United States District Court, N.D. Illinois
February 25, 2004.
Loeffel Steel Products, Inc., Plaintiff,
Delta Brands, Inc. d/b/a/ DBI; Samuel F. Savariego, Defendants; Delta Brands, Inc., Counter-Plaintiff, v. Loeffel Steel Products, Inc., Counter-Defendant; Delta Brands, Inc. and Samuel Savariego, Third-Party Plaintiffs, v. Industrial Magnetics, Inc., Third-Party Defendant
The opinion of the court was delivered by: ARLANDER KEYS, Magistrate Judge
MEMORANDUM OPINION AND ORDER
In this diversity action arising out of the sale of industrial
machinery, Defendants, Delta Brands, Inc. and Samuel Savariego
(collectively "DBI"), move this Court for partial Summary Judgment,
pursuant to Rule 56 of the Federal Rules of Civil Procedure.*fn1 For the
reasons set forth below, DBI's motion is denied.
Plaintiff, Loeffel Steel Products ("Loeffel"), processes steel and
delivers finished product to various equipment manufacturers. In late
1999, Loeffel began looking for a new piece of equipment. Acting on
Loeffel's interest, a DBI salesperson, Gautam Mahtani, contacted Loeffel
in January of 2000 touting their new product, a multi-blanking line.
Purchase negotiations subsequently began and various representations
were made. The parties' recollections of these representations sharply
diverge. For instance, DBI claims that Loeffel represented that its
primary business was processing prime steel and that Loeffel only
intended to run quality product on the new line. Loeffel denies this, and
says that DBI was aware that Loeffel also processed secondary steel.
Loeffel also contends that DBI represented that the new line would not
require separator-disks in the stacker area and would have automatic
blade gap adjustment.
Further, Loeffel claims that DBI made additional
representations during an escorted trip to an Indiana warehouse to
view, an. existing DBI line. According to Loeffel, DBI promised that
Loeffel's line would be designed so that it could be installed at
floor-level. Additionally, Loeffel claims that DBI repeated the assurance
that the line would not require separators.
After Loeffel confirmed its interest in DBI's product, the parties
exchanged draft sales contracts. On or about March 1, 2000, the parties
executed the final revision (the "Contract"). The Contract contains an
Annex A (the "Annex"), which attaches a series of correspondence which
were incorporated into the Contract by reference. DBI contends that the
Annex contains a provision disclaiming DBI's responsibly for
consequential damages. Loeffel disagrees with DBI's interpretation, and
claims that the parties intended to limit the consequential damages
waiver only to issues arising out of the installation of the equipment.
Beyond the Contract's terms, the parties made certain contemporaneous
oral agreements. One such agreement regarded the line's installation,
which Loeffel claims DBI estimated would cost $70,000.
After contracting, the parties discovered that Loeffel's plant lacked
the electrical capacity to maintain DBI's equipment, and Loeffel was,
therefore, forced to incur additional, uncontemplated costs to increase
the plant's on-site energy intake. The parties disagree over who is to
blame for this oversight. DBI maintains that Loeffel's plant manager made
decision that the plant could handle the new line, whereas Loeffel
places blame on DBI's inaccurate representations that Loeffel's plant had
sufficient electrical capacity for the incoming DBI equipment.
The next problem involved the new line's installation. DBI complains
that Loeffel delayed shipment, and then hired a third-party installer
whose work caused significant problems. Again, Loeffel deflects blame and
faults DBI's failure to test the machine and improper installation
instructions. Also, Loeffel claims that, during his escorted trip to
Indiana, DBI assured Loeffel that his line would be designed so that it
could be installed at floor-level, but delivered prints calling for a
Once installed, operational problems arose, and the parties blame each
other for the ensuing difficulties. Among its complaints, Loeffel cites
continuous problems with the line's stacker, even when processing
"pristine" coils.*fn2 Additionally, Loeffel complains that the line's
leveler did not perform to its represented range and created
unsatisfactory products. Further, Loeffel cites problems with the line's
slitting unit, in that it lacks the represented tooling and/or software
Loeffel claims that the new line required separators in the
multi-blanking mode, which is directly contrary to DBI's explicit
representations. While DBI does not specifically refute each of Loeffel's
complaints, it claims that the line will meet production expectations, so
long as Loeffel runs commercial quality steel through the machine.
