In the

    United States Court of Appeals
                 For the Seventh Circuit

No. 09-2406

S UPERL S EQUOIA L IMITED,
                                                 Plaintiff-Appellant,
                                  v.

T HE C ARLSON C OMPANY, INC.,
                                                Defendant-Appellee.


              Appeal from the United States District Court
                 for the Western District of Wisconsin.
              No. 07-cv-640-bbc—Barbara B. Crabb, Judge.



      A RGUED JANUARY 11, 2010—D ECIDED A UGUST 11, 2010




  Before E ASTERBROOK, Chief Judge, K ANNE, Circuit
Judge, and K ENNELLY, District Judge.†
  E ASTERBROOK, Chief Judge. During the first half of
2007, Macy’s, Inc., planned for an extensive promotion
of goods under the Martha Stewart label. (At the time,
Macy’s was known as Federated Department Stores; we
use its current corporate name.) The department-store


†
    Of the Northern District of Illinois, sitting by designation.
2                                              No. 09-2406

chain invited bids for equipment and services needed
to turn portions of 226 stores into settings for the promo-
tion. Carlson Company, a furniture manufacturer based
in Madison, Wisconsin, proposed to supply 4,000 “fix-
tures” for this project. We put the word in quotation
marks because the beds, armoires, tables, and other
items that Macy’s wanted are not “fixtures” as the law
of real property uses that term. They are pieces of
furniture rather than doors, swimming pools, or durable
goods expected to remain in place for years to come.
We call the items furniture rather than fixtures.
  Carlson did not have the capacity to make all of the
furniture in time for Macy’s deadline. Before placing a
bid, it asked Superl Sequoia Limited, a manufacturer
based in Hong Kong, whether it could meet most of
Macy’s requirements. Superl Sequoia said that it could,
and that it would participate if Carlson was willing to
split any profits 50/50. Carlson agreed. Its role would be
to install the furniture so that the displays met Macy’s
specifications, and to fix or replace any furniture that
arrived in substandard condition (or, worse, did not
arrive at all). In February 2007 Superl Sequoia gave
Carlson a quote of approximately $3.4 million, including
shipping, for the items Macy’s wanted. Carlson accepted
the quote, applied a markup of 22% (on which Superl
Sequoia and Carlson had agreed) to that quote plus
Carlson’s estimate of its own costs, and bid approxi-
mately $5 million to Macy’s, which accepted on March 1,
2007.
 The displays were installed on time (July 16, 2007).
Macy’s was satisfied with their quality and paid
No. 09-2406                                              3

Carlson’s invoice. But the project required more work
than Carlson had expected. Some of the furniture
arrived from China late or not at all; Carlson had to
make or buy replacements. Some of the furniture
was damaged in transit, and some did not meet Macy’s
specifications. Again Carlson had to manufacture re-
placements or fix the damage. Superl Sequoia concedes
that some of the 4,000 items needed to be fixed or
replaced, though it thinks that Carlson did not need to
spend as much as it did on replacements or fix as many
pieces as it did. Carlson eventually paid Superl Sequoia
about $2 million, as opposed to $3.4 million plus 50%
of any profits. Superl Sequoia sued for the balance
under the international-diversity jurisdiction. 28 U.S.C.
§1332(a)(2). Carlson is a Wisconsin corporation with
its principal place of business in Wisconsin. Superl
Sequoia is a Hong Kong business organization “limited
by shares,” a status in the Commonwealth of Nations
that we have held is equivalent to a corporation in the
United States. See Lear Corp. v. Johnson Electric Holdings
Ltd., 

