191 F.3d 790 (7th Cir. 1999), 98-2916, Liu v. T&H Machine

Docket Nº:98-2916
Citation:191 F.3d 790
Party Name:EUGENE LIU, Plaintiff-Appellee, v. T&H MACHINE, INC., Defendant-Appellant.
Case Date:September 14, 1999
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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191 F.3d 790 (7th Cir. 1999)

EUGENE LIU, Plaintiff-Appellee,


T&H MACHINE, INC., Defendant-Appellant.

No. 98-2916

United States Court of Appeals, Seventh Circuit

September 14, 1999

Argued February 26, 1999

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 6952--James B. Zagel, Judge.

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[Copyrighted Material Omitted]

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Before POSNER, Chief Judge, and CUDAHY and ROVNER, Circuit Judges.

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Eugene Liu is a Chinese- American resident of Los Angeles, California. He contracted with T&H Machine, Inc. ("T&H"), a manufacturer of tube mills located in Addison, Illinois, to help T&H get a contract to build a tube mill in the city of Chengdu in the People's Republic of China. Using his business contacts in China, Liu brokered the deal and T&H landed a tube mill contract worth more than three million dollars. A dispute arose about Liu's compensation. When the parties found themselves unable to agree, Liu filed this diversity lawsuit to be decided under Illinois law, alleging that T&H breached the contract between them, seeking $102,902 in damages, ten percent interest as per the contract, and reasonable attorneys' fees and costs available under the Illinois Sales Representative Act, 820 ILCS 120/1, et seq. The district court granted Liu summary judgment on all counts, awarding him $144,318 plus attorneys' fees and costs, and T&H appeals. We affirm.


In 1992 Liu undertook to assist some business contacts in China to help locate a manufacturer for a tube mill plant to be built in Chengdu. He contacted a number of tube mill manufacturers in this country, including T&H, and toured their facilities in October 1992. During his visit to the T&H plant in Addison, Illinois, Liu spoke with Water R. Heller, Sr., President of T&H, and Rabinda De, an "inside" T&H salesperson. They discussed trying to obtain a contract with a Chinese customer for T&H. That November, Liu and Heller, on behalf of T&H, met in Addison and orally contracted to pay Liu seven percent of the price of the tube steel mill if the Chengdu deal went through, although it was understood that the amount, terms, and various details of the payments were to be finalized later. Liu and De visited China later that month and met with Liu's customer, a consortium including the China National Technical Import & Export Corporation, the Southwest Technical Import & Export Corporation and the Chengdu Cold Rolling Steel Mill (the "Consortium") to bid for the order. During the bidding, on November 21, 1992, De reduced the Liu commission agreement (the "fall contract") to writing on a handwritten sheet, although this writing was still not final. Liu acted in T&H's interests in the negotiations and two days later, T&H signed an agreement (the "Chengdu contract") with the Consortium to build a tube mill for $3,010,000. Under the fall contract, Liu was then due $210,700.

In December 1992 or March 1993--it is not clear which--Liu returned to T&H's plant in Addison to finalize the terms and conditions of the fall contract, which was either modified in several important respects (according to Liu) or replaced by a novation (according to T&H). Liu wanted his payments split between himself and several associates whom he said had assisted him in arranging the Chengdu contract. Pursuant to this understanding, T&H executed four documents (the "agreements to pay"), signed by Heller as President of T&H, agreeing to pay Liu $50,000, and his Hong Kong Associates as follows: Sealam International Co., $150,000, Sun Mean, $60,300, and Nicesun Development, Ltd., $86,400, for a total of $346,700. Payments were to be made progressively within five business days of T&H's receipt of payment from the Consortium in connection with the Chengdu contract. All amounts payable were subject to a 10% per annum late fee stipulated in each document. These documents comprised part of the subsequent agreement with Liu (the "winter contract"). For the purposes of this case it does not matter whether the winter contract was a modification of the fall contract or a novation.

Thereafter, in late 1993 or early 1994, a dispute arose between Liu and Nicesun regarding the commission payments. To avoid possible duplicate liability for T&H, in April 1994 Liu and T&H agreed in

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writing that the monies owed to Nicesun would be placed in an escrow account until the matter was resolved, and until then Liu waived interest on the amounts due Nicesun. T&H also agreed in writing to continue to pay Liu, Sun Mean, and Sealam the money still due them. By May 16, 1994, T&H had received $2,709,000 from the Consortium and about this time, it paid $135,00 to Sealam and $54,270 to Sun Mean, about 90% of what they were owed under the winter contract. T&H never deposited any monies due to Nicesun into escrow, and made no payments to Nicesun or to Liu, even after Liu informed T&H that his dispute with Nicesun had been settled, because T&H was unpersuaded that this was really true. T&H made no further payments to any of the other parties after May 1994, although it received another $67,000 from the Consortium in 1995. The Consortium has paid $2,776,000 on the Chengdu contract, or 92.2% of the amount agreed upon, but refuses to pay any more because it claims that T&H's work was defective. The parties do not expect that the final 7.8% will be paid.

Liu sued for his unpaid commissions in October 1996, raising contract and Illinois Sales Representative Act claims. After filing the complaint, he received reassignments from Sun Mean, Sealam, and Nicesun, giving him the right to proceed against T&H for any monies due them under the winter contract. Liu filed an amended complaint by leave of the court in January 1998, which added reference to the reassignments as well. In June 1998, the district court found for Liu, and this appeal followed.


In a diversity case we apply federal procedural law and state substantive law. Dawn Equipment Co. v. Micro-Trak Systems, Inc., 186 F.3d 981, 986-87 (7th Cir. Aug. 4, 1999) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). T&H first argues that the trial court should not have allowed Liu to amend his pleadings. Leave to amend is to be "freely given when justice so requires." Payne v. Churchich...

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