Sound of Music Co. v. Minnesota Min. & Mfg. Co.

• Decision Date: 13 February 2007
• Docket Number: No. 05-4109.,05-4109.
• Citation: 477 F.3d 910
• Parties: SOUND OF MUSIC CO., Plaintiff-Appellant, v. MINNESOTA MINING AND MANUFACTURING CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

477 F.3d 910

SOUND OF MUSIC CO., Plaintiff-Appellant, v. MINNESOTA MINING AND MANUFACTURING CO., Defendant-Appellee.

No. 05-4109.

United States Court of Appeals, Seventh Circuit.

Argued September 18, 2006.

Decided February 13, 2007.

Cary S. Fleischer (argued), Chuhak & Tecson, Chicago, IL, for Plaintiff-Appellant.

Fred Schulz (argued), Wildman, Harrold, Allen & Dixon, Chicago, IL, for Defendant-Appellee.

Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge.

When Minnesota Mining and Manufacturing Company, more commonly known as "3M", decided to end its involvement in the background music business, 3M's dealers, including the Sound of Music company, were understandably concerned. In this suit, we consider whether Sound of Music has legal recourse for 3M's decision to terminate the parties' background music business relationship. We conclude that 3M did not breach its contract with Sound of Music, as the contract allowed 3M to terminate the agreement by providing Sound of Music twelve months' advance written notice of its intention to leave the background music business, as it did here. Because we also find that Sound of Music cannot obtain relief under either the Illinois or Minnesota franchise statutes, we affirm the district court's grant of summary judgment in favor of 3M. In addition, we affirm the district court's decision to deny Sound of Music leave to file a second amended complaint to add a claim under the Illinois Consumer Fraud Act because the claim would not survive a motion for summary judgment.

I. BACKGROUND

3M, a diversified company based in Minnesota with thousands of products, was once in the background music business. In that business, 3M supplied pre-recorded and satellite-transmitted background music, as well as the equipment that played the music. The Sound of Music company, founded in 1973 by former 3M employee Richard Cushing, became one of many businesses that marketed and sold 3M's background music products to end users, including businesses which played the background music in their stores. Sound of Music had its offices in Illinois but had contracts with businesses and stores throughout the country, including in Minnesota.

Sound of Music and 3M had several agreements governing their relationship. On October 14, 1993, 3M terminated an agreement the parties had signed in 1988. The parties' next agreement, executed on May 5, 1995, plays a central role in this case. Under the 1995 agreement, Sound of Music was a non-exclusive distributor of 3M background music and background music equipment. The 1995 agreement provided that it would continue "until December 31, 1999, unless earlier terminated by either party as provided herein."

As in many industries, the technology in the background music business has changed over the years. When Sound of Music and 3M first began their relationship, background music was supplied to end users through magnetic tapes, a 3M product. By the late 1980s, the industry had moved away from magnetic tapes, and suppliers instead used an analog satellite signal to transmit music. 3M leased satellite space from a North Carolina company to broadcast the signal for end users, and 3M provided equipment that allowed end users to convert the analog signal into music that could be played in their stores.

During the 1990s, 3M became concerned that the industry was shifting from analog to digital technology. As a result, it believed that it would incur significant costs if it remained in the background music business. In 1997, 3M asked Donald Will, one of its employees, to evaluate the company's background music business. Will's team concluded that: (1) growth of the background music business beyond the current satellite contract would not be wise because 3M employed aging technology; (2) no serious potential buyer for the background music business existed; and (3) shutting down the background music project quickly would give 3M's dealers at least twelve months' notice and would enable the company to use gains from the sale of another division to offset expected losses from a rapid shutdown. On October 21, 1997, Will completed a report and recommended a rapid shutdown of 3M's background music business. Shortly thereafter, 3M decided to follow his recommendation. On November 18, 1997, 3M sent a letter to Sound of Music stating that 3M would terminate its involvement in the background music business as of December 31, 1998. By its terms, the agreement would not have expired until December 31, 1999.

