NewSpin Sports, LLC v. Arrow Electronics, Incorporat
910 F.3d 293
7th Cir.2018Background
- NewSpin contracted with Arrow in August 2011 under a "Materials and Manufacturing Management Agreement" where Arrow agreed to procure components, engage subcontractors to assemble products per NewSpin specifications, and deliver finished products upon NewSpin purchase orders; the Agreement included warranties, FOB shipment terms, sales-tax allocation, and a New York choice-of-law clause.
- Arrow shipped electronic components to NewSpin in mid-2012 that NewSpin alleges were defective (e.g., pad cratering); NewSpin built 7,500 units, of which 4,281 were defective or inoperable, and paid Arrow approximately $598,488 plus additional damages.
- NewSpin sued in January 2017 asserting breach of contract, breach of implied covenant, breach of warranty, fraud, fraudulent misrepresentation, unjust enrichment, and negligent misrepresentation. Arrow moved to dismiss under Rule 12(b)(6) as time-barred.
- The district court held the Agreement was predominantly a contract for the sale of goods subject to the UCC four-year statute of limitations and dismissed all claims as untimely; it also denied NewSpin’s Rule 59(e) motion and request to file an amended complaint.
- On appeal the Seventh Circuit: (1) affirmed dismissal of contract-based claims as time-barred under the UCC four-year rule; (2) affirmed dismissal of unjust enrichment and negligent misrepresentation claims; (3) reversed dismissal of fraud/fraudulent-misrepresentation claims as sufficiently collateral to the contract and within Illinois’ five-year fraud limitation; and (4) reversed the district court’s denial of leave to amend and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Agreement is predominantly a sale of goods (UCC 4‑year SOL) or services (10‑year SOL) | Agreement governed services/management; not a goods sale | Agreement principally delivers finished components; terms (warranty, FOB, title passing, sales tax, purchase-order pricing) show goods predominance | Agreement is predominantly for sale of goods; UCC 4‑year SOL applies; contract claims untimely |
| Whether breach-of-warranty and implied‑covenant claims are timely | Warranty and implied covenant claims are not barred (longer SOL / discovery rule) | Claims accrued at shipment in mid‑2012 and are time‑barred under UCC accrual rules | Warranty and implied covenant claims accrued at delivery (mid‑2012) and are time‑barred |
| Whether tort claims (fraud, negligent misrep, unjust enrichment) are contract‑dependent and time‑barred or economically barred | Fraud/negligent misrep and unjust enrichment plead independent tort duties and longer SOLs; unjust enrichment and torts are actionable | Tort claims duplicate contract claims / economic loss rule bars negligent misrep; unjust enrichment duplicates contract | Unjust enrichment and negligent misrep dismissed (duplicative/economic loss). Fraud and fraudulent misrepresentation survive as collateral/misrepresentations of present fact and fall within 5‑year fraud SOL |
| Whether district court abused discretion by denying leave to amend after dismissal | Proposed amended complaint cures pleading gaps, alleges additional deliveries into 2013 and more misrepresentation detail; Rule 15 should be applied | Post‑judgment amendment improper because case was dismissed | District court abused discretion by denying leave without evaluating the proposed amendment; remanded for consideration of amendment and timeliness issues |
Key Cases Cited
- Forgue v. City of Chicago, 873 F.3d 962 (7th Cir. 2017) (standard of review for Rule 12(b)(6) dismissal)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (application of Twombly plausibility standard)
- Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177 (Ill. 2002) (predominant-purpose test for mixed goods/services contracts)
- Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13 (2d Cir. 1996) (test for when fraud is collateral to contract and thus separately actionable)
- Corsello v. Verizon N.Y., Inc., 967 N.E.2d 1177 (N.Y. 2012) (limits on unjust enrichment where contract governs the dispute)