Judges: Posner
Filed: Oct. 28, 2015
Latest Update: Mar. 02, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ Nos. 14-1267, 14-1283, 14-1342 UNITED STATES ex rel. PILECO, INC., Plaintiff / Counterdefendant-Appellee / Cross-Appellant, v. SLURRY SYSTEMS, INC., Defendant / Counterplaintiff-Appellant / Cross-Appellee, and FIDELITY & DEPOSIT CO. OF MARYLAND Defendant-Appellant / Cross-Appellee. _ SLURRY SYSTEMS, INC., Third-Party Plaintiff-Appellant / Cross-Appellee, v. BAUER MASCHINEN GMBH, Third-Party Defendant-Appellee / Cross-Appellant. _ Ap
Summary: In the United States Court of Appeals For the Seventh Circuit _ Nos. 14-1267, 14-1283, 14-1342 UNITED STATES ex rel. PILECO, INC., Plaintiff / Counterdefendant-Appellee / Cross-Appellant, v. SLURRY SYSTEMS, INC., Defendant / Counterplaintiff-Appellant / Cross-Appellee, and FIDELITY & DEPOSIT CO. OF MARYLAND Defendant-Appellant / Cross-Appellee. _ SLURRY SYSTEMS, INC., Third-Party Plaintiff-Appellant / Cross-Appellee, v. BAUER MASCHINEN GMBH, Third-Party Defendant-Appellee / Cross-Appellant. _ App..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 14‐1267, 14‐1283, 14‐1342
UNITED STATES ex rel. PILECO, INC.,
Plaintiff / Counterdefendant‐Appellee / Cross‐Appellant,
v.
SLURRY SYSTEMS, INC.,
Defendant / Counterplaintiff‐Appellant / Cross‐Appellee,
and
FIDELITY & DEPOSIT CO. OF MARYLAND
Defendant‐Appellant / Cross‐Appellee.
____________________
SLURRY SYSTEMS, INC.,
Third‐Party Plaintiff‐Appellant / Cross‐Appellee,
v.
BAUER MASCHINEN GMBH,
Third‐Party Defendant‐Appellee / Cross‐Appellant.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 09 C 7459 — Arlander Keys, Magistrate Judge.
____________________
2 Nos. 14‐1267, 14‐1283, 14‐1342
ARGUED OCTOBER 2, 2015 — DECIDED OCTOBER 28, 2015
____________________
Before POSNER, SYKES, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. We begin by introducing the par‐
ties, and their dealings out of which this case arises. Pileco,
the plaintiff and appellee—a wholly owned subsidiary of the
other appellee, Bauer—sells and leases machinery for use in
construction projects. One of the machines Pileco sells and
leases is a trench cutter manufactured by Bauer. It is a huge
steel machine—roughly 40 feet high and weighing 40 tons—
designed to cut into bedrock. It is moved about by a crane
manufactured by a different company. (It has motorized
wheels, but they’re just used to dig into the ground.)
In 2005 the Army Corps of Engineers invited bids on a
federal reservoir project in Illinois. One of the successful
bidders was Slurry Systems, Inc. Slurry (as we’ll call the
company for short) leased from Pileco one of the trench cut‐
ters made by Bauer. (For simplicity we’ll usually use
“Pileco” to denote both the parent and the subsidiary.)
Slurry was a prime contractor on the Corps of Engineers’
project and, pursuant to the Miller Act, 40 U.S.C. § 3131 et
seq., which requires prime contractors on some government
construction projects to post bonds guaranteeing both the
performance of the prime contractor’s contractual undertak‐
ings and the payment by the prime contractor of its subcon‐
tractors and material suppliers, had posted the required
payment bond using Fidelity & Deposit Co. of Maryland as
surety. The bond insured against a failure by Slurry to pay
subcontractors, such as Pileco. Contending that the cutter
was defective, Slurry refused to pay the agreed rental price
Nos. 14‐1267, 14‐1283, 14‐1342 3
for the cutter’s use, and Pileco sued both it and Fidelity for
the payment shortfall. Filed in the federal district court in
Chicago, Pileco’s suit accused Slurry of breach of its contract
for the lease of the cutter (and of miscellaneous associated
parts, which we can ignore because they don’t present dis‐
tinct issues) in violation of Illinois common law. And it ac‐
cused Fidelity of violating the Miller Act by failing to reim‐
burse Pileco for costs imposed on it by Slurry’s reneging on
its obligation to pay Pileco the agreed‐upon rental price for
the cutter.
