A.T.N. v. Mcairlaid's Vliesstoffe Gmbh & Co. Kg

• Decision Date: 25 February 2009
• Docket Number: No. 08-2727.,08-2727.
• Citation: 557 F.3d 483
• Parties: A.T.N., INC., an Illinois corporation, Plaintiff-Appellant, v. McAIRLAID'S VLIESSTOFFE GMBH & CO. KG, a foreign corporation of the Federal Republic of Germany, Airlaid Alliance SP.Z.O.O., a joint venture of the Republic of Poland, and Newco Absorbents GmbH & Co. KG, a foreign corporation of the Federal Republic of Germany, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

557 F.3d 483

A.T.N., INC., an Illinois corporation, Plaintiff-Appellant, v. McAIRLAID'S VLIESSTOFFE GMBH & CO. KG, a foreign corporation of the Federal Republic of Germany, Airlaid Alliance SP.Z.O.O., a joint venture of the Republic of Poland, and Newco Absorbents GmbH & Co. KG, a foreign corporation of the Federal Republic of Germany, Defendants-Appellees.

No. 08-2727.

United States Court of Appeals, Seventh Circuit.

Argued December 11, 2008.

Decided February 25, 2009.

Steven R. Jakubowski (argued), Coleman & Associates, Chicago, IL, for Plaintiff-Appellant.

John J. D'Attomo (argued), Drinker Biddle & Reath, LLP, Chicago, IL, for Defendants-Appellees.

Before MANION, EVANS, and TINDER, Circuit Judges.

MANION, Circuit Judge.

Plaintiff A.T.N., Inc. ("ATN") entered into an agreement with the defendants to import absorbent medical underpads. The agreement contained a clause granting ATN the right to retain its customers as long as it purchased the underpads from he defendants. A year later, the defendants informed ATN's sole customer that ATN would no longer supply the underpads. ATN sued for breach of contract and unjust enrichment. ATN now appeals from the grant of summary judgment in favor of the defendants on the breach of contract claim. We AFFIRM.

I.

ATN is an Illinois corporation that provides financing and marketing services to other businesses. Its president and sole shareholder is Yossi Azaraf. In 2003, Azaraf became interested in "absorbent cores," which can be used to make hygiene products such as absorbent underpads for use in medical facilities. These cores were manufactured by defendant McAirlaid's Vliesstoffe GmbH & Co. KG ("McAirlaid"), a German manufacturer. In early 2004, Azaraf traveled to Germany and met with Alex Maksimow, the chief executive officer and sole shareholder of McAirlaid. In September 2004, Azaraf returned to Germany with Robert Shapiro, a potential investor, and again met with Maksimow and representatives from defendant NewCo Absorbents GmbH & Co. KG ("NewCo"), a German manufacturer that used McAirlaid's absorbent cores to make the underpads, and from defendant Airlaid Alliance Sp.z.o.o. ("AA"), a Polish supplier of machinery necessary to make absorbent cores and finished products with those cores.¹

Following this meeting, on September 24, 2004, ATN, NewCo, McAirlaid, and AA signed a three-page "Letter of Intent." The preamble to the Letter of Intent stated that "ATN wishes to develop sales of hygiene products in the North American market based on finished products manufactured by Newco a company affiliated with McAirlaids and AA." The letter stated that "ATN intends to install" manufacturing equipment in the United States to create the absorbent cores and to make finished products from them. The companies also agreed that "ATN will use its best efforts to rapidly develop sales of finished products made by Newco Absorbents." NewCo granted ATN "exclusive rights to manufacture the products in North America for a period of 12 months from the date of this agreement." Finally, paragraph 7 of the letter stated that "[c]ustomers of ATN who purchase the products will remain exclusive to ATN for as long as they continue to purchase the products from ATN and ATN purchases the products from Newco in the agreed quantities."

Despite the Letter of Intent, ATN did not install any manufacturing equipment. ATN did find a customer for the finished products: namely, Medline Industries, Inc. ("Medline"), a distributor of medical products. ATN sold products to Medline until December 2005, when Maksimow wrote to ATN to end their business relationship. The letter stated that "we have informed Medline that if they have further requirements, they should place the orders with McAirlaids direct and they have agreed to this." Medline sent an email to ATN, stating that NewCo had claimed that ATN would no longer be able to sell its products.

ATN responded by filing suit against defendants McAirlaid, NewCo, and AA, claiming that the defendants had breached their contract with ATN and had unjustly enriched themselves. NewCo filed counterclaims against ATN for breach of contract and unjust enrichment. Upon their motion, the district court granted summary judgment for the defendants on both of ATN's claims. The parties subsequently settled NewCo's counterclaims and a final judgment was entered. ATN appeals, solely challenging the grant of summary judgment for the defendants on its breach of contract claim.

