Chicago United Industries, Ltd. v. City of Chicago

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3361
C HICAGO U NITED INDUSTRIES, L TD., et al.,
Plaintiffs-Appellants,
v.
C ITY OF C HICAGO, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 5011—Robert M. Dow, Jr., Judge.
A RGUED N OVEMBER 29, 2011—D ECIDED JANUARY 24, 2012
Before P OSNER and K ANNE, Circuit Judges, and
P RATT, District Judge.Œ
P OSNER, Circuit Judge. This suit, now in its seventh
year, pits Chicago United Industries (which the parties
call CUI) and its principals (George Loera and Nick
Massarella) against the City of Chicago and two of its
Œ
Hon. Tanya Walton Pratt of the Southern District of Indiana,
sitting by designation.
2 No. 10-3361
employees (Mary Dempsey and Louis Langone, whom
we need not discuss separately from the City). CUI
charges the City with a number of constitutional viola-
tions and also, by invoking the supplemental jurisdic-
tion of the district court, with breaches of contract under
Illinois law. After an interlocutory appeal to this court,
decided in Chicago United Industries, Ltd. v. City of
Chicago, 445 F.3d 940 (7th Cir. 2006), and a number of
amendments to the complaint, and other preliminaries,
the case finally reached a point at which the defendants
could move for summary judgment, which was granted,
precipitating this appeal.
CUI sells a variety of products, and has annual sales
that vary between about $10 million and $20 million.
It purports to be a wholesaler, though there are (or at
least were) suspicions that it’s really a broker—an inter-
mediary between the wholesalers and the City of Chicago
or other purchasers from wholesalers. “ ‘Broker’ means
a person or entity that fills orders by purchasing or re-
ceiving supplies from a third party supplier rather than
out of its own existing inventory and provides no sub-
stantial service other than acting as a conduit between
his or her supplier and his or her customer.” Chi. Mu-
nicipal Code § 2-92-420(c).
The City had certified CUI as an MBE—a minority-
owned business enterprise; Loera, the 51 percent owner,
is Hispanic. Minority-owned and women-owned busi-
ness enterprises receive favored treatment by the
City; for example, they alone can bid on certain con-
tracts with the City called “target market” contracts. Chi.
No. 10-3361 3
Municipal Code §§ 2-92-460(a), (d); City of Chicago De-
partment of Procurement Services, “Your Business
Is Certified—Now What?” p. 5, www.
cityofchicago.org/content/dam/city/depts/dps/Outreach/
YourBusinessIsCertifiedNowWhat.pdf (visited Dec. 7,
2011). The City is virtually CUI’s only customer. But
early in 2005 the City began to suspect that CUI really
was a broker rather than a wholesaler, which if true
would make it ineligible to bid for contracts as an MBE
because as a broker it would be helping wholesalers
who are not MBEs circumvent the City’s affirmative-
action policy. Office of the Inspector General, City of
Chicago, “Review of the Minority and Women-
Owned Business Enterprise Program” 2-9, 31-32
(May 2010), www.chicagoinspectorgeneral.org/wp-content/
u ploads/2011/03/Report_M W BE-Program R eview .p df
(visited Dec. 20, 2011). The policy goal is to promote
minority-owned wholesalers rather than to enable
minority brokers to scrape a broker’s premium off con-
tracts of non-MBE wholesalers. See RJB Properties, Inc. v.
Board of Education, 468 F.3d 1005, 1007 (7th Cir. 2006). CUI
had at the time only six employees, and though it claims
to have had a warehouse, which a broker would not
have had, it is hard to see how it could operate a ware-
house with so few employees, given the heterogeneous
mixture of products—signs, stainless steel, helix light
poles, air conditioners, steel cages, sewer bricks, catch
basin frames, manhole covers, de-icing chemicals, dog
food, laser speed detectors, and more—that it supplies
to the City. Maybe it has a small warehouse, from which
it distributes some of the products that it sells the City,
while acting as a broker for most of its contracts.
4 No. 10-3361
Brokers not only may not bid for wholesale contracts,
but also may not, by serving as subcontractors to whole-
salers, be certified as MBEs. Chicago Municipal Code §§ 2-
92-420(c), -480, -540(a). And so the City notified CUI that
it was considering revoking its certification, though it
never completed its investigation and the company
retains the certification to this day.
