CNH Indus. Am. LLC v. Jones Lang LaSalle Ams., Inc., 16-3800

• Citation: 882 F.3d 692
• Decision Date: 15 February 2018
• Docket Number: No. 16-3800,16-3800
• Parties: CNH INDUSTRIAL AMERICA LLC, Plaintiff–Appellee, v. JONES LANG LASALLE AMERICAS, INC., Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

882 F.3d 692

CNH INDUSTRIAL AMERICA LLC, Plaintiff–Appellee,

v.JONES LANG LASALLE AMERICAS, INC., Defendant–Appellant.

No. 16-3800

United States Court of Appeals, Seventh Circuit.

Argued September 13, 2017

Decided February 15, 2018

Edward King Poor, Attorney, Chicago, IL, Patrick J. Murphy, Attorney, Milwaukee, WI, Quarles & Brady LLP, Dean Allen Christopherson, Attorney, Dawe & Christopherson LLP, Walnut Creek, CA, for Plaintiff–Appellee.

Lisa A. Hausten, Attorney, Melinda S. Kollross, Attorney, Don R. Sampen, Attorney, Clausen Miller, Chicago, IL, for Defendant–Appellant.

Before Bauer, Rovner, and Sykes, Circuit Judges.

Rovner, Circuit Judge.

CNH Industrial America LLC ("CNH"), which manufactures farming and construction machinery (including tractors, combines, backhoes, and the like) under the New Holland brand name, hired the global real estate services firm Jones Lang LaSalle America, Inc. ("JLL") to manage a corporate re-branding program that involved the replacement of signage at each of CNH’s more than 1,400 dealers in North America. The program ran into problems when it was discovered that the vinyl used in the new signs was defective, necessitating the re-manufacture and replacement of virtually all of the signs already installed. After the vinyl manufacturer walked away from its commitment to replace, at its own cost, the defective signs, CNH sued JLL for breach of the service agreement between the two firms. CNH alleged that JLL had failed to perform adequate quality control in the manufacturing of the signs, failed to negotiate the best possible warranty on the vinyl and the signs themselves, and failed to properly document and manage the warranties. Following a bench trial, the district court agreed that JLL had indeed breached its contractual obligations to CNH and that CNH had suffered damages in the amount of $5,482,735. Pursuant to the contract’s terms, the court reduced JLL’s liability to $3,026.361.60—the sum CNH had paid to JLL in project management fees—plus such other amounts as JLL might recover from third parties (including the vinyl manufacturer and the sign fabricators) in the future. JLL appeals, and we affirm the judgment in all respects.

I.

In 2007, CNH’s global parent—the Italian automaker Fiat—decided that the New Holland brand needed updating. It commissioned a team to create a new logo and prototype dealer sign, and then it directed CNH to implement a re-branding program pursuant to which all of the signage at each of CNH’s 1,442 independent dealerships in North America would be replaced. The typical dealer would require a family of five signs, including a pylon sign mounted on a large pole, a dealership name sign, an outdoor wall-mounted logo sign, a "parts" sign, and a "service" sign. CNH was to hire one or more American sign manufacturers to adapt the prototype and build the dealer signs to American specifications. Given the logistics entailed in replacing the signs at over 1,400 dealers (including site surveys, landlord approval, obtaining the requisite permits from governmental entities, manufacturing and installing the new signs, and disposing of the old signs), CNH decided to hire another firm to manage the process.

CNH chose JLL to manage the sign-replacement program. JLL is a commercial real estate services firm that offers a wide array of services to property owners and investors. JLL represented that it had precisely what CNH was looking for: experience with large-scale signage replacement programs and the ability to provide "turnkey" management of all aspects of the re-branding program. CNH and JLL entered into a Service Agreement in April 2008.

JLL’s obligations under the agreement—set forth in a Statement of Work attached thereto—were comprehensive, consistent with its role as the manager of the re-branding program. It was to develop specifications for the signs, identify and recommend to CNH for approval a firm or firms to manufacture the new signs, do the same with respect to raw materials suppliers for the sign components, supervise the manufacturing process, coordinate the entire replacement process with dealers from beginning to end, and handle any complaints from dealers about installed signs. Four of the obligations that JLL expressly assumed under the Service Agreement are particularly relevant here: (1) the obligation to "negotiat[e] ... the best possible Warranty Program for the Family of Signs manufactured and disclose all elements of [the] Warranty Program to CNH and Dealers"; (2) "research and document[ ] ... warranty information for all raw materials and sub components"; (3) "provide ongoing Project Management services for Warranty within One[ ]Year from the date of installation" for each sign; and (4) take "direct control and responsibility of all manufacturing including quality control meeting all [JLL] and CNH expectations." Ex. 1002 Attach. B § 1(B) ¶ 4; § 1(C) ¶ 1; § 2(C) ¶¶ 1, 2. CNH retained the authority to control the sign-replacement project and approve or reject JLL’s recommendations, but it is clear from the agreement that JLL was assuming the burden of managing the project. And the testimony of CNH’s witnesses leave no doubt that CNH, consistent with JLL’s presentation materials, viewed JLL as the expert in this area and deferred to it as such.

