C.G. Schmidt Incorporated v. Permasteelisa North America , 825 F.3d 801 ( 2016 )


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  •                                In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________________
    No. 15-3617
    C.G. SCHMIDT, INC.,
    Plaintiff-Appellant,
    v.
    PERMASTEELISA NORTH AMERICA,
    Defendant-Appellee.
    ____________________
    Appeal from the United States District Court for the
    Eastern District of Wisconsin.
    No. 14-cv-01553 — J.P. Stadtmueller, Judge.
    ____________________
    ARGUED APRIL 12, 2016 — DECIDED JUNE 16, 2016
    ____________________
    Before WOOD, Chief Judge, and FLAUM and WILLIAMS, Cir-
    cuit Judges.
    FLAUM, Circuit Judge. Permasteelisa North America
    (“PNA”), a subcontractor, submitted a bid to C.G. Schmidt,
    Inc. (“CGS”), a general contractor, to provide a glass curtain-
    wall. CGS selected PNA’s bid but after extensive negotiations,
    the parties did not enter into a formal subcontract. PNA
    backed out of the project at the last minute, requiring CGS to
    use a different subcontractor at a higher price.
    2                                                    No. 15-3617
    CGS filed suit against PNA alleging breach of contract and
    promissory estoppel. The district court granted summary
    judgment to PNA, finding that the parties did not intend to
    be bound until the execution of a formal subcontract. We
    agree with the district court that the parties never entered into
    a binding contract and that CGS’s promissory estoppel claim
    fails as a matter of law. Accordingly, we affirm the district
    court’s grant of summary judgment.
    I. Background
    CGS is a general contractor managing part of the construc-
    tion of an eighteen-story office building at 833 East Michigan
    Street in Milwaukee, Wisconsin (the “project”). In April 2013,
    CGS solicited bids for a custom glass curtainwall—a non-
    structural outer covering for weatherproofing and aesthetics.
    The curtainwall was one of the largest subcontracts of the
    nearly $52 million project. To facilitate the bidding process,
    CGS sent subcontractors, including PNA, a contract manual
    and a blank sample of CGS’s standard subcontract. The con-
    tract manual stated that “[t]he bidder must accept all terms of
    the [standard CGS] subcontract as a condition for submitting
    a bid.” The manual contemplated that the parties would even-
    tually sign a formal subcontract. CGS’s policy was to require
    written agreements for all subcontracts, including the curtain-
    wall subcontract.
    On April 19, 2013, PNA submitted a bid to construct and
    install the curtainwall for a total contract price of $12,675,421.
    PNA had its operations and legal departments review the bid
    materials and then submitted its bid using the bid form spec-
    ified in CGS’s contract manual. The bid form stated, in rele-
    vant part, that the bidder “proposes … to construct all work
    in the Work category” and “[i]n submitting and signing this
    No. 15-3617                                                 3
    bid form, Bidder agrees with all terms and conditions of the
    standard [CGS] agreement forms.” The bid included a base
    price, pricing schedule, alternate pricing, and a proposed
    scope for the project. PNA’s Senior Vice President signed the
    bid.
    Roughly two months later, CGS selected PNA as its “con-
    tractor of choice.” The parties, however, were not prepared to
    execute a formal subcontract. CGS had not yet entered into
    two preliminary contracts with the project owner: (1) a prime
    contract, the overarching agreement with the project owner;
    and (2) a Guaranteed Maximum Price Amendment
    (“GMPA”), which sets the project’s overall budget and creates
    a financial reserve to cover unexpected costs. CGS needed the
    GMPA in place before committing to pay PNA. PNA was also
    not prepared to sign a subcontract before these contracts were
    in place. PNA repeatedly expressed a need to review the fi-
    nalized prime contract before it would execute a formal sub-
    contract.
    In addition, CGS and PNA did not execute a subcontract
    because they had not settled on the terms of the subcontract
    agreement. Over the next year, CGS and PNA engaged in a
    “value engineering process” during which they refined the
    price and other terms of the subcontract as they worked to-
    wards a final, signed agreement. PNA regularly updated the
    proposed contract price and communicated these updates to
    CGS. And on multiple occasions, PNA raised concerns with
    some of the terms of the subcontract. At no point during the
    negotiation process did CGS express to PNA that, in CGS’s
    view, there was already an existing agreement in place.
