Richelieu Foods, Inc. v. New Horizon Warehouse Distribution Ctr., Inc.

• Decision Date: 09 September 2014
• Docket Number: No. 12 C 7005,12 C 7005
• Parties: Richelieu Foods, Inc., Plaintiff, v. New Horizon Warehouse Distribution Center, Inc., d/b/a New Horizon Distribution Systems, Inc., an Illinois Corporation, and Ray Emerick's Warehouse Co., Inc., an Illinois Corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

67 F.Supp.3d 903

Richelieu Foods, Inc., Plaintiff

v.New Horizon Warehouse Distribution Center, Inc., d/b/a New Horizon Distribution Systems, Inc., an Illinois Corporation, and Ray Emerick's Warehouse Co., Inc., an Illinois Corporation, Defendants.

No. 12 C 7005

United States District Court, N.D. Illinois, Eastern Division.

Signed September 9, 2014

Dennis John Cotter, Matthew Walker Horn, Smith Amundsen LLC, Chicago, IL, John Francis Horvath, Horvath & Weaver, P.C., Chicago, IL, for Plaintiff.

John Francis Horvath, Renata M. Zloza, Rosemarie J., Horvath & Weaver P.C. Chicago, IL for Defendant.

OPINION AND ORDER

SARA L. ELLIS, United States District Judge

Plaintiff Richelieu Foods, Inc. (“Richelieu”), a private label food company, brought this lawsuit against Defendants New Horizon Warehouse Distribution Center, Inc. (“New Horizon”) and Ray Emerick's Warehouse Co., Inc. (“Emerick”) for breach of contract and fraud arising out of New Horizon's alleged failure to properly invoice Richelieu for warehouse storage charges.¹ Before the Court is New Horizon's motion for summary judgment [58], which is granted in part and denied in part. There is a disputed question as to whether New Horizon waived enforcement of the notice provision through its course of conduct in attempting to address billing disputes after the time to dispute the majority of the invoices at issue had passed. A dispute also exists as to whether the parties agreed to modify the billing provisions of their agreement through their course of conduct. Finally, there is a disputed question as to whether Richelieu justifiably relied on New Horizon's alleged billing misrepresentations or should have instead conducted its own investigation based on the information available to it. But because there is no evidence that New Horizon agreed to maintain invoicing accuracy at a 99.5% standard, Richelieu may not pursue its breach of contract or fraud claims with respect to that issue.

BACKGROUND²

Richelieu is a private label food company that operates manufacturing facilities throughout the country, including in Elk Grove Village, Illinois. On July 1, 2009, Richelieu entered into a warehouse services agreement with New Horizon for warehouse storage and services at New Horizon's facilities in Itasca, Illinois. Pursuant to that agreement, New Horizon was to provide Richelieu with storage for Richelieu's food products, handling, and other accessorial services at New Horizon's warehouse facility. Section 2.6 of the agreement provided:

[Richelieu] requires, and [New Horizon] agrees to provide at the Facility, the use of, at all times during the Term of this Agreement, 3,000 storage rack positions in [New Horizon's] ambient storage area and 250 storage rack positions in [New Horizon's] refrigerated storage area. Each storage rack position is able to accommodate one pallet of Product configured as stated in Exhibit B to this Agreement.... [Richelieu] agrees to pay [New Horizon] a set monthly storage fee (the “Fixed Monthly Storage Charge”) as set forth in Exhibit A to this Agreement for the 3,250 storage rack positions whether or not Products are stored in any or all of the 3,250 storage rack positions. [New Horizon] shall invoice the Fixed Monthly Storage Charge monthly in advance on or before the first day of each month during the Term of this Agreement. In the event that [Richelieu] requires more than 3,000 storage rack positions in the ambient storage area and/or more than 250 storage rack positions in the refrigerated storage area (individually and collectively “Overflow Storage”) for the storage of Products during any one or more months during the Term of this Agreement, [Richelieu] shall pay the per pallet Overflow Storage Charge stated in Exhibit A to this Agreement for each pallet of Product in Overflow Storage as of the last day of each such month during the Term of this Agreement.

Ex. C to Def.'s L.R. 56.1 Stmt. § 2.6. Exhibit A to the agreement provided several different overflow storage rates, for “Dry 15 Days Inbound Storage,” “Dry 15 Days Recurring Storage,” “Refrigerated 15 Days Inbound Storage,” and “Refrigerated 15 Days Recurring Storage.” Id. Ex. A. Pursuant to Exhibit A, the Overflow Storage Charge was to be charged on a 15–day basis. Exhibit A also specified the price for handling and other services. Section 2.3 of the agreement, titled “Price and Payment Terms,” provided:

All invoices issued by [New Horizon] are payable upon receipt by [Richelieu]. [Richelieu] must notify [New Horizon] of any dispute relating to any invoice or portion thereof within thirty (30) days of receipt of the invoice or will have waived such dispute.

