Utility Audit Inc v. Horace Mann Service ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2453
UTILITY AUDIT, INC.,
Plaintiff-Appellant,
v.
HORACE MANN SERVICE CORPORATION,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Central District of Illinois
No. 01-3386—Richard Mills, Judge.
____________
ARGUED JANUARY 16, 2004—DECIDED SEPTEMBER 13, 2004
____________
Before FLAUM, Chief Judge, and RIPPLE and ROVNER,
Circuit Judges.
ROVNER, Circuit Judge. Horace Mann Service Corporation
wanted to save money on its telephone bills. To that end, it
hired Utility Audit, Inc. in January 2000 to review past bills
for possible overbilling and to recommend ways of saving
money in the future. In exchange, Horace Mann agreed to
pay to Utility Audit a percentage of any savings realized.
But Horace Mann refused to pay Utility Audit any part of
the $1.2 million it stood to save after switching long-dis-
tance carriers, a move Utility Audit takes credit for rec-
ommending. Utility Audit sued, but the district court granted
2 No. 03-2453
summary judgment to Horace Mann, concluding that under
the terms of the parties’ contract, Utility Audit was not
entitled to any of the savings that resulted from the switch
in carriers. The court also denied Utility Audit’s attempt to
amend its complaint to add a claim of unjust enrichment.
We affirm.
I. BACKGROUND
The parties’ contract required Utility Audit to review the
past five years of bills Horace Mann received from MCI for
local and long distance telephone service. If Utility Audit’s
review resulted in a refund or credit, then Horace Mann
was required to pay 43% of the refund or credit to Utility
Audit. In addition, the contract required Utility Audit to
“monitor” the bills Horace Mann would receive from MCI
over the coming 12 months to identify any possible future
savings. Specifically, the contract stated that:
[Horace Mann] retains Utility Audit Inc., to monitor
all MCI Long Distance, Long Distance and Local
Exchange Carrier(s) and/or all Phone related service
bills for the period going forward for 12 months, begin-
ning on the date [Horace Mann] implements audit
savings. Utility Audit Inc. will ensure refunds/credits
and/or savings are realized and/or obtained by [Horace
Mann].
[Horace Mann] understands that Utility Audit Inc.
will receive 40% of any future savings on a telecommu-
nication bill for a period of One Year.
But under the terms of the contract, Horace Mann retained
the right to “choose not to implement a Utility Audit Inc.
recommendation,” in which case “there is no charge for future
savings.”
Over the next few months Utility Audit submitted a num-
ber of reports to Horace Mann. In the first, Utility Audit
No. 03-2453 3
advised Horace Mann that its current contract with MCI
was “inferior,” but that Utility Audit was “very confident”
it could obtain a better proposal from MCI before the
contract expired on November 30, 2000. The report also
advised Horace Mann to obtain pricing proposals from the
other “most capable carriers today,” specifically Qwest,
Claricom, AT&T, McLeod USA, and Sprint.
A couple of weeks later, Utility Audit submitted to Horace
Mann a second report, this one entitled “Home Office
Report.” In it, Utility Audit again recommended that Horace
Mann renew its contract with MCI before it expired in
November, although Utility Audit had not yet obtained
better rates from MCI. In a third report submitted in April—
entitled “New Long Distance Pricing Home Office Report”—
Utility Audit provided Horace Mann with rate proposals
from Qwest, Claricom (aka Staples), MCI, and AT&T. Based
upon the new proposals, Utility Audit estimated in a fourth
report that Horace Mann stood to save the following
amounts each year over its current contract with MCI:
Qwest $712,856.37
Staples $672,805.35
MCI $653,876.44
AT&T $418,198.91
Despite other carriers’ cheaper rates, Utility Audit “strongly
recommend[ed] that [Horace Mann] accept MCIWorldcom’s
current proposal,” and “strongly advise[d] against switching
to another carrier” because of the reliability of MCI’s
service. However, Utility Audit advised, if Horace Mann
wanted to switch carriers, it should choose either Qwest or
Staples. Finally, in July 2000, Utility Audit changed its
recommendation and advised Horace Mann to “switch to
another carrier other than MCI unless the terms and
conditions of MCI are acceptable,” after MCI refused to
4 No. 03-2453
refund what Utility Audit believed to be overcharges as the
result of rounding.1
In the meantime, on its own, Horace Mann obtained a
pricing proposal from Global Crossing, a telecommunications
provider never mentioned in any of Utility Audit’s reports.
