VLM Food Trading International v. Transportation Alliance Bank , 748 F.3d 780 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 13-1799 & 13-1697
VLM FOOD TRADING INTERNATIONAL ,
INC .,
Plaintiff-Appellee/Cross-Appellant,
v.
ILLINOIS TRADING COMPANY,
THE OBEE FAMILY PARTNERSHIP, and
LAWRENCE N. OBERMAN ,
Defendants-Appellants/Cross-Appellees,
and
TRANSPORTATION ALLIANCE BANK , INC .,
d/b/a TAB BANK ,
Defendant/Cross-Appellee.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 12 C 8154 — Harry D. Leinenweber, Judge.
2 Nos. 13-1799 & 13-1697
ARGUED NOVEMBER 7, 2013 — DECIDED APRIL 10, 2014
Before BAUER, MANION , and SYKES, Circuit Judges.
SYKES, Circuit Judge. VLM Food Trading International, Inc.,
is a Canadian agricultural supplier. Illinois Trading Company,
a reseller of agricultural produce, bought frozen potatoes from
VLM but encountered financial difficulty and did not pay for
them. VLM sued Illinois Trading, its president, and another
entity in a position to control the company (collectively,
“Illinois Trading”) for the outstanding balance—about
$184,000—owed on the contract. The complaint alleged four
counts, two of which were based on the Perishable Agricultural
Commodities Act (“PACA”), a depression-era law that creates
a statutory trust in favor of the seller when a buyer purchases
agricultural goods on short-term credit. 7 U.S.C. § 499e(c)(2).
To protect the assets of the statutory trust, VLM also moved for
a preliminary injunction. See id. § 499e(c)(5).
Illinois Trading had tried to stem its financial troubles by
obtaining loans from the Transportation Alliance Bank (“TAB
Bank”), giving the bank a security interest in its assets. By the
time VLM brought its lawsuit, TAB Bank had already seized all
of Illinois Trading’s assets. But the PACA-created trust made
VLM’s claim superior to the bank’s security interest. See
Patterson Frozen Foods, Inc. v. Crown Foods Int’l, Inc., 307 F.3d
666, 669 (7th Cir. 2002). VLM amended its complaint to add a
fifth claim—against TAB Bank—for seizing and converting
PACA trust assets.
Nos. 13-1799 & 13-1697 3
Prior to this amendment, however, VLM had moved for a
consolidation of the preliminary-injunction hearing with a trial
on the merits. The district court granted the motion. Everyone
understood that the consolidated injunction and merits hearing
pertained only to Counts I through IV—the claims by VLM
against Illinois Trading—and not Count V, which pertained to
the bank. When the district court issued its opinion, however,
it not only resolved Counts I through IV, it also entered
judgment for TAB Bank on Count V, holding that VLM failed
to present any evidence on that claim. VLM appeals the
judgment on Count V, arguing that it had insufficient notice
that the court would treat the consolidated preliminary-
injunction/merits hearing as a final hearing on that claim. We
agree and reverse with respect to Count V.
The district court also awarded VLM its attorney’s fees and
interest on the unpaid balance based on contractual provisions
in VLM’s invoices. Illinois Trading cross-appeals on this issue,
arguing that these provisions never became a part of the
parties’ contract. Complicating this question is a choice-of-law
dispute: Illinois Trading argues that the controlling law is the
United Nations Convention on Contracts for the International
Sale of Goods, April 11, 1980, S. TREATY DOC . NO . 98-9 (1983),
1489 U.N.T.S. 3 (“the Convention”),1 while VLM argues that
Illinois’s version of the Uniform Commercial Code controls.
The relevant provisions in the Convention are materially
different from those of the Uniform Commercial Code. The
district court applied Illinois law and found that the invoice
1
Available at https://treaties.un.org/doc/Publication/UNTS/Volume%201489/
volume-1489-I-25567-English.pdf.
4 Nos. 13-1799 & 13-1697
provisions regarding attorney’s fees and interest became a part
of the contract. We hold that the Convention controls and
therefore reverse and remand for further proceedings.
I. Background
VLM filed its complaint against Illinois Trading on
October 10, 2012, stating four separate claims for money owed
on unpaid invoices. Two of the claims (Counts I and IV) were
based on a PACA statutory trust arising from VLM’s shipment
of potatoes to Illinois Trading. The following day VLM moved
for a temporary restraining order and preliminary injunction
to protect the trust assets. At the same time, VLM asked the
court to consolidate the injunction hearing with a trial on the
merits. See FED . R. CIV . P. 65(a)(2). The court granted a tempo-
rary restraining order and scheduled a preliminary-injunction
hearing for October 25. On October 22 VLM amended its
complaint, adding a fifth claim against TAB Bank for seizing
and converting assets subject to a PACA trust (Count V).
