Court Opinion

ID: 770654
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:37:32+00
Date Added: 2024-06-11T15:44:55.843210
License: Public Domain

228 F.3d 784 (7th Cir. 2000)
Midwest Grain Products of Illinois, Inc., Plaintiff-Appellant/Cross-Appellee,v.Productization, Inc. and CMI Corp., Defendants-Appellees/Cross-Appellants.
Nos. 99-2958 and 99-3050
In the  United States Court of Appeals  For the Seventh Circuit
Argued April 4, 2000Decided October 3, 2000

Appeals from the United States District Court  for the Central District of Illinois, Peoria Division.  No. 95-C-1339--Joe Billy McDade, Chief District Judge.
Before Coffey, Rovner, and Diane P. Wood, Circuit  Judges.
Diane P. Wood, Circuit Judge.

1
This case presents  a classic contract dispute: A orders a product  from B, and B turns to C to manufacture it. When  A receives the product, it is not satisfied, and  it wants to hold C responsible for the alleged  flaws. We must decide whether there is enough  evidence of some kind of warranty, either express  or as a matter of law, to allow Midwest Grain  Products (Company A) to move beyond summary  judgment in its action against CMI Corporation  (Company C). (Midwest settled its claims against  Productization, Inc. (PI) (Company B), and so  that actor has not been part of this case for  some time.) The district court concluded that  Midwest's evidence was lacking and that CMI was  entitled to judgment as a matter of law. It also  ruled that CMI was not entitled to its attorneys'  fees. Each company has appealed from the part of  the judgment adverse to it, but, finding no error  in the district court's disposition of the  action, we affirm.

2
* On January 12, 1993, Midwest Vice President  Anthony Petricola sent a letter to PI President  Andrew Livingston requesting a quote on grain  dryers to be used in Midwest's expansion of its  facility in Pekin, Illinois. Livingston responded  on January 26 with an offer on PI's behalf to  provide two dryers for a total price of $1,515,800. Midwest accepted PI's offer on  February 25, through a purchase order sent to  Livingston.

3
With the deal in hand, PI then turned to CMI to  manufacture the dryers. On April 29, 1993, it  sent CMI a set of specifications for the dryers  Midwest wanted. CMI replied with a fax giving  price terms and stating that "[a]cceptance of the  order will be subject to receipt by CMI of a  letter from Midwest Grain agreeing to make  payment, with checks made payable jointly to CMI  and Productization." The next day, April 30, PI  responded with a purchase order, which also  contained various specifications and drawings  related to the dryers. Also on April 30, CMI sent  a fax to PI confirming receipt of the purchase  order and requesting what it called "some minor  changes" in the wording of two sections. The  first change is unimportant for us, but the  second asked again that PI procure a letter from  Midwest agreeing to make payments with checks  made payable jointly to PI and CMI, and setting  out the timing of Midwest's payments.

4
On May 4, 1993, PI submitted a revised purchase  order that reflected PI's commitment to obtain  the letter from Midwest that CMI wanted, and that  had a page of fine print "terms and conditions."  Paragraph 4 was entitled "Warranty," and read as  follows

5
Seller expressly warrants that all materials and  work covered by this order will conform to the  specifications, drawings, samples, or other  description furnished or specified by Buyer, and  will be merchantable, of good material and  workmanship, and free from defect. Seller  expressly warrants that all the material covered  by this order which is the product of Seller or  in accordance with Seller's specifications, will  be fit and sufficient for the purposes intended.

6
On May 10, Midwest's Petricola sent the requested  letter directly to CMI. The letter commits  Midwest to "make payment for equipment purchased  by Productization, Inc. from CMI Corporation for  its [i.e., Midwest's] project in Pekin, Illinois,  with check(s) payable jointly to Productization,  Inc. and CMI Corporation." It also mentions the  shipment, price, and storage terms of the PI/CMI  agreement and states that CMI will issue waivers  of liens to Midwest upon CMI's receipt of  payment.