Global Crossing’s proposal was substantially cheaper than
any of the proposals Utility Audit had obtained for Horace
Mann, and would result in an annual savings of $1.2 mil-
lion. Horace Mann accepted Global Crossing’s proposal and
contracted with it rather than with any of the providers
Utility Audit had suggested.
Horace Mann paid a total of $25,000 to Utility Audit,
$15,000 for savings realized due to Utility Audit’s review of
past bills, and $10,000 for unspecified recommendations for
future savings. But Horace Mann paid Utility Audit nothing
for the $1.2 million it stood to save each year by switching
to Global Crossing. Utility Audit eventually billed Horace
Mann for the 40% of savings it believed it was due under
the terms of the contract; Horace Mann refused to pay.
Utility Audit then sued Horace Mann. Originally Utility
Audit alleged a single claim of breach of contract. Later it
attempted to add a claim of unjust enrichment, alleging in
the alternative to its contract claim that its recommendation
to solicit better cheaper telephone rates fell outside the
parties’ contract and it was therefore entitled to quantum
meruit damages based upon the money Horace Mann saved
with Global Crossing. The district court denied Utility
Audit’s request for leave to amend its complaint as futile,
concluding that the recommendation to solicit better rates
was within the subject matter of the parties’ contract.
1
According to Utility Audit, MCI would round up to the nearest
penny the charge for each long distance telephone call.
No. 03-2453 5
Both parties then filed motions for summary judgment.
Utility Audit argued that it was entitled to summary judg-
ment because it was undisputed that Horace Mann im-
plemented its recommendation to solicit better prices, and
therefore it was entitled to 40% of the $1.2 million Horace
Mann saved during the first year of its contract with Global
Crossing. Horace Mann argued, on the other hand, that it
owed nothing and was entitled to summary judgment
because it was undisputed that (1) Utility Audit never
recommended the switch to Global Crossing, and (2) the
suggestion Utility Audit made to solicit more favorable
proposals was so general that it covered the entire universe
of possibilities, and therefore could not be considered a
“recommendation” under the ordinary definition of that
word.
The district court granted summary judgment to Horace
Mann. It concluded that Horace Mann never implemented
most of Utility Audit’s recommendations, such as the rec-
ommendation to renew its contract with MCI after obtain-
ing from it more favorable rates, or to accept the proposals
Utility Audit obtained from Qwest, Staples, and AT&T. As
for Utility Audit’s suggestion generally that Horace Mann
solicit more favorable proposals, the district court agreed
with Horace Mann that the suggestion was too general to be
considered a “recommendation.”
II. ANALYSIS
Utility Audit concedes that Global Crossing was not among
the telecommunication providers that it recommended to
Horace Mann. Nevertheless, it contends that the undisputed
evidence establishes that by accepting Global Crossing’s
proposal, Horace Mann was following its general recommenda-
tion to contract with a cheaper telephone service provider.
Accordingly, Utility Audit argues that the district court
erred by not granting it summary judgment. Alternatively,
6 No. 03-2453
Utility Audit argues that whether Horace Mann was fol-
lowing its recommendation when it accepted Global Crossing’s
proposal is a disputed question of fact which precluded the
district court from granting summary judgment to Horace
Mann.
