Midwest Grain Products of IL v. Productization

• Decision Date: 03 October 2000
• Docket Number: Nos. 99-2958 and 99-3050,s. 99-2958 and 99-3050
• Parties: (7th Cir. 2000) Midwest Grain Products of Illinois, Inc., Plaintiff-Appellant/Cross-Appellee, v. Productization, Inc. and CMI Corp., Defendants-Appellees/Cross-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 784

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, 2000

Decided 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.

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.

I

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.

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.

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

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.

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.

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

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.

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

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.

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

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

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).

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...