    4                                                   No. 15-3617
    From June 2013, when CGS selected PNA’s bid, to June
    2014, the parties stayed in communication while they pre-
    pared for construction and refined the terms of the subcon-
    tract. In September 2013, PNA requested a production sched-
    ule from CGS so that it could confirm a time slot with its man-
    ufacturing facility in Thailand. Importantly, use of the Thai
    facility allowed PNA to offer CGS a substantial credit or de-
    duction towards the total subcontract price due to the cheaper
    cost of labor.
    In late 2013 and early 2014, CGS asked PNA to move for-
    ward with certain engineering activities to keep the construc-
    tion schedule on track. PNA responded that it needed a finan-
    cial commitment in order to proceed. On February 25, 2014,
    CGS sent PNA an unsigned letter of intent, stating that “it is
    the intent of [CGS] and [PNA] to enter into a Subcontract
    agreement … .” The letter of intent contained an integration
    clause: “Upon execution of the Subcontract agreement be-
    tween [CGS and PNA], the Subcontract and its Exhibits shall
    supersede in all respects prior negotiations between [CGS and
    PNA], including this letter of intent.” It proposed a total con-
    tract price of $7,744,469 and a May 14, 2014 deadline for PNA
    to produce shop drawings.
    PNA responded with its own proposed schedule “until a
    contract can be finalized.” PNA’s proposed schedule stated
    that it would not circulate shop drawings without an exe-
    cuted contract in place. PNA never produced any shop draw-
    ings.
    On March 24, 2014, CGS and PNA, along with the project
    architect, operations, and engineering teams, convened for a
    No. 15-3617                                                          5
    scheduled “kick-off” meeting. PNA admitted that the com-
    pany’s policy is not to participate in design kick-off meetings
    unless it is under contract.
    On April 21, roughly one year after PNA submitted its in-
    itial bid, CGS and the project owner finally executed the
    prime contract. On May 16, PNA sent CGS an updated bid
    price. 1 On May 21, PNA requested a second letter of intent.
    CGS responded with a signed, revised letter of intent on May
    23. The revised letter of intent contained the same basic terms
    and contract price as the previous letter of intent, but it added
    four alternate materials and pushed back deadlines.
    On May 27, CGS entered into the GMPA with the project
    owner. CGS contends that in doing so, it relied on the price in
    PNA’s May 16 bid. CGS alleges that PNA knew that CGS was
    relying on its bid.
    Even after the GMPA was in place, CGS and PNA did not
    sign an executed agreement and continued to refine the terms
    of the subcontract. On May 29, PNA submitted an updated
    bid proposal with a total contract price of $8,047,368. That
    same day, CGS sent PNA a copy of the prime contract. PNA
    responded that it had remaining concerns with certain terms
    in the proposed subcontract, including the liquidated dam-
    ages and delay damages provisions.
    By June 2014, internal communications at CGS expressed
    urgency about getting the subcontract signed and the work
    1 This bid did not list a “total contract price,” which includes the
    price of alternates. However, it did list a “total bid price” of
    $8,472,995, the same total bid price stated in PNA’s final bid, sub-
    mitted on May 29, 2014.
    6                                                       No. 15-3617
    started. On June 5, CGS sent PNA a revised draft of the project
    scope and a total contract price of $7,824,529.67. On June 13,
    CGS sent PNA a proposed subcontract for electronic signa-
    ture with a price term of $7,797,464. PNA did not respond. On
    June 16, CGS sent PNA a second proposed subcontract with a
    price term of $7,751,916.
    Soon after, PNA abruptly “disengaged” from the project.
    PNA explained that because of civil unrest in Thailand, it no
    longer had the capacity to produce the curtainwall. 2 CGS
    urged PNA to honor its bid but PNA refused. The parties
    never signed a formal subcontract. Eventually, CGS replaced
    PNA with a different curtainwall subcontractor. CGS claims
    that it had to pay the replacement subcontractor a higher price
    and thus suffered damages.