II.

The district court had jurisdiction over this diversity suit between an Illinois entity and foreign entities under 28 U.S.C. § 1332(a)(2). The district court applied the law of the forum state, Illinois. Because the parties do not contest the application of Illinois law, we apply that state's law as well. Employers Mut. Cas. Co. v. Skoutaris, 453 F.3d 915, 923 (7th Cir. 2006). When interpreting a contract, "[t]he primary objective of the court is to determine and give effect to the intent of the parties as expressed in the language of the policy." Clayton v. Millers First Ins. Cos., 384 Ill.App.3d 429, 322 Ill.Dec. 976, 892 N.E.2d 613, 615 (2008). A reviewing court will "assume that every provision in the contract serves a purpose" and the contract should be "construed as a whole." Id.

ATN claims that the defendants breached the contract by preventing it from making future sales to Medline, thereby violating the terms of the exclusivity clause in paragraph 7. That clause states that "[c]ustomers of ATN who purchase the products will remain exclusive to ATN for as long as they continue to purchase the products from ATN and ATN purchases the products from Newco in the agreed quantities." The district court rejected this claim, concluding that "agreed quantities" referred to amounts that ATN agreed to purchase from NewCo. Because the parties had left open a material term in the contract, the district court concluded that the parties did not intend for the exclusivity clause to be binding. ATN argues on appeal that the district court misinterpreted paragraph 7 of the Letter of Intent and contends that "agreed quantities" refers to amounts agreed to be purchased by customers from ATN.² At first blush, ATN's argument seems to have merit. The first part of paragraph 7 refers to customers purchasing products from ATN. Paragraph 7 then indicates that these customers will remain customers of ATN as long as they purchase "the products" from ATN and ATN then purchases "the products" from NewCo. The only agreement mentioned in paragraph 7 prior to the phrase "agreed quantities" is the agreement between the customers and ATN. It is not unreasonable to conclude that the phrase "agreed quantities" refers to the only agreement previously mentioned: namely, the agreement between the customers and ATN. Under this interpretation, ATN would be obliged to purchase all the products ordered by its customers from NewCo, under pain of losing its exclusive relationship with those customers.³ However, it is unnecessary for us to resolve this issue, because regardless of its outcome the contract cannot be enforced.

Even if we were to read paragraph 7 of the Letter of Intent as ATN posits, we must still affirm the district court's grant of summary judgment for the defendants because the Letter of Intent was terminable at will. Illinois law generally disfavors perpetual contracts. Jespersen v. Minn. Mining & Mfg., 183 Ill.2d 290, 233 Ill.Dec. 306, 700 N.E.2d 1014, 1017 (1998). For this reason, contracts of indefinite duration are generally deemed terminable at will by either party. Id. at 1016. As the Illinois Supreme Court explains, "Where parties have failed to agree on a contract's duration, the contract is construed as terminable at the will of either party because they have not agreed otherwise and it would be inappropriate for a court to step in and substitute its own judgment for the wisdom of the parties." Id. at 1017. "Advances in technology, changes in consumer taste and competition mean that once-profitable businesses perish regularly. Today's fashion will tomorrow or the next day inevitability fall the way of the buggy whip, the eight-track tape and the leisure suit. Men and women of commerce know this intuitively and achieve the flexibility needed to respond to market demands by entering into agreements terminable at-will." Id.

However, if an otherwise indefinite contract is terminable upon the occurrence of a specific event, then it is not considered terminable at will. Id. at 1016. This event must be "an objective event, the occurrence of which terminates the contract thereby making it sufficiently definite in duration." R.J.N. Corp. v. Connelly Food Prods., Inc., 175 Ill.App.3d 655, 125 Ill.Dec. 108, 529 N.E.2d 1184, 1187 (1988) (quotations and citations omitted). Thus, we must determine whether the exclusivity clause was tied to a specific, objective event that would render the agreement sufficiently definite in duration. If it was, then the defendants could not terminate the contract without giving rise to a cause of action for breach.

Illinois courts have considered various contractual terms to determine whether they establish a specific event that will prevent a contract from being deemed terminable at will. In Jespersen v. Minnesota Mining & Manufacturing Co., 288 Ill. App.3d 889, 224 Ill.Dec. 85, 681 N.E.2d 67 (1997), the Illinois Appellate Court examined whether a contract was of indeterminate duration and thus terminable at will. The contract in question permitted one party to terminate the contract for one of several listed material breaches, and allowed the other party to terminate upon 30 days' written notice. Id. at 70-71. The Illinois Appellate Court stated that "[i]f one of the parties could institute a termination-triggering event, then the contract should be considered terminable at will." Id. at 70. The court held that, because one of the parties could breach the contract and...