Over the next few months, the district court repeatedly
postponed the preliminary-injunction hearing at Illinois
Trading’s request. At some point Illinois Trading’s counsel
withdrew, so the court again rescheduled the hearing, this time
to January 15, 2013. In the same order, the court granted VLM’s
consolidation request, specifying that the hearing “shall be
consolidated with a hearing on the merits as to the [Illinois
Trading] [d]efendants only and not the Bank. The Bank
reserves its rights to litigate all issues in dispute.”
Nos. 13-1799 & 13-1697 5
Illinois Trading neither retained new counsel nor
responded to the complaint by January 15, so VLM requested
an entry of default judgment. TAB Bank objected because it
feared that a final resolution of Counts I and IV against Illinois
Trading would prejudice its ability to defend itself against
Count V. Count V depends on the existence of the PACA trust
alleged in Counts I and IV, but TAB Bank disputes the validity
of VLM’s PACA license. TAB Bank feared that if Counts I and
IV were resolved, it would be precluded from defending on
this basis when the court addressed the merits of Count V. The
district judge responded by saying that he didn’t know what
effect a default judgment would have on the bank, but that
Count V would be addressed at a later stage in the litigation.
The judge granted the default judgment and rescheduled the
preliminary-injunction hearing for February 19. The judge
reiterated that the injunction proceedings were consolidated
with a trial on the merits, though he did not at this time remind
everyone that the consolidation concerned only the claims
against Illinois Trading, not the claim involving the bank.
Illinois Trading finally got a new lawyer and moved to
vacate the entry of default. It did not dispute the amount owed
but only whether certain attorney’s fees and interest provisions
in VLM’s invoices became a part of the contract. On
February 12, during a hearing on this motion, Illinois Trading’s
new lawyer also requested an extension to get up to speed. In
response VLM’s lawyer proposed going forward with the
hearing because it would be narrowly focused on the attor-
ney’s fees and interest provisions. The judge vacated the
default judgment with respect to Illinois Trading’s president
only and declined to postpone the February 19 date for the
6 Nos. 13-1799 & 13-1697
hearing. VLM’s lawyer did not object, but requested that the
court “keep all three [Illinois Trading] defendants together for
the narrow hearing next week. Then we can just leave the bank
kind of off on its own.”
On February 15 TAB Bank filed a motion for a continuance
of the February 19 hearing, or in the alternative, asked that the
hearing be limited to Counts II and III. The bank again ex-
plained that it planned to contest the validity of VLM’s PACA
license and reiterated its fears about preclusion. The contents
of the continuance motion make it clear that the bank’s counsel
understood that the hearing would address Counts I through
IV and that Count V would be heard at a later time:
Any ruling made on Counts I[] and IV would be
binding upon TAB Bank[,] and any finding of
fact relating to VLM Food Trading’s alleged
PACA rights would be prejudicial to TAB Bank
and would[] in effect become the rule of law of
the case, and in essence TAB Bank would be
precluded from objecting to that determination
at a later date based on the theory of res judicata.
(Emphases added.) The motion also stated that “TAB Bank’s
rights in defending Count V would be severely prejudiced”
and that VLM was “seeking a judgment on all counts against
[the Illinois Trading] [d]efendants.”
At the beginning of the hearing on February 19, the district
court denied TAB Bank’s continuance motion. The bank’s
attorney asked the judge to clarify whether the judgment
would be binding on the bank. The judge said he didn’t know
and would rule on the matter later, but that the hearing on the
Nos. 13-1799 & 13-1697 7
remaining issues between VLM and Illinois Trading would go
forward. With respect to the bank’s argument about the
legitimacy of the PACA license, the judge said: “Anyway,
that’s for another day. It’s not part of this case, so let’s
proceed.”
VLM and Illinois Trading presented evidence regarding the
few remaining issues on Counts I through IV, but nothing on
Count V against the bank. TAB Bank itself presented no
evidence. After the hearing the district court set a deadline for
posthearing briefs. Both VLM and Illinois Trading filed briefs
focusing solely on Counts I through IV. TAB Bank did not
submit a brief.
On March 5 the district court issued an order entering final
judgment in favor of VLM on all claims against Illinois Trading
and awarding attorney’s fees and interest. Surprisingly,
however, the court also found in favor of TAB Bank on
Count V because VLM “failed to present any evidence or
testimony” and “ha[d] not presented any arguments regarding
TAB Bank’s liability in its post-hearing brief.” VLM immedi-
ately moved to alter or amend the judgment with respect to
Count V because the scope of the hearing had been limited to
its claims against Illinois Trading and did not include its claim
against the bank.