    On December 15, 2014, CGS filed a diversity action against
    PNA in the Eastern District of Wisconsin claiming breach of
    contract and promissory estoppel. CGS argued that PNA’s bid
    constituted an offer, CGS’s selection of that bid constituted an
    acceptance, and PNA breached the agreement by backing out.
    Alternatively, CGS argued that PNA’s bid constituted a prom-
    ise that induced CGS’s reasonable reliance.
    On August 3, 2015, PNA moved for summary judgment.
    On October 23, the district court granted summary judgment
    2 As it turns out, PNA had concerns about production capacity
    in Thailand as early as February 2014, when there was uncertainty
    about whether a key operations employee would be available. In
    May 2014, a martial law curfew went into effect in Thailand due to
    political unrest, which caused interruptions at the production facil-
    ity. PNA did not notify CGS of these issues until disengagement.
    No. 15-3617                                                   7
    to PNA. The district court held that the parties never mani-
    fested an intent to be bound; rather, CGS and PNA were ne-
    gotiating towards a final written subcontract that never tran-
    spired. As for the promissory estoppel claim, the district court
    held that the bid did not constitute a promise and any reliance
    by CGS was unreasonable because the parties intended to be
    bound by a final written agreement. The court also deter-
    mined that justice did not require enforcement of the bid. CGS
    appeals.
    II. Discussion
    We review a district court’s grant of summary judgment
    de novo, examining the record in the light most favorable to
    CGS, the nonmoving party. Nat'l Inspection & Repairs, Inc. v.
    George S. May Int'l Co., 
    600 F.3d 878
    , 882 (7th Cir. 2010). Sum-
    mary judgment is appropriate if there is no genuine dispute
    of material fact and the nonmovant is entitled to judgment as
    a matter of law. 
    Id. A. Breach
    of Contract
    CGS first argues that PNA’s initial bid was an offer and
    that CGS accepted that offer by selecting PNA’s bid, thus
    forming an enforceable contract. CGS contends that the sub-
    sequent negotiations merely modified the terms of this exist-
    ing contract. Therefore, CGS claims that PNA breached a
    binding agreement by disengaging from the project.
    Both parties agree that Wisconsin law governs this dis-
    pute. Under Wisconsin law, an enforceable contract has three
    elements: offer, acceptance, and consideration. Runzheimer
    Int’l, Ltd. v. Friedlen, 
    862 N.W.2d 879
    , 885 (Wis. 2015). Agree-
    ments to agree are not enforceable as contracts in Wisconsin.
    Witt v. Realist, Inc., 
    118 N.W.2d 85
    , 93–94 (Wis. 1962).
    8                                                     No. 15-3617
    Both parties also agree that the Uniform Commercial Code
    (“UCC”) applies because CGS engaged PNA for the sale of a
    good. Wis. Stat. § 402.102. Under the UCC, offer and ac-
    ceptance are defined more liberally than under Wisconsin
    common law. A contract “may be made in any manner suffi-
    cient to show agreement, including conduct by both parties
    which recognizes the existence of such a contract.” Wis. Stat.
    § 402.204. A contract may be formed even if some of the terms
    are left open or the moment of formation cannot be deter-
    mined with certainty. 
    Id. Unless otherwise
    indicated, an offer
    is construed as inviting acceptance in any manner reasonable
    under the circumstances. Wis. Stat. § 402.206. Accordingly, an
    enforceable contract may be formed by conduct, even without
    a signed writing embodying the agreement. Associated Milk
    Producers, Inc. v. Meadow Gold Dairies, Inc., 
    27 F.3d 268
    , 271 (7th
    Cir. 1994) (“Even if the parties’ writings do not constitute a
    contract, however, the parties may nonetheless be found to
    have established a contract through their actions.”).
    Even under the more flexible UCC standard, “a court must
    still make the threshold factual finding that an intent to con-
    tract existed.” Ginsu Prods., Inc. v. Dart Indus., Inc., 
    786 F.2d 260
    , 265 (7th Cir. 1986) (applying Wisconsin law). Intent to be
    bound is a question of fact. 
    Id. at 262.