We review de novo the district court’s decision to grant
Horace Mann’s motion for summary judgment and to deny
Utility Audit’s. Rizzo v. Pierce & Assocs., 351 F.3d 791, 793
(7th Cir. 2003). Summary judgment is appropriate when
there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. Id. The
interpretation of an unambiguous contract is a question of
law, and therefore a dispute over the terms of an unambigu-
ous contract is suited to disposition on summary judgment.
Id.; Kallman v. Radioshack Corp., 315 F.3d 731, 735 (7th
Cir. 2002).
Under Illinois law, which the parties agree governs, con-
tract terms are interpreted according to their plain meaning
unless otherwise defined. Trade Center v. Dominick’s Finer
Foods, 711 N.E.2d 333, 335 (Ill. App. Ct. 1999). Although
words should be given their ordinary and accepted meaning,
they must also be viewed in context, and the contract must
be considered as a whole in order to ascertain the parties’
intent. Id. at 335-36. The terms should be construed so that
the contract is “fair, customary, and such as prudent persons
would naturally execute,” and is “rational and probable.”
Foxfield Realty, Inc. v. Kubala, 678 N.E.2d 1060, 1063 (Ill.
App. Ct. 1997).
Given this backdrop, it is clear that in contracting with
Global Crossing, Horace Mann was not following any “rec-
ommendation” made by Utility Audit as that word is used
in the contract. The word “recommendation” is defined as “a
suggestion that something is good or suitable for a par-
ticular job,” while “recommend” is defined as “to suggest
No. 03-2453 7
that (a particular action) should be done.” CAMBRIDGE
INTERNATIONAL DICTIONARY OF ENGLISH (1995) (emphasis
added). The only particular recommendations Utility Audit
made were to either (1) re-sign with MCI at a more favorable
rate, or (2) accept one of the more favorable proposals of-
fered by Qwest, Claricom/Staples, or AT&T. Horace Mann
followed neither.
Utility Audit contends that a “recommendation” need not
suggest a particular course of action, and that the definition
of the word is broad enough to encompass any “advice or
counsel,” quoting BLACK’S LAW DICTIONARY (6th ed. 1990).
Therefore, it argues, its general advice to Horace Mann to
remain with MCI unless it found cheaper rates elsewhere
was a “recommendation” under the terms of the contract.
But because Utility Audit’s advice was so broad that it
included the entire universe of options available to Horace
Mann—in short, to either switch or not switch—its inter-
pretation leads to an irrational result. It is not reasonable
to conclude that Horace Mann bargained to pay Utility
Audit the hundreds of thousands of dollars it seeks for
advice no more particular than to either find cheaper rates
or renew its current contract. Even Utility Audit did not
appear at the time to believe that it would be entitled to a
share of future savings merely by offering such general
advice—it proceeded to solicit proposals from other provid-
ers and make specific recommendations to Horace Mann
about which proposals to accept.
Furthermore, Utility Audit’s interpretation of the contract
would render meaningless the term that allowed Horace
Mann to reject any of Utility Audit’s recommendations.
Elda Arnhold & Byzantio, L.L.C. v. Ocean Atl. Woodland
Corp., 284 F.3d 693, 705 (7th Cir. 2002). Because Utility
Audit had recommended every possible course of action to
Horace Mann, any course Horace Mann would have chosen
would have been encompassed by one of Utility Audit’s
broad recommendations.
8 No. 03-2453
Utility Audit’s broad interpretation of the word “recom-
mendation” is also not supported by the unreported decision
it cites, Nat’l Utility Serv., Inc. v. Savannah Foods &
Indus., Inc., No. 91-2891, 1994 U.S. Dist. LEXIS 21489
(D.N.J. Sept. 9, 1994). In Savannah Foods, a utility auditor
advised its client that it was overpaying for natural gas. It
suggested that a cheaper route might be to find a supplier
that charged only for the natural gas itself, and to contract
separately for the transportation of the gas if an anticipated
change in the law permitted it. Id. at **4-5. The recommen-
dation made by the auditor in Savannah Foods was there-
fore specific and provided guidance based on recent changes
in the law, as opposed to Utility Audit’s general suggestion
to find cheaper rates.
