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

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 16-2331 and 16-2953
ADM ALLIANCE NUTRITION, INC.,
Plaintiff-Appellant,
v.
SGA PHARM LAB, INC., and SHAWN YU,
Defendants-Appellees.
____________________
Appeals from the United States District Court for the
Central District of Illinois.
No. 16 CV 02042 — Colin S. Bruce, Judge.
____________________
ARGUED DECEMBER 9, 2016 — DECIDED DECEMBER 14, 2017
____________________
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 medi-
cated animal feed. The parties ended their relationship by
signing a termination agreement. After that agreement was
* Of the United States District Court for the Northern District of Illi-
nois, sitting by designation.
2 Nos. 16-2331 and 16-2953
signed, ADM came to believe that SGA had made false repre-
sentations 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 dis-
trict 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it superseded all prior understandings and that no represen-
tations 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 med-
icated animal feed. SGA and ADM entered into a Purchase
and Development Agreement on February 7, 2013. This agree-
ment 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
Nos. 16-2331 and 16-2953 3
also provided that if ADM attempted to sell any of the NA-
DAs 1 that were the subject of the agreement during the agree-
ment’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 de-
fined in an exhibit to the agreement.
ADM later received an offer from a third-party buyer to
purchase the NADAs. SGA declined to exercise the right of
refusal granted to it in the Purchase Agreement, and on Sep-
tember 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 Termina-
tion 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 presi-
dent, signed Certificates of Analysis that overstated the po-
tency of Chlortetracycline. ADM asserted that the overstate-
ment 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 com-
plaint asserted claims for breach of contract against SGA,
1 Neither the Purchase Agreement nor the parties define the term, but
it appears to stand for “New Animal Drug Application.” See 21 C.F.R. §
514.3.
4 Nos. 16-2331 and 16-2953
fraud against SGA, and fraud against Yu. The complaint at-
tached 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 dis-
miss 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 af-
firmative defense and then moved for judgment on the plead-
ings 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 in-
strument that is an exhibit to a pleading is a part of the plead-
ing for all purposes.” ADM attached both the Purchase
Agreement and the Termination Agreement to its complaint
Nos. 16-2331 and 16-2953 5
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 to dismiss
pointed to the Termination Agreement as the source of the re-
lease. The language of the release was properly before the dis-
trict court on the motion to dismiss.
ADM also contends that judgment against it came too
soon because it did not have the opportunity to address SGA
and Yu’s release argument. But ADM has never suggested
what amendments it could make to its complaint that would
alter the analysis of the release defense asserted by SGA and
Yu. See Han v. United Cont’l Holdings, Inc., 762 F.3d 598, 603
(7th Cir. 2014). No amendments or discovery would change
the terms of the release. 2 See Yassan v. J.P. Morgan Chase & Co.,
708 F.3d 963, 976 (7th Cir. 2013) (“[E]ven if the district court
allowed discovery, and everything Yassan alleged proved to
be true—Yassan’s case would still fail under the terms of the
release.”). The district court committed no error in construing
the motion to dismiss as a motion for judgment on the plead-
ings.
B. Judgment on Pleadings Proper
We review a grant of judgment on the pleadings de novo.
Landmark Amer. Ins. Co. v. Hilger, 838 F.3d 821, 824 (7th Cir.
2016). To survive a motion for judgment on the pleadings (or
a motion to dismiss), the complaint must “state a claim to re-
lief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007); see also Katz-Crank v. Haskett, 843 F.3d 641,
2 For similar reasons, we find no abuse of discretion in the district
court’s decision to grant SGA leave to file a reply brief.
6 Nos. 16-2331 and 16-2953
646 (7th Cir. 2016). In undertaking our review, we draw all
reasonable inferences and facts in favor of the non-moving
party. Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 639
(7th Cir. 2015).
