconsin would rule in this context.  McGeshick, 9 F.3d at 1232. In this case, we find  a compelling reason to refrain from following the  Wisconsin Court of Appeals' decision in Douglas-  Hanson. Specifically, a few weeks after we heard  oral argument in this case, the Supreme Court of  Wisconsin (which had granted a petition to review  the intermediate appellate court's opinion in  Douglas-Hanson) issued a per curiam statement  that "the court is equally divided on the  question of whether the published decision of the  court of appeals . . . should be affirmed or  reversed." Douglas-Hanson Co., Inc. v. BF  Goodrich Co., 607 N.W.2d 621 (Wis. 2000). While  this evenly divided court resulted in an  affirmance under Wisconsin law, id., Smith v.  State, 163 N.W.2d 8 (Wis. 1968), it did not make  the Wisconsin Court of Appeals' Douglas-Hanson  decision binding authority of the Wisconsin  Supreme Court. See Neil v. Biggers, 409 U.S. 188,  192 (1972) (an affirmance by an equally divided  court is not entitled to precedential weight);  State ex rel. Thompson v. Jackson, 546 N.W.2d 140, 142 (Wis. 1996) ("a majority of the  participating justices must agree on a particular  point for it to be considered the opinion of the  court").

20
Because the Wisconsin Supreme Court did not  garner a majority to affirm the Wisconsin Court  of Appeals' holding that the economic loss  doctrine does not bar claims for intentional  misrepresentation that allege fraudulent  inducement, the issue remains unresolved. And, as  exhibited by the equally divided Wisconsin  Supreme Court, whether the economic loss doctrine  does bar such a tort claim is an issue over which  there is considerable disagreement. Where, as in  this case, we are faced with two equally  plausible interpretations of state law, "we  generally choose the narrower interpretation  which restricts liability, rather than the more  expansive interpretation which creates  substantially more liability." Birchler, 88 F.3d  at 521. We therefore take the approach that is  restrictive of liability and conclude that  Wisconsin's economic loss doctrine bars Home  Valu's intentional misrepresentation claim that  it was fraudulently induced into executing the  Amendment. Accordingly, we affirm the district  court's decision to dismiss Home Valu's  misrepresentation claims as barred by Wisconsin's  economic loss doctrine.

B.  Breach of Contract Claim

21
Although it brought only one breach of contract  count in its complaint, Home Valu actually  alleges two separate breaches. Home Valu first  complains that Pep Boys breached the express  terms of the contract when it failed to purchase  the property by March 1, 1998. The district court  denied this claim because the contract's  liquidated damages clause limited Pep Boys'  liability for breach to $50,000 and Pep Boys had  already offered to pay Home Valu $50,000. Finding  no legal basis for recoverable damages beyond the  $50,000 that Pep Boys had already offered to pay,  Judge Stadtmueller held that Home Valu did not  state a claim upon which relief could be granted.

22
We agree with the district judge that Home Valu  has no further claim for breach of contract. The  parties bargained for and agreed on a liquidated  damages clause that clearly and unambiguously  limited Pep Boys' liability for a breach to  $50,000. Pep Boys offered to pay Home Valu  $50,000 for its failure to buy the property and  that money has been placed into an escrow account  pending the outcome of this litigation. In the  event that Pep Boys prevails in this appeal  (which it now has), Home Valu can collect the  $50,000 in liquidated damages from the escrow  account. That fully satisfies the question of  damages for the breach.

23
Home Valu's second breach of contract theory  alleges that Pep Boys violated the covenant of  good faith and fair dealing by telling Home Valu  that it would purchase the property even though  Pep Boys knew it would not go through with the  deal. The district court held that the duty of  good faith and fair dealing is an implied  provision of the contract and therefore any  breach of this term simply triggers the  liquidated damages clause. No additional damages  are available, even assuming the correctness of  the claim of violation of fair dealing or good  faith.

24
It is well-settled that Wisconsin law recognizes  the implied contractual duty of good faith and  fair dealing in commercial contracts. See Market  St. Assocs. Ltd. Partnership v. Frey, 941 F.2d 588, 593-94 (7th Cir. 1991); Hauer v. Union State  Bank of Wautoma, 532 N.W.2d 456, 463-64 (Wis. Ct.  App. 1995). However, the implied covenant "does  not support an independent cause of action for  failure to act in good faith under a contract."  Hauer, 532 N.W.2d at 464. Instead, the duty of  good faith is meant to "give the parties what  they would have stipulated for" at the time of  contracting if they could have foreseen all  future problems of performance. Market St.  Assocs., 941 F.2d at 596. As the district court  pointed out, the requirement of good faith "was  not of a duty independent of the contract, but of  the contract itself." Because a breach of the  duty of good faith is the same as a breach of any  other contract term, Home Valu is entitled to its  contractual liquidated damages, but nothing more.

25
We affirm the decision of the district court.

Notes:

1
 The original Agreement of Sale and the subsequent  Amendment collectively govern the parties'  contractual rights. Because these two agreements  work together, we will treat them as one and  refer to them collectively as "the contract."