The complaint based federal jurisdiction on the section of
the Miller Act that authorizes a civil suit to recover money
owing under a payment bond for a federal project. 40 U.S.C.
§ 3133(b). The Miller Act claim also conferred jurisdiction
over Pileco’s state‐law claim against Slurry under the grant
of supplemental jurisdiction in 28 U.S.C. § 1367, thus provid‐
ing a federal jurisdictional basis for the state law claims. The
court also had jurisdiction to hear those claims pursuant to
28 U.S.C. § 1332 (diversity).
Slurry counterclaimed, claiming that Pileco had violated
the lease and engaged in fraud by supplying a defective cut‐
ter. The parties agreed to a jury trial to be presided over by
Magistrate Judge Keys. The trial took eight days and result‐
ed in a verdict that awarded Pileco $2 million on its breach
of contract claim against Slurry and $1 million on its pay‐
ment‐bond claim against Fidelity, but that also awarded
Slurry $600,000 on its breach of contract counterclaim
against Pileco. The verdict form had directed the jury, in the
event that it awarded Pileco damages, to calculate the dam‐
ages to which Slurry might be entitled by a provision of the
contract that granted Slurry an “equitable adjustment”—an
4 Nos. 14‐1267, 14‐1283, 14‐1342
offset against the rental price—for periods when the cutter
had been unusable because of a defect attributable to Pileco.
Despite the instruction to determine the equitable adjust‐
ment if it awarded damages to Pileco, the jury left the space
for the answer to that question in the verdict form blank.
Slurry had also filed a third‐party breach of contract
claim against Bauer, and the jury awarded $3.4 million on
that claim and another $1 million on express and implied
warranty claims by Slurry against Pileco and Bauer. Award‐
ing Slurry $600,000 against Pileco for breach of contract but
$3.4 million against Bauer for breach of the leasing agree‐
ment is perplexing because there was only one contract (the
lease of the cutter), for which Pileco served as Bauer’s agent,
and Bauer’s and Pileco’s interests and trial strategy were
generally aligned. Finally and most dramatically (or absurd‐
ly), the jury awarded Slurry $20 million in punitive damages
(and nothing in compensatory damages) on a claim by Slur‐
ry that Bauer had violated the Illinois Consumer Fraud and
Deceptive Business Practices Act, 815 ILCS 505/2.
So when the dust settled, Slurry had netted $3 million in
compensatory damages against Pileco and Bauer ($3.4 mil‐
lion + $1 million + $600,000 – $2 million) and $20 million in
punitive damages. The jury had ignored the claim for equi‐
table adjustment despite Pileco’s having acknowledged that
it had some merit and despite the instruction to the jury to
determine an adjustment amount.
The likeliest reason for the bollixed verdict is the jury in‐
structions, the preparation of which the judge had largely
left to the rival lawyers. Even after the judge made some al‐
terations, the instructions (including the verdict form) were
far too long (57 pages) and technical for a jury to be expected
Nos. 14‐1267, 14‐1283, 14‐1342 5
to understand. The judge and even the parties acknowl‐
edged the defects in the instructions after they saw the jury’s
verdict.
Obviously the verdict couldn’t stand. Apart from the ju‐
ry’s having overlooked the issue of equitable adjustment
even though it was stated on the verdict form, punitive
damages can’t lawfully be awarded when no compensatory
damages are awarded. Illinois law allows suit only by some‐
one who “suffers actual damage as a result of a violation of”
the Consumer Fraud Act, 815 ILCS 505/10a(a); Avery v. State
Farm Mutual Automobile Ins. Co., 835 N.E.2d 801, 858–61 (Ill.
2005). The award of zero compensatory damages to Slurry
on its fraud claim implied that Slurry had incurred no harm
from Bauer—and without proof of “actual damage” punitive
damages can’t be awarded. Hayman v. Autohaus on Edens,
Inc., 734 N.E.2d 1012, 1015 (Ill. App. 2000). Also there are
constitutional limits on the ratio of punitive to compensatory
damages. See BMW of North America, Inc. v. Gore, 517 U.S.
559, 580–83 (1996); Keeling v. Esurance Ins. Co., 660 F.3d 273,
275 (7th Cir. 2011). The ratio of $20 million to zero is not two
to one or a hundred to one or 20 million or any other num‐
ber to one; it is undefined, like any other division by zero.