ADM maintains that its complaint states actionable claims
for fraud and breach of contract that are not barred by the re-
lease language in the Termination Agreement. It contends
that SGA breached the terms of the Purchase Agreement by
overstating the potency of Chlortetracycline in the Certificates
of Analysis. ADM also maintains that SGA and Yu committed
fraud by knowingly overstating the product’s potency. SGU
and Yu, on the other hand contend that the terms of the Ter-
mination Agreement foreclose ADM from bringing the claims
it asserts in this suit.
ADM asserts that its complaint sets forth all the elements
of fraud and breach of contract claims. But a release is an af-
firmative defense, so if a release bars a plaintiff’s claims,
whether the complaint states a claim does not matter. See Yas-
san, 708 F.3d at 975 (“The problem with [the plaintiff]’s case is
not that he failed to state a claim; the problem is that he signed
a release waiving the right to make a claim.”). Our principal
question is whether the Termination Agreement releases the
claims ADM now asserts.
A release is “the abandonment of a claim to the person
against whom the claim exists.” Borsellino v. Putman, 962
N.E.2d 1000, 1019 (Ill. App. Ct. 2011) (quotations omitted).
Under Illinois law, which governs both the Purchase and Ter-
mination Agreements, a release within a settlement agree-
ment is governed by contract law. Cannon v. Burge, 752 F.3d
1079, 1088 (7th Cir. 2014). When a release is unambiguous, a
Nos. 16-2331 and 16-2953 7
court must construe it as written without looking to parol ev-
idence. Cannon, 752 F.3d at 1091; Farm Credit Bank of St. Louis
v. Whitlock, 581 N.E.2d 664, 667 (Ill. 1991). Because the lan-
guage of the agreements is so important in determining
whether the claims were released here, we will be quoting
several provisions.
Paragraph four of the Termination Agreement stated:
… the parties agree that, effective as of the date of Clos-
ing, the Purchase and Development Agreement shall
terminate and shall be of no further force or effect, and
all of the obligations, rights, and duties under the Pur-
chase and Development Agreement shall terminate ….
The Termination Agreement also included two reciprocal re-
lease provisions that released the SGA parties and ADM par-
ties. The release of the SGA parties in paragraph five stated:
Conditioned upon SGA complying with its duties, ob-
ligations and covenants set forth in this Agreement, ef-
fective as of the Payment Date, ADM hereby fully, com-
pletely, irrevocably and unconditionally releases, re-
mises, acquits, and forever discharges SGA and its di-
rectors, officers, shareholders, members, managers,
employees, agents, representatives, successors and
permitted assigns (collectively, the “SGA Parties”) of
and from any and all charges, complaints, claims,
promises, agreements, controversies, actions, causes of
action, damages, suits, rights, expenses, losses, liabili-
ties and obligations of any nature whatsoever (includ-
ing attorneys’ fees and costs actually incurred) (collec-
tively, “Claims”), whether legal or equitable, whether
known or unknown, that ADM may have against one
8 Nos. 16-2331 and 16-2953
or more of the SGA Parties arising out of, related to, or
in connection with the Purchase and Development
Agreement, including, but not limited to, SGA’s right
of first refusal and the compensation due to SGA pur-
suant thereto: provided, however, this release shall not
apply to the duties, covenants, and obligations of SGA
set forth in this Agreement.
The language in these paragraphs is clear: it releases SGA and
Yu from any and all claims arising out of the Purchase Agree-
ment.
It is true that fraud (or breach of contract) is not specifi-
cally listed in the release. But “the fact that a claim is not spe-
cifically listed in the release does not necessarily preclude that
claim from having been within the contemplation of the par-
ties and therefore barred.” Miller v. Lawrence, 61 N.E.3d 990,
998 (Ill. App. Ct. 2016); see also Wagner v. NutraSweet Co., 95
F.3d 527, 533 (7th Cir. 1996) (applying Illinois law) (“When a
release is broadly worded, as this one was, to cover all claims,
‘known and unknown,’ the plaintiff is giving up the right to
sue that she might otherwise have on claims related to her
employment that could arise under any law.”). Paragraph
five of the Termination Agreement provided that ADM re-
leased SGA and its officers from “any and all charges, com-
plaints, claims, … actions, causes of action, … whether known
or unknown.” (emphasis added). There was no exception
listed for fraud.
