The opinion of the court was delivered by: MATHEW KENNELLY, District Judge
MEMORANDUM OPINION AND ORDER
In this case, plaintiff Sutter Insurance Co., a California
corporation headquarted near San Francisco, has sued defendant Applied
Systems, Inc., an Illinois corporation headquartered in University Park,
Illinois, for breach of contract, consumer fraud under Illinois and
California statutes, and common law fraud. Applied has counterclaimed for
breach of contract. The case is set for a jury trial on February 9, 2004.
Applied has moved for summary judgment on Sutler's claims and, if summary
judgment is denied, to strike Sutler's jury demand.
Sutter sells property insurance in the West Coast region. Applied
develops and sells software for use by insurance companies and insurance
agencies. In 1999, Sutter began searching for software to replace its
existing system. Applied and other software providers sent
representatives to Sutler's California offices to promote and demonstrate
their products. Applied's presentation concerned its "Diamond System," a
comprehensive policy, claims management and billing system designed to
interact with third party software applications.
According to Sutter, Applied's representatives represented that the
Diamond System could be implemented immediately "off the shelf," would
conform the Sutler's own forms and billing procedures, and would allow
Sutter immediately to create new insurance policies and have them rated,
underwritten, issued, and billed. Sutter also contends that Applied
represented that implementation management services would be included for
a flat fee that would cover software licensing, system analysis,
specification documentation, and system development, installation, and
training, and that the program would be up and running within 180 days
after Sutter signed a contract with Applied.
Sutter contends that it relied on Applied's representations and entered
into a System Implementation and Licensing Agreement with Applied in
March 2000. The agreement included a paragraph stating that the software
would substantially conform to and perform in accordance with
specifications listed in the agreement and that all services provided by
Applied under the agreement would be performed in a good and workmanlike
manner. Agreement ¶ 6(a). The same paragraph included the
ALL REPRESENTATIONS AND WARRANTIES CLAIMED HEREIN
ARE EXPRESSLY IN LIEU OF ANY AND ALL OTHER
PREVIOUS REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, WHICH MAY HAVE BEEN SET OUT DURING THE
NEGOTIATION OF THIS AGREEMENT. APPLIED SYSTEMS
SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE.
Id. The following paragraph of the agreement stated:
No material statements or representations have
been made by Applied and upon which [Sutter] has
relied in entering into this Agreement that are
not contained herein.
Id. ¶ 6(b). Paragraph 1 of the agreement stated that
"[t]his Agreement . . . contains the entire
agreement between the parties, and Applied is not bound by any
representations or inducements not set forth herein." Id.
¶ 1. The final paragraph of the agreement stated that
EACH PARTY ACKNOWLEDGES THAT IT HAS READ THIS
AGREEMENT, UNDERSTANDS IT AND AGREES TO BE BOUND
BY ITS TERMS AND FURTHER AGREES THAT IT IS THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN THE PARTIES, EXCEPT AS HEREIN CONTEMPLATED
TO ADD APPENDICES HERETO, WHICH SUPERSEDES ALL
PROPOSALS, ORAL OR WRITTEN AND ALL OTHER
COMMUNICATIONS BETWEEN APPLIED AND [SUTTER]
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
Id. ¶ 24.
According to Sutter, the software did not work "off the shelf as
represented, and the company experienced numerous and constant problems
in operating the system. It claims that it advised Applied of these
problems as they arose, but Applied failed to cure them. On May 1, 2001,
a telephone conference was held between representatives of Sutter and
Applied. Sutler's vice president Diane Kleinecke has stated in an
affidavit that during this telephone conference, she advised Applied's
representatives that Sutter was canceling the contract and did not want
to invest any more time in the Diamond System because it was not meeting
Sutler's needs. She advised that Sutter would "run off the homeowner's
insurance policies already entered into the system and after that would
cease using the system.
Sutter continued to use the Diamond System for about ten months
thereafter but asserts that it did so only to avoid substantial hardship,
as it had no other alternative short of 100% "manual" management of the
policies, which it says was not feasible. On October 29, 2001, Bill
Kleinecke, another Sutter vice president, sent Applied a letter which
Sutter characterizes as a written cancellation of the contract; the
letter stated that "[i]n follow up to our conversation, I am
writing to you to reiterate the Sutter Insurance Companies [sic]
desire for return compensation. In order to avoid further costs
associated with Applied's failure to perform, the Management of Sutter
was hoping for a voluntary return of the fees and charges collected."
Sutter Rule 56.1 Stmt., Ex. C.
Sutter contends that due to the defects in Applied's software system,
it suffered out of pocket losses as well as lost business opportunities.
Its complaint against Applied includes four claims: a claim for breach of
the written agreement premised primarily on its allegation that the
software did not meet the agreement's specifications; a claim of common
law fraud; a claim under the Illinois Consumer Fraud and Unfair Business
Practices Act; and a claim under the California Unfair Business Practices
Act. Applied has counterclaimed for amounts allegedly due under the
agreement that Sutter did not pay. As indicated earlier, Applied has
moved for summary judgment on all of Sutler's claims and, if summary
judgment is denied as to any of the claims, to strike Sutler's jury
Motion for summary judgment
In addressing a motion for summary judgment, the Court construes the
record in the light most favorable to the non-moving party; we do not
weigh the evidence but rather determine only whether there is a genuine
issue for trial. See, e.g., Payne v. Pauley, 337 F.3d 767, 770
(7th Cir 2003); Bennett v. Roberts, 295 F.3d 687, 694 (7th Cir.
1. Breach of contract claim
Applied argues, and Sutter does not dispute, that Sutler's breach of
contract claim is subject to the terms of Illinois' version of the
Uniform Commercial Code. Under the Code, a buyer of goods must pay at
the contract rate for any goods accepted. 810 ILCS 5/2-607(1). A
buyer that has accepted goods is barred from any remedy for
non-conforming goods unless it notifies the seller of the breach within a
reasonable time after it discovers or should have discovered the breach.
Id. 2-607(3)(a). Relying on a provision of the contract stating
that "[a]11 notices given under this Agreement shall be in writing,"
Agreement ¶ 21, Applied contends that Sutter never gave written
notice of its rejection of the Diamond System and thus is barred from
seeking damages for breach of contract.
Sutter contends that it advised Applied of the breach during the May 1,
2001 telephone conference and argues that the contract did not require
notices of cancellation or breach to be in writing. First, it says that
paragraph 20 of the agreement the provision on which Sutter, for
some reason, thinks Applied is relying for its "written notice only"
argument concerns only requests for mediation of disputes. That
is, in fact, what paragraph 20 concerns, but it is clear from Applied's
papers that it is relying on paragraph 21, not paragraph 20. Paragraph 21
expressly concerns "[a]ll notices given under this Agreement," not just
notices relating to paragraph 20's mediation ...