Sanchelima Int'l, Inc. v. Walker Stainless Equip. Co.
920 F.3d 1141
7th Cir.2019Background
- Walker (manufacturer) and Sanchelima (exclusive distributor) entered a 2013 distribution agreement selecting Wisconsin law; Walker promised not to sell directly in 13 Latin American countries.
- The contract contained a limited remedies clause capping liability to amounts paid under a purchase order (Section X(F)) and a consequential-damages exclusion (Section X(G)).
- Despite the exclusivity, Walker made several direct sales in Mexico and elsewhere in Latin America (notably a large Nestlé sale), which Sanchelima treated as breaches.
- Sanchelima sued for breach and sought lost profits; the district court found Walker breached and awarded $778,306.70 in lost-profit consequential damages.
- Walker argued the contract’s limited remedies and consequential-damages disclaimer barred recovery; the district court rejected that, holding the limited remedy failed of its essential purpose under Wis. Stat. § 402.719 and thus the consequential-damages exclusion was unenforceable.
- On appeal, Walker urged the court to abandon Wisconsin’s precedent (Murray) adopting the "dependent" approach in favor of the "independent" approach, or to certify the question to the Wisconsin Supreme Court; the Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Wisconsin law treats a failed limited remedy as automatically voiding a consequential-damages exclusion (dependent vs. independent approach) | Murray and subsequent Wisconsin decisions adopt the dependent approach: if the exclusive/limited remedy fails of its essential purpose, consequential damages exclusion is per se unenforceable | Walker: Murray was dicta; Wisconsin should adopt the independent approach (consequential exclusion survives unless unconscionable on its own) | Court held Murray and later Wisconsin decisions bind it; dependent approach applies under Wisconsin law |
| Whether this federal court may overturn or predict a change in settled state precedent | Sanchelima: federal court must follow controlling state precedent (Murray) | Walker: court should predict that Wisconsin would adopt the independent approach or certify the question to the Wisconsin Supreme Court | Court held it cannot overturn state precedent nor certify because Wisconsin’s scheme bars certification when there is controlling state precedent |
| Whether Walker waived alternative arguments about available contract remedies on summary judgment | Sanchelima: Walker argued at summary judgment that the contract left Sanchelima with no recoverable damages; thus Walker cannot later assert other contract remedies | Walker: later argued other contractual remedies were available | Court held Walker waived those alternative arguments by not raising them at summary judgment |
| Whether the district court correctly awarded consequential damages (lost profits) | Sanchelima: limited remedy failed, so UCC remedies including consequential damages available; evidence supported lost-profit award | Walker: limited remedies barred lost profits; even if not, factual/causal challenge | Court affirmed district court’s findings of breach and the lost-profit award; judgment affirmed |
Key Cases Cited
- Murray v. Holiday Rambler, 265 N.W.2d 513 (Wis. 1978) (Wisconsin adopted the dependent approach: failed exclusive remedy makes consequential-damages exclusion unenforceable)
- Trinkle v. Schumacher Co., 301 N.W.2d 255 (Wis. 1980) (applied Murray to award consequential damages when limited remedy failed)
- Phillips Petroleum Co. v. Bucyrus-Erie Co., 388 N.W.2d 584 (Wis. 1986) (struck remedy limitation and applied UCC remedies under § 2-719(2))
- Waukesha Foundry, Inc. v. Industrial Engineering, Inc., 91 F.3d 1002 (7th Cir. 1996) (recognized that under Wisconsin law a buyer may invoke UCC remedies when an exclusive remedy fails)
- Fidelity & Deposit Co. of Md. v. Krebs Engineers, 859 F.2d 501 (7th Cir. 1988) (acknowledged Wisconsin law endorses Murray’s dependent approach)
- Razor v. Hyundai Motor Am., 854 N.E.2d 607 (Ill. 2006) (illustrates later state shift to independent approach by overruling prior dependent-approach precedent)