Bethlehem Steel Corp. v. Chicago Eastern Corp.
| Decision Date | 06 December 1988 |
| Docket Number | 86-3101,Nos. 86-3048,s. 86-3048 |
| Parties | 7 UCC Rep.Serv.2d 399, 27 Fed. R. Evid. Serv. 557, Prod.Liab.Rep.(CCH)P 12,004 BETHLEHEM STEEL CORPORATION, Plaintiff-Counterdefendant, Appellee, Cross- Appellant, v. CHICAGO EASTERN CORPORATION, Defendant-Counterplaintiff, Appellant, Cross- Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Patrick W. O'Brien, Mayer, Brown & Platt, Chicago, Ill., for defendant-counterplaintiff, appellant, cross-appellee.
Terence E. Flynn, Gessler, Wexler, Flynn, Laswell & Fleischmann, Ltd., Chicago, Ill., for plaintiff-counterdefendant, appellee, cross-appellant.
Before FLAUM and MANION, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
Bethlehem Steel Corporation ("Bethlehem") filed suit against Chicago Eastern Corporation ("Chicago Eastern") to collect payment for a shipment of steel sold to Chicago Eastern. Bethlehem's amended complaint alleged that Chicago Eastern had breached the parties' contract and committed fraud. Chicago Eastern counterclaimed, arguing that a prior shipment of steel from Bethlehem had been defective and that Chicago Eastern was entitled to offset the damages resulting from the prior sale against the cost of the later shipment. The dispute was tried to a jury which rendered a verdict in favor of Bethlehem for breach of contract, and against Chicago Eastern on its counterclaim. Both parties appeal, each raising numerous issues. We affirm the decision reached in the district court on each issue.
Chicago Eastern is in the business of building circular grain storage tanks for its customers located throughout the United States. In May 1976, Chicago Eastern purchased corrugated sheet steel from Bethlehem ("the first purchase"). This steel was used as wall sheets in some of the tanks constructed by Chicago Eastern. The tanks subsequently developed fractures and Chicago Eastern was forced to incur substantial expenses to replace the fractured steel. Chicago Eastern attributed the fractures to defects in Bethlehem's steel and attempted to communicate the problem to Bethlehem. This proved unsuccessful. In November 1979, Chicago Eastern proceeded to order more steel from Bethlehem, but instead of sending Bethlehem a check, Chicago Eastern mailed a "debit memo" offsetting the purchase price by the amount of the alleged damages it incurred in repairing the defective grain bins for its customers ("the second purchase").
Bethlehem filed suit in federal district court seeking to collect payment for the second shipment. 1 The amended complaint alleged that Chicago Eastern had breached the parties' contract and committed fraud. Bethlehem sought both punitive and compensatory damages. Chicago Eastern counterclaimed, alleging negligence and breach of both an implied warranty of merchantability and an implied warranty of fitness for a particular purpose ("the implied warranty claims"). The dispute was tried to a jury. After Chicago Eastern had presented its evidence, the district court granted Bethlehem's motion for a directed verdict on Chicago Eastern's merchantability claim. On September 26, 1986, the jury rendered a verdict in favor of Bethlehem for $23,749.30. The jury found against Bethlehem on its fraud claim and against Chicago Eastern on its particular purpose warranty claim.
On appeal, the parties raise five issues with respect to Chicago Eastern's counterclaim. First, Bethlehem contends that it was not necessary to reach the merits of Chicago Eastern's implied warranty claims because Chicago Eastern's counterclaim was brought after the period authorized in the applicable statute of limitations had elapsed. The district court held that these claims were timely brought under Ill.Rev.Stat. ch. 110, paragraph 13-207, which provides an exception for certain counterclaims that would otherwise be time-barred.
The next three issues all involve decisions by the district court during the course of the trial which Chicago Eastern contends were error and require a new trial. First, Chicago Eastern argues that the district court erred in granting Bethlehem's motion for a directed verdict on Chicago Eastern's claim that Bethlehem breached the implied warranty of merchantability applicable to the first purchase. Second, Chicago Eastern contends that a jury instruction relating to Chicago Eastern's claim that Bethlehem breached an implied warranty of fitness for a particular purpose was improper. Third, Chicago Eastern argues that the district court erred in admitting into evidence testimony that the damages alleged in Chicago Eastern's counterclaim resulted from defects in Chicago Eastern's designs, and not from the steel supplied by Bethlehem.
