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Driveline Systems, LLC v. Arctic Cat, Inc.

United States Court of Appeals, Seventh Circuit

August 23, 2019

Driveline Systems, LLC, an Illinois limited liability company, Plaintiff-Appellant/ Counter-Defendant,
Arctic Cat, Inc., a Minnesota corporation, Defendant-Appellee/ Counter-Plaintiff.

          Argued April 3, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Western Division. No. 3:08-cv-50154 - Frederick J. Kapala, Judge.

          Before WOOD, Chief Judge, and BAUER and ROVNER, Circuit Judges.


         Driveline Systems, LLC ("Driveline") filed a breach of contract lawsuit against Arctic Cat, Inc. ("Arctic Cat") over a supply contract for specially manufactured goods. Counts II-V were resolved against Driveline by summary judgment. The remaining claim and Arctic Cat's countersuit were resolved by a trial on the papers. Driveline appeals the district court's grant of summary judgment on Count II, arguing that there were genuine issues of material fact which preclude summary judgment.

         I. BACKGROUND

         In 1999, Driveline's predecessor in interest, Valley Drive Systems, Inc., began manufacturing parts for Arctic Cat and, in May 2002, Driveline assumed control of Valley Drive Systems, Inc.'s assets. In June 2002, Driveline and Arctic Cat entered into a contractual agreement where Driveline would provide specifically-manufactured hubs, axels/half-shafts, outer and inner tie rods, shift shafts, and steering stops (the "Goods"). During the pendency of their relationship, Driveline was a "just-in-time supplier" providing the Goods and taking and filling orders daily with regular daily deliveries to Arctic Cat.

         A. A Deteriorating Relationship

         The production of axles/half-shafts constituted the majority of Arctic Cat's purchases from Driveline, making up between 60-90 percent of total sales. In August 2007, Arctic Cat contacted Driveline to request a price reduction. At around this time, Arctic Cat received a bid from a foreign company to produce the half-shafts for approximately $30/shaft-for a projected monthly savings of approximately $200, 000.00. Throughout the rest of 2007, Arctic Cat and Driveline negotiated about the future of Arctic Cat's half-shaft production business. An email before December 14, 2007, from Arctic Cat's Director of Supply Management, Chuck Hicks, to Driveline's Donald DiGiovanni, Jr., says Driveline will not be retaining the half-shaft business. Driveline disputes this, asserting it only became aware of the change in production on February 15, 2008, when it received a termination letter from Arctic Cat.

         While the above negotiations were ongoing, Driveline and Arctic Cat's relationship continued as usual. From January 2007 through February 2008, Arctic Cat paid Driveline between $12 and $15 million for the Goods. But on January 21, Driveline halted all shipments to Arctic Cat, citing the ballooning amount due, $640, 986.03, as accounts receivable. On January 24, 2008, Arctic Cat paid $371, 387.27 and Driveline resumed shipments; a second check for $140, 951.31 was issued on January 28. In early February 2008, Driveline again halted all shipments to Arctic Cat citing non-payment.

         On February 8, 2008, Arctic Cat sent a letter to Driveline informing them that they were in breach of contract and as a result, any losses suffered by Arctic Cat would be the responsibility of Driveline. On the same day, Richard DiGiovanni of Driveline wrote a letter informing Arctic Cat that it was in arrears. The letter from Driveline went on to say that $185, 241.60 was due immediately and all further shipments would be paid cash on delivery.

         No further deliveries were made and, on February 15, 2008, Arctic Cat sent Driveline a letter terminating their relationship and notifying Driveline that they would be seeking reimbursement for any damages suffered as a result of their failure to ship the Goods. On February 19, 2008, Arctic Cat sent a letter to Driveline demanding $540, 750.00 for freight costs associated with Driveline's failure to deliver the Goods.

         B. Proceedings Before the District Court

         On July 25, 2008, Driveline filed this lawsuit which was ultimately amended on February 27, 2015; Arctic Cat filed a counterclaim on January 13, 2009. Following cross-motions for summary judgment, the district court granted judgment for Arctic Cat on Counts II-V of the Revised Second Amended Complaint (the "Complaint"). Shortly thereafter, the parties went to trial on the papers, pursuant to Federal Rule of Civil Procedure 52 on Count I of the Complaint, Arctic Cat's Counterclaim, and prevailing party attorney's fees. The district court found that Arctic Cat was liable for $182, 234.05 on Count I of the Complaint; Driveline was liable for $163, 481.04 on the Counterclaim; and Arctic Cat was ...

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