A.T.N. Incorporated v. McAirlaid Vliesstoffe GmbH & C

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-2727
A.T.N., INC., an Illinois corporation,
Plaintiff-Appellant,
v.
M C A IRLAID ’S V LIESSTOFFE G MBH& C O . KG, a foreign
corporation of the Federal Republic of Germany,
A IRLAID A LLIANCE S P.Z.O .O ., a joint venture of the
Republic of Poland, and N EWC O A BSORBENTS
G MBH & C O . KG, a foreign corporation of
the Federal Republic of Germany,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 7286—John F. Grady, Judge.
A RGUED D ECEMBER 11, 2008—D ECIDED F EBRUARY 25, 2009
Before M ANION, E VANS, and T INDER, Circuit Judges.
M ANION, Circuit Judge. Plaintiff A.T.N., Inc. (“ATN”)
entered into an agreement with the defendants to
import absorbent medical underpads. The agreement
contained a clause granting ATN the right to retain its
customers as long as it purchased the underpads from
2 No. 08-2727
the defendants. A year later, the defendants informed
ATN’s sole customer that ATN would no longer supply
the underpads. ATN sued for breach of contract and
unjust enrichment. ATN now appeals from the grant of
summary judgment in favor of the defendants on the
breach of contract claim. We AFFIRM.
I.
ATN is an Illinois corporation that provides financing
and marketing services to other businesses. Its president
and sole shareholder is Yossi Azaraf. In 2003, Azaraf
became interested in “absorbent cores,” which can be
used to make hygiene products such as absorbent
underpads for use in medical facilities. These cores
were manufactured by defendant McAirlaid’s Vliesstoffe
GmbH & Co. KG (“McAirlaid”), a German manufacturer.
In early 2004, Azaraf traveled to Germany and met with
Alex Maksimow, the chief executive officer and sole
shareholder of McAirlaid. In September 2004, Azaraf
returned to Germany with Robert Shapiro, a potential
investor, and again met with Maksimow and representa-
tives from defendant NewCo Absorbents GmbH &
Co. KG (“NewCo”), a German manufacturer that used
McAirlaid’s absorbent cores to make the underpads,
and from defendant Airlaid Alliance Sp.z.o.o. (“AA”),
a Polish supplier of machinery necessary to make absor-
bent cores and finished products with those cores.1
1
Both NewCo and AA were majority-owned by McAirlaid.
No. 08-2727 3
Following this meeting, on September 24, 2004, ATN,
NewCo, McAirlaid, and AA signed a three-page “Letter
of Intent.” The preamble to the Letter of Intent stated
that “ATN wishes to develop sales of hygiene products
in the North American market based on finished products
manufactured by Newco a company affiliated with
McAirlaids and AA.” The letter stated that “ATN intends
to install” manufacturing equipment in the United
States to create the absorbent cores and to make finished
products from them. The companies also agreed that “ATN
will use its best efforts to rapidly develop sales of
finished products made by Newco Absorbents.” NewCo
granted ATN “exclusive rights to manufacture the prod-
ucts in North America for a period of 12 months from
the date of this agreement.” Finally, paragraph 7 of the
letter stated that “[c]ustomers of ATN who purchase the
products will remain exclusive to ATN for as long as
they continue to purchase the products from ATN and
ATN purchases the products from Newco in the agreed
quantities.”
Despite the Letter of Intent, ATN did not install any
manufacturing equipment. ATN did find a customer for
the finished products: namely, Medline Industries, Inc.
(“Medline”), a distributor of medical products. ATN sold
products to Medline until December 2005, when
Maksimow wrote to ATN to end their business relation-
ship. The letter stated that “we have informed Medline
that if they have further requirements, they should place
the orders with McAirlaids direct and they have agreed
to this.” Medline sent an email to ATN, stating that
NewCo had claimed that ATN would no longer be able
to sell its products.
