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Acheron Medical Supply, LLC v. Cook Medical Incorporated, 19-2410 (2020)

Court: Court of Appeals for the Seventh Circuit Number: 19-2410 Visitors: 11
Judges: Manion
Filed: May 06, 2020
Latest Update: May 06, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ Nos. 19-2315 & 19-2410 ACHERON MEDICAL SUPPLY, LLC, Plaintiff-Appellant-Cross-Appellee, v. COOK MEDICAL INC., et al., Defendants-Appellees-Cross-Appellants. _ Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 15-cv-01510 — William T. Lawrence, Judge. _ ARGUED JANUARY 16, 2020 — DECIDED MAY 6, 2020 _ Before FLAUM, MANION, and KANNE, Circuit Judges. MANION, Circuit Judge. Th
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                               In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________


Nos. 19-2315 & 19-2410
ACHERON MEDICAL SUPPLY, LLC,
                         Plaintiff-Appellant-Cross-Appellee,

                                 v.

COOK MEDICAL INC., et al.,
                       Defendants-Appellees-Cross-Appellants.
                    ____________________

        Appeals from the United States District Court for the
        Southern District of Indiana, Indianapolis Division.
          No. 15-cv-01510 — William T. Lawrence, Judge.
                    ____________________

     ARGUED JANUARY 16, 2020 — DECIDED MAY 6, 2020
                ____________________

   Before FLAUM, MANION, and KANNE, Circuit Judges.
   MANION, Circuit Judge. This set of cross-appeals arises
from a distribution agreement that each party asserts the
other breached. The district court concluded the plaintiff
breached the agreement and the defendant did not, but it also
held the plaintiff was not liable for its breach. Neither party
was content with the outcome. We conclude the district court
reached the correct result, and we affirm.
2                                      Nos. 19-2315 & 19-2410

                         I. Background
    Cook Medical, LLC (“Cook”) contracted with Acheron
Medical Supply, LLC (“Acheron”) in July 2014. The contract—
a five-year distribution agreement—arranged for Acheron to
serve as the exclusive distributor of certain Cook medical de-
vices and products to the Veterans Administration (“VA”) and
Department of Defense (“DOD”) Medical Centers, and the
non-exclusive distributor of certain other of Cook’s medical
products to those same entities. According to Acheron’s com-
plaint, the parties began working together because Acheron
possessed experience selling to the VA and DOD and would
be able to “educat[e] Cook on the government purchasing
programs.” (Complaint, District Court Docket 1, at ¶10.) Ad-
ditionally, Acheron is certified as a small business by the U.S.
Small Business Administration, so utilizing Acheron as a dis-
tributor would potentially provide access to VA and DOD
small business set-aside contracts.
    Sales to the DOD and the VA are facilitated through Fed-
eral Award Schedules. Sales to the DOD are primarily made
through a Distribution and Pricing Agreement (“DAPA”),
while sales to the VA require a Federal Supply Schedule
(“FSS”). Cook already had its own DAPA, but not an FSS; the
agreement in part required Acheron to obtain an FSS to oper-
ate as a distributor of Cook’s products to the VA.
    Unfortunately, the relationship never achieved the results
for which the parties had hoped. According to Acheron, this
was entirely Cook’s fault, for two reasons: 1) Cook refused to
submit to a required audit of its commercial sales records, and
2) Cook refused to deactivate its DAPA, preventing Acheron
from selling Cook products to the DOD through Acheron’s
own DAPA.
Nos. 19-2315 & 19-2410                                        3

   Regarding the first claim, because Acheron was a small
business without significant sales to the public, the VA would
not provide an FSS to Acheron without first having access to
Cook’s commercial sales records to confirm that the prices be-
ing offered by Acheron were fair and reasonable. This was re-
quired pursuant to a federal regulation that states, in relevant
part:
   If you are a dealer/reseller without significant sales to
   the general public, you should provide manufacturers’
   information … for each item/SIN offered, if the manu-
   facturer’s sales under any resulting contract are ex-
   pected to exceed $500,000. You must also obtain writ-
   ten authorization from the manufacturer(s) for Gov-
   ernment access, at any time before award or before
   agreeing to a modification, to the manufacturer’s sales
   records for the purpose of verifying the information
   submitted by the manufacturer. The information is re-
   quired in order to enable the Government to make a
   determination that the offered price is fair and reason-
   able. To expedite the review and processing of offers,
   you should advise the manufacturer(s) of this require-
   ment.
48 CFR § 515.408(b)(5).
    Cook, however, did not anticipate that it would be re-
quired to provide such extensive information about its confi-
dential sales records. Ronald Walters, a Sales Account Execu-
tive at Cook who worked with Acheron, testified at trial “he
was shocked to learn that it was being requested.”1 Cook al-
leges that Acheron led it to believe the FSS could be acquired

