VLM FOOD TRADING INTERNATIONAL, INC., Plаintiff-Appellant, v. ILLINOIS TRADING COMPANY, The Obee Family Partnership, and Lawrence N. Oberman, Defendants-Appellees.
No. 14-2776
United States Court of Appeals, Seventh Circuit
Argued Feb. 24, 2015. Decided Jan. 21, 2016.
811 F.3d 247
Nor did the evidence require the bankruptcy court to find that Midwest knew the initial transfer was for less than reasonably equivalent value. At best, it knew that there was a tax deed in the chain of title, but the bankruptcy court did not clearly err by finding that was not enough to defeat Midwest‘s defense. As we hope we have made clear, not every tax sale is necessarily for less than reasonably equivalent value.
Further, the evidence did not compel a finding that Midwest intended in bad faith to collude with SIPI or subsequently to wash the property through a third party. There was evidence at trial that Midwest bought the property in an arm‘s length transaction after a lengthy negotiation with SIPI. Midwest bought the parcel as a rental property, not as an opportunity to launder the title quickly through another buyer. There were inspections of the property and review of title and the issuance of а warranty deed from SIPI. And Midwest, at the time of the bankruptcy court‘s decision, remained holder of record title.
We reject the Smiths’ argument that the bankruptcy court was required to find that Midwest knew the transfer was avoidable simply because of the presence of a tax deed or because this was an occupied residence. We defer for a future case the issue of whether a bankruptcy court could have found knowledge of voidability or bad faith on a similar record.
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To conclude, a tax sale lawfully conducted according to Illinois‘s interest rate auction system does not necessarily establish a transfer for reasonably equivalent value within the meaning of
George L. Grumley, Attorney, Grumley Kamin & Rosic, Chicago, IL, for Defendants-Appellees.
Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges.
SYKES, Circuit Judge.
This contract dispute between plaintiff VLM Food Trading International, Inc., a Canadian agricultural supplier, and Illinois Trading Company, an Illinois produce reseller, comes to us for a second time. (Illinois Trading is not the only defеndant; its president and a controlling partnership are also named.) The issue in the first appeal was whether the United Nations Convention on Contracts for the International Sale of Goods applies to the parties’ dispute. We held that it does. VLM Food Trading Int‘l, Inc. v. Illinois Trading Co. (“VLM I“), 748 F.3d 780 (7th Cir. 2014). On remand the district court ruled that under the Convention a contested attorney‘s fees provision in VLM‘s trailing invoices was not a part of the parties’ contracts and granted summary judgment accordingly.
We reject these arguments and affirm. The district judge correctly held that because Illinois Trading never expressly assented to the attorney‘s fees provision in VLM‘s trailing invoices, under the Convention that term did not become a part of the parties’ contracts. We also uphold the judge‘s finding that VLM waived its right to rely on the entry of default by failing to raise the issue until its reply brief on remand.
I. Background
VLM is a Montreal-based agricultural supplier. Illinois Trading is a reseller of agricultural produce. We laid out the full history of this litigation in VLM I, see id. at 782-84, and recount the relevant facts for purposes of this second appeal.
Starting in June 2012, VLM sold frozen potatoes to Illinois Trading through nine separate transactions without incident. Illinois Trading then encountered financial difficulty and failed to pay for the next nine shipments from VLM. The parties agree that each transaction occurred the sаme way. First, Illinois Trading sent a purchase order specifying the item, quantity, price, and place of delivery for the potatoes. Second, VLM responded with an e-mail confirming the terms of the sale. Third, VLM shipped the order and Illinois Trading accepted it. Finally, VLM followed up by mail with an invoice. Importantly for us, the trailing invoices included a provision purporting to make Illinois Trading liable for interest and collection-related attorney‘s fees if it breached the contracts.
When Illinois Trading stopped paying its invoices, VLM sued Illinois Trading; the Obee Family Partnership, which controlled Illinois Trading; and Lawrence Oberman, Illinois Trading‘s president. The defendants’ first lawyer made an appearance but then withdrew. The defendants failed to hire another attorney in a timely fashion, and the deadline for filing an answer to VLM‘s complaint came and went. Therefore, on January 12, 2013, the district court granted a motion by VLM for an entry of default against Illinois Trading, the Partnership, and Oberman.
After belatedly securing new counsel, the defendants moved to vacate the entry of default. On February 12, 2013, the judge held a hearing and vacated the default as to Oberman only. All three defendants then filed an answer, even though Illinois Trading and the Partnership had been deemed in default. The answer admitted that the defendants owed VLM the purchase price for the produce plus interest but contested liability for attorney‘s fees. After a hearing on that issue, the judge applied Illinois‘s version of the Uniform Commercial Code and found that the attorney‘s fees provision had been incorporated into thе parties’ agreement.