That the alleged fraud was not known when ADM exe-
cuted the Termination Agreement also does not preclude re-
lease of the fraud action, despite ADM’s argument to the con-
trary. “’[A] release may encompass unknown claims, includ-
ing unknown fraud claims … [because if] this were not the
Nos. 16-2331 and 16-2953 9
case, no party could ever settle a fraud claim with any final-
ity.’” Yassan, 708 F.3d at 974–75 (applying New York law)
(quoting Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B.
de C.V., 952 N.E.2d 995, 1000 (N.Y. 2011)). While Illinois courts
more narrowly construe general releases that are unlimited in
scope, the release here is not unlimited in scope and is limited
to claims arising from the Purchase Agreement. See Cannon,
752 F.3d at 1092; Rakowski v. Lucente, 472 N.E.2d 791, 794 (Ill.
1984). Under the broad language of paragraph five, ADM re-
leased SGA and its officers from “any and all charges, com-
plaints, claims, … actions, causes of action, … whether known
or unknown” arising out of or related to the Purchase Agree-
ment. (emphasis added). So by its terms, the Termination
Agreement barred claims for any cause of action arising out
of the Purchase Agreement, even those not known at the time
the Termination Agreement was signed. See Chubb v. Amax
Coal Co., Inc., 466 N.E.2d 369, 372 (Ill. App. Ct. 1984). ADM
asserts in its complaint that false certifications of potency
breached the Purchase Agreement and that the obligation to
give accurate representations came from the same agreement,
so its current claims arise out of or are related to the Purchase
Agreement. (ADM does not dispute this.)
That would seem to end matters. ADM nonetheless main-
tains that SGA and Yu’s alleged fraud during the performance
of their business relationship makes the Termination Agree-
ment voidable. As support, ADM points to a decision of the
Illinois Appellate Court, Ainsworth Corp. v. Cenco Inc., 437
N.E.2d 817 (Ill. App. Ct. 1982). There, the parties had signed
an asset purchase agreement by which the plaintiff agreed to
purchase the assets of a subsidiary of the defendant. Id. at 819.
A dispute arose, and the parties entered into a settlement
10 Nos. 16-2331 and 16-2953
agreement. The settlement agreement provided that the rep-
resentations in the asset purchase agreement expired on the
date of the settlement agreement and that the plaintiff waived
any breach of such representations that may have occurred in
the past. Id. at 819–20. A few months later, a government in-
vestigation determined that the company’s manufacturing
process violated federal regulations. Id. at 820. The plaintiff
then defaulted on the terms of the settlement agreement but
argued in court that it had been fraudulently induced to enter
into the asset purchase agreement because the defendant mis-
represented that it was operating in compliance with govern-
ment standards. Reversing the trial court, the Illinois Appel-
late Court ruled in favor of the plaintiff and ruled that the re-
lease in the settlement agreement did not bar the plaintiff’s
claim. Id. at 821–22. The court stated it had examined “the cir-
cumstances surrounding the execution of the release” and
that while a party can waive a defense of fraud by entering
into a new contract, knowledge of the fraud at the time of
signing the second contract was required. Id. at 821. The court
also considered the representations to be of a continuing char-
acter. Id.We note first that more recently, we traced the “circum-
stances of the transaction” language used in some Illinois
cases concerning releases and by ADM in its brief. We stated
that the “Illinois courts of appeal appear to have taken the
‘circumstances of the transaction’ language from Parmalee [v.
Lawrence, 44 Ill. 405 (1867)] out of context and applied it
broadly to allow the consideration of parol evidence in con-
struing the intent of the parties to an unambiguous release.”
Cannon, 752 F.3d at 1091. We found that practice inconsistent
with the Illinois Supreme Court, which had “embraced no
such rule, instead consistently holding that, when a contract
Nos. 16-2331 and 16-2953 11
is unambiguous on its face, the intent of the parties must be
construed without consideration of parol evidence.” Id. To the
extent Ainsworth relied on parol evidence in its consideration
of the release, it is inconsistent with our understanding of the
Illinois Supreme Court’s jurisprudence.