Finally, Chicago Eastern contends that the district court erred when it granted Bethlehem's motion to strike Chicago Eastern's tort claims. The district court held that under Illinois law Chicago Eastern was precluded from suing in tort for purely economic loss arising from a breach of contract and that Chicago Eastern had not alleged a claim for implied indemnification, a possible exception to the rule prohibiting tort suits for contract breaches. 2
The threshold issue is whether Chicago Eastern's implied warranty claims were barred under the applicable statute of limitations. The first purchase by Chicago Eastern was made in May of 1976. In November of 1979, Chicago Eastern made the second purchase which it "paid for" using the debit memo. Shortly thereafter, Bethlehem filed suit to collect payment for the second purchase. Chicago Eastern counterclaimed in September 1980 claiming that the steel acquired in the first purchase was defective. Thus, Chicago Eastern brought its implied warranty claims more than four years after purchasing the steel. Bethlehem argues that this was too late. The district court disagreed.
Under Illinois law, an action for breach of an implied warranty must generally be commenced within four years from the date when the goods were tendered by the seller to the buyer. Ill.Rev.Stat. ch. 26, para. 2-725. 3 The district court recognized that Chicago Eastern's suit was not brought within this period but held that the counterclaim was timely under Ill.Rev.Stat. ch. 110, para. 13-207. This statute provides that:
A defendant may plead a set-off or counterclaim barred by the statute of limitation, while held and owned by him or her, to any action, the cause of which was owned by the plaintiff under whom he or she claims, before such set-off or counterclaim was so barred, and not otherwise.
The essence of this somewhat cumbersome provision is that a defendant in a lawsuit may bring a counterclaim after the period authorized in the applicable statute of limitations has elapsed, as long as the plaintiff's claim arose before the cause of action brought as a counterclaim was barred. Kuh v. Williams, 13 Ill.App.3d 588, 301 N.E.2d 151, 154 (1973). In this case, Bethlehem's claim arose in 1979 when Chicago Eastern paid for the second purchase with a debit memo. Under paragraph 2-725, Chicago Eastern had until May 1980 before its implied warranty claims relating to the first purchase were barred by the statute of limitations. Bethlehem's action therefore arose before the limitation period for Chicago Eastern's implied warranty claims elapsed. Accordingly, Chicago Eastern's counterclaim was filed within the time period authorized under paragraph 13-207.
Bethlehem urges us to find Chicago Eastern's claim untimely despite its apparent compliance with the language of paragraph 13-207. First, Bethlehem argues that the statute of limitations found in paragraph 2-725 is both more specific than paragraph 13-207 and was adopted by the Illinois legislature more recently than paragraph 13-207. Bethlehem reasons that paragraph 2-725 therefore implicitly amends paragraph 13-207, rendering it inapplicable to implied warranty cases under the Illinois Commercial Code. We do not find this argument persuasive because we fail to see any conflict between paragraph 2-725 and paragraph 13-207. 4 Rather, paragraph 13-207 is a specific exception to the statute of limitations applicable to a given cause of action--in this case paragraph 2-725--that arises when a defendant in a suit brings a counterclaim. The plain language of paragraph 13-207 specifically states that the defendant in a lawsuit is permitted to bring a counterclaim that would otherwise be barred by the statute of limitations. There is no indication from the Illinois legislature that the particular statute of limitations applicable here, paragraph 2-725, was to be exempt from the exception for counterclaims authorized in paragraph 13-207.
Second, Bethlehem argues that Chicago Eastern's counterclaim should be barred because it relates to the first purchase in 1976, not the suit Bethlehem brought in 1980 to collect payment for the second purchase. Bethlehem correctly observes that the theory behind paragraph 13-207 is that a plaintiff who files a claim waives the protection of the statute of limitations applicable to any counterclaims the defendant might possess. Ogg v. City of Springfield, 121 Ill.App.3d 25, 76 Ill.Dec. 531, 537, 458 N.E.2d 1331, 1337 (1984). Bethlehem then reasons that this rationale only makes sense where the counterclaim arises from the same transaction that gave rise to the plaintiff's suit. In Bethlehem's view, because Chicago Eastern's counterclaim did not arise from the second purchase, it should be barred.
Although we recognize that there is some force in Bethlehem's argument, 5 we must look to the plain language of the statute. As the district court observed,
the statute permits a defendant to plead "a set-off on a counterclaim ... to any action...." The language "any action" is hardly susceptible of the construction plaintiff wishes to give it, namely, "any action arising out of the same facts."
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