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ADM Alliance Nutrition, Inc. v. SGA Pharm Lab, Inc.

United States Court of Appeals, Seventh Circuit

December 14, 2017

ADM Alliance Nutrition, Inc., Plaintiff-Appellant,
v.
SGA Pharm Lab, Inc., and Shawn Yu, Defendants-Appellees.

          Argued December 9, 2016

         Appeals from the United States District Court for the Central District of Illinois. No. 16 CV 02042 - Colin S. Bruce, Judge.

          Before Williams and Hamilton, Circuit Judges, and Chang, District Judge. [*]

          Williams, Circuit Judge.

         SGA Pharm Lab had supplied ADM Alliance Nutrition with a product used to make medicated animal feed. The parties ended their relationship by signing a termination agreement. After that agreement was signed, ADM came to believe that SGA had made false representations concerning the potency of the product while SGA was supplying it to ADM. ADM brought breach of contract and fraud claims against SGA and its president, and the district court concluded that ADM had released the claims. We agree. The termination agreement stated ADM released SGA and its officers from any and all claims, whether known or unknown, so by its terms the release includes claims for breach of contract and fraud. The agreement also stated that it superseded all prior understandings and that no representations were made to induce the other party to enter into the agreement other than those it contained. In this case, between sophisticated commercial parties, we conclude that judgment in favor of SGA and its president was proper.

         I. BACKGROUND

         The roots of this lawsuit began when SGA agreed to source a product for ADM Alliance Nutrition called Chlortet-racycline which ADM would use when it manufactured medicated animal feed. SGA and ADM entered into a Purchase and Development Agreement on February 7, 2013. This agreement required SGA to provide a signed and dated Certificate of Analysis which detailed the potency of the product for each production lot it shipped to ADM. SGA's compensation was based in part on the potency of the product as spelled out in the signed Certificates of Analysis. The Purchase Agreement also provided that if ADM attempted to sell any of the NA-DAs[1] that were the subject of the agreement during the agreement's term, SGA had the first option to purchase. If SGA did not exercise its option, it would receive up to 20% of the sale price received by ADM based on performance metrics defined in an exhibit to the agreement.

         ADM later received an offer from a third-party buyer to purchase the NAD As. SGA declined to exercise the right of refusal granted to it in the Purchase Agreement, and on September 12, 2014, ADM and SGA entered into a Termination and Settlement Agreement ending their business relationship. The agreement stated that the parties "now wish to agree upon the compensation to be paid to SGA under Section 9.5 of the Purchase and Development Agreement and terminate the Purchase and Development Agreement." The Termination Agreement required ADM to pay SGA $750, 000 within two days of the date ADM closed on the sale to the third-party buyer.

         ADM alleged in this lawsuit that Shawn Yu, SGA's president, signed Certificates of Analysis that overstated the potency of Chlortetracycline. ADM asserted that the overstatement of the product's potency meant that ADM overpaid SGA and Yu more than $1.1 million. ADM also alleged that it would not have paid the $750, 000 it paid SGA and Yu under the terms of the Termination Agreement had ADM known that the product's potency was misrepresented. ADM's complaint asserted claims for breach of contract against SGA, fraud against SGA, and fraud against Yu. The complaint attached both the Purchase Agreement and the Termination Agreement as exhibits.

         SGA and Yu filed a motion to dismiss the complaint. The district court construed SGA and Yu's motion as a motion for judgment on the pleadings and granted the motion in their favor. The district court also awarded SGA and Yu $23, 685 in attorneys' fees. ADM appeals.

         II. ANALYSIS

         A. No Error in Treating Motion to Dismiss as Motion for Judgment on Pleadings

         ADM argues that the district court was wrong to treat SGA and Yu's motion to dismiss as a motion for judgment on the pleadings. Although SGA and Yu filed a motion to dismiss invoking Federal Rule of Civil Procedure 12(b)(6), the premise of their motion was that the release language in the Termination and Settlement Agreement barred ADM's claims. Release of a claim is an affirmative defense. United States v. Rogers Cartage Co., 794 F.3d 854, 860 (7th Cir. 2015). As a result, SGA and Yu should have raised release as an affirmative defense and then moved for judgment on the pleadings under Rule 12(c). See id.

         We have found the failure to move for judgment on the pleadings to be harmless when "all the facts necessary to rule on the affirmative defense are properly before the district court on the motion to dismiss." Id. at 861. Federal Rule of Civil Procedure 10(c) provides that "[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes." ADM attached both the Purchase Agreement and the Termination Agreement to its complaint and repeatedly relied on them in its complaint, so we consider those documents in reviewing the grant of the motion for judgment on the pleadings. See Williamson v. Curran,714 F.3d 432, 435-36 (7th Cir. 2013). SGA and Yu's motion ...


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