7
This was Midwest's only direct appearance into  the dealings between PI and CMI. The latter two  companies continued to work out the details of  their contract from May through at least the end  of June. On May 14 and 17, CMI sent copies of its  equipment sales order to PI. These were  essentially order confirmation forms; they  detailed the units purchased, price, shipping  terms, and other terms of the sale. Then--and  this is where our case was born--CMI sent a third  "equipment sales order and security agreement" to  PI on June 29, 1993. That form mirrored the May  14 and May 17 forms, with two exceptions. The  first was a minor downward price adjustment of  $260 that concerns no one. The second was the  addition of a new page, again filled with fine  print, that presented CMI's terms of sale.  Paragraph 1 of these terms included the following  language: "No other terms are acceptable and any  proposed terms or conditions which vary from or  are in addition to those contained in this order  shall be deemed rejected unless expressly  approved by CMI in a writing signed by it."  Paragraph 8 addressed warranties, and said in  pertinent part

8
CMI warrants such equipment, accessories, parts  and other goods covered by this order and as are  manufactured by CMI against defective material or  workmanship for a period of six (6) months after  date of first delivery or for one thousand  (1,000) hours of use, whichever comes first; . .  . . THIS WARRANTY IS EXPRESSLY IN LIEU OF AND  EXCLUDES ALL OTHER WARRANTIES, EXPRESSED OR  IMPLIED (INCLUDING ANY WARRANTY OF  MERCHANTABILITY AND FITNESS OF ANY PRODUCT OR  GOODS FOR A PARTICULAR PURPOSE), AND ALL OTHER  OBLIGATIONS OR LIABILITIES ON CMI'S PART, AND CMI  NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON  TO ASSUME FOR CMI ANY OTHER LIABILITY IN  CONNECTION WITH THE SALE OF CMI'S PRODUCTS. THERE  ARE NOT ANY WARRANTIES WHICH EXTEND BEYOND THE  DESCRIPTION ON THE FACE OF THIS ORDER.

9
Last, paragraph 11 of the form set forth an  integration clause.

10
After June 29, there were a few more exchanges  between PI and CMI. PI sent another purchase  order that contained the PI terms and conditions,  including its broader warranty language, and CMI  sent another equipment sales order, though it is  unclear whether the terms of sale page was  included that time.

11
The first dryer reached Midwest in February  1994, but it was not put into service until 1995.  The other dryer was delivered in April 1994 and  was put into service two months later. Midwest  experienced a variety of problems with both  units. Initially, CMI and PI serviced them.  Midwest found their efforts unsatisfactory,  however, and it decided to call in a third party  to examine the equipment. Later, still unhappy  with PI and CMI, it filed this action in the  district court for the Central District of  Illinois, invoking the court's diversity  jurisdiction for claims exceeding $75,000.  Midwest is an Illinois corporation with its  principal place of business in Illinois; PI is a  Kansas corporation with its principal place of  business there; and CMI is an Oklahoma  corporation with its principal place of business  also in Oklahoma.

II

12
We consider first Midwest's appeal from the  summary judgment against it. Both Midwest and CMI  have devoted a great deal of time in their briefs  to discussing issues such as the principles of  contract formation, the Uniform Commercial Code's  provisions governing a "battle of the forms," see  U.C.C. sec. 2-207, and which facts were disputed  about these points. We find, however, that this  case can be resolved in a more straightforward  way. We also conclude that even if certain  assumptions are made in Midwest's favor, the  district court's judgment was still correct. In  conducting this review, we have of course taken  any material facts that are in dispute in the  light most favorable to Midwest, and we have  given de novo consideration to the district  court's decision.

A.  Choice of Law

13
Because this is a diversity case, our first  task is to decide under what law we should assess  the claims. We begin, as instructed by Klaxon Co.  v. Stentor Electric Mfg. Co., 313 U.S. 487, 496  (1941), with the choice of law rules used by the  state in which the federal district court where  the case was filed sits--here, Illinois. Illinois  follows the Restatement (Second) of Conflict of  Laws in making such decisions. See Esser v.  McIntyre, 661 N.E.2d 1138, 1141 (Ill. 1996). For  cases like this one, the Restatement refers  courts either to a choice of law provision in the  contract at issue, or to the place of  performance. See Philips Electronics, NV v. New  Hampshire Ins. Co., 692 N.E.2d 1268, 1278 (Ill.  App. Ct. 1998) (contractual choice of law  provision); Boise Cascade Home & Land Corp. v.  Utilities, Inc., 468 N.E.2d 442, 448 (Ill. App.  Ct. 1984) (place of performance).