    Intent is determined ob-
    jectively by looking at the parties’ words, both written and
    oral, and their actions. Skycom Corp. v. Telstar Corp., 
    813 F.2d 810
    , 814 (7th Cir. 1987) (applying Wisconsin law). When the
    parties’ public or shared conduct is undisputed, as it essen-
    tially is in this case, summary judgment is appropriate. See 
    id. at 815.
    No. 15-3617                                                        9
    With these principles in mind, we agree with the district
    court that no reasonable jury could find that the parties man-
    ifested an intent to be bound. Before negotiations began, PNA
    made clear that it intended to be bound only after reviewing
    the prime contract and executing a formal subcontract with
    agreed upon language. PNA manifested a belief that it was
    not bound throughout negotiations, and CGS never corrected
    this understanding nor expressed a contrary belief.
    The course of negotiations and slow build up to an inte-
    grated subcontract confirm that the parties had not yet en-
    tered into a binding agreement:
    It is well settled that no contract is formed
    where two parties consider the details of a pro-
    posed agreement, perhaps settling them one by
    one, with the understanding during this process
    that the agreement is to be embodied in a formal
    written document and that neither party is to be
    bound until he executes the document.
    Gruen Indus., Inc. v. Biller, 
    608 F.2d 274
    , 280 (7th Cir. 1979) (ci-
    tation and internal quotation marks omitted) (applying Wis-
    consin law). CGS and PNA continued to refine terms of the
    agreement throughout negotiations. 3 And the parties under-
    stood that they were working towards a formal, binding
    3 The parties dispute the extent to which the price changed over
    the course of negotiations. CGS emphasizes that the price of the
    core curtainwall component remained relatively constant, chang-
    ing only once. Meanwhile, the total contract price, which included
    the price of alternates, fluctuated substantially throughout negoti-
    ations. We note that the central price terms remained fairly constant
    throughout negotiations. Nevertheless, the variance in the parties’
    10                                                   No. 15-3617
    agreement. CGS’s internal policies and its contract manual re-
    quired written agreements with all subcontractors. Addition-
    ally, CGS never “pre-qualified” PNA—or cleared PNA with
    its risk management department—despite having a policy of
    doing so prior to signing a subcontract.
    To put this point another way, CGS never accepted PNA’s
    bid. 4 Quite the opposite, CGS deliberately refrained from ac-
    cepting while it reached the necessary agreements with the
    project owner and continued to negotiate the price and terms
    of the subcontract with PNA. Even after CGS entered into the
    GMPA with the project owner, the parties still never reached
    a binding agreement. Instead of accepting PNA’s latest bid
    upon execution of the GMPA, CGS countered with its own
    proposal and waited for PNA’s comments. Indeed, the parties
    never agreed on the total contract price—CGS’s final pro-
    posed subcontract, sent to PNA on June 16, 2014, contained a
    different total contract price than PNA’s final bid, sent on May
    29.
    Any remaining doubt about the lack of a binding agree-
    ment is dispelled by the two letters of intent. The letters of
    intent state that “it is the intent of [CGS and PNA] to enter
    into a Subcontract agreement …” and “[u]pon execution of
    the Subcontract agreement between [CGS and PNA], the Sub-
    contract and its Exhibits shall supersede in all respects prior
    negotiations between [CGS and PNA], including this letter of
    respective positions on other aspects of the agreement indicates
    that they lacked the requisite intent to be bound.
    Since CGS never accepted PNA’s bid, we need not decide
    4
    whether PNA’s bid constituted an offer, an issue that the district
    court found to be a close call.
    No. 15-3617                                                  11
    intent.” That is, the letters of intent express in no uncertain
    terms that the parties had not yet solidified their relationship
    in a binding agreement. Their prior communications up to
    and including the letters of intent were merely negotiations.
    In fact, if there had been a binding agreement in place from
    the time CGS selected PNA’s bid, there would have been no
    need for PNA to request the letters of intent—essentially, fi-
    nancial commitments—in the first place.
    In arguing that the parties were in fact bound by the initial
    bid, CGS emphasizes that PNA took actions that it ordinarily
    would not have taken without a contract in place, primarily
    by attending the kick-off meeting. But these minor departures
    from PNA’s general practice fall short of creating a genuine
    dispute whether the parties intended to be bound, especially
    considering the protracted nature of negotiations and the
    pressure to keep construction on schedule.