4 No. 08-2727
ATN responded by filing suit against defendants
McAirlaid, NewCo, and AA, claiming that the defendants
had breached their contract with ATN and had unjustly
enriched themselves. NewCo filed counterclaims against
ATN for breach of contract and unjust enrichment. Upon
their motion, the district court granted summary judg-
ment for the defendants on both of ATN’s claims. The
parties subsequently settled NewCo’s counterclaims
and a final judgment was entered. ATN appeals, solely
challenging the grant of summary judgment for the
defendants on its breach of contract claim.
II.
The district court had jurisdiction over this diversity
suit between an Illinois entity and foreign entities under
28 U.S.C. § 1332(a)(2). The district court applied the law of
the forum state, Illinois. Because the parties do not con-
test the application of Illinois law, we apply that state’s
law as well. Employers Mut. Cas. Co. v. Skoutaris, 453
F.3d 915, 923 (7th Cir. 2006). When interpreting a con-
tract, “[t]he primary objective of the court is to deter-
mine and give effect to the intent of the parties as ex-
pressed in the language of the policy.” Clayton v. Millers
First Ins. Cos., 892 N.E.2d 613, 615 (Ill. App. Ct. 2008). A
reviewing court will “assume that every provision in the
contract serves a purpose” and the contract should be
“construed as a whole.” Id.ATN claims that the defendants breached the contract
by preventing it from making future sales to Medline,
thereby violating the terms of the exclusivity clause in
No. 08-2727 5
paragraph 7. That clause states that “[c]ustomers of ATN
who purchase the products will remain exclusive to
ATN for as long as they continue to purchase the
products from ATN and ATN purchases the products
from Newco in the agreed quantities.” The district court
rejected this claim, concluding that “agreed quantities”
referred to amounts that ATN agreed to purchase from
NewCo. Because the parties had left open a material term
in the contract, the district court concluded that the
parties did not intend for the exclusivity clause to be
binding. ATN argues on appeal that the district court
misinterpreted paragraph 7 of the Letter of Intent and
contends that “agreed quantities” refers to amounts
agreed to be purchased by customers from ATN.2 At
first blush, ATN’s argument seems to have merit. The
first part of paragraph 7 refers to customers purchasing
products from ATN. Paragraph 7 then indicates that
these customers will remain customers of ATN as long as
they purchase “the products” from ATN and ATN then
purchases “the products” from NewCo. The only agree-
ment mentioned in paragraph 7 prior to the phrase “agreed
quantities” is the agreement between the customers
and ATN. It is not unreasonable to conclude that the
2
NewCo claims that ATN has waived this argument by
failing to raise it in the district court. ATN responds that it
did raise the general issue of the meaning of the provision.
Because we conclude that ATN cannot obtain relief even if
ATN preserved this issue and the issue were resolved in ATN’s
favor, we need not decide whether ATN has waived this
argument.
6 No. 08-2727
phrase “agreed quantities” refers to the only agreement
previously mentioned: namely, the agreement between
the customers and ATN. Under this interpretation, ATN
would be obliged to purchase all the products ordered
by its customers from NewCo, under pain of losing its
exclusive relationship with those customers.3 However,
it is unnecessary for us to resolve this issue, because
regardless of its outcome the contract cannot be enforced.
Even if we were to read paragraph 7 of the Letter of
Intent as ATN posits, we must still affirm the district
court’s grant of summary judgment for the defendants
because the Letter of Intent was terminable at will. Illinois
law generally disfavors perpetual contracts. Jesperson
v. Minn. Mining & Mfg., 700 N.E.2d 1014, 1017 (Ill. 1998).
For this reason, contracts of indefinite duration are gen-
erally deemed terminable at will by either party. Id. at
3
ATN also develops a separate argument that the relevant
sentence establishes a “requirements contract” with NewCo,
under which NewCo would be required to provide ATN all
the products necessary for ATN to fulfill its orders. Although
ATN couches this interpretation as distinct from the inter-
pretation described above, it seems that ATN has merely
reproduced the same interpretation in a different guise. That
is, under ATN’s reading of the relevant sentence, ATN would
be obliged to turn to NewCo for the ordered products, and
NewCo would be obliged to supply ATN with the products
necessary to fulfill its orders. Nonetheless, regardless of
whether this is a separate argument or just a re-packaging of
its original interpretation, ATN is not entitled to relief, as will
be shown below.
