Emirat AG v. WS Packaging Grp., Inc., 17-1893

• Decision Date: 21 August 2018
• Docket Number: No. 17-1893,17-1893
• Citation: 900 F.3d 969
• Parties: EMIRAT AG, Plaintiff-Appellant, v. WS PACKAGING GROUP, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

900 F.3d 969

EMIRAT AG, Plaintiff-Appellant,

v.WS PACKAGING GROUP, INC., Defendant-Appellee.

No. 17-1893

United States Court of Appeals, Seventh Circuit.

Argued October 24, 2017

Decided August 21, 2018

Rehearing Denied September 18, 2018

Daniel J. O'Brien, Stacie H. Rosenzweig, Sean Sweeney, Attorneys, Halling & Cayo, S.C., Milwaukee, WI, for Plaintiff-Appellant.

Thomas M. Burnett, Guy R. Temple, Malinda J. Eskra, Attorneys, Reinhart Boerner Van Deuren S.C., Milwaukee, WI, for Defendant-Appellee.

John L. Pollock, Attorney, Litchfield Cavo, Brookfield, WI, for Intervenor Cincinnati Insurance Company.

Before Easterbrook, Rovner, and Hamilton, Circuit Judges.

Easterbrook, Circuit Judge.

Sabafon, a telephone company based in Yemen, wanted to buy cards that would provide its customers with prepaid minutes of phone use. To make these cards more attractive, Sabafon wanted to add a game of chance. Both the number that would supply phone time and the symbols representing prizes were to be covered by a scratch-off coating. (An opaque coating prevents the numbers and symbols from being discovered before the cards are sold, and it also prevents buyers from knowing in advance which parts of the card contain the winning boxes.) Emirat, a German firm in the risk-management business, promised to supply Sabafon with 25 million high-security scratch-off cards. Emirat contracted with High Point Printing LLC of Ohio to print the cards, and High Point in turn engaged WS Packaging of Wisconsin to do the work.

Emirat paid High Point about $700,000, and in this suit under Wisconsin law it demands that much in damages—not from High Point, which is defunct, but from WS Packaging. Emirat did not have a contract with WS Packaging, whose deal was with High Point. Still, Emirat contends that a settlement agreement it reached directly with WS Packaging after an initial run of cards was not shipped in numerical order, 500 pieces to a tray, subjects WS Packaging to all terms of the contract between Emirat and High Point. The district court thought otherwise and granted summary judgment to WS Packaging. 248 F.Supp.3d 911 (E.D. Wis. 2017). To simplify this decision, we assume that WS Packaging is indeed obliged to perform up to the standards that High Point promised Emirat. But what are those standards?

First we need to explain why Emirat refused to accept the cards. A scratch-off covering is supposed to prevent the reading of phone codes or game symbols through a process known as candling—shining a bright light behind the cards to reveal the printing under the opaque coating. With a goal of zero candling, WS Packaging tested its print runs using high-intensity light and did not find a problem. Emirat wanted extra assurance and sent samples of the cards to Force Technology in Denmark. Following protocols prescribed by Emirat, Force Technology tried to read the printing using light from the sun, fluorescent tubes, infrared (thermal), x-rays, and lasers. It reported that "it is not possible—with the techniques used—to disclose the symbols underneath the scratch layer."

That was June 2009. In October 2009 Emirat sent Force Technology more samples. It used the same tests and reached the same result: "based on the cards received and the tests done on the cards, ... the symbols can not be disclosed and the security of the scratch card ... is good." But Sabafon insisted that some cards could be candled by removing them from their plastic overwrap and bending them until the scratch-off layer cracked, then shining a bright light from behind. Emirat sent a third batch of cards to Force Technology with instructions to bend the cards around a pencil, crack the coating, and find out what could be seen. In December 2009 Force Technology reported that it was able to see some digits and game symbols using this technique. Emirat rejected the whole print run and demanded its money back, but by then High Point was out of business.

Emirat insists that zero candling is the only acceptable level. By that standard, however, no scratch-off card is secure. With a sufficiently high-tech approach (think CT scanners or muon...