The City also believed that the company had shorted
it on a shipment of aluminum sign blanks, and on that
ground notified the company that it was considering
debarring it from dealing with the City altogether,
whether or not it remained an MBE.
Both notifications—of possible decertification and
possible debarment—were issued in March 2005, and for
the next five months the City drastically curtailed its
purchases from CUI. From an average of $1 million a
month they fell to about $190,000 a month, and during
this period the company sustained a net loss of more
than $600,000, which is the principal item of damages
that it seeks.
At the end of the five-month period the City formally
debarred the company from selling to the City for three
years. The company sued immediately, and promptly
sought and obtained a temporary restraining order and
as a result the debarment was in effect for only eight
days. The City soon abandoned its attempt to debar
the company, and in the decision cited earlier we dis-
missed the defendants’ appeal from the district court’s
order (which had ripened into a preliminary injunction,
and thus was appealable) as moot. From that point the
No. 10-3361 5
case proceeded as a suit for damages for losses sustained
by CUI during the five months of curtailed purchases
and the eight days of actual debarment.
We lead off with Loera’s and Massarella’s claims. We
can be brief because they are frivolous. (Actually the
entire case is pretty frivolous.) The two principals argue
that the eight-day debarment deprived them of their
occupational liberty—their right to pursue their chosen
occupation—in violation of the due process clause of
the Fourteenth Amendment. See, e.g., Board of Regents v.
Roth, 408 U.S. 564, 573-74 (1972); Townsend v. Vallas,
256 F.3d 661, 669-72 (7th Cir. 2001); Colaizzi v. Walker,
812 F.2d 304, 307 (7th Cir. 1987); Donato v. Plainview-
Old Bethpage Central School Dist., 96 F.3d 623, 630-33 (2d
Cir. 1996). Even if, as the D.C. Circuit believes, barring a
government contractor from doing business with the
government, with the effect of destroying the con-
tractor’s business because he neither has nor can
obtain any other customer, would be a deprivation of
occupational liberty (that is, even if a corporation can
have a profession, vocation, or calling), Trifax Corp. v.
District of Columbia, 314 F.3d 641, 643-45 (D.C. Cir. 2003);
Old Dominion Dairy Products, Inc. v. Secretary of Defense,
631 F.2d 953, 961-62 (D.C. Cir. 1980), an eight-day bar
that does not destroy the contractor’s business or even
permanently weaken it, but causes merely a temporary
loss, is not a deprivation of occupational liberty. “A
liberty interest is not implicated where the charges
merely result in reduced economic returns and
diminished prestige, but not permanent exclusion from or
6 No. 10-3361
protracted interruption of employment.” Munson v.
Friske, 754 F.2d 683, 693 (7th Cir. 1985). If a lawyer’s
principal client is a public agency, which gets angry
with him and as a result he loses money for five straight
months before the agency makes up with him, that is
not a de facto revocation of his license to practice law.
Anyway it isn’t CUI that’s bringing this claim, but
Loera and Massarella, and their employment by the
company was never interrupted. “One simply cannot
have been denied his liberty to pursue a particular oc-
cupation when he admittedly continues to hold a job—the
same job—in that very occupation.” Abcarian v. McDonald,
617 F.3d 931, 941-42 (7th Cir. 2010).
So much for Loera and Massarella. The company’s
principal argument is that the City deprived it of its
property without due process of law, the property con-
sisting of its certification as a minority business enter-
prise. The City didn’t actually decertify the company,
but the argument is that by drastically reducing its pur-
chases from it for five months the City effectively de-
certified it for that period, since during that time it
had a net loss.
The City argues that certification as a minority
business enterprise is not property within the meaning
of the word in the due process clause because it is too
contingent: it is merely an opportunity to sell to the
City rather than a right to do so. On this ground it dis-
tinguishes the liquor license that we held to be property
in Reed v. Village of Shorewood, 704 F.2d 943 (7th Cir.
1983). But all a liquor license is is a right to sell liquor; it
is not a guarantee that anyone will buy. What makes
No. 10-3361 7
it property is that it is a potentially valuable asset to
which the holder has a legal entitlement. Board of Regents
v. Roth, supra, 408 U.S. at 577. An MBE certification
is likewise a potentially valuable asset to which the
holder has a legal entitlement because it can be revoked
only for cause, and on that ground Baja Contractors, Inc. v.