Three days after receiving the letter, Sound of Music contacted its attorney for advice. Sound of Music was concerned about the substantial investment it had placed in the background music business. During the time the 1988 agreement governed, 3M leased "downlink equipment" to Sound of Music and other dealers. Sound of Music then subleased the equipment to its customers, who used it to receive and play the satellite music in their stores. By October 1997, however, Sound of Music had purchased the downlink equipment from 3M at a cost of approximately $600,000 and owned it outright. In the weeks and months following receipt of the termination letter, Sound of Music's counsel researched options including possible legal remedies Sound of Music might have against 3M for the termination of the 1995 Agreement. Ultimately, in April 1998, Sound of Music was sold to Muzak, another background service provider.

Sound of Music filed a complaint against 3M on February 2, 1999, alleging claims for breach of contract, violation of the Illinois Franchise Disclosure Act, violation of the Minnesota Franchise Act, and equitable recoupment. The district court granted summary judgment in favor of 3M on all counts and denied Sound of Music's request for leave to file a second amended complaint. Sound of Music appeals.

II. ANALYSIS

A. Summary Judgment

1. Standard of Review

We review a district court's grant of summary judgment de novo. Vision Church v. Vill. of Long Grove, 468 F.3d 975, 988 (7th Cir.2006). Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

As an initial matter, we note that contrary to Sound of Music's assertion, the district court did not need to explicitly reconcile all the differences between 3M's Statement of Undisputed Facts and Sound of Music's response to 3M's Statement when it ruled on 3M's motion for summary judgment. Instead, the district court needed only to decide whether, based on the evidence in the record, a material dispute of fact existed that required trial. See Fed.R.Civ.P. 56(c); Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). The district court did so in a thorough opinion and concluded that there was no genuine issue of material fact. Sound of Music maintains that this decision was erroneous, as it contends summary judgment should not have been granted on its claims for breach of contract, violation of the Illinois Franchise Disclosure Act, and violation of the Minnesota Franchise Act. We now address these arguments.

2. Breach of Contract Claim

Sound of Music first argues that the district court improperly granted summary judgment on its claim that 3M breached a contract between the parties when 3M terminated the 1995 agreement. Although the parties do not discuss whether Minnesota or Illinois law applies to this claim, the 1995 agreement contains a provision stating that Minnesota law will apply to any "questions, claims, disputes, or litigation arising from or related to this Agreement." In a suit where the federal court's subject matter jurisdiction is based on diversity, such as this one, the forum state's choice of law rules determine the applicable substantive law. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Thomas v. Guardsmark, Inc., 381 F.3d 701, 704-05 (7th Cir.2004). Illinois courts generally adhere to a contract's choice of law provisions. Thomas, 381 F.3d at 705 (stating Illinois respects a contract's choice of law clause if the contract is valid and the law does not contradict Illinois's fundamental public policy); Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1184-85 (7th Cir.1996). Because we see no reason why we should not recognize the parties' choice of Minnesota law as we analyze whether a breach of the contract took place, we will apply Minnesota law to this claim.

To prevail on a breach of contract action under Minnesota law, a plaintiff must prove: (1) the formation of a contract; (2) performance by the plaintiff of any conditions precedent to the right to demand performance by the defendant; (3) breach of the contract by the defendant; and (4) damages resulting from that breach. Indus. Rubber Applicators, Inc. v. Eaton Metal Prods. Co., 285 Minn. 511, 171 N.W.2d 728, 731 (Minn.1969); D.H. Blattner & Sons, Inc. v. Firemen's Ins. Co., 535 N.W.2d 671, 675 (Minn.Ct.App. 1995). The parties agree that the 1995 Agreement constituted a valid contract and that Sound of Music had performed its obligations under the contract. They dispute, however, whether 3M's termination of the parties' relationship constituted a breach of the 1995 agreement.

The 1995 agreement provided that it was to continue until December 31, 1999. The agreement also provided, however, that it could be terminated sooner if certain conditions were met. In particular, the agreement's termination provision stated:

15.0. TERMINATION. This Agreement may be terminated by the parties as follows:

A. Either 3M or Dealer may terminate this Agreement if the other materially breaches the Agreement by giving ninety (90) days' written...