Betco Corp. v. Peacock
876 F.3d 306
7th Cir.2017Background
- Betco purchased Bio-Systems’ assets (including the Beloit plant) from Malcolm and Marilyn Peacock in 2010 for $5M plus $500,000 in escrow, subject to a one-year post-closing limitations clause (Agreement §10.05).
- Malcolm stayed on to run the Beloit plant as president of Betco’s Bio-Systems of Ohio (Bio-Ohio); Betco told him to focus on sales and profits.
- Post-sale Betco discovered quality-control issues: inconsistent bacterial yields, shipments with below-spec bacteria counts, and falsified or reused certificates of analysis.
- Betco paid out the $500,000 escrow early for a discount; later alleged it would have sued or withheld escrow had it known earlier.
- District court dismissed several claims on statute-of-limitations grounds, tried the remaining good-faith claim against Malcolm, and found (after bench trial) Betco failed to prove Malcolm breached the implied covenant or that Betco suffered contract-related damages.
- District court awarded attorney’s fees to the Peacocks as the Agreement provided fees to the prevailing party; the Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Betco’s breach-of-contract claim is time-barred under Agreement §10.05 | Betco contends its breach claim should be treated as intentional misrepresentation and thus exempt from the one-year bar | Peacocks contend Betco failed to timely and substantively argue that theory below, so claim is barred | Waived on appeal: Betco failed to develop the argument in district court, so appellate court declines to consider it |
| Whether Malcolm breached the implied covenant of good faith and fair dealing | Betco contends Malcolm’s direction to falsify certificates and ship substandard product breached the duty and harmed Betco | Malcolm argues his conduct did not deprive Betco of the contract’s expected benefits; Betco received a profitable business and had notice of inconsistent yields | Judgment for Malcolm affirmed: although misconduct occurred, Betco produced no evidence it was deprived of contractual benefits or suffered customer-related damages |
| Whether Betco proved damages from any alleged breach of good faith | Betco argues earlier discovery would have let it sue within the Agreement’s time limits or withhold escrow, resulting in monetary injury | Defendants argue Betco received the expected benefits and presented no proof of customer claims or lost contractual fruits | Held against Betco: no evidence of damage causally tied to Malcolm’s conduct; alternate remedies (investigation, withholding escrow) were available |
| Whether Peacocks are entitled to attorney’s fees as prevailing parties under the Agreement | Betco implicitly argues it is not the losing party entitled to fees | Peacocks point to the Agreement’s prevailing-party fee provision and district-court rulings dismissing Betco’s claims | Fee award affirmed: Peacocks prevailed on all claims and are entitled to contractual fees |
Key Cases Cited
- Consolino v. Towne, 872 F.3d 825 (7th Cir. 2017) (standard of review for summary judgment)
- Laborers’ Int’l Union v. Caruso, 197 F.3d 1195 (7th Cir. 1999) (arguments not presented below are forfeited on appeal)
- Arendt v. Vetta Sports, Inc., 99 F.3d 231 (7th Cir. 1996) (preservation of issues for appeal)
- C & N Corp. v. Kane, 756 F.3d 1024 (7th Cir. 2014) (undeveloped arguments are waived)
- United States v. Dunkel, 927 F.2d 955 (7th Cir. 1991) (a skeletal argument does not preserve an issue)
- Beidel v. Sideline Software, Inc., 842 N.W.2d 240 (Wis. 2013) (scope of implied covenant of good faith under Wisconsin law)
- Zenith Ins. Co. v. Empl’rs Ins. of Wausau, 141 F.3d 300 (7th Cir. 1998) (plaintiff bears burden to show breach of good faith and resulting denial of contractual benefits)
- Market St. Assocs., Ltd. v. Frey, 941 F.2d 588 (7th Cir. 1991) (describing implied duty of good faith as between fiduciary and mere nonfraudulent conduct)
- Ekstrom v. State, 172 N.W.2d 660 (Wis. 1969) (duty not to destroy other party’s right to receive contractual fruits)
- Metro. Ventures, LLC v. GEA Assocs., 717 N.W.2d 58 (Wis. 2006) (implied covenant protects parties’ expectation to receive contract’s fruits)