Rather than acknowledging the district court’s mistake,
TAB Bank seized the opportunity to secure the advantage
unwittingly bestowed on it by the court. Opposing VLM’s
motion to amend the judgment, the bank’s lawyers grossly
mischaracterized the motion for a continuance:
8 Nos. 13-1799 & 13-1697
TAB Bank requested a continuance of the trial
of this matter or, in the alternative, an order
limiting the trial. VLM Food Trading would not
agree, opposed that motion, and it was denied
by the [c]ourt. Now, VLM Food Trading is
asking this court to enter an order limiting the
scope of the trial, even though it argued against
the limitations and the [c]ourt was very clear in
its initial ruling on February 19, 2013 that this
matter was proceeding on a trial on the merits.
VLM Food Trading’s request, and should be
denied. [sic]
In its motion for continuance and limiting the
trial, TAB Bank outlined the causes of action,
which included Count V of the amended com-
plaint, and discussed, at length, Count V of the
amended complaint, and what VLM Food Trading
must prove in order to prevail on that Count. In
its motion, TAB Bank stated that there was
inadequate notice for a trial in this matter, that
there had been no discovery, and as a result, felt
that a continuance of the or limitation of the trial
was necessary. The [c]ourt denied this motion at
the outset of the trial.
(Emphases added.)
At a hearing on VLM’s motion to amend the judgment, the
mischaracterization continued:
[VLM’s Lawyer]: Well, at the time I made that
request, there were three defendants. So that was
Nos. 13-1799 & 13-1697 9
the whole point of the motion. We fully expected
it to be a final day in court as to the three defen-
dants at the time we filed that motion, but when
there was later-added parties and later-added
claims, that wasn’t part of the motion.
THE COURT: Well, it definitely was dis-
cussed at the time of the hearing that it was a
hearing on the merits.
[TAB Bank’s Lawyer]: In fact, Your Honor,
just to make it very clear, what is not pointed out
here is that we filed a motion, a motion to limit
the trial to not have evidence on Count [V]. That
motion was filed on a Friday, and that motion
was heard.
THE COURT: And it was denied.
[TAB Bank’s Lawyer]: And that was specifi-
cally denied.
These representations were misleading because TAB Bank
had asked the court to limit the hearing to Counts II and III and
postpone a hearing on Counts I and IV because of the possible
preclusive effect on Count V, which everyone understood
would be decided later. The continuance was denied and the
hearing proceeded on Counts I through IV, while Count V
remained in the background, reserved “for another day.” The
bank’s subterfuge worked. The district court denied VLM’s
motion to amend the judgment.
10 Nos. 13-1799 & 13-1697
II. Discussion
This appeal is limited to two issues. VLM challenges the
judgment on Count V, and Illinois Trading’s cross-appeal
challenges the award of attorney’s fees and interest on VLM’s
invoices.
A. Count V
The parties dispute whether the consolidated preliminary-
injunction/merits hearing was final with respect to Count V.
We require “clear and unambiguous notice” that a claim will
be resolved to finality in a consolidated preliminary-injunction
hearing. Pughsley v. 3750 Lake Shore Drive Coop. Bldg., 463 F.2d
1055, 1057 (7th Cir. 1972). Although the district court resolved
all claims between VLM and Illinois Trading on the merits
following the hearing, the record is clear that Count V—the
claim involving the bank—was not consolidated and heard on
February 19. Indeed, VLM’s consolidation request was made
before Count V was added to the complaint. When the judge
granted the request, he explicitly stated that the claim against
TAB Bank was not included in the scope of the consolidated
proceedings. In the lead-up to the hearing, VLM’s lawyer
repeatedly communicated that he understood the February 19
hearing to be limited to the claims against Illinois Trading only,
and neither the district court nor TAB Bank disagreed. In fact,
on several occasions the judge assured the parties that issues
related to the bank would be resolved separately at a later
time. No party presented any evidence or made any argument
on Count V either during the February 19 hearing or in the
posthearing briefing.
Nos. 13-1799 & 13-1697 11
On appeal TAB Bank continues to mischaracterize the
district court’s mistake, placing great weight on the court’s
denial of its February 15 motion for a continuance. But the
bank misrepresents the judge’s ruling, cherry-picking the
record for favorable quotes while conveniently ignoring the
distinction between Counts I through IV and Count V; the
court specifically reserved the latter “for another day.” Had
TAB Bank been forthright in response to VLM’s motion to
amend the judgment, the judge could have corrected his
mistake, and this issue would not have needed an appeal. We
have no trouble reversing the judgment with respect to
Count V.