Faced with continuing operational difficulties, Loeffel initiated the
present action. Loeffel's complaint fashions five counts against DBI,
including breach of contract (Count I), breach of express warranty (Count
II), breach of implied warranty of merchantability (Count III), breach of
implied warranty of fitness for a particular purpose (Count IV), and
fraud(Count V).*fn3 Following written discovery, DBI now moves for
summary judgment on Count V. DBI claims that Loeffel has not produced
evidence to sustain its fraud claim and that summary judgment is,
therefore, appropriate. DBI further moves the Court to reject Loeffel's
prayer for consequential damages because, it claims, the Contract
specifically relieves DBI from liability for such damages.
STANDARD OF REVIEW
The Court will grant summary judgment only if the pleadings and
supporting documents show that there is no genuine issue of material
fact, and that the moving party is entitled to a judgment
as a matter of law. Fed.R.Civ.P. 56(c) (2003). A genuine issue of
material fact exists if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party, Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). In determining whether a genuine
issue of material fact exists, the Court views the facts in the light
most favorable to the nonmoving party and draws all reasonable inferences
in the nonmoving party's favor. Shank v. William R. Hauge, Inc.,
192 F.3d 675, 681 (7th Cir. 1999).
The moving party in a motion for summary judgment bears the initial
burden of demonstrating that no genuine issue of material fact exists.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party's
burden is met, then the nonmoving party must set forth specific facts
showing that there is a genuine issue for trial in order to survive
summary judgment. Schacht v. Wisconsin Dep't of Corrs., 175 F.3d 497, 504
(7th Cir. 1999), In a summary judgment proceeding, the Court will
disregard all facts not properly supported by the record. Brasic v.
Heinemann's Inc., 121 F.3d 281, 284 (7th Cir. 1997).
DBI claims that Loeffel cannot support its fraud claim for two reasons.
First, DBI contends that Loeffel has not produced competent evidence to
prove the claim's elements, specifically
that DBI made any knowing material misrepresentations, and that Loeffel
reasonably relied on such representations. Second, DBI asserts that the
Moorman doctrine bars Loeffel's tort-based fraud claim because this
lawsuit is a contract dispute.
1. Lack of Evidence
To prove fraud, Loeffel must establish; l)a false statement of material
fact; 2) known or believed to be false by the person making it; 3) an
intent to induce the other party to act; 4) action by the other party in
reliance on the truth of the statement; and 5) damage to the other party
resulting from such reliance. Hoseman v. Weinschneider, 322 F.3d 468, 476
(7th Cir. 2003).
Loeffel sufficiently presents evidence supporting the allegation that
DBI made a number of material misrepresentations of fact when selling the
new line. For instance, deposition testimony suggests that DBI
represented that the new line would not require separators for
multi-blanking when stacking blanks, when, in fact, the machine as
delivered required such separators. Such representations, in the form of
promised specifications, are more than mere expressions of opinion. Peters
v. Murphy-Knight, 618 N.E.2d 459, 463-64 (Ill.App. 1993) (distinguishing
between Statement of fact and expression of opinion or mere "puffing");
see also Walter Raczynski Prod. Design v. IBM Corp., No. 92 C 6423, 1993
WL 282722 *4, 5 (N.D.Ill. July, 21, 1993) (statements
representing abilities of a product to perform certain functions can form
the basis of a viable fraud claim). Rather, they become actionable
misrepresentations if not followed through. See id. Further, deposition
testimony suggests that DBI knew that they could not deliver such a
product when negotiating with Loeffel or was unaware as to whether such a
technological feat could, be accomplished. If proven true*fn4, this type
of evidence could go towards sustaining Loeffel's burden of proving the
claim's first two elements.