Utility Audit identifies two other recommendations for
which it contends it is entitled to a share of Horace Mann’s
savings. First, Utility Audit argues that it saved Horace
Mann a substantial amount of money by bringing to Horace
Mann’s attention a provision in its contract with MCI that
would have penalized it for switching carriers before the
contract expired November 30, 2000. But Utility Audit of-
fered no evidence that Horace Mann had ever planned to
switch carriers before its contract with MCI expired. Second,
Utility Audit argues that it saved Horace Mann money by
recommending that it demand yearly rate reviews in any
new long-term contract it negotiated. But again, Utility
Audit has offered no evidence that Horace Mann’s contract
with Global Crossing included yearly rate reviews (Horace
Mann contends that it does not).
As for the district court’s denial of Utility Audit’s motion
for leave to amend, we agree with the district court that
adding the proposed unjust enrichment claim would be fu-
tile. Guise v. BWM Mortg., L.L.C., 377 F.3d 795, 801 (7th
Cir. 2004) (district court may exercise discretion to deny
leave to amend if proposed claim would be futile). In the
proposed claim, Utility Audit alleged in the alternative to
No. 03-2453 9
its contract claim that its recommendation to Horace Mann
to solicit cheaper telephone rates fell outside the scope of its
contract to identify sources of “future savings,” and there-
fore it was entitled to quamtum meruit damages based upon
the money Horace Mann saved by switching to Global
Crossing. It also alleged that it was entitled to be compen-
sated for the “counseling” and “step-by-step instructions on
how to obtain the most cost efficient long distance plan” it
gave Horace Mann, information Utility Audit asserts that
Horace Mann used to its benefit while negotiating with
Global Crossing.
When two parties’ relationship is governed by contract,
they may not bring a claim of unjust enrichment unless the
claim falls outside the contract. Cromeens, Holloman,
Sibert, Inc. v. AB Volvo, 349 F.3d 376, 397 (7th Cir. 2003);
Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods
Corp., 812 N.E.2d 620, 626 (Ill. App. Ct. 2004). In determining
whether a claim falls outside a contract, the subject matter
of the contract governs, not whether the contract contains
terms or provisions related to the claim. First Commodity
Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007,
1011 (7th Cir. 1985); Indus. Lift Truck Serv. Corp. v.
Mitsubishi Int’l Corp., 432 N.E.2d 999, 1002 (Ill. App. Ct.
1982). The reason for prohibiting a claim of unjust enrich-
ment between contracting parties is to prohibit a party whose
expectations were not realized under the contract from never-
theless recovering outside the contract. Cromeens, 349 F.3d
at 397; Indus. Lift, 432 N.E.2d at 1002.
Utility Audit is correct that its contract with Horace
Mann contains no terms or provisions dealing specifically
with soliciting cheaper proposals for telephone service. But
despite the absence of specific terms, the subject matter of
the contract clearly encompasses the work it did for Horace
Mann identifying sources of savings including potential
“future savings.” Therefore we agree with the district court
that the contract governs Utility Audit’s proposed claim
10 No. 03-2453
that it is entitled to a share of Horace Mann’s savings.
Although Utility Audit’s expectations were not realized
because Horace Mann did not contract with one of the
recommended providers, Utility Audit assumed the risk
that it would not be entitled to a share of Horace Mann’s
savings with Global Crossing when it agreed to the term of
the contract that allowed Horace Mann to reject its rec-
ommendations. Cromeens, 349 F.3d at 397 (unjust enrich-
ment is not a means for shifting risks assumed under a
contract); First Commodity, 766 F.2d at 1011 (same).
Accordingly, we AFFIRM the judgment of the district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-13-04