14
Either way, we agree with the district court  that Oklahoma law governs this case. If the terms  included with the June 29 equipment sales order  that CMI sent to PI are part of the contract (and  no one is disputing that at some point a contract  was formed between CMI and PI), this is an open-  and-shut matter. Paragraph 10 of the "terms of  sale" states that "[t]his agreement shall be  governed and construed in accordance with the  laws of Oklahoma." If those terms are not part of  the agreement, we look to the place of  performance. The CMI/PI contract was one for the  manufacture of goods; the manufacturing took  place entirely in Oklahoma; and the risk of loss  passed from CMI to PI in Oklahoma under the terms  of the agreement. Had this case been filed in an  Illinois court, we have no doubt that it would  have applied Illinois's choice of law rules to  select Oklahoma law. The federal courts must do  so as well. (We note, incidentally, that this  means we will apply Oklahoma's version of the  U.C.C. and contract law; Midwest's efforts to  persuade us to prefer "uniform" interpretations  of the U.C.C. over Oklahoma's rules is  reminiscent of the doctrine of general federal  common law articulated in Swift v. Tyson, 41 U.S.  1 (1842), and overruled by Erie Railroad Co. v.  Tompkins, 304 U.S. 64 (1938). The Commissioners  on Uniform State Laws draft proposed uniform laws  for the consideration of state legislatures, but  in the end it is the state that enacts the so-  called uniform law, with whatever modifications  it sees fit to include.)

B.  Third-Party Beneficiary

15
We begin with the question whether, under  Oklahoma law, Midwest has any claim to third-  party beneficiary status to the agreement between  CMI and PI. This may seem a bit like starting a  story in media res, but it allows us to evaluate  this case on the assumption that Midwest is  correct when it argues that the CMI/PI agreement  never incorporated CMI's restrictive warranty  terms, and thus it enables us to avoid working  through the various documents that exchanged  hands between the two principal contracting  parties.

16
Under Oklahoma law, a party may be a third-  party beneficiary to an agreement only if the  contracting parties intended the benefits of the  contract to run to the third party. See Great  Plains Federal Savings and Loan Ass'n v. Dabney,  846 P.2d 1088, 1093 (Okla. 1993); Copeland v.  Admiral Pest Control Co., 933 P.2d 937, 939  (Okla. Ct. App. 1996). In Copeland, the court  explained that "[i]t is not necessary that third-  party beneficiaries be specifically identified at  the time of contracting, but it must appear that  the contract was expressly made for the benefit  of a class of persons to which the party seeking  enforcement belongs." 933 P.2d at 939.

17
There are only two pieces of evidence in this  record that link the CMI/PI contract to Midwest: first, the fact that CMI knew that PI wanted the  dryers so that it could then sell them to  Midwest, and second, the fact that CMI insisted  that it be paid by checks that Midwest made  payable jointly to PI and to itself. Nothing in  Oklahoma law the parties have cited, and nothing  in Oklahoma law that we have been able to find  ourselves, comes close to holding that an  ultimate buyer is a third-party beneficiary of  every contract its seller enters into with  suppliers in order to fulfill the contract. Nor  are we referred to, or can we find, any Oklahoma  decision indicating that the kind of financial  arrangement CMI secured here is enough to give  the ultimate buyer third-party beneficiary  status. That step was enough to make Midwest a  surety for PI, and in that sense it allowed CMI  to look not only to PI for payment (a right it  had under the basic contract) but also to  Midwest. But it did not indicate that the  contract was expressly for Midwest's benefit.  From CMI's point of view, it was a contract for  the sale of goods, and it was not CMI's problem  in the final analysis what PI wanted to do with  the dryers once it received them.

18
Indeed, in the section of Midwest's brief  entitled "Plaintiff's third-party beneficiary  status was ignored or improperly addressed," it  cites not a single decision of an Oklahoma court.  It refers instead to one Illinois case, Olson v.  Etheridge, 686 N.E.2d 563 (Ill. 1997), and one  decision from this court in a diversity case  governed by Illinois law, Architectural Metal  Systems, Inc. v. Consolidated Systems, Inc., 58  F.3d 1227 (7th Cir. 1995). States vary in their  approach to rules like those governing the  recognition and rights of third-party  beneficiaries, and we would at least need some  reason to conclude that Oklahoma and Illinois  take the same approach before these authorities  would be persuasive.