We reversed, holding that the U.N. Convention on Contracts for the International Sale of Goods applies. VLM I, 748 F.3d at 787. On remand the judge applied the Convention and held that the attorney‘s fees provision was not part of the contracts. The judge also found that Illinois Trading and the Partnership could benefit from this ruling, despite the prior entry of default, because VLM waived the right to rely on the default by its litigation conduct before the first appeal and by failing to raise the default issue until its reply brief on remand.
A. Attorney‘s Fees Under the Convention
As we‘ve explained, the last time this case was here, we resolved a choice-of-law question and held that the Convention controls the interpretation of the parties’ contracts. So our first question on this new appeal is whether the district judge correctly concluded that under the Convention the attorney‘s fees provision was not incorporated into the parties’ contracts. We review de novo a district court‘s interpretation of a contract. Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748, 763 (7th Cir. 2010). Treaties have the same legal effect as statutes, and therefore a district court‘s interpretation of a treaty is reviewed de novo as well. Square D Co. & Subsidiaries v. Comm‘r, 438 F.3d 739, 747 (7th Cir. 2006).
The Convention‘s definition of the “loss” resulting from a breach of contract does not itself include attorney‘s fees. See
A contract is formed under the Convention when there is a valid offer and acceptance. An offer is valid if it is “sufficiently definite аnd indicates the intention of the offeror to be bound in case of acceptance.”
So far so good—these contract principles are familiar and very similar to those expressed in the UCC. But as we noted in VLM I, 748 F.3d at 785-86, the Convention departs dramatically from the UCC by using the common-law “mirror image” rule (sometimes called the “last shot” rule) to resolve “battles of the forms.” See also Roser Techs., Inc. v. Carl Schreiber GmbH, No. 11cv302 ERIE, 2013 WL 4852314, at *5 (W.D.Pa.2013) (“[W]ith respect to the battle of the forms, the determinative factor under the [Convention] is when the contract was formed. The terms of the contract are those embodied in the last offer (or counteroffer) made prior to a contract being formed.“). Under the mirror-image rule, as expressed in Article 19(1) of the Convention, “[a] reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-of-
Under the Convention VLM had already bound itself to the contracts proposed by Illinois Trading when it confirmed Illinois Trading‘s purchase offer by e-mail. The attorney‘s fees provision therefore could not have been a counteroffer. Rather, as we said in VLM I, “[i]f the contracts were formed before Illinоis Trading received VLM‘s invoices—possibly via Illinois Trading‘s purchase orders and VLM‘s e-mail confirmations—then the attorney‘s fees and interest provisions would be proposed modifications to the contracts.” 748 F.3d at 786. Under the mirror-image rule, a party does not have to object to a proposed modification in order to keep it from being incorporated; any term that is not “mirrored” in the offer and acceptance is excluded. Contracts can only be modified by agreement of the parties,
Illinois Trading never made any statements indicating its acceptance of the proposed attorney‘s fees modification. Indeed, the only possible activity that could have indicated Illinois Trading‘s acceptance of the proposed modification was its payment of the invoices. But that conduct is just as consistent with Illinois Trading‘s obligations under the original agreement as it is with any new acceptance. Furthermore, since VLM had already completely performed its duties under the original proposed agreement, it had no performance left to offer in consideration for any (gratuitous) agreement by Illinois Trading to assume liability for VLM‘s attorney‘s fees in the event of breach. See Contempo Design, Inc. v. Chicago & Ne. Ill. Dist. Council of Carpenters, 226 F.3d 535, 550 (7th Cir. 2000) (“Indeed, the basic requirement that a contract needs consideration to be enforceable has a distinct function in this area of contract modification, a function very important in a case such as this one: to prevent coercive modifications.“).
Few American cases interpret the Convention, but those that exist support the conclusion that the contracts at issue here were formed by Illinois Trading‘s purchase orders and VLM‘s e-mail confirmations.
Likewise, in Solae, LLC v. Hershey Canada, Inc., 557 F.Supp.2d 452, 457 (D.Del.2008), the court concluded that the parties reached a binding contract after they agreed to the key terms of the deal. The court held that the forum-selection clause printed on the seller‘s trailing invoice could not modify that contract, even though the buyers had received the same invoices with the same forum-selection clause for years prior to the dispute. Id.3
VLM contends that despite the contract-formation аnalysis prescribed by the Convention, the parties subjectively intended the attorney‘s fees provision to apply. In VLM‘s view the Convention “commands” judges to consider extrinsic evidence to illuminate the parties’ intent. This argument relies largely on Article 8(3), which reads: “In determining the intent of a party ... [,] due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.” But the purpose of this intent test is to help courts interpret the statements and conduct of parties “according to [their] intent where the other party knew ... what that intent was.”
