Extra Equipamentos E Exportacao v. Case Corp.

• Decision Date: 03 September 2008
• Docket Number: No. 07-2484.,No. 07-1794.,No. 06-4389.,06-4389.,07-1794.,07-2484.
• Citation: 541 F.3d 719
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: EXTRA EQUIPAMENTOS E EXPORTAÇÃO LTDA., Plaintiff-Appellant, v. CASE CORPORATION, Defendant-Appellee.

541 F.3d 719

EXTRA EQUIPAMENTOS E EXPORTAÇÃO LTDA., Plaintiff-Appellant, v. CASE CORPORATION, Defendant-Appellee.

No. 06-4389.

No. 07-1794.

No. 07-2484.

United States Court of Appeals, Seventh Circuit.

Argued April 1, 2008.

Decided September 3, 2008.

Paul F. Doyle (argued), William R. Golden, Jr., Kelley, Drye & Warren, New York, NY, for Plaintiff-Appellant.

Christopher Landau (argued), Kirkland & Ellis, Washington, DC, Brian D. Sieve, Kirkland & Ellis, Chicago, IL, for Defendant-Appellee.

Before POSNER, RIPPLE, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

Extra, a Brazilian distributor, sued Case, a large U.S. manufacturer of farm and construction equipment, in the federal district court in Chicago, charging fraud. Jurisdiction was based on 28 U.S.C. § 1332(a)(2), because the suit was between a citizen of a state (Case) and citizens of a foreign country (Extra and its boss — the latter no longer a party). The law governing the substantive issues in the case is agreed to be that of Illinois. The district judge dismissed the suit on the ground that Case Brasil & Cia — Case's wholly owned Brazilian subsidiary — was an indispensable party to the suit. Fed.R.Civ.P. 19(b). Extra appealed and we reversed, 361 F.3d 359 (7th Cir.2004), and the case went back to the district court for discovery. Eventually Case moved for summary judgment, which was granted, and Extra appeals. It also appeals from the district court's order awarding costs to Case as the prevailing party.

In 1992 Case Brasil had hired Extra to distribute Case products in Brazil. In 1999 Extra sued Case Brasil in a Brazilian court, claiming that corrupt employees of the subsidiary had caused it to overcharge Extra. Later that year, a "Release of Claims and Settlement of Certain Obligations" (we'll call it the "release") was negotiated and signed in Illinois by Persio Briante, Extra's president, on behalf of Extra, and by James Sharman on behalf of Case Brasil. Sharman was a vice president of Case Corporation, not of Case Brasil; no one employed by the latter was present at the negotiation or signed the release.

The release ended the Brazilian litigation and provided among other things (most not pertinent to this case) that Case Brasil would seek no more than $2 million in past-due payments that it claimed Extra owed it under the 1992 distributorship contract. In exchange, Extra, besides agreeing to drop its suit against Case Brasil and also drop an objection it had lodged with Brazilian authorities to a merger that Case wanted to make, agreed to give Case information about the corrupt conduct of Case Brasil's employees that would enable Case to have them removed (thus avoiding possible trouble with the Brazilian government) without the parent or the subsidiary incurring liability to the terminated employees.

The present suit, which Extra filed in 2001, charges that at the negotiation of the release Case's representative, Sharman, had promised that if Extra agreed to the release, Case Brasil would retain Extra as a Case Brasil distributor in good standing; that the promise was fraudulent because Case had no intention of fulfilling it; and that after the release was signed, Case Brasil, claiming not to be bound by the release because it hadn't authorized its parent to make it — indeed, contending that it had had no wind of the negotiations or of the signing of the release — terminated Extra's distributorship and refuses to recognize the $2 million limit in the release on its money claims. Thus, Extra charges, Case had "manipulated the corporate distinction between itself and Case Brasil" by falsely representing that the Case official who signed the release was authorized to sign on behalf of Case Brasil. Extra contends that as a result of the manipulation, Case obtained the benefits of the release without honoring either the obligations that the release placed on it or Sharman's oral promise to retain Extra as a Case Brasil distributor. Instead Case Brasil quickly terminated Extra as a distributor, precipitating a second Brazilian suit by Extra, in which Extra claimed that the termination violated the 1992 contract. The Brazilian courts agreed that there had been a breach of contract; but specific performance was refused and the Brazilian litigation is now in the damages-determination phase.

The district court's principal ground for dismissing the present suit is a provision in the release captioned "No Reliance On The Other Party." It states that "Both parties represent and warrant that in making this Release they are relying on their own judgment, belief and knowledge and the counsel of their attorneys of choice. The parties are not relying on representations or statements made by the other party or any person representing them except for the representations and warranties expressed in this Release." A claim of fraud requires proof that the victim of the fraud relied on the representations that he contends are fraudulent. E.g., HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill.2d 145 137 Ill.Dec. 19, 545 N.E.2d 672, 681 (Ill. 1989); Vigortone AG Products, Inc. v. PM AG Products, Inc., 316 F.3d 641, 644-45 (7th Cir.2002) (Illinois law). Otherwise he cannot have been hurt by the fraud. If reliance on the allegedly fraudulent statements that Sharman made to Briante in the negotiation of the release is negated by the no-reliance clause, Extra's fraud claim evaporates, as the district court ruled.