    In sum, the undisputed evidence shows that up until the
    point of disengagement, CGS and PNA were in the midst of a
    negotiation. The parties intended to reach a final, binding
    agreement, but that agreement never materialized.
    B. Promissory Estoppel
    The more difficult question is whether PNA is liable under
    a theory of promissory estoppel. CGS argues that PNA made
    a promise to CGS to supply the curtainwall and that CGS rea-
    sonably relied on that promise by incorporating PNA’s May
    16 bid price into its own bid to the project owner. CGS points
    to the deposition testimony of a PNA employee stating that a
    general contractor could reasonably rely on PNA’s bid if the
    general contractor carried that bid in its quote to the owner.
    12                                                  No. 15-3617
    To prevail on a theory of promissory estoppel under Wis-
    consin law, a plaintiff must establish: (1) a promise that the
    promisor should reasonably expect to induce action or for-
    bearance of a definite and substantial character on the part of
    the promisee; (2) action or forbearance induced by the prom-
    ise; and (3) that injustice can be avoided only by enforcing the
    promise. Hoffman v. Red Owl Stores, Inc., 
    133 N.W.2d 267
    , 275
    (Wis. 1965). The first two requirements are questions of fact
    while the third is a question of law. 
    Id. This Court
    has cau-
    tioned that promissory estoppel is only available in “limited
    circumstances” and does not allow “circumvention of care-
    fully designed rules of contract law.” All-Tech Telecom, Inc. v.
    Amway Corp., 
    174 F.3d 862
    , 869 (7th Cir. 1999).
    The construction bidding context is a classic battleground
    for the application of promissory estoppel. The seminal case
    on this topic, Drennan v. Star Paving Co., explains that when a
    general contractor uses a subcontractor’s bid in making its
    own bid to the project owner, it relies on the subcontractor’s
    bid. 
    333 P.2d 757
    , 760 (Cal. 1958). Given that the subcontractor
    should expect a general contractor to incorporate the subcon-
    tractor’s bid, “it is only fair that [the general contractor]
    should have at least an opportunity to accept [the subcontrac-
    tor’s] bid after the general contract has been awarded to him.”
    
    Id. Wisconsin continues
    to apply the Drennan rule to enforce
    subcontract bids. In Seater Construction Co. v. Rawson Plumb-
    ing, Inc., a subcontractor submitted a bid and the general con-
    tractor incorporated it into its own bid to the City of
    Waukesha. 
    619 N.W.2d 293
    , 294 (Wis. 2000). The subcontrac-
    tor never signed a written subcontract and refused to begin
    No. 15-3617                                                     13
    performance because of an error in its bid. 
    Id. at 295.
    The Wis-
    consin Supreme Court held that the subcontractor was bound
    to its bid under promissory estoppel because the subcontrac-
    tor’s bid was a promise that the general contractor reasonably
    relied on in submitting its own bid to the City. 
    Id. at 299.
    Fur-
    ther, the court observed that enforcing the subcontractor’s bid
    would avoid the injustice of compelling the general contractor
    to find another subcontractor at a higher price. 
    Id. Similarly, in
    Janke Construction Co. v. Vulcan Materials Co., we applied
    Wisconsin law in holding that a general contractor could as-
    sert promissory estoppel against a subcontractor because it
    reasonably relied on the subcontractor’s bid in making its
    own bid. 
    527 F.2d 772
    , 779 (7th Cir. 1976).
    Nonetheless, courts generally distinguish cases in which
    a general contractor attempts to renegotiate the subcontrac-
    tor’s bid, a practice known as “bid chiseling.” See CORBIN ON
    CONTRACTS, § 2.31 (2015) (“[I]t is generally agreed that the
    general contractor cannot, after being awarded the contract,
    reopen the bidding with the subcontractors to chisel down the
    bids, while at the same time maintaining that the low-bidding
    subcontractor remains liable.”). Indeed, Drennan noted that “a
    general contractor is not free to delay acceptance after he has
    been awarded the general contract in hope of getting a better
    price. Nor can he reopen bargaining with the subcontractor
    and at the same time claim a continuing right to accept the
    original 
    offer.” 333 P.2d at 760
    .