SGA and Yu respond to Ainsworth by emphasizing that an
element of a fraud action in Illinois is reliance, see Massuda v.
Panda Exp., Inc., 759 F.3d 779, 783 (7th Cir. 2014), and that the
Illinois Appellate Court has since distinguished Ainsworth. To
succeed on its fraud claim in this case, ADM would need to
show that it justifiably relied on the truth of a statement made
by SGA or Yu. In Schrager v Bailey, 973 N.E.2d 932 (Ill. App.
Ct. 2012), the plaintiff alleged that the defendant attorneys
had committed fraud, and the defendants pointed to a nonre-
liance clause in the settlement agreement. Id. at 935. The set-
tlement agreement stated that no “representations, induce-
ments, promises or agreements” had been made that were not
in the settlement agreement and that any prior promises not
set out in that agreement had not been relied upon. Id. at 934.
The appellate court affirmed the dismissal of the plaintiff’s
complaint, emphasizing that the plaintiff had agreed in the
settlement agreement he was relying only on the information
it contained and not on any prior statements. Id. at 937. The
court explained that Ainsworth did not help the plaintiff be-
cause there “was no issue relating to a nonreliance clause.” Id.
at 938. So, the court said, “Ainsworth Corp. provides no sup-
port for plaintiff Schrager's argument,” and the plaintiff’s re-
liance on Ainsworth was “misplaced.” Id.Explaining the significance of a nonreliance clause, the
Schrager court quoted one of our cases, stating, “’[s]ince reli-
ance is an element of fraud, the [nonreliance] clause, if upheld
12 Nos. 16-2331 and 16-2953
– and why should it not be upheld, at least when the contract
is between sophisticated commercial enterprises—precludes
a fraud suit.’” Schrager, 973 N.E.2d at 938 (quoting Vigortone
AG Prods., Inc. v. PM AG Prods., Inc., 316 F.3d 641, 645 (7th Cir.
2002)). That case far from stands alone. As we have noted be-
fore, “This court and others have held that a written anti-reli-
ance clause in … [an] agreement precludes any claim of deceit
by prior representations.” Cerabio LLC v. Wright Med. Tech.,
Inc., 410 F.3d 981, 992 (7th Cir. 2005).
The Termination Agreement here stated in paragraph
nine:
This Agreement is final and constitutes the complete
and exclusive statement with respect to the subject
matter hereof. This Agreement supersedes all prior
agreements and understandings, whether written or
oral, relating to the subject matter of this Agreement.
No representations or commitments were made by the
parties to induce each other to enter into this Agree-
ment other than as expressly set forth herein. Any
amendment, modification, or supplement to this
Agreement shall be null and void unless it is in writing
and agreed to by the parties ….
This suit was between sophisticated commercial parties.
The “ADM” in ADM Alliance Nutrition, Inc. stands for
Archer Daniels Midland, one of the largest companies in the
United States, and the complaint asserts that the plaintiff is a
wholly owned subsidiary of Archer Daniels Midland. Espe-
cially when dealing with sophisticated commercial enter-
prises, “parties to contracts are best served by rulings enforc-
ing the express terms of agreements into which they enter.”
Cerabio LLC, 410 F.3d at 992. While an integration clause alone
Nos. 16-2331 and 16-2953 13
may or may not have barred ADM’s claims, see Vigortone AG,
316 F.3d at 644, a nonreliance clause would. See Schrager, 973
N.E.2d at 939 (“We conclude that the integration/nonreliance
clause in the Agreement precluded plaintiff Schrager from
proving justifiable reliance, which was fatal to his action for
fraud.”); Landale Enterprises, Inc. v. Berry, 676 F.2d 506, 507
(11th Cir. 1982) (per curiam) (cited by Vigortone AG, 316 F.3d
at 644 as example of nonreliance clause).