   1   (Appendix of Defendants/Appellees at 3.)
4                                           Nos. 19-2315 & 19-2410

using the pricing information available in Cook’s DAPA. Alt-
hough Walters later signed a release at Acheron’s request al-
lowing the VA to access Cook’s sales records, and although
Walters twice sent emails to Acheron and officials at the VA
indicating Cook’s willingness to undergo the audit, 2 Cook ul-
timately declined to submit the information requested by the
VA’s Office of Inspector General. Acheron attempted to move
forward without Cook providing access to its sales records,
but this proved impossible. In the end, the VA rejected Ach-
eron’s FSS application.
    When Cook informed Acheron it would not provide the
information necessary for the VA audit, it also informed Ach-
eron that Cook had decided not to use Acheron to sell to the
DOD, either. Cook would instead continue to sell to the DOD
directly through its own DAPA. Since a manufacturer can
only be listed on one DAPA at a time, Acheron was unable to
make any sales of Cook products to the DOD through its
DAPA if Cook’s DAPA remained in place.
   In April 2015, when Cook decided not to submit the rec-
ords necessary for the VA audit and to continue making sales
directly to the DOD, Walters sent an email to Acheron ex-
plaining these decisions and stating: “the contract remains in
place and we will continue to consider business opportunities
with Acheron under the terms and conditions of that


    2 Acheron does not argue the authorization letter or the emails were
valid amendments to the Agreement with binding effect on Cook. The
Agreement requires any modification or amendment to be “reduced to
writing and duly executed” by both parties. The letter and emails do not
purport to be amendments and were not signed by Acheron. See Acheron
Medical Supply, LLC v. Cook Inc., 
2017 WL 4310163
, *10 & n.11 (S.D. Ind.
Sept. 28, 2017).
Nos. 19-2315 & 19-2410                                          5

agreement.” Acheron protested. Cook sent notice in July that
Acheron was in material breach of the Agreement by failing
to obtain an FSS and failing to use its best efforts to promote,
solicit, and expand the sale of Cook products. Cook termi-
nated the agreement 30 days later due to Acheron’s failure to
cure.
    In response to Cook’s termination of the Agreement, Ach-
eron filed suit against Cook, asserting Cook breached the
Agreement by preventing Acheron from obtaining an FSS
contract and preventing Acheron’s sales to the DOD. Cook as-
serted a counterclaim for breach of contract against Acheron.
The district court granted summary judgment against Ach-
eron on its claims, holding Cook did not breach the Agree-
ment because it owed no duty to undergo the VA audit or de-
activate its DAPA. After holding a bench trial on Cook’s coun-
terclaim, the court held Acheron materially breached its obli-
gation to obtain an FSS but owed Cook no damages because
the breach was excused by the Agreement’s force majeure
provision. Unsurprisingly, neither party was content with the
entirety of the ruling, leading to the cross-appeals we consider
today.
                          II. Discussion
    We review the district court’s entry of summary judgment
de novo, resolving all reasonable inferences in favor of the non-
moving party. Barefield v. Vill. of Winnetka, 
81 F.3d 704
, 708 (7th
Cir. 1996). We review the court’s legal conclusions following
the bench trial de novo, and its factual findings for clear error.
Rain v. Rolls-Royce Corp., 
626 F.3d 372
, 379 (7th Cir. 2010).
   Acheron’s duty to obtain an FSS is clearly spelled out in
the Agreement. The core issue of this case, however, regards
6                                                Nos. 19-2315 & 19-2410

Cook’s obligations under the Agreement. Acheron argues
Cook was obligated to submit to the VA audit and deactivate
its DAPA. Conversely, Cook argues (and the district court
held) the Agreement did not obligate Cook to do either. We
examine each of these potential obligations in turn.
    1. The VA Audit
    There is no language in the Agreement expressly obligat-
ing Cook to submit to the VA audit. The district court recog-
nized this, and further acknowledged that Indiana law3 “zeal-
ously defend[s] the freedom to contract.” State v. Int’l Bus.
Machs. Corp., 
51 N.E.3d 150
, 160 (Ind. 2016). Indiana adheres
to “the ‘four corners rule’ that ‘extrinsic evidence is not ad-
missible to add to, vary or explain the terms of a written in-
strument if the terms of the instrument are susceptible of a
clear and unambiguous construction.’” Roberts v. Cmty. Hosps.
of Ind., Inc., 
897 N.E.2d 458
, 467 (Ind. 2008). On this basis, the
district court held Cook did not breach the Agreement by re-
fusing to allow access to its sales records.
    Acheron asserts, however, that the district court improp-
erly focused on common law contract principles when the
Agreement is subject to the provisions of Indiana’s version of
the Uniform Commercial Code (the Indiana Commercial
Code, or “ICC”).4 In particular, Acheron argues the ICC’s

    3The Agreement is governed by Indiana law pursuant to its choice of
law provision.
    4 The parties do not dispute that the Agreement is subject to the ICC.
We have recognized “the rule in the majority of jurisdictions is that dis-
tributorships (both exclusive and non-exclusive) are to be treated as sale
of goods contracts under the UCC.” See Sally Beauty Co., Inc. v. Nexxus
Prods. Co., 
801 F.2d 1001
, 1005–06 (7th Cir. 1986) (collecting cases); see also
Warrick Beverage Corp. v. Miller Brewing Co., 
352 N.E.2d 496
, 500 (Ind. Ct.
Nos. 19-2315 & 19-2410                                           7

implied duty of good faith and fair dealing obligated Cook to
undergo the VA audit. Cook also argues the prevention doc-
trine, federal regulations, and the election-of-remedies doc-
trine all compel the conclusion that Cook breached the Agree-
ment by not submitting to