763 F.3d 735
7th Cir.2014Background
- SFG, a sophisticated distressed-loan buyer, purchased a $4.42M loan portfolio from McFarland for $1.27M (28.8% of face).
- McFarland represented that no material portion of collateral was released from the lien; the contract defined collateral and releases. §6.2(h).
- After purchase, SFG learned three collateral properties had been released prior to the sale; McFarland disputed liability for breach.
- The Loan Sale Agreement limited remedies for non-monetary breaches to cure within 30 days, or elect either repurchase at Repurchase Price or pay damages not exceeding Repurchase Price; it also excluded consequential, special, punitive damages.
- Repurchase Price = purchase price minus amounts SFG collected on the loans, minus depreciation due to SFG’s fault, plus reasonable maintenance costs.
- SFG sold 13 of 16 remaining collateral properties for about $1.31M (netting slightly more than the purchase price); three properties worth ~$320k remained.
- SFG sued McFarland for approximately $387k in damages; the district court granted summary judgment for McFarland, holding the remedies were exclusive and limited to the Repurchase Price.
- On appeal, the Seventh Circuit affirms, holding the remedies limitation is enforceable and does not fail its essential purpose; SFG gets zero recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the remedies limitation enforceable as exclusive remedy? | SFG contends the limitation may fail its essential purpose or be waived. | McFarland argues the limitation is enforceable and waives nothing by disputing liability. | Enforceable; limitation does not fail its essential purpose. |
| Does the limited remedy provide any recovery given SFG profits exceed purchase price? | SFG should be entitled to damages despite profits from sale. | Limitation prevents recovery beyond Repurchase Price, which can be negative here. | SFG has zero recovery; the remedy is exhausted by the contract terms. |
Key Cases Cited
- Murray v. Holiday Rambler, Inc., 265 N.W.2d 513 (Wis. 1978) (limits on exclusive remedies must provide fair protection; not unconscionable)
- Waukesha Foundry, Inc. v. Industrial Eng’g, Inc., 91 F.3d 1002 (7th Cir. 1996) (failure of essential purpose analysis for contract remedies)
- Phillips Petroleum Co. v. Bucyrus-Erie Co., 388 N.W.2d 584 (Wis. 1986) (minimum adequate remedies concept under U.C.C.)
- Jindra v. Diederich Flooring, 511 N.W.2d 855 (Wis. 1994) (contingent liability; no waiver while liability is uncertain)
- Resolution Trust Corp. v. Key Financial Services, Inc., 280 F.3d 12 (1st Cir. 2002) (remedies on repurchase: on-demand nature matters for essential purpose)
- Central States, Southeast & Southwest Areas Pension Fund v. Slotky, 956 F.2d 1369 (7th Cir. 1992) (contract interpretation and remedy limitations; fresh review of terms)
- Wisconsin Power & Light Co. v. Westinghouse Elec. Corp., 830 F.2d 1405 (7th Cir. 1987) (remedies in exclusive-bargain contexts; allocate risk in the bargain)
- Dittman v. Nagel, 168 N.W.2d 190 (Wis. 1969) (apply general warranty principles to sale-like transactions)