B. Attorney’s Fees and Interest Provisions
Illinois Trading’s cross-appeal concerns the question
whether certain attorney’s fees and interest provisions in
VLM’s invoices became an enforceable part of the parties’
contract. The basic facts about the parties’ course of conduct
are undisputed. Illinois Trading sent purchase orders specify-
ing the item, quantity, price, and place of delivery of the
produce to be shipped. VLM responded to each purchase order
with an email confirming the terms of the order. VLM then
shipped the produce and thereafter sent invoices containing
the attorney’s fees and interest provisions. Illinois Trading paid
the invoices on receipt for its first nine transactions with VLM,
but failed to pay the next nine invoices, generating this lawsuit
and the dispute over attorney’s fees and interest.
The district court treated this as a “battle of the forms”
under the Uniform Commercial Code. The relevant Code
12 Nos. 13-1799 & 13-1697
section—U.C.C. § 2-207, enacted in Illinois at 810 ILL . COMP.
STAT. § 5/2-207—provides that additional terms in an accep-
tance or confirmation of a contract between merchants become
a part of the contract unless one of three exceptions applies.
The only exception relevant to this case excludes terms that
materially alter the contract. U.C.C. § 2-207(2)(b). Applying
Illinois law, the district court held that the attorney’s fees and
interest provisions are not material and thus became part of the
parties’ contract. Illinois Trading argues that because VLM is
a Canadian business, the controlling law is the United Nations
Convention on Contracts for the International Sale of Goods,
the “international analogue to Article 2 of the Uniform Com-
mercial Code.” Chi. Prime Packers, Inc. v. Northam Food Trading,
Co., 408 F.3d 894, 898 (7th Cir. 2005).2
2
Illinois Trading also argues that even if Illinois law controls, U.C.C.
§ 2-207 does not apply because VLM accepted its offers (purchase orders)
via the email confirmations and that the additional terms on subsequent
invoices should be treated as proposed modifications. Although § 2-207
explicitly covers additional terms in an acceptance or written confirmation,
some courts have held that it only applies to a confirmation that acts as an
acceptance or is necessary to satisfy the statute of frauds. See Rocheux Int’l
of N.J., Inc. v. U.S. Merchs. Fin. Grp., Inc., 741 F. Supp. 2d 651, 677–80 (D.N.J.
2010) (listing cases). These courts distinguish between invoices that arrive
with a shipment of goods or are the only written confirmation of a contract
and those that arrive after a separate written acceptance and performance.
E.g., Enpro Sys., Ltd. v. Namasco Corp., 382 F. Supp. 2d 874, 882–84 (S.D. Tex.
2005) (citing Echo, Inc. v. Whitson Co., 121 F.3d 1099, 1103–04 (7th Cir. 1997)).
Contra Monarch Nutritional Labs., Inc. v. Maximum Human Performance, Inc.,
No. 2:03CV474TC, 2005 W L 1683734, at *5 (C.D. Utah July 18, 2005) (citing
Waukesha Foundry, Inc. v. Indus. Eng’g, Inc., 91 F.3d 1002, 1007 (7th Cir.
1996)). We do not need to address this issue because we find that the
(continued...)
Nos. 13-1799 & 13-1697 13
Although “[m]any provisions of the [Uniform Commercial
Code] and the [Convention] are the same or similar,” id., the
Convention’s battle-of-the-forms provision, Article 19, is
significantly different from § 2-207.3 First, it does not address
additional terms in a written confirmation, but only those in “a
reply to an offer which purports to be an acceptance.” Conven-
tion art. 19(1), (2). If the contracts were formed before Illinois
Trading received VLM’s invoices—possibly via Illinois
Trading’s purchase orders and VLM’s email confirmations—
2
(...continued)
Convention, rather than Illinois law, controls.
3
Article 19 of the Convention reads in its entirety:
(1) 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-offer.
(2) However, a reply to an offer which purports to be
an acceptance but contains additional or different terms
which do not materially alter the terms of the offer
constitutes an acceptance, unless the offeror, without
undue delay, objects orally to the discrepancy or
dispatches a notice to that effect. If he does not so object,
the terms of the contract are the terms of the offer with the
modifications contained in the acceptance.
(3) Additional or different terms relating, among other
things, to the price, payment, quality and quantity of the
goods, place and time of delivery, extent of one party’s
liability to the other or the settlement of disputes are
considered to alter the terms of the offer materially.