Judge Keys ordered a retrial, as authorized by Fed. R.
Civ. P. 59(d), which empowers a judge to order a retrial on
his own initiative “for any reason that would justify granting
one on a party’s motion.” Trial judges are reluctant to order
retrials; it’s no fun trying the same case over again. But
Judge Keys had a compelling reason to do so—the botched
verdict. Slurry contends that a new trial wasn’t necessary—
that the defective verdict could have been fixed by, for ex‐
ample, the judge’s granting a remittitur. It’s not clear wheth‐
6 Nos. 14‐1267, 14‐1283, 14‐1342
er this is true (Slurry didn’t ask for a remittitur), but what is
more important is that the jury’s confused responses to the
damages provisions in the verdict form called into doubt the
dependability of the jury’s other findings.
The new trial, before a new jury, again presided over by
Judge Keys, was held four months after the first trial and
lasted nine days. This jury’s verdict was dramatically differ‐
ent from that of the jury in the first trial—it was entirely in
Pileco’s favor except for a $357,716 equitable adjustment in
favor of Slurry on Pileco’s breach of contract claim against it.
The net result was that Pileco was awarded $2.23 million
against Slurry for breach of contract and the same amount
against Fidelity for the Miller Act violation.
Both Slurry and Fidelity asked the judge to set aside the
verdict, while Pileco asked him to award it prejudgment in‐
terest plus statutory costs. The judge denied these requests.
There are no obvious defects in the second verdict, ren‐
dered by a different jury that had been given much better
instructions. Pileco had learned from mistakes it had com‐
mitted at the first trial—the judge remarked that Pileco was
“much better prepared and much better organized” the sec‐
ond time around. The first verdict had revealed substantial
jury confusion, the second no jury confusion.
Fidelity contends that Pileco’s claim against it is invalid
because the cutter was built and delivered to Slurry by Bau‐
er, Pileco’s parent; only Bauer, therefore, Fidelity argues,
could sue it under the Miller Act. No; the rental agreement
was between Pileco, Bauer’s subsidiary, as agent, and Slurry.
It is commonplace for an agent to arrange for the delivery of
a good that is made, and is to be delivered, by someone else.
Nos. 14‐1267, 14‐1283, 14‐1342 7
Fidelity’s argument is that the Miller Act required Pileco to
have “furnished labor or material in carrying out work pro‐
vided for in a contract for which a payment bond is fur‐
nished under” the Act, 40 U.S.C. § 3133(b)(1), and that “fur‐
nished” means supplied directly, whereas the cutter was
shipped (hence directly supplied) to Slurry by Bauer, not
Pileco. But the word “furnish” hasn’t so limited a meaning
as Fidelity suggests. It’s commonly a synonym for “provide”
or “outfit.” A guest who says to his host “you’ve furnished
your living room very nicely” doesn’t mean the host
dragged the furniture into the room; employees of a furni‐
ture store or a moving company probably did. Similarly,
Pileco provided the cutter to Slurry pursuant to the contract
between those two firms, albeit Pileco was a middleman be‐
tween Bauer and Slurry.
Slurry complains that Pileco had promised in the rental
agreement that the cutter would be new, in the sense of not
having been used yet, and claims that it wasn’t new. The ev‐
idence on the cutter’s newness was mixed. Pileco maintains
that apart from the GS500 unit, a component of the desander
(a device used to separate solids from fluids used when drill‐
ing into the ground), the cutter had not been used previous‐
ly. And since both parties knew at the time the lease was
signed that the GS500 unit had been used previously, its not
being new can’t affect the analysis.
The evidence on which Slurry relies to dispute the new‐
ness of the cutter as a whole consists of data generated by
the cutter’s B‐Tronic software (essentially the cutter’s black
box). Slurry argues that those data reveal that the cutter had
been used since the fall of 2004, two years before the cutter
was delivered to Slurry. But in 2004 that “use” consisted on‐
8 Nos. 14‐1267, 14‐1283, 14‐1342
ly of rapid start‐stop time entries that consumed no more
than seven hours during which the cutter’s software (and
not necessarily any other part of the cutter) had been in use.
No significant further use was logged in 2005 or the first half
of 2006. The jury was entitled to credit Pileco’s explanation
that mere software and equipment testing did not “age” the
cutter in any sense relevant to the cutter’s use in the Corps of
Engineers’ project.
