Sunny Handicraft, 66 F.4th 1094

Background

Sunny Handicraft (Hong Kong) and Bin Teh Handicraft (mainland China) supplied seasonal goods to Walgreens; Envision This! acted as intermediary handling contracts and letters of credit.
From 2007–2012 Sunny shipped directly to Walgreens and routed documents through Envision; Sunny was routinely named beneficiary of letters of credit that Walgreens arranged.
In 2013 Envision secretly substituted itself as the beneficiary of the letters of credit, received over $3 million, and did not remit funds to Sunny.
Jury found Envision liable for breach of contract ($3,069,631.37) and for fraud (compensatory $400,000 and punitive $903,890); on appeal only the fraud award was contested.
Court addressed diversity jurisdiction and classification of foreign business entities but concluded complete diversity existed based on the plaintiffs’ ownership; court also addressed whether Envision had a duty to disclose under Illinois law because of a ‘‘special relationship.’
Court affirmed: Envision forfeited its post-trial challenge to the existence of a special relationship by failing to raise it before or during trial, and the record also supports the district court’s finding on the merits.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Envision had a duty to disclose the beneficiary switch (fraud element)	Envision’s multi-year cooperative dealings created a special relationship imposing a duty to disclose material deviations	No special relationship or fiduciary duty existed, so no duty to disclose and no fraud	Court affirmed fraud verdict: duty existed under Illinois law given prior dealings; alternative ground—defendant forfeited argument by not raising it pre- or mid-trial
Preservation: can Envision raise absence of special relationship for first time in Rule 50(b) post-trial motion?	(Sunny) Issue was tried and no pretrial dispute existed; Envision waived the argument by not raising it earlier	Envision argued it could raise pure legal questions after trial even if not previously asserted	Court held argument forfeited—Rule 50(b) does not permit first presentation of issues omitted from pretrial, and Envision cited no authority for its contrary position
Classification of foreign plaintiffs for diversity jurisdiction	Plaintiffs treated as corporations and alleged alien-citizen diversity under 28 U.S.C. §1332(a)(2)	Envision suggested foreign entities might be non-corporate (partnership/LLC) which could affect diversity	Court found diversity satisfied: factual disclosures showed limited, non-Florida ownership, so even if treated as non-corporate, citizens are Chinese, not Florida; no remand needed
Standard of review for existence of special relationship (law vs. fact)	Plaintiff: existence rested on multi-year factual course and is a mixed question for jury/finder of fact	Envision: Illinois treats special relationship as a question of law for judge	Court: federal procedure controls; existence is a mixed law-and-fact question reviewed deferentially and here not clearly erroneous

Key Cases Cited

Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir. 1998) (domestic LLCs are not automatically corporations for §1332)
Carden v. Arkoma Associates, 494 U.S. 185 (1990) (nontraditional entities treated as partnerships for diversity purposes)
Superl Sequoia Ltd. v. Carlson Co., 615 F.3d 831 (7th Cir. 2010) (Hong Kong "Ltd." treated as corporation where corporate attributes exist)
Fellowes, Inc. v. Changzhou Xinrui Fellowes Office Equipment Company Ltd., 759 F.3d 787 (7th Cir. 2014) (mainland Chinese "Ltd." can resemble an LLC; investor alienability matters)
Connick v. Suzuki Motor Co., 174 Ill. 2d 482 (Ill. 1996) (duty to disclose arises when a party has position of influence or superiority due to friendship, agency, or experience)
Mayer v. Gary Partners & Co., 29 F.3d 330 (7th Cir. 1994) (federal procedure governs jury questions in diversity cases)
U.S. Bank N.A. v. Village at Lakeridge, LLC, 138 S. Ct. 960 (2018) (existence of mixed questions of law and fact reviewed deferentially)