ADM’s response to Schrager is to argue that it only applies
to oral communications. But Schrager does not limit itself in
that way. No language limits its discussion to only oral com-
munications. And written affidavits were at issue in the
Schrager decision. See Schrager, 973 N.E.2d at 937–38. The ra-
tionale for barring fraud claims is also the same for both oral
and written statements: “sophisticated parties to negotiated
commercial contracts may not reasonably rely on information
that they contractually agreed did not form a part of the basis
for their decision to contract.” Cerabio LLC, 410 F.3d at 991 (ci-
tation omitted).
Further distinguishing this case from Ainsworth, there
were no continuing representations in this case. Paragraph
nine of the Termination and Settlement Agreement cut off the
legal effect of prior representations other than those explicitly
carved out in the document. ADM argues that paragraph four
of the Termination Agreement means that representations
concerning the Certificates of Analysis referenced in Section
2.2 of the Purchase Agreement survive the Termination
Agreement. We disagree. Paragraph four of the Termination
Agreement provides that as of the date of closing, the Pur-
chase Agreement terminates as do all of the obligations,
14 Nos. 16-2331 and 16-2953
rights, and duties under it. The only exception is for any pro-
visions or clauses “that by their very terms (including, but not
limited to, Sections 5.2, 5.3, 5.4, 9.2, and 10.1 through 10.3) are
intended to survive the termination” of the Purchase Agree-
ment. Section 2.2 is not listed, and with good reason. Section
2.2 only requires SGA to provide ADM with “a signed and
dated Certificate of Analysis (the ‘COA’) for each production
lot which shall accompany all Product or Products shipped or
supplied” to ADM from SGA. That is not a duty that by its
terms is intended to survive the end of the Purchase Agree-
ment. The obligation to provide a Certificate of Analysis ac-
companying each supplied production lot no longer exists
when no more production lots are being supplied or shipped.
Section 2.2 also stands in contrast to the sections specifi-
cally listed in paragraph four of the Termination Agreement,
which concern keeping samples (5.2), safeguarding proprie-
tary information (5.3, 5.4), taxes (9.2), and indemnification
(10.1, 10.2). Section 10.3 does state that the “warranties, repre-
sentations, and indemnifications set forth in this Section and
this Agreement shall survive the termination of this Agree-
ment” unless expressly waived, and ADM argues that SGA
and Yu breached this obligation. But there is no warranty or
representation in either agreement that the Certificates of
Analysis accurately reflect the product’s potency; Section 2.2
does not even refer to potency. So there were no relevant con-
tinuing representations, and no breach of any obligations un-
der either agreement.
Two sophisticated businesses signed an agreement to
walk away from each other here. ADM chose to relinquish its
right to bring any and all claims arising out of the Purchase
Agreement, whether known or unknown. It also agreed that
Nos. 16-2331 and 16-2953 15
no representations were made to induce it to enter into the
Termination Agreement other than those contained in the
agreement. We agree with the district court that judgment on
the pleadings in favor of SGA and Yu on ADM’s fraud and
breach of contract claims was proper.
C. No Abuse of Discretion in Award of Attorney’s Fees
ADM also appeals the attorney’s fees award entered
against it. We review an attorney’s fee award for abuse of dis-
cretion. DeliverMed Holdings, LLC v. Schaltenbrand, 734 F.3d
616, 625 (7th Cir. 2013). The Termination Agreement provided
that if a legal action was brought for its enforcement or inter-
pretation, or because of an alleged breach of it, the prevailing
party was entitled to reasonable attorney’s fees and costs.
ADM argues that the fee award was improper because the
Purchase Agreement does not have a clause providing for at-
torney’s fees to the prevailing party. But by ADM’s own com-
plaint, this case required the interpretation of the Termination
Agreement too. Each count of its complaint, for example,
sought to recover $750,000 from SGA or Yu, an amount that
was based on provisions in the Termination Agreement. We
find no abuse of discretion in the award of reasonable attor-
ney’s fees and costs to SGA and Yu.
III. CONCLUSION
The judgment of the district court is AFFIRMED.