There is no evidence that any problems with the cutter
during its lease by Slurry had anything to do with the ma‐
chine’s age. If age had nothing to do with those problems,
the violation of the newness clause could not have harmed
Slurry—if there was a violation, which is uncertain because
of the evidence just summarized and also because the mean‐
ing of “new” in the lease is uncertain. Does the word mean
newly designed, newly manufactured, or never used? (It
could mean any of those things.) Obviously the machine had
been designed and manufactured before the lease was
signed, yet there is no evidence that any of the problems
with the machine that Slurry claims to have encountered
while working on the Corps of Engineers project were at‐
tributable either to the cutter’s age or to any prior use. In
Isaiah we read that “The grass withers, the flower fades, but
the word of our God will stand forever.” A 40‐ton hunk of
steel will not stand forever, but neither will it wither like the
grass or fade like the flower.
Pileco’s cross‐appeal asks for two things. One is pre‐
judgment interest, at an annual rate of 5 percent, from the
date on which Slurry stopped making payments on the
lease. See Illinois Interest Act, 815 ILCS 205/2; PPM Finance,
Inc. v. Norandal USA, Inc., 392 F.3d 889, 895 (7th Cir. 2004)
Nos. 14‐1267, 14‐1283, 14‐1342 9
(Illinois law). Judge Keys refused to award prejudgment in‐
terest, on the ground that Pileco’s damages claim was
strongly contested and the exact amount to which Pileco was
entitled was uncertain, given, for example, the equitable ad‐
justment to which Slurry was entitled. But the jury awarded
Slurry an equitable adjustment, which the judge had only to
subtract from the damages that the jury had awarded Pileco
in order to determine the dollar amount to use as a basis for
calculating the prejudgment interest. The fact that Slurry had
colorable defenses that the jury was entitled to and did reject
was irrelevant; Pileco was entitled to prejudgment interest
calculated on the basis of the jury award with a deduction
only for the equitable adjustment. Jones v. Hryn Development,
Inc., 778 N.E.2d 245, 249–50 (Ill. App. 2002); La Grange Metal
Products v. Pettibone Mulliken Corp., 436 N.E.2d 645, 652 (Ill.
App. 1982); Ash v. Georgia‐Pacific Corp., 957 F.2d 432, 439 (7th
Cir. 1992) (Illinois law).
Pileco asked the judge to award it certain litigation costs,
such as filing fees, stenographic fees, and printing and wit‐
ness fees, all being fees to which the prevailing party in a
federal civil case is presumptively entitled by Fed. R. Civ. P.
54(d)(1) and 28 U.S.C. § 1920. The judge refused on three
grounds. The first was that an analysis of the reimbursement
request “would eliminate many of the costs Pileco requests,”
because many of the items were not recoverable under the
statute or not necessary for the litigation. Maybe so, but such
an analysis would have to be conducted, which the judge
didn’t do.
His second reason is that had the first jury done a more
careful job in filling out the verdict form he would have ren‐
dered judgment in favor of Slurry and then Pileco would not
10 Nos. 14‐1267, 14‐1283, 14‐1342
have been entitled to costs. It’s true that the closeness of a
case can be a reason for denying an award of costs to the
prevailing party in cases in which the losing party is indi‐
gent, but only when deciding whether the indigent party
should be held liable for his opponent’s costs. Rivera v. City
of Chicago, 469 F.3d 631, 635 (7th Cir. 2006); Mother & Father v.
Cassidy, 338 F.3d 704, 708 (7th Cir. 2003) (“We have recog‐
nized only two situations in which the denial of costs might
be warranted: the first involves misconduct of the party
seeking costs, and the second involves a pragmatic exercise
of discretion to deny or reduce a costs order if the losing par‐
ty is indigent”). Moreover, the second verdict, the verdict in
favor of Pileco, was far more credible than the first. The first
jury had not just made a scrivener’s error; it had been seri‐
ously confused. The second jury had not been confused at
all, so far as one can judge, and the outcome of the second
case wasn’t close at all.
And third the judge said that Slurry (and two of its prin‐
cipals) were in “financial straits … partially because of their
dealings with Pileco.” The implication is that Pileco was re‐
sponsible for Slurry’s losses on the project. That implication
is contrary to the jury’s verdict, according to which most of
the losses were sustained by Pileco.
The judgment of the district court is affirmed, except
with respect to the denial of prejudgment interest and costs.
Regarding them the judge’s rulings are reversed and the case
remanded.
AFFIRMED IN PART, REVERSED AND REMANDED IN PART