In order to reduce shipping costs, three different sign manufacturers at diverse locations around the country were chosen to produce the new signs. JLL signed the manufacturing contracts on CNH’s behalf, so that the multitude of invoices on the manufactured signs would be directed to JLL and it could make payment and resolve any disputes that arose. The agreements took effect on June 17, 2008. The contracts were identical to one another and contained the same warranties on the manufactured signs: a one-year warranty on parts, labor, and workmanship. The one-year warranty period constituted a reduction from the three-year period originally proposed. CNH was keenly interested in "value engineering" that would reduce the costs of the re-branding program to itself and its dealers, and toward that end it accepted a shorter warranty period in exchange for lower costs on the new signage.

CNH required its dealers to pay for three of the five new signs to be installed at each dealership; CNH paid for the remaining two. Dealers expressed displeasure about the cost of the new signs—$10,500 for the three dealer-owned signs. In response to those concerns, dealers were given the option to finance their sign purchases; they were also given the option to make their own arrangements to install their signs, which would reduce their cost to $7,000. However, self-installation would nullify the one-year warranty on the signs—a nullification that the district court understood to be limited to problems associated with the installation as opposed to defects in the components of the signs.

Upon JLL’s recommendation, Arlon, Inc. ("Arlon") was selected as the exclusive supplier of the vinyl used to manufacture the new signs. The design specifications called for the New Holland signs to be fabricated using two custom-formulated colors: blue and yellow. The presentation materials Arlon had submitted in support of its successful proposal to CNH and JLL included details about the warranties Arlon offered on its products. Arlon’s standard warranty provided for replacement of the vinyl only (as opposed to labor, shipping, and other costs) on a prorated basis for a period of seven years. Distinct warranty terms were specified for Arlon’s Flexface^® FX vinyl substrate, a product that JLL and CNH rejected in favor of Arlon’s translucent vinyl, which the sign manufacturers would apply to acrylic, heat, and then mold to create the sign faces. Arlon’s materials compared its standard warranties to those of its leading competitor, 3M, to demonstrate that Arlon’s warranties were superior in all respects. Custom warranties were also available on Arlon’s products.

JLL accepted the warranty terms that Arlon proposed without, so far as the record reveals, attempting to negotiate terms that were more favorable to CNH. (Arlon’s representative would later testify that he was aware of no negotiations over the terms, and the JLL employee who was the project manager at the time believed he discussed the warranty with Arlon but could not recall any specifics.) As we will discuss below, there is some real question as to what the actual warranty terms were. The only evidence of the warranty that either party has been able to identify is a brief summary of the terms that was included in an exhibit attached to each of the sign-manufacturing contracts. Arlon has disclaimed authorship of that summary and has disputed its accuracy; for its part, JLL does not know who drafted it. The summary states in full:

Arlon Vinyl Extended Warranty—7 year warranty on 1st surface. 2nd surface on exterior sign applications is 9 years. These [sic ] is no charge for parts/labor/shipping for 1–year from date of installation.

Ex. 52 & Ex. E–Warranty thereto. The reference to the one-year period during which there would be no charge for parts, labor, or shipping evidently was a reference to the sign manufacturers’ warranty on the completed signs rather than the warranty on the Arlon vinyl. The reference to the Arlon warranty itself is incomplete. Arlon’s presentation materials indicated that it would replace defective vinyl on a pro-rated basis tied to the number of months remaining in the seven-year term; and JLL understands this to be a materials-only warranty that excluded coverage for labor and other costs. But, again, there is no document in the record that actually sets out the agreed-upon terms of the Arlon warranty.

As manufacturing of the signs commenced late in 2008, problems soon emerged with the Arlon vinyl. In December 2008, one of the sign fabricators reported that the yellow vinyl being used in the two-color CNH signs failed during the manufacturing process—the vinyl showed...