Id. § 2.3. James Campbell, Richelieu's vice president of manufacturing at its Elk Grove Village facility, was aware of the 30–day notice provision.

Exhibit B to the Agreement provided certain key performance indicators (“KPI”) for the agreement. Specifically, New Horizon was required to provide order accuracy, on time shipping, and inventory accuracy (as it related to physical inventory) at a 99.5% standard, and damage monitoring at a 99.975% standard. Inventory accuracy is a comparison of the book record showing of products to the actual quantity of products in the warehouse. The agreement did not specify a KPI for invoicing accuracy.

To keep track of its products, Richelieu used an enterprise resource planning (“ERP”) system called JustFood, which was specifically designed for food processing and manufacturing. JustFood included an inventory program that identified inventory by location, so that it was possible to determine how many stock keeping units (“sku”) or cases were at New Horizon at any given time. Richelieu also had a general spreadsheet that it could use to estimate the number of pallets of product necessary for a certain number of cases or skus.

Additionally, when goods were transferred from Richelieu's Elk Grove Village facility to New Horizon, Richelieu generated a bill of lading and a packing slip. The bill of lading included a general description of the products included in the shipment and the number of pallets being transported. The packing slip indicated the total number of cases that were transported. When New Horizon received the goods, it issued a warehouse receipt to Richelieu. The receipts identified the particular skus and number of cases received. The receipts were sent to Richelieu's Vicky Knaack or Mark Windt, the plant controller at the Elk Grove Village facility. Richelieu would then match the warehouse receipt against the bill of lading to ensure there were no discrepancies. If there were discrepancies, Windt would contact New Horizon to have them addressed.

For Richelieu goods shipped from New Horizon to Richelieu customers, Richelieu received bills of lading and packing slips generated by New Horizon. These outbound bills of lading included the total number of cases and pallets that left the warehouse and described the items shipped. The bills of lading and packing slips were sent to Richelieu's customer service department in Iowa. Richelieu would then invoice its customers and reduce its inventory in the JustFood ERP system.

New Horizon sent a number of different invoices to Richelieu for its services. It issued weekly invoices for accessorial services. These invoices summarized all the items that New Horizon received from Richelieu's facility as well as all shipments that left New Horizon's facility over the previous week. Windt's receptionist performed a full audit of these weekly invoices to ensure they were correct. New Horizon also invoiced Richelieu monthly for the Fixed Monthly Storage Charge and on the 1st and 15th of the month for any Overflow Storage Charges. Windt reviewed these invoices for reasonableness, after which, if there were no issues, he would initial the invoices and send them to corporate headquarters for processing and payment. Richelieu paid all invoices from May 2009 through the end of December 2011.

On July 22, 2010, Windt emailed Gail Boulos, the administrative assistant to Laura Dickerson, New Horizon's president. Windt inquired about Invoice 300098H, asking “Can you help me understand how this report is calculated vs. the monthly storage?” Ex. 5 to Ex. B to Def.'s L.R. 56.1 Stmt. at D0047. After some discussion among Windt, Boulos, Dickerson, and Alan Dickes, New Horizon's IT Director, Dickerson explained to Windt:

We invoice weekly based on the inbounds pallets that are received per product category. We them [sic] generate a storage invoice on the 1st and 15th of every month based on what is on hand after the two weeks. The system maintains the receipt date and only generates the storage invoice based on what has been in inventory past the 15 day.

Id. at D0045. Windt clarified that he was concerned with the invoice at issue because the number for the “the monthly storage pallets was very close to the 2 week pallets which is where I couldn't understand how this was being calculated.” Id. Windt and Dickerson then spoke by phone. Windt testified that in that conversation Dickerson told him that New Horizon was “billing per the contract.” Ex. E to Def.'s L.R. 56.1 Stmt. 108:12–13. Windt did not review the contract to verify that this was true, however. After their conversation, on August 19, 2010, Dickerson sent the following email to Windt:

This email serves as confirmation of our conversation regarding the above Inbound storage invoice. As we discussed once the on hand pallets exceed the fixed quantity of 3,250 pallet positions on hand at the beginning of the month we will bill the Inbound storage per pallet received within that month.

Ex. 5 to Ex. B to Def.'s L.R. 56.1 Stmt. at D0044. Windt then authorized payment of Invoice No. 300098H.

About a year and a half later, on December 6, 2011, Windt emailed Boulos, Dickerson, and Helen Haaland, New Horizon's Inventory Control Manager, asking to review “the time frame covered as well as the calculations” for three invoices, Nos. 300916H,...