Drafters of contracts worry lest in the event of a dispute one of the parties ask the court to depart from the terms of the written contract on the ground that it is not the parties' entire agreement — there are additional terms to which they had agreed during the negotiations leading up to the making of the contract. If such a claim enabled the party making it to obtain a jury trial on the meaning of the contract, the contractual process would be riven by uncertainty. The law's response to this problem is the parol evidence rule, which, so far as bears on this case, forbids the introduction of evidence (whether oral or written) of what was said in the process of negotiating a contract to vary the terms of the contract that resulted from the negotiation, provided the contract seems clear and complete. A.W. Wendell & Sons, Inc. v. Qazi, 254 Ill.App.3d 97, 193 Ill.Dec. 247, 626 N.E.2d 280, 287 (Ill.App.1993); Maas v. Board of Trustees of Community College District No. 529, 94 Ill.App.3d 562, 50 Ill.Dec. 35, 418 N.E.2d 1029, 1042-44 (Ill. App.1981); Utica Mutual Ins. Co. v. Vigo Coal Co., 393 F.3d 707, 713-14 (7th Cir. 2004). The rule implements the parties' intention to "simplify the administration of the resulting contract and to facilitate the resolution of possible disputes by excluding from the scope of their agreement those matters that were raised and dropped or even agreed upon and superseded during the negotiations." 2 E. Allan Farnsworth, Farnsworth on Contracts, § 7.2, p. 224 (3d ed.2004).

To make assurance doubly sure, parties to a written contract commonly include in it an "integration" clause; for if they do not, the party resisting the invocation of the parol evidence rule can ask the judge to consider extrinsic evidence bearing on the question whether the parties really did intend the written contract to be the complete and final articulation of their agreement. Utica Mutual Ins. Co. v. Vigo Coal Co., supra, 393 F.3d at 714. The parties did include an integration clause in the release. It states: "This Release constitutes the entire agreement between the parties, and this Release supersedes all prior negotiations and agreements between the parties relating to the subject of this Release." So evidence of what was said in the negotiations that led up to the signing of the release would not be admissible — in a suit for breach of contract.

That is a critical qualification. The parol evidence rule is a rule of contract law, and a contract integration clause is a privately negotiated supplement to the rule, and most courts, including, we have assumed (though the matter is not free from doubt), Illinois, hold that neither the rule nor the clause prevents a disappointed party to the contract from basing a tort suit on proof that in the course of the negotiations the other party made fraudulent representations. Vigortone AG Products, Inc. v. PM AG Products, Inc., supra, 316 F.3d at 643-44; General Casualty Co. v. Carroll Tiling Service, Inc., 342 Ill. App.3d 883, 277 Ill.Dec. 616, 796 N.E.2d 702, 708-09 (Ill.App.2003); Pinken v. Frank, 704 F.2d 1019, 1022-23 (8th Cir. 1983); 2 Farnsworth, supra, § 7.4, pp. 245, 247.

Granted, a suit for fraud is not a perfect substitute for a suit for breach of contract. There are additional pleading requirements, see, e.g., Fed.R.Civ.P. 9(b), and in Illinois fraud must be proved by clear and convincing evidence, and not just by a preponderance of the evidence, Hofmann v. Hofmann, 94 Ill.2d 205, 68 Ill. Dec. 593, 446 N.E.2d 499, 506 (Ill.1983); Williams v. Chicago Osteopathic Health Systems, 274 Ill.App.3d 1039, 211 Ill.Dec. 151, 654 N.E.2d 613, 619 (Ill.App.1995); Association Benefit Services, Inc. v. Caremark Rx, Inc., 493 F.3d 841, 852-53 (7th Cir.2007) (Illinois law), which is all that is required to prove a breach of contract. Also, the statute of limitations is shorter in a tort suit than in a suit for breach of a written contract — five years rather than ten. 735 ILCS 5/13-205, -206; LeBlang Motors, Ltd. v. Subaru of America, Inc., 148 F.3d 680, 690-91 (7th Cir.1998) (Illinois law). On the other hand, punitive damages can be awarded in a suit for an intentional tort, such as fraud, but not (with rare exceptions, Morrow v. L.A. Goldschmidt Associates, Inc., 112 Ill.2d 87, 96 Ill.Dec. 939, 492 N.E.2d 181, 183-86 (Ill.1986); Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385, 389-91 (7th Cir.2002) (Illinois law)) in a suit for breach of contract.

The...