    When a general contractor reopens bidding with the sub-
    contractor, promissory estoppel may be denied for a number
    of reasons, including that the general contractor did not “in
    fact rely on the subcontractor’s bid, or failed to accept it within
    a reasonable time, or rejected it by a counter-offer, or, perhaps
    14                                                    No. 15-3617
    more persuasively, because in such circumstances there is a
    failure to meet [the] requirement that injustice can be avoided
    only by enforcement of the promise.” Preload Tech., Inc. v. A.B.
    & J. Constr. Co., 
    696 F.2d 1080
    , 1089 (5th Cir. 1983) (citation and
    internal quotation marks omitted). For example, in APAC-
    Southeast, Inc. v. Coastal Caisson Corp., a general contractor as-
    serted promissory estoppel against a subcontractor after the
    general contractor incorporated the subcontractor’s bid into a
    prime contract. 
    514 F. Supp. 2d 1373
    , 1375 (N.D. Ga. 2007). In-
    stead of accepting the subcontractor’s bid after signing the
    prime contract, the general contractor sent the subcontractor
    its form subcontract with materially different terms from the
    bid. The court held that promissory estoppel was inappropri-
    ate because the general contractor “forfeited its right to hold
    [the subcontractor’s] bid open when it counteroffered with its
    form subcontract.” 
    Id. at 1379.
        This limit to the application of promissory estoppel exists
    because of the inequity in allowing the general contractor to
    shop for lower bids or negotiate with the subcontractor while
    holding the subcontractor to its bid. See Avery Katz, When
    Should an Offer Stick? The Economics of Promissory Estoppel in
    Preliminary Negotiations, 105 YALE L.J. 1249, 1277–78 (1996).
    Without such a rule, the general contractor, already in a posi-
    tion of power because it can select among subcontractor bids,
    would be given even more bargaining power over the subcon-
    tractor. By limiting the application of promissory estoppel, the
    general contractor can either keep the subcontractor’s bid
    open for a reasonable amount of time or seek a better deal, but
    not both.
    Applying this rule, we hold that CGS’s promissory estop-
    pel claim fails as a matter of law. CGS did not accept PNA’s
    No. 15-3617                                                   15
    bid; instead, CGS delayed acceptance and negotiated with
    PNA while it also negotiated with the project owner. In fact,
    CGS continued to negotiate with PNA even after CGS signed
    the GMPA with the project owner. These facts distinguish this
    case from the likes of Seater and Janke and preclude CGS’s
    promissory estoppel claim for at least two reasons.
    First, given both parties’ expectation of further negotia-
    tions, it is questionable whether we can construe PNA’s bid as
    a promise upon which CGS could reasonably rely. Soon after
    submitting its initial bid, PNA announced that it expected to
    review the prime contract and negotiate certain aspects of the
    subcontract prior to executing an agreement. Conditional
    promises of this kind are not a reasonable basis for reliance.
    Gruen 
    Indus., 608 F.2d at 281
    . Once CGS selected PNA’s bid,
    the parties entered a negotiation that spanned over the next
    year. CGS was perhaps reasonable in expecting that the par-
    ties would ultimately form a binding agreement. But it was
    not reasonable for CGS to rely on any of PNA’s specific bids.
    CGS knew, or at least should have known, that the negotia-
    tions could fall apart before the parties entered into a binding
    agreement.
    Second, there is no injustice in permitting PNA to with-
    draw its bid. Applying promissory estoppel to this case
    would essentially give CGS an option contract on PNA’s bid
    that it did not bargain for. Correspondingly, it would put PNA
    at the mercy of CGS’s superior bargaining position. In other
    words, it would “transform these complex negotiations into a
    ‘no lose’ situation” for CGS. 
    Id. at 282.
    In complex negotiations
    between sophisticated parties, it is preferable to leave the
    16                                               No. 15-3617
    losses where they fall, rather than enforcing preliminary ne-
    gotiation positions wrought with contingencies and uncer-
    tainty. 
    Id. III. Conclusion
        For the foregoing reasons, we AFFIRM the judgment of the
    district court.