Furthermore, VLM has not presented any evidence of Illinois Trading‘s subjective intent to be bound by the attorney‘s fees provision. Oberman testified that he had never seen the provision before the start of this litigation, and it was never discussed during contract negotiations or at any other point. The only person at Illinois Trading who knew about
VLM also points to Article 9(1), which says that “parties are bound to any usage to which they have agreed and by any practices which they have established between themselves.” This clause doesn‘t help for two reasons. First, there simply isn‘t any established “practice” between Illinois Trading and VLM regarding liability for attorney‘s fees. Yes, there‘s а history of VLM printing the fee-shifting provision on invoices sent to Illinois Trading after delivery, but—as we‘ve already observed—there‘s no history of Illinois Trading acknowledging or accepting this provision as required under the mirror-image rule. Second, evidence of “usage” comes into play to clarify the meaning assigned to a contract term (“usage” is listed in parallel and in contrast to “practices” in Article 19(1)). Here, no contract term is ambiguous and thus in need of clarification by evidence of usage. In other words, there‘s no disagreement about what the attorney‘s fees provision means; the only issue is whether it was part of the parties’ agreement. Cf. St. Paul Guardian Ins. Co. v. Neuromed Sys. & Support, GmbH, No. 00 CV 9344(SHS), 2002 WL 465312, at *4 (S.D.N.Y. Mar. 26, 2002) (relying on industry practice to interpret the meaning of an ambiguous term in an uncontestably valid contract).
VLM also relies on MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova d‘Agostino, 144 F.3d 1384, 1385 (11th Cir. 1998), but that case doesn‘t help it either. In MCC-Marble the court had to construe the terms of an oral agreement that was later memorialized by a form, written in Italian and provided by one of the parties, setting forth that party‘s standard terms. Under these circumstances, the Elеventh Circuit looked to the parties’ negotiations and conduct to evaluate the discrepancies between the oral and written agreements. Id. at 1389. Here, however, the timing and terms of Illinois Trading‘s offer and VLM‘s acceptance—both of which were in writing—are clear. MCC-Marble is inapposite.
Finally, the fact that some of Illinois Trading‘s contracts with other vendors included fee-shifting provisions is not relevant under the mirror-image rule, nor is the fact that Illinois Trading paid attorney‘s fees as part of its settlements with certain vendors. Nothing in the Convention indicates that common industry practices are automatically grafted onto contracts; rather, the content of each contract must be analyzed independently. Accordingly, the district judge‘s earlier decision (long since reversed) that fee-shifting is a standard industry practice has no relevance here.
For all these reasons, the judge properly applied the Convention and held that
B. VLM‘s Waiver of the Entry of Default
But may Illinois Trading and the Partnership benefit frоm this ruling? The judge initially entered default against them but on remand held that VLM waived the right to rely on the entry of default. Orders setting aside an entry of default are reviewed for abuse of discretion. O‘Brien v. R.J. O‘Brien & Assocs., Inc., 998 F.2d 1394, 1402 (7th Cir. 1993).
The question of default in this case is a bit confused. The parties and the district court refer to a “default judgment” against Illinois Trading and the Partnership, but it‘s far from clear that a default judgment was ever formally entered in this case. The confusion could have been avoided if the parties and the court had more strictly adhered to the principlе that “[t]here are two stages in a default proceeding: the establishment of the default, and the actual entry of a default judgment. Once the default is established, and thus liability, the plaintiff still must establish his entitlement to the relief he seeks.” In re Catt, 368 F.3d 789, 793 (7th Cir. 2004). This two-step process is clearly outlined in
Moreover, on remand the judge found that VLM waived its right to rely on the entry of default against Illinois Trading and the Partnership. This finding rested on statements made by VLM‘s lawyer at the February 12, 2013 hearing (before the first appeal) and on VLM‘s failure to raise the default issue in its opening brief on remand.
At the February 12 hearing, VLM‘s lawyer discussed “narrow[ing] next week‘s [merits] hearing to just the attorney‘s fees issue instead of running up the principal and the interest all over again when that‘s already been admitted in the record now.” This statement doesn‘t shed much light on the default question. It‘s possible that
But the second source of waiver identified by the judge adds something more to the analysis. VLM never mentioned the default issue in its opening brief to the district court on remand. Instead, VLM waited until its reply brief to raise the default issue. In the judge‘s view, that was too late to give Illinois Trading and the Partnership notice of the argument and an opportunity to respond.
As a general matter, it‘s possible to waive questions of a defendant‘s default status. See, e.g., Dreith v. Nu Image, Inc., 648 F.3d 779, 790 (9th Cir. 2011) (“[B]y choosing in the district court not to avail themselves of Rules 55(c) and 60(b), and electing in their papers filed with Judge Wilson not to ‘re-argue the propriety of the default itself,’ the Companies can be charged with intentionally and tactically relinquishing known rights—which is normally called ‘waiver‘—with respect to the order of default.“); Ciccarello v. Jos. Schlitz Brewing Co., 1 F.R.D. 491, 493–94 (S.D.W.Va.1940) (holding that the plaintiff‘s consent to the defaulted defendant‘s requests for continuances constituted a waiver of the default under West Virginia law).5 We think the judge reasonably concluded that VLM waived its right to rely on the earlier entry of default by waiting until its reply brief on remand to raise the issue.6
AFFIRMED.