958 F.3d 637
7th Cir.2020Background
- Cook Medical (manufacturer) and Acheron Medical Supply (small-business distributor) entered a five-year distribution agreement (July 2014) appointing Acheron exclusive distributor to VA/DOD for certain products and non‑exclusive for others.
- Acheron required a VA Federal Supply Schedule (FSS) to resell to the VA; federal rules required a reseller without public sales to obtain manufacturer authorization for VA access to the manufacturer’s commercial sales records.
- Cook already maintained its own DAPA for DOD sales and refused to deactivate it; Cook also declined to submit its confidential sales records to a VA audit, blocking Acheron’s FSS application and Acheron’s ability to sell to the DOD via its own DAPA.
- Cook notified Acheron of breach and terminated; Acheron sued for Cook’s alleged breaches; Cook counterclaimed for Acheron’s failure to obtain the FSS and sought recovery of commissions paid.
- The district court granted summary judgment for Cook (no breach by Cook), found Acheron materially breached by failing to obtain the FSS, but excused Acheron’s liability under the agreement’s force majeure clause; both parties appealed.
- The Seventh Circuit affirmed: Cook had no contractual duty to submit to the VA audit or deactivate its DAPA; Acheron materially breached by failing to obtain the FSS, but the VA’s denial (an act of government) excused Acheron’s liability under the force majeure provision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cook was contractually required to submit to the VA audit of its commercial sales records | Acheron: ICC implied duty of good faith, prevention doctrine, federal regulations, and election-of-remedies require Cook to submit | Cook: Agreement contains no such duty; emails/letters were not binding amendments; discretion limited by contract | No — Agreement did not obligate Cook to undergo the audit; implied good‑faith duty does not create new affirmative obligations. |
| Whether Cook had to deactivate its DAPA so Acheron could sell to DOD | Acheron: Deactivation was necessary to give effect to its exclusive distributorship | Cook: Agreement permits Cook to continue direct DOD/VA sales and pay commissions; Cook Medical (signatory) ≠ Cook Incorporated | No — Agreement expressly allowed Cook to continue direct sales; no obligation to deactivate DAPA implied. |
| Whether Acheron materially breached by failing to obtain an FSS | Cook: Acheron failed an express contractual duty to procure the FSS | Acheron: Cook prevented performance and thus caused the failure | Yes — Acheron materially breached by failing to secure the FSS. |
| Whether Acheron is liable for damages for that breach (commissions) | Cook: Denial of FSS was caused by Cook’s refusal to submit records; Acheron remains liable for commissions | Acheron: VA denial was an act of government force majeure that excused liability | Acheron excused — VA denial was a force majeure event under the contract; Acheron used reasonable efforts to obtain authorization, so no damages. |
Key Cases Cited
- Biomet Orthopedics, Inc. v. TACT Med. Instruments, Inc., 454 F.3d 653 (7th Cir. 2006) (ICC gap‑filling provision applied where contract left specific term—place of delivery—unspecified)
- McArdle v. Peoria Sch. Dist. No. 150, 705 F.3d 751 (7th Cir. 2013) (good‑faith covenant cannot create obligations not in the contract)
- Wilson v. Career Educ. Corp., 729 F.3d 665 (7th Cir. 2013) (implied covenant of good faith construes how contractual discretion is exercised)
- Rogier v. Am. Testing & Eng’g Corp., 734 N.E.2d 606 (Ind. Ct. App. 2000) (prevention doctrine bars a party from benefiting from conduct that wrongfully prevents performance)
- Roberts v. Cmty. Hosps. of Ind., Inc., 897 N.E.2d 458 (Ind. 2008) (four‑corners rule — extrinsic evidence not admissible to vary a clear written contract)
- Specialty Foods of Indiana, Inc. v. City of South Bend, 997 N.E.2d 23 (Ind. Ct. App. 2013) (force‑majeure clause scope depends on contract language; foreseeability not required absent contract language)