Court Opinion

ID: 4305921
Source: CourtListenerOpinion
Date Created: 2018-08-21 21:00:22.695605+00
Date Added: 2024-06-11T14:37:55.988270
License: Public Domain

In the

    United States Court of Appeals
                  For the Seventh Circuit
                      ____________________

No. 17-1893
EMIRAT AG,
                                                  Plaintiff-Appellant,
                                   v.

WS PACKAGING GROUP, INC.,
                                                  Defendant-Appellee.
                      ____________________

              Appeal from the United States District Court
                 for the Eastern District of Wisconsin.
               No. 12-C-0789 — C.N. Clevert, Jr., Judge.
                      ____________________

   ARGUED OCTOBER 24, 2017 — DECIDED AUGUST 21, 2018
               ____________________

   Before EASTERBROOK, ROVNER, and HAMILTON, Circuit
Judges.
    EASTERBROOK, Circuit Judge. Sabafon, a telephone compa-
ny based in Yemen, wanted to buy cards that would provide
its customers with prepaid minutes of phone use. To make
these cards more attractive, Sabafon wanted to add a game
of chance. Both the number that would supply phone time
and the symbols representing prizes were to be covered by a
scratch-off coating. (An opaque coating prevents the num-
2                                                 No. 17-1893

bers and symbols from being discovered before the cards are
sold, and it also prevents buyers from knowing in advance
which parts of the card contain the winning boxes.) Emirat, a
German firm in the risk-management business, promised to
supply Sabafon with 25 million high-security scratch-off
cards. Emirat contracted with High Point Printing LLC of
Ohio to print the cards, and High Point in turn engaged WS
Packaging of Wisconsin to do the work.
    Emirat paid High Point about $700,000, and in this suit
under Wisconsin law it demands that much in damages—
not from High Point, which is defunct, but from WS Packag-
ing. Emirat did not have a contract with WS Packaging,
whose deal was with High Point. Still, Emirat contends that
a settlement agreement it reached directly with WS Packag-
ing after an initial run of cards was not shipped in numerical
order, 500 pieces to a tray, subjects WS Packaging to all
terms of the contract between Emirat and High Point. The
district court thought otherwise and granted summary
judgment to WS Packaging. 248 F. Supp. 3d 911 (E.D. Wis.
2017). To simplify this decision, we assume that WS Packag-
ing is indeed obliged to perform up to the standards that
High Point promised Emirat. But what are those standards?
    First we need to explain why Emirat refused to accept the
cards. A scratch-off covering is supposed to prevent the
reading of phone codes or game symbols through a process
known as candling—shining a bright light behind the cards
to reveal the printing under the opaque coating. With a goal
of zero candling, WS Packaging tested its print runs using
high-intensity light and did not find a problem. Emirat
wanted extra assurance and sent samples of the cards to
Force Technology in Denmark. Following protocols pre-
No. 17-1893                                                    3

scribed by Emirat, Force Technology tried to read the print-
ing using light from the sun, fluorescent tubes, infrared
(thermal), x-rays, and lasers. It reported that “it is not possi-
ble—with the techniques used—to disclose the symbols un-
derneath the scratch layer.”
    That was June 2009. In October 2009 Emirat sent Force
Technology more samples. It used the same tests and
reached the same result: “based on the cards received and
the tests done on the cards, … the symbols can not be dis-
closed and the security of the scratch card … is good.” But
Sabafon insisted that some cards could be candled by re-
moving them from their plastic overwrap and bending them
until the scratch-off layer cracked, then shining a bright light
from behind. Emirat sent a third batch of cards to Force
Technology with instructions to bend the cards around a
pencil, crack the coating, and find out what could be seen. In
December 2009 Force Technology reported that it was able to
see some digits and game symbols using this technique.
Emirat rejected the whole print run and demanded its mon-
ey back, but by then High Point was out of business.
    Emirat insists that zero candling is the only acceptable
level. By that standard, however, no scratch-off card is se-
cure. With a sufficiently high-tech approach (think CT scan-
ners or muon tomography), or sufficiently clever manipula-
tion, any security can be compromised. But no one will
spend $1,000 to break the security of a card promising $50
worth of phone time. Security suffices if it prevents practical
kinds of cheating. A trade association called the World Lot-
tery Association has defined what this means: a scratch-off
card is a security risk only if it can be candled in five
minutes or less. This is the norm from which contractual ne-
4                                                 No. 17-1893