City of Chicago, 830 F.2d 667, 676-77 (7th Cir. 1987), holds
that it can be property within the meaning of the due
process clause. For “where state law gives people a
benefit and creates a system of nondiscretionary rules
governing revocation or renewal of that benefit, the
recipients have a secure and durable property right, a
legitimate claim of entitlement.” Cornelius v. LaCroix, 838
F.2d 207, 210-11 (7th Cir. 1988); see also Reed v. Village
of Shorewood, supra, 704 F.2d at 948 (“property is what
is securely and durably yours under state . . . law, as
distinct from what you hold subject to so many condi-
tions as to make your interest meager, transitory, or
uncertain”).
Although CUI’s certification as an MBE was never
revoked, there would be de facto revocation, which is
treated the same under the due process clause, if the City
“destroyed the [certification’s] value.” Id. at 949; see also
Med Corp., Inc. v. City of Lima, 296 F.3d 404, 411-13 (6th
Cir. 2002); Westborough Mall, Inc. v. City of Cape Girardeau,
794 F.2d 330, 336-37 (8th Cir. 1986); cf. Parrett v. City of
Connersville, 737 F.2d 690, 693-95 (7th Cir. 1984) (con-
structive discharge of a public employee in violation of
the due process clause). But diminution is not destruc-
tion, and diminution is all the company has shown. It
continued to bid on City contracts, and won some,
8 No. 10-3361
while continuing to function as an MBE on its existing
contracts with the City. Throughout the five-month
period in question it sold $939,000 worth of goods to
the City, some under new contracts, some under
existing ones. True, it had nowhere near the same
success that it had had before and would have again,
and we can assume that the City’s hostility was the
reason it lost money during the five-month period. But
temporary losses are common in business, and do not
equate to destruction.
Furthermore, to curtail liberty in conformity with law
is not a denial of due process. Otherwise our jails and
prisons would be empty. CUI presented no evidence
that the City violated any terms of the company’s
MBE certification in curtailing purchases from the com-
pany while pursuing efforts to debar or decertify it.
The eventual abandonment of those efforts doesn’t show
that the City’s suspicions that the company was a broker
and had cheated it on sign blanks and therefore was
an unreliable contractual partner were groundless—that
it lacked as it were probable cause to curtail its
business with the company. Nor has the company
made any showing that the City was forbidden by statute
or ordinance or regulation or the terms of its contracts
or the language of the company’s MBE certification to
curtail its dealings with a supplier that it had probable
cause to believe was violating the law, while it investi-
gated. So far as appears, the City’s provisional self-
help remedy was as proper as detaining an arrested
person to await a preliminary hearing before a magistrate.
No. 10-3361 9
The company makes the further constitutional argu-
ment that the City retaliated against it for its filing this
lawsuit by continuing to reject its bids and by ignoring
complaints and inquiries by Loera and other employees
of CUI concerning the City’s treatment of the company.
The pleadings and other submissions in a lawsuit are
(with very rare exceptions) public, and if they articulate
issues of public concern, most obviously but not only
in “cause” litigation, they are within the scope of the
free speech clause (and sometimes the petition for
redress of grievances clause) of the First Amendment.
See, e.g., Connick v. Myers, 461 U.S. 138, 146-48 (1983);
Borough of Duryea v. Guarnieri, 131 S. Ct. 2488, 2493-98
(2011); Salas v. Wisconsin Dep’t of Corrections, 493 F.3d
913, 925 (7th Cir. 2007); Rendish v. City of Tacoma, 123
F.3d 1216, 1219-25 (9th Cir. 1997). CUI’s suit includes
allegations that the City is wasting the taxpayers’
money, which we’ll assume is enough to bring the case
within the protection of the First Amendment. See
Wainscott v. Henry, 315 F.3d 844, 849-50 (7th Cir. 2003);
Glatt v. Chicago Park District, 87 F.3d 190, 193 (7th Cir.
1996). But the actions of which CUI complains were
not retaliation but simply the continuation beyond the
initial five-month period of the cold-shoulder treat-
ment that the City had given the company during that
period because of its suspicions.