19
If Midwest was not a third-party beneficiary of  the CMI/PI contract, which is our best  predication of what an Oklahoma court would find,  then it has no case. Because this point did not  receive as much attention as it might have at the  district court level, however, we address in the  alternative the other theories that were  litigated more fully.

20
C.  Contract Formation, Terms, and Modifications

21
Midwest argues strenuously that the district  court overlooked disputed issues of material fact  when it granted summary judgment based on the  conclusion that the definitive date on which PI  and CMI formed their contract was June 29,  through the equipment sales order from CMI  bearing that date. The contract might have been  formed, it suggests, at any of three earlier  times, and critically, at neither of those points  had CMI's language excluding warranties entered  the picture. One possibility has CMI's April 29  form as the offer, and PI's April 30 fax as the  acceptance; a second possibility finds an offer-  acceptance sequence in the two April 30 exchanges  (the fax from PI to CMI and then the confirmation  fax from CMI back to PI); and the third regards  the April 30 fax from CMI to PI as the offer and  the May 4 purchase order as the acceptance.  Midwest points out, correctly enough, that under  U.C.C. sec. 2-204 (codified in Oklahoma as 12A  Okla. Stat. sec. 2-204; for simplicity we refer  to the U.C.C. alone) that "any manner sufficient  to show agreement" is enough to form a contract  for the sale of goods. Midwest also points out,  correctly in our view, that the district court  erred to the extent that it thought the facts  undisputedly pointed to the June 29 communication  as the document that clinched the formation of  this contract.

22
But this is not enough, contrary to Midwest's  view, to show that the result the district court  reached was in error. The real question is  whether the parties to the contract--PI and CMI--  chose to limit the warranty CMI was giving,  either at the time they contracted or in a later  modification. Here too Midwest has problems.  Under Oklahoma law, the limitation of warranty  language either entered into the contract at the  time of its formation, or the parties later  agreed to add it. Midwest's assumption that  contracting parties cannot modify an agreement if  there is a third-party beneficiary whose rights  have vested is not supported by Oklahoma law, and  thus it cannot defeat later changes that the  parties themselves chose to make.

23
We agree with the district court that the  testimony of PI President Livingston, to the  effect that "all of the purchase order" PI sent  to CMI was part of the deal, is not enough to  raise a genuine fact over the question whether  PI's warranty terms took precedence over CMI's  later limitation. No one directed Livingston's  attention to warranties at this point in his  deposition. In fact, from the time CMI started  performing to the present neither of the parties  to the agreement thought that PI's original  language survived. Without more, this was too  slender a reed to require jury resolution of the  question.

24
We would reach the "battle of the forms"  question, which is governed by U.C.C. sec. 2-207,  only if the June 29 order is either the offer or  the acceptance. The U.C.C. does not give a clear  answer about the way courts must handle  contradictory terms (as opposed to "additional"  terms, see sec. 2-207(2)). Given that fact, and  our finding earlier that Midwest is not a third-  party beneficiary in any event, we prefer to  leave this problem for resolution in the Oklahoma  courts in a case where it matters. For what  little it is worth, we think it likely that  Oklahoma would take the same approach for  different terms as it does under U.C.C. sec. 2-  207(2)(a) for additional terms: that is, it would  not incorporate the new terms into a contract  between merchants where one form explicitly  limits acceptance to the terms of the offer.  Here, CMI's form explicitly says that "[n]o other  terms are acceptable and any proposed terms and  conditions which vary from or are in addition to  those contained in this order are deemed  rejected." If that is correct, then Midwest has  no case under this theory either.

25
Suppose, however, that a jury might conclude  that one of the earlier potential contracts was  the governing agreement. Here again, Midwest wins  only if the parties had no power to make later  changes that disfavored (the assumed) third-party  beneficiary. Midwest argues that they did not,  relying on the Restatement (Second) of Contracts  sec. 311(3), under which the principal parties'  power to modify the terms of an agreement ends  when the third-party beneficiary "manifests  assent to it at the request of the promisor or  promisee." This is what Midwest did when it sent  the May 10 letter concerning the payment terms,  it claims.