No. 08-2727 7
1016. As the Illinois Supreme Court explains, “Where
parties have failed to agree on a contract’s duration, the
contract is construed as terminable at the will of either
party because they have not agreed otherwise and it
would be inappropriate for a court to step in and sub-
stitute its own judgment for the wisdom of the parties.”
Id. at 1017. “Advances in technology, changes in con-
sumer taste and competition mean that once-profitable
businesses perish regularly. Today’s fashion will tomor-
row or the next day inevitability fall the way of the
buggy whip, the eight-track tape and the leisure suit.
Men and women of commerce know this intuitively and
achieve the flexibility needed to respond to market de-
mands by entering into agreements terminable at-will.” Id.However, if an otherwise indefinite contract is termina-
ble upon the occurrence of a specific event, then it is not
considered terminable at will. Id. at 1016. This event
must be “an objective event, the occurrence of which
terminates the contract thereby making it sufficiently
definite in duration.” R.J.N. Corp. v. Connelly Food Prods.,
Inc., 529 N.E.2d 1184, 1187 (Ill. App. Ct. 1988) (quotations
and citations omitted). Thus, we must determine
whether the exclusivity clause was tied to a specific,
objective event that would render the agreement suffi-
ciently definite in duration. If it was, then the defendants
could not terminate the contract without giving rise to
a cause of action for breach.
Illinois courts have considered various contractual
terms to determine whether they establish a specific
event that will prevent a contract from being deemed
8 No. 08-2727
terminable at will. In Jesperson v. Minnesota Mining &
Manufacturing Co., 681 N.E.2d 67 (Ill. App. Ct. 1997), the
Illinois Appellate Court examined whether a contract
was of indeterminate duration and thus terminable at
will. The contract in question permitted one party to
terminate the contract for one of several listed material
breaches, and allowed the other party to terminate upon
30 days’ written notice. Id. at 70-71. The Illinois Appellate
Court stated that “[i]f one of the parties could institute
a termination-triggering event, then the contract should
be considered terminable at will.” Id. at 70. The court
held that, because one of the parties could breach the
contract and thereby provide grounds for termination,
the events permitting termination could not “be con-
sidered objective events that would have the effect of
making the agreement sufficiently definite in duration,” id.,and the contract was deemed terminable at will, id.The Illinois Supreme Court affirmed for two reasons.
Jesperson, 700 N.E.2d 1014. First, “the language of the
termination provision is permissive and equivocal;
a party ‘may’ terminate for the stated grounds.” Id. at 1016.
The Illinois Supreme Court contrasted this situation to “a
case in which the parties included an exclusive
and specific right to terminate for cause in a contract other-
wise of indefinite duration.” Id. Second, the court
noted that “the termination events are themselves in-
stances of material breach, and any contract is terminable
upon the occurrence of a material breach.” Id. The court ap-
provingly cited a Fifth Circuit case for the proposition
that “ ‘[a]n agreement which is otherwise indefinite
in duration and terminable at will cannot be converted
No. 08-2727 9
into an agreement of definite duration by the mere tran-
scription of such universals within the text of the contract”.’
Id. at 1016-17 (quoting Trient Partners I Ltd. v. Blockbuster
Entm’t Corp., 83 F.3d 704, 709 (5th Cir. 1996)).
Under the rationale of both Jesperson cases, the exclusiv-
ity clause in paragraph 7 of the Letter of Intent was termi-
nable at the will of either party. The clause stated
that customers would remain exclusive to ATN “for as
long as they continue to purchase the products from
ATN and ATN purchases the products from Newco in
the agreed quantities.” Three events would therefore
end exclusivity: first, the customer stops purchasing from
ATN; second, ATN stops purchasing its customers’
requirements from NewCo; and third, NewCo stops
supplying ATN. Thus, the contract permitted both ATN
and NewCo independently to terminate the contract.