Regarding the claim's final three elements, intent to induce reliance,
actual reliance, and damages, the Court finds that Loeffel has also
produced sufficient evidence to overcome summary judgment. Certainly,
specific representations regarding the technological capabilities of a
touted product are meant to induce the buyer's reliance. Lastly, evidence
supporting the final two elements, actual reliance and damages, is
established by Mr. Loeffel's testimony that DBI's representations
prompted the purchase. And evidence of damages is provided by Mr.
Loeffel's testimony that he received a product of less value than the
product he bargained for. Thus, the Court finds that Loeffel has presented
adequate evidence to at least raise a dispute of material fact as to
whether DBI fraudulently induced Loeffel into
purchasing their equipment. Accordingly, DBI's first argument for
summary judgment is without merit.*fn5
2. Moorman Doctrine
Next, DBI claims that the Moorman doctrine bars Loeffel's fraud claim,
which sounds in tort, Illinois" well-established Moorman doctrine
provides that a plaintiff that has not sustained personal injury or
property damage has a claim for contract damages but cannot bring an
action in tort. Moorman Manufacturing Co. v. National Tank Co.,
435 N.E.2d 443, 449 (1982). Of particular relevance here, the Moorman
doctrine denies tort recovery for product defects when the loss is rooted
in disappointed contractual or commercial expectations. Mutual Serv.
Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 615 (7th Cir.
2001). But the doctrine is not without exception. A claim alleging
fraudulent or intentional misrepresentation falls within an exception to
the Moorman rule. See Rankow v. First Chicago Corp., 870 F.2d 356, 362
(7th Cir. 1989). As discussed above, Loeffel has presented sufficient
evidence to at least raise a dispute of material fact regarding whether
DBI fraudulently misrepresented its product's capabilities. Accordingly,
Loeffel establishes fraud, the Moorman doctrine would not present an
obstacle to recovery. As such, DBI's second argument for summary judgment
must also fail.
2. Consequential Damages
Loeffel's complaint seeks recovery for consequential damages suffered
as a result of their alleged disappointed commercial expectations. Such
damages would conceivably include lost profits resulting from disrupted
production. DBI contends that the Contract specifically excludes
consequential damages should problems with their machinery arise. In
support, DBI cites a provision contained in the Annex, which states "DBI
is not responsible for consequential damages." DBI claims that this
disclaimer applies to all controversies relating to Contract
performance. Loeffel disputes DBI's broad application and argues that,
when viewed in proper context, it is clear that the consequential damages
waiver is meant to only apply to a specific aspect of Contract
performance, namely installation. While the Court does not wish to express
an opinion favoring one position over the other, it should be noted that
Loeffel has presented some evidence indicating that DBI's broad
interpretation is erroneous.
The UCC, which governs this commercial transaction, allows parties to
limit remedies, including consequential damages, but requires that any
such limitation must be "expressly agreed to be exclusive." See UCC §
2-719(1)(b), 810 ILCS 5/2-719(1). After a
plain reading of the Contract and the accompanying Annex, the Court cannot
conclude that the parties expressly agreed to limit Loeffel's remedies in
the manner that DBI advocates. For instance, the limitation does not
appear in the Contract's main body, nor does it take on any special
prominence in the Annex, Moreover, as Loeffel highlights, a careful
analysis of the chronological context in which this limitation
originated, and the text surrounding the disclaimer, seems to indicate
that DBI's interpretation indeed goes too far. Based on these
observations, the Court denies DBI's request to find that the Contract
unequivocally excludes recovery for consequential damages.
In sum, the testimony and supporting documentary evidence reveals that
the parties are sharply at odds regarding the content and intent behind
DBI's representations throughout the transaction and, further, have
irreconcilable interpretations regarding the scope of the Contract's
consequential damages waiver. Because numerous disputes of material fact
exist, the Court must deny DBI's motion for summary judgment.
IT IS THEREFORE ORDERED that DBI's Motion for Partial Summary Judgment
be, and the same hereby is, DENTED in its entirety.