, 582–83 (7th Cir. 2003).
  The district court concluded that Superl Sequoia
breached its contract by furnishing some defective
goods and not delivering others and that Carlson could
charge against the joint venture the costs of replacing or
repairing the items. Superl Sequoia does not contest
these conclusions. Because the parties could not agree
on how many items were defective, or what Carlson’s
reasonable costs were, the court held a bench trial. Before
trial, however, the judge concluded that Superl Sequoia’s
$3.4 million quote must be disregarded. Only its out-of-
4                                                No. 09-2406

pocket costs could be charged to the joint venture, the
judge held. The $3.4 million bid included a markup,
which must be removed. 2008 U.S. Dist. L EXIS 56167
(W.D. Wis. July 23, 2008).
  At the trial, both sides provided evidence of their
actual costs of performance (manufacturing and shipping
on Superl Sequoia’s side; delivering and assembling
the displays on Carlson’s). The judge then used these
costs to determine how much profit the joint venture
had made and divided that profit 50/50 between Superl
Sequoia and Carlson. The judge concluded that Superl
Sequoia’s chargeable costs were $2.2 million, that
Carlson’s chargeable costs were $400,000, and that each
side is entitled to $1.15 million as its share of profits. (We
disregard some other sums that the judge deducted from
the $5 million.) The judge then concluded that Carlson
is entitled to about $1.16 million to cover the expense
of repairing or replacing furniture. Since Carlson had
already paid Superl Sequoia about $2 million, the bot-
tom line was a net judgment of $9,550 in Carlson’s favor.
2009 U.S. Dist. L EXIS 37492 (W.D. Wis. May 1, 2009).
  Superl Sequoia takes issue with many of these calcula-
tions, but its arguments can’t get past the standard
of appellate review: a district judge’s findings after a
bench trial may be upset only if clearly erroneous. See
Fed. R. Civ. P. 52(a)(6); Anderson v. Bessemer City, 

(1985). The judge did not commit any clear error
in toting up costs. Many of the decisions are debatable,
but it is the trier of fact, rather than an appellate court,
that resolves debatable factual issues. Costs of manufac-
No. 09-2406                                              5

turing are notoriously hard to calculate, because many
of a business’s costs are fixed in the short run. Tools
and machines can be used for many projects, and the
allocation of these expenses to any one project depends
on the elasticity of demand for the different outputs,
which can be hard to determine. It is enough to say that
the district judge’s handling of the disputes about the
amount and allocation of costs is thoughtful and rea-
sonable.
  By contrast, appellate review of legal issues, including
the meaning of contractual language that need not be
disambiguated by parol evidence, is plenary. See PSI
Energy, Inc. v. Exxon Coal USA, Inc., 

, 971
(7th Cir. 1994). The district judge made two legal
decisions that had a significant effect on the calcula-
tions. One, which we have mentioned already, is that
Superl Sequoia cannot treat its quotation as the cost
of making and shipping the furniture but is limited to out-
of-pocket expenses, free of any markup for overhead,
the cost of capital, or a reserve for risk. (The judge
made this decision as a matter of law before trial;
neither side has suggested that the judge should have
kept the issue open until trial and received extrinsic
evidence on the subject. Neither side had any to present.)
The second decision is that, when calculating the cost
of replacement and repair, Carlson is entitled to a
markup to reflect overhead and the cost of capital. The
district court treated Carlson’s cost of making repairs
as the fee that it would charge to strangers for
equivalent work—a price that includes overhead and
6                                                No. 09-2406