14 Nos. 13-1799 & 13-1697
then the attorney’s fees and interest provisions would be
proposed modifications to the contracts and Article 19 may not
even apply. Second, Article 19 defaults to the old common-law
“mirror image” rule: “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-offer.” Id. art. 19(1); see Roser Techs., Inc. v. Carl
Schreiber GmbH, No. 11cv302 ERIE, 2013 WL 4852314, at *3–5
(W.D. Pa. Sept. 10, 2013) (holding that Article 19 embodies the
mirror-image rule and listing cases holding the same); see also
Magellan Int’l Corp. v. Salzgitter Handel GmbH, 76 F. Supp. 2d
919, 925 (N.D. Ill. 1999) (holding the same); Filanto, S.p.A. v.
Chilewich Int’l Corp., 789 F. Supp. 1229, 1238 (S.D.N.Y. 1992)
(same). Article 19 provides that nonmaterial additional terms in
a purported acceptance become a part of the contract, see
Convention art. 19(2), but defines “materiality” in a broad way
that would appear to cover attorney’s fees and interest
provisions, see Convention art. 19(3) (“[T]erms relating, among
other things, to the … extent of one party’s liability to the other
or the settlement of disputes are considered to alter the terms
of the offer materially.”).
So the choice-of-law question is significant here, unlike
many cases in which the relevant provisions of the Convention
and Uniform Commercial Code are the same. E.g., Chi. Prime
Packers, 408 F.3d at 898; Beijing Metals & Minerals Imp./Exp.
Corp. v. Am. Bus. Ctr., Inc., 993 F.2d 1178, 1182 n.9 (5th Cir.
1993) (refusing to decide whether the Convention or Texas law
controlled because the parol-evidence rule applied either way).
Nos. 13-1799 & 13-1697 15
As “a self-executing [treaty] between the United States and
other signatories, including Canada,” Chi. Prime Packers,
408 F.3d at 897, the Convention supersedes state law when it
applies, U.S. CONST . art. VI, cl. 2; Medellin v. Texas, 552 U.S. 491,
504–06 (2008); Hauenstein v. Lynham, 100 U.S. 483, 490 (1880)
(“[T]he Constitution, laws, and treaties of the United States are
as much a part of the law of every State as its own local laws
and Constitution.”). By its own terms, the Convention “applies
to contracts of sale of goods between parties whose places of
business are in different States.” Convention art. 1(1). “[I]f a
party has more than one place of business, the place of busi-
ness is that which has the closest relationship to the contract
and its performance … .” Id. art. 10(a). Contracting parties can
opt out of the Convention, see id. art. 6, but VLM and Illinois
Trading did not. The sole question, then, is whether VLM’s
place of business is Canada or the United States. The district
court concluded that it was the United States.
The parties disagree about the standard of review that
applies to that determination. Illinois Trading characterizes it
as a legal conclusion subject to de novo review; VLM character-
izes it as a factual finding, which we review only for clear
error. Actually, neither the facts nor the law are in dispute; the
parties disagree about the application of the law to the facts, and
our default standard of review for such “mixed” questions of
law and fact is clear error. See Thomas v. Gen. Motors Acceptance
Corp., 288 F.3d 305, 307–08 (7th Cir. 2002). There are exceptions,
but most involve constitutional questions. See id. But see Koch
v. Koch, 450 F.3d 703, 710 (7th Cir. 2006) (applying de novo
review to a mixed question of law and fact under the Hague
Convention on the Civil Aspects of International Child
16 Nos. 13-1799 & 13-1697
Abduction). We don’t need to resolve the dispute about the
standard of review because our decision would be the same
either way.
Most of VLM’s business is conducted from its headquarters
near Montreal, including its performance of the contract with
Illinois Trading. VLM’s only connection to the United States is
a single office in New Jersey that appears to exist primarily to
allow the company to maintain a PACA license. The district
court thought that the New Jersey office sufficed to make
VLM’s place of business the United States. But Article 10(a) of
the Convention provides that “if a party has more than one
place of business, the place of business is that which has the
closest relationship to the contract and its performance.” As
we’ve noted, it’s undisputed that VLM conducts most of its
business in Canada, and the New Jersey office had no relation-
ship to the performance of VLM’s contracts with Illinois
Trading. Accordingly, VLM’s place of business is clearly
Canada, and the Convention controls.
Our conclusion on the choice-of-law question requires a
remand for further proceedings. Because the district court
applied Illinois law, it did not address the Convention’s
application to this case.
REVERSED AND REMANDED .