gotiations can begin. A buyer that wants more security—
resisting candling for 10 minutes, 20 minutes, an hour, or
forever—can contract for it. But Emirat did not do so. It
promised “high level” security (an undefined phrase) to
Sabafon, but its contracts with High Point and WS Packaging
are silent on candling. Our assumption that WS Packaging
assumed all of High Point’s promises still leaves silence.
    In this suit Emirat presented the evidence of two experts,
James Blanco and Larry Stewart, who bent the cards, cracked
the coating, and then tried to read the printing. Blanco re-
ported that it took him 13 or 14 hours to learn how to bend a
card without doing so much damage to the coating that the
tampering could be detected. After acquiring this skill, he
stated, he could read all digits of the phone code and some
prize symbols on some cards. (“Some” prize symbols would
not have been enough. To win a prize the customer had to
scratch the coating off exactly six areas, which had to contain
the same prize. Each card had six identical prize symbols
and 18 different prize symbols, so unless close to all of the
symbols could be read it would not be possible to choose the
six winning areas to scratch off.) Stewart testified at a depo-
sition that after bending and cracking cards he could deci-
pher some of the digits in the phone code but that he did not
see all of the digits in any code, because “[t]hat would take
many more hours than I was provided here.”
    Both Blanco and Stewart conceded that the cards were
not security risks under the World Lottery Association’s
five-minutes-per-card standard. That is dispositive against
Emirat, for neither High Point nor WS Packaging promised
any higher level of security. (WS Packaging’s internal goal of
zero candling was not a promise to Emirat.)
No. 17-1893                                                    5

    We might imagine an argument that the World Lottery
Association is a tool of the printing industry and that its five-
minute standard is not the norm from customers’ perspec-
tives. But Emirat does not make such an argument; the As-
sociation’s principal members are lottery-running govern-
ments—volume buyers of scratch-off cards. Nor does Emirat
contend that usages of trade supply a norm that cards must
be more candling-resistant than the five-minute standard. It
has presented evidence that participants in the industry ex-
pect to receive cards that do not candle. What it has not pre-
sented is evidence that “do not candle” has a shared mean-
ing different from the trade association’s standard. One of
Emirat’s witnesses testified that cards are candle-proof if a
high-intensity light does not reveal what is under the coat-
ing. WS Packaging’s cards passed that test repeatedly. This
witness did not mention bending cards to crack the coating
as a norm in the industry. Other witnesses, including Blanco
and Stewart, testified to different approaches. Force Tech-
nology did not think to bend the cards until Emirat told it to
do so. Multiple witnesses testified that cards’ security—more
valuable cards need extra security—normally is specified by
contract. This implies that there is no off-the-rack standard,
no usage of trade read into every contract, requiring more
than the trade association’s five-minute standard.
   The district court treated the contract as too ambiguous
to make the “how secure?” subject appropriate for summary
judgment. But the contract is not ambiguous. It is silent. It
does not promise Emirat any level of security, except
through the possibility that usages of trade are read into
every contract for scratch-off cards. And Emirat has not pro-
duced evidence—has not even argued—that there is any us-
6                                                No. 17-1893

age of trade, except perhaps the World Lottery Association’s
five-minute standard.
    Because this record does not contain evidence from
which a reasonable jury could conclude that WS Packaging
promised to supply cards more secure than the World Lot-
tery Association’s norm, and because Emirat’s own expert
witnesses conceded that these cards could not be candled in
less than five minutes, the judgment of the district court is
                                                   AFFIRMED.