Under the two Jesperson decisions, a contract permitting
one party to terminate based on a material breach by
the other party is deemed terminable at will. 681 N.E.2d
at 70; 700 N.E.2d at 1016-17. In this case, both parties
could end the agreement by non-performance, and
hence these cases require the conclusion that the con-
tract was terminable at will. Because the contract termi-
nates if either party stopped purchasing or supplying
the products, under Illinois law the contract between
ATN and the defendants was terminable at will. See also
Mid-West Energy Consultants, Inc. v. Covenant Home, Inc.,
815 N.E.2d 911, 915 (Ill. App. Ct. 2004) (holding that a
contract that failed to specify duration was terminable
at will); Cress v. Recreation Servs., Inc., 795 N.E.2d 817,
832, 839-40 (Ill. App. Ct. 2003) (holding that an employ-
10 No. 08-2727
ment contract was tied to an objective event and thus
not terminable at will; the contract guaranteed that the
employee’s salary would not be substantially reduced as
long as he remained “capable of performing” his job);
R.J.N., 529 N.E.2d at 1187 (holding that a contract was
terminable at will when it stated that “this agreement will
remain in effect for as long as [one party] serves [the
other’s] customers”).
This outcome is in accord with our decision in
Baldwin Piano, Inc. v. Deutsche Wurlitzer GmbH, 392 F.3d
881 (7th Cir. 2004). In Baldwin, the parties had worked
under a licensing contract for eighteen years before the
licensor filed suit to declare the licensing agreement
unenforceable as a contract of indefinite duration. The
contract stated that “this Agreement shall continue in
force without limit of period but may be cancelled
by the Licensor for material breach.” Id. at 882. Once a
material breach occurred, the licensor was required to
notify the licencee, who then had 90 days to cure the
breach or seek arbitration; should the licensee fail to do
either, the licensor could then terminate the contract. Id.Baldwin found this contract to be similar to that in
Lichnovsky v. Ziebart International Corp., 324 N.W.2d 732(Mich. 1982), a case discussed by the Illinois Supreme
Court in Jesperson. Baldwin, 392 F.3d at 884. In Lichnovsky, a
contract was deemed definite and not terminable at will
when one party could terminate upon the other’s breach
only after giving the breaching party the opportunity to
cure within a defined period. 324 N.W.2d at 736-37. The
Illinois Supreme Court in Jesperson had found the con-
tract in Lichnovsky to be different from that in Jesperson.
700 N.E.2d at 1016. This court in Baldwin found that a
No. 08-2727 11
contract permitting termination only after a material
breach and failure to cure within a specified period was
not terminable at will. 392 F.3d at 886. In contrast, the
contract between ATN and McAirlaid requires termina-
tion immediately upon either party’s refusal to comply
with the contract. Therefore, the contract was terminable
at will.
ATN argues that the contract was sufficiently definite
because it was terminable based on events other than a
breach, namely when customers no longer purchased the
products from ATN. However, the two cases cited by
ATN—In re Commodity Merchants, Inc., 538 F.2d 1260 (7th
Cir. 1976), and Stein v. Isse Koch & Co., 112 N.E.2d 491 (Ill.
App. Ct. 1953)—involved contracts that were only ex-
pressly terminable based on events other than com-
pliance with the contractual terms, see In re First
Commodity Merchs., 538 F.2d at 1262 n.1 (stating that one
party may terminate contract if the other party’s “financial
condition is found to be or becomes unsatisfactory”);
Stein, 112 N.E.2d at 493 (contract would end at termina-
tion of the plaintiff’s military service). Conversely, in
this case paragraph 7 of the Letter of Intent permits
either ATN or NewCo to terminate the contract at will by
simply refusing to comply with its terms. Accordingly,
the exclusivity clause in the Letter of Intent makes this
agreement terminable at will.
III.
Because the agreement between ATN and the defendants
was of indefinite duration and not bounded by a specific
12 No. 08-2727
event, it was terminable at will under Illinois law. There-
fore, the defendants could cease supplying ATN without
running afoul of the agreement. Accordingly, the district
court’s grant of summary judgment for the defendants
on ATN’s breach of contract claim is A FFIRMED.
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