26
The problem here for Midwest, once again, is  that Oklahoma law governs this case. Oklahoma has  not adopted sec. 311 of the Restatement (Second)  of Contracts as its law. Indeed, as a general  matter the Oklahoma courts do not seem to be  inclined to adopt rules from the Contracts  Restatement, perhaps because Title 15 of the  Oklahoma Code is a comprehensive legislative  statement of the law of contracts in that state.  Oklahoma law says only that "[a] contract, made  expressly for the benefit of a third person, may  be enforced by him at any time before the parties  thereto rescind it." 15 Okla. Stat. sec. 29  (1996). Nothing in this language suggests that  Oklahoma has limited the power of the principal  parties to modify their agreement. Even if  Midwest is correct, therefore, that there was  once an agreement with no limitation of  warranties and the parties later modified it, it  had no right to prevent that modification and  thus no claim today against CMI.

D.  Breach of Contractual Warranties

27
Last, and briefly, Midwest alleges a breach of  CMI's express six-month warranty to PI. It claims  that CMI was unable or unwilling to correct  existing problems. What it does not explain,  however, is what kind of defect in materials or  workmanship caused the drums to be  unsatisfactory. The express warranty extended  only to such defects. It was also limited to the  buyer and was "not assignable or otherwise  transferrable." If we regard PI as the buyer,  then Midwest was excluded by the latter language  and there was no breach of the express warranty.  If, perhaps because of the payment clause, we  regard Midwest as a joint buyer, then Midwest  still loses because of its failure to point to  evidence showing defects in materials or  workmanship.

28
In the final analysis, the party that Midwest  needed to pursue was its seller, PI. Indeed, it  did include PI in this action at the outset. The  terms of its settlement with PI are not pertinent  to its case against CMI and are not in any event  a matter of record. We hold only that, under the  facts as presented and the governing law, the  district court correctly granted summary judgment  in the case Midwest wanted to bring against CMI.

III

29
Having won before the district court, CMI now  wants more, in the form of its attorneys' fees.  Its claim rests on an Oklahoma statute, 12 Okla.  Stat. sec. 936, which provides

30
In any civil action to recover on [a] contract  relating to the purchase or sale of goods . . .  unless otherwise provided by law or the contract  which is the subject of the action, the  prevailing party shall be allowed a reasonable  attorney fee to be set by the court, to be taxed  and collected as costs.

31
The district court decided that this statute was  not applicable, because for purposes of  attorneys' fees it was required to follow  Illinois rules, and Illinois has no such statute.  This decision is the basis of CMI's cross-appeal.

32
We agree with the district court that we must  begin once again with the question of choice of  law. It is especially important in doing so to  avoid the common terms "substantive" and  "procedural." As a shorthand matter, courts and  lawyers often say that the Rules of Decision Act,  28 U.S.C. sec. 1652, coupled with Erie, requires  federal courts to apply "substantive" state law  in diversity cases, while they continue to use  federal "procedural" law by virtue of the Rules  Enabling Act, 28 U.S.C. sec. 2072, and Supreme  Court decisions such as Hanna v. Plumer, 380 U.S.  460 (1965). But some things do not lend  themselves readily to such categories. A statute  of limitations, for example, is the kind of issue  that state law governs, see, e.g., Walker v.  Armco Steel Corp., 446 U.S. 740 (1980), but the  internal state system might consider it  "procedural" for other purposes. Cf. Sun Oil Co.  v. Wortman, 486 U.S. 717, 726 (1988) (rejecting  notion that there is "an equivalence between what  is substantive under the Erie doctrine and what  is substantive for purposes of conflict of  laws"). We think it more accurate, therefore, to  ask the question to whom has the authority to  make certain decisions been allocated, under the  various statutes and decisions (and their kin)  that we have just mentioned.

33
With respect to attorneys' fees, it is clear  that there is no federal statute or procedural  rule that would give either party a right to fees  in a case like this one. The Tenth Circuit, which  has frequently been called on to determine the  applicability of the Oklahoma statute at issue  here in diversity cases, has routinely held,  applying Erie, that the statute's applicability  should be determined under the law of the forum  state. See, e.g., Boyd Rosene & Assoc., Inc. v.  Kansas Municipal Gas Agency, 174 F.3d 1115, 1118  (10th Cir. 1999) ("[E]ven though attorney's fees  are substantive for diversity purposes, they are  not thereby necessarily substantive under [the  forum state's] choice-of-law rules."); Hefley v.  Jones, 687 F.2d 1383 (10th Cir. 1982). We are  persuaded that this approach is correct.