profit. Unsurprisingly, Superl Sequoia sees these deci-
sions as inconsistent and contends that one or the other
must be wrong. Actually, Superl Sequoia contends that
both are wrong. Recovery of its own overhead and
reserve for risk is justified, Superl Sequoia insists, because
Carlson accepted the $3.4 million quote. Carlson did not
quote repair prices to Superl Sequoia and therefore is
limited to out-of-pocket outlays under a cost-sharing
arrangement, the argument concludes.
  Evaluating these arguments is complicated by the fact
that the parties operated on the basis of email exchanges,
each of which contains only a few potential contractual
terms, and did not memorialize their arrangement until
May 7, 2007, after Macy’s had accepted the $5 million
bid and much of the furniture was on its way from
China to the United States. Superl Sequoia made its
$3.4 million quotation, which Carlson accepted, more
than two months earlier, and Superl Sequoia says that
this became an inviolate part of the parties’ deal. Carlson
contends, and the district court found, that this quotation
was superseded by an email that Carlson sent to Superl
Sequoia on May 7, an email to which it replied with
general agreement and some emendations on May 8.
The judge found that the May 8 email must be ignored
because Carlson did not unequivocally agree—though
this reasoning may call into question the status of the
May 7 email as well, because the May 8 email may
amount to a counterproposal rather than an acceptance
plus a new proposal for changes. This is not a subject
we need to run to ground, however.
No. 09-2406                                               7

  The first two paragraphs of the May 7 email serve as
the foundation for the district judge’s decision to
disregard the $3.4 million quotation:
    1. The over riding theory and agreement is CC
    (Carlson Company) and SS (Superl Sequoia) share
    quoted costs (not sell price, but costs) of manu-
    facturing 50/50 so that if there is any financial
    risk of non-payment, both CC and SS share that
    risk equally. By “sharing,” we define CC pays 1/2
    of SS’s manufacturing costs if SS is the primary
    manufacturer, and vice versa if [CC] is the pri-
    mary manufacturer.
    2. There are many different scenarios that can be
    addressed, but neither CC or SS believe in an
    overly complicated agreement. The overriding
    principle is that both CC and SS share equally in
    JOINT manufacturing costs to date so we always
    have, within reason, the same financial exposure
    for costs to date. This excludes any overhead
    either party might have or indirect costs.
When calculating Carlson’s costs, the district judge
did not mention these paragraphs, which undercut the
decision to permit Carlson to charge against the joint
venture its “sell price” of replacements and repairs. Under
these paragraphs, only Carlson’s out-of-pocket costs are
chargeable. The district judge must recalculate the $1.16
million figure for Carlson’s repair and replacement costs.
  That leaves the status of the $3.4 million quote, which is
not as easy to resolve on the basis of the email’s language.
8                                             No. 09-2406

Paragraph 1 shows that, if Macy’s did not pay, then Superl
Sequoia would get no more than $1.7 million (half of the
manufacturing costs, to be paid by Carlson), and would
have to compensate Carlson for half of Carlson’s costs.
But Macy’s did pay. The question then becomes whether
the $3.4 million should be treated as Superl Sequoia’s
costs, given that both ¶1 and ¶2 of the email say that
overhead and other indirect costs are excluded.
  Carlson sees the answer as easy. The quotation
included overhead and a reserve for risk; these are incom-
patible with the May 7 email and must be removed.
That was the district judge’s view too. But there are two
problems. First, Carlson had accepted the $3.4 million
quotation more than two months before sending the
May 7 email. It cannot retroactively revoke an ac-
ceptance on which Superl Sequoia relied when joining
the business venture and manufacturing the furniture,
much of which was already in transit when Carlson sent
the May 7 email. Second, the quotation served two func-
tions: as a floor, and as a ceiling. Superl Sequoia had
agreed that if manufacturing and shipping the furniture
turned out to cost more than $3.4 million, it would
swallow the loss rather than charge the excess expenses
to the joint venture. Carlson enjoyed that price protec-
tion but now wants to take away the compensation that
Superl Sequoia was to receive for providing it.
  We asked Carlson’s lawyer at oral argument what
would have happened if Superl Sequoia’s costs had
exceeded $3.4 million, perhaps because it had to ship
more furniture by air than it had anticipated. (Which it
No. 09-2406                                              9