Last, CUI claims under Illinois law that the City broke
contracts that it had made with the company. The decline
in purchases during the five-month period resulted not
only from the City’s turning down new bids by the com-
10 No. 10-3361
pany but also from its reducing its purchase orders
under requirements contracts that the City had made
with the company and from its refusing to renew some
contracts that expired during that period. CUI contends
that both the reduced orders and the refusals to
renew expired contracts were breaches of contract.
A requirements contract would be empty if the
purchaser could at will decide that he “required” less
from the seller. To avoid constituting a breach, therefore,
a change in requirements has to be in good faith—has to
be based for example on a reduction in demand for
the purchaser’s end product and therefore in the pur-
chaser’s demand for the input purchased under the
requirements contract, rather than on the purchaser’s
regretting having made the contract. 810 ILCS 5/2-306(1);
Schawk, Inc. v. Donruss Trading Cards, Inc., 746 N.E.2d
18, 25 (Ill. App. 2001). But the seller has the burden
of proving that the purchaser acted in bad faith
in reducing his “requirements.” Zeidler v. A&W
Restaurants, Inc., 301 F.3d 572, 575 (7th Cir. 2002) (Illinois
law); Empire Gas Corp. v. American Bakeries Co., 840 F.2d
1333, 1341 (7th Cir. 1988) (ditto).
CUI’s most dramatic example of an alleged breach of
one of the requirements contracts is the City’s not buying
any dog food from the company during the five-
month period. Surely, the company argues, the dogs
(police dogs) could not go without food for five
months—they would have been driven to roam in
packs, eating small children, or even each other; the
pathetic starved bodies of the weaker or more
No. 10-3361 11
fastidious dogs would have littered the Chicago side-
walks. None of this happened. Therefore the City must
have been getting the dog food from some other
supplier, in violation of the requirements contract.
This is conjecture, rather than actual evidence of
breach, and contrary conjectures can easily be proposed:
that the City had overbought dog food, and was
working off a swollen inventory; that it had reduced the
number of police dogs as an economy measure; that
the dog food that CUI had obtained from its sup-
pliers lately was unpalatable. Only imagination limits
conjecture. In a case that had been dragging on for
years, the company had ample opportunity in pretrial
discovery to ascertain the actual reasons for the decline
in orders, and it either failed to avail itself of the oppor-
tunity or found no evidence to support its conjecture.
CUI does cite testimony of a City employee named
Wolfe that he was ordered not to do any business with
the company, period, which is some evidence that the
City was failing to obtain its requirements from the
company. But the testimony is weak and vague, the
key passage in it being that “from that time [the date of
the order not to do business with CUI], Wolfe does not
recall ordering anything from CUI, even on the valid
contracts that CUI had with the City” (emphasis added).
Should he have recalled it? Who knows? Wolfe’s
evidence was not enough to raise a triable issue.
In its reply brief CUI mentions for the first time an
alleged breach by the City of a contract to deliver sewer
bricks. The extended narrative in the district court to
12 No. 10-3361
which the brief refers the reader describes complicated
contractual maneuvering. The company refused to
deliver the bricks unless the City extended the contract
term and increased the contract price. A letter from the
responsible City official rejected that demand. CUI de-
scribes the official as having by that rejection “reneged
on her election to extend the contract,” yet also states
that in the interval between the “election” and the “reneg-
ing” “CUI did not have a legal contract . . . and was not
required to deliver.” After the “reneging,” the City
placed an emergency order with another supplier, and
the company argues that the processing of the order
took longer than if the City had ordered from it. Later,
it adds, the sewer-brick contract was twice rebid—and
CUI won the bid. The City says that it had placed the
emergency order with another supplier because CUI
was refusing to deliver, pending formal modification of
its original contract—CUI acknowledges this. We can’t
begin to figure out what was going on—or what the
breach of contract was.
CUI makes the further argument (again relying
mainly on testimony by Wolfe) that during the five-
month period the City arbitrarily refused to extend its
contracts with the company when the contracts ex-
pired. The company argues that an unreasonable
refusal to extend a contract is a breach of contract.
Not so. The purpose of including an expiration date
in a contract is to allow a party to terminate its rela-
tionship with the other party without having to give
a reason.
No. 10-3361 13
This case has dragged on for far too long. It has no
possible merit. Let this be the last of it. The judgment
in favor of the defendants is
A FFIRMED.
1-24-12