34
We therefore turn once again to Illinois law,  under Klaxon, and ask where Illinois thinks this  decision should be made. If Illinois regards  attorneys' fees as the kind of thing that should  follow the law of the contract, then it would  look to the Oklahoma fee statute; if instead  Illinois regards attorneys' fees as an aspect  governing use of the judicial system (i.e.  "procedural"), then an Illinois court hearing  this case would follow Illinois rules on fees  regardless of what Oklahoma had to say.

35
Aside from the general reference to Oklahoma's  law, the contract is silent on the issue of  attorneys' fees. (If fees were specifically  addressed, of course, that would be a different  matter, and both Oklahoma and Illinois would  follow the parties' agreement. See, e.g., In re  Adoption of K.M.S., 997 P.2d 856, 857 (Okla. Ct.  App. 1999); Hofmeyer v. Willow Shores Condominium  Ass'n, 722 N.E.2d 311, 315 (Ill. App. Ct. 1999).)  In our view, that reference alone is not enough  to answer the question before us. The parties  obviously could not impose the Oklahoma rules of  civil procedure on a foreign court, nor could  they require a foreign court to recognize certain  items as compensable costs, using the term as 28  U.S.C. sec. 1920 does, even if Oklahoma chooses  to do so.

36
Illinois follows its own law in determining  whether an issue is substantive or procedural  (or, more accurately, whether authority to decide  it should be allocated using the choice of law  rules for primary conduct or should be retained  by the Illinois courts). See Boersma v. Amoco Oil  Co., 276 Ill.App.3d 638, 213 Ill.Dec. 152, 658 N.E.2d 1173, 1180 (Ill. App. Ct. 1995).  Under Illinois law, a rule is considered  "procedural" unless "the primary purpose of the  . . . rule . . . is to affect decision of the  issue rather than to regulate the conduct of the  trial." Id. If a rule "affect[s] only the remedy  available and not the substantive rights of the  parties," it is considered procedural. Cox v.  Kaufman, 571 N.E.2d 1011, 1015 (Ill. App. Ct.  1991). Rules governing the award of attorneys'  fees do not affect the substantive rights of the  parties; rather, they are closer to rules that  regulate the conduct of the trial or affect the  remedy available, so it is likely that Illinois  would consider these rules to be procedural  rather than substantive.

37
Analysis of Illinois's treatment of attorneys'  fees in other contexts lends additional support  to this conclusion. Illinois characterizes  attorneys' fees as procedural for retroactivity  purposes, and so it applies new fee statutes to  pending cases. See Songer v. State Farm Fire and  Casualty Co., 414 N.E.2d 768, 772 (Ill. App. Ct.  1980). Even in cases in which another state's law  governs the substantive issues, the Illinois  courts have applied Illinois law to decide  whether to award attorneys' fees as a sanction  for frivolous litigation. See Olsen v. Celano,  600 N.E.2d 1257 (Ill. App. Ct. 1992). Other cases  and contexts also indicate that Illinois views  fees as a fundamental part of the judicial system  and thus would not allocate authority for  deciding whether they are recoverable to the law  of another state. See House of Vision, Inc. v.  Hiyane, 245 N.E.2d 468, 472 (Ill. 1969); Miller  v. Pollution Control Board, 642 N.E.2d 475, 485  (Ill. App. Ct. 1994); Waller v. Board of  Education of Century Community Unit School Dist.,  328 N.E.2d 604, 608 (Ill. App. Ct. 1975). The  common theme in these cases appears to be the  courts' insistence that the Illinois legislature  must have authorized the award of fees. Illinois  also follows the American rule, under which  parties normally bear their own legal costs.

38
While the question is not free from doubt, that  is not unusual in diversity cases. It is our best  guess that an Illinois court hearing the  identical case would refuse to follow Oklahoma's  attorneys' fee statute, even in a contract case  governed by Oklahoma law. We therefore affirm the  judgment of the district court on CMI's cross-  appeal.

IV

39
The judgment of the district court is Affirmed in  all respects. Costs on appeal will be taxed  against Midwest.