did. Superl Sequoia’s final invoice to Carlson was for a
little more than $3.4 million.) Counsel replied that all
extra costs were Superl Sequoia’s responsibility, that it
could not have claimed more than $3.4 million for its
role in the venture. Yet that position is incompatible
with Carlson’s contention that the May 7 email super-
seded the February price quotation. Carlson can’t have
things both ways. If the $3.4 million quotation survived
as a cap on the expenses that Superl Sequoia could
charge to the venture, it also survived as a floor. That’s
the nature of a firm price quotation. A cost-plus contract,
which is how the district judge understood the deal,
allows variation up as well as down. One can imagine
a deal such as “we will make 4,000 pieces of furniture
in exchange for out-of-pocket costs plus 50% of profits,
but if our costs exceed $x we will bear the excess our-
selves.” The potential for profit might compensate for
the risk of cost overruns. But that is not the nature of
the February offer, which Carlson accepted, and it is
hard to understand the May 7 email as retroactively
changing the fundamental economic structure of Superl
Sequoia’s participation in the Martha Stewart project.
 Paragraphs 3 and 4 of the May 7 email support this
understanding. Here they are:
   3. Using the Martha Stewart project as a guide,
   where SS is the primary manufacturer, SS and [CC]
   will agree on a manufacturing cost, order quan-
   tity and shipping/production schedule at the be-
   ginning of the project. SS will request a start up
   deposit and subsequently invoice [CC] for 50% of
10                                               No. 09-2406

     the manufacturing cost at the time of each ship-
     ment, to be paid within 3 days by [wire].
     4. CC and SS will mutually trust one another with
     the factual accuracy of “draws” and or expenses
     to date, but either party may request satisfactory
     documentation from the other if requested, and
     do so in a timely fashion, and neither CC or SS
     will imply or infer any offense or mistrust from
     the other by that request. Wherever/whenever
     possible, CC & SS will have pre-agreed manufac-
     turing cost that will dictate payment amount(s).
Paragraph 3 implies that the May 7 email provides a
framework for future ventures between Carlson and
Superl Sequoia, rather than documenting the terms for
the Martha Stewart project as a one-off deal. This may
explain why the email never mentions any terms of the
Martha Stewart project. Paragraph 3 also implies that the
Martha Stewart project’s contract is already set (other-
wise how could it serve “as a guide”?), which would
mean that it is not modified by the May 7 email. Para-
graphs 3 and 4 indicate that, although ¶2 requires
splitting out-of-pocket costs as a default rule, Carlson
and Superl Sequoia will try to set a “manufacturing cost . . .
at the beginning” of any project and that “pre-agreed
manufacturing cost . . . will dictate payment amount(s).” So
the May 7 email approves using price quotes, and the
February quote of $3.4 million fits comfortably as a “pre-
agreed manufacturing cost” for this purpose.
  Paragraph 1 of the May 7 email means that Superl
Sequoia would have to accept less than $3.4 million, and
No. 09-2406                                              11

would have to underwrite half of Carlson’s expenses, if
Macy’s did not pay (or did not pay enough). But ¶2 is
best read as limited to the participants’ incremental
costs—that is, the expenses of furniture and services
not already provided for in the $3.4 million. That reading
avoids undercutting Superl Sequoia’s legitimate reliance
on Carlson’s acceptance of the $3.4 million quotation and
avoids turning a firm price quotation into an asymmetric
deal (in which Superl Sequoia had placed a cap on its
expenses, without a floor under them). The entirety of
the May 7 email shows that the parties were to be treated
alike; using the $3.4 million bid as a cap but not a floor
would violate that symmetry. Judges endeavor to read
contracts to make economic sense, see Beanstalk Group,
Inc. v. AM General Corp., 

, 860 (7th Cir. 2002);
Gottsacker v. Monnier, 

, 375, 

, 442 (2005), and it would undermine the economic
structure and function of this transaction to treat the
$3.4 million as a cap on Superl Sequoia’s expenses,
while depriving it of any floor.
  The judgment of the district court is vacated, and the
case is remanded with instructions to recalculate the
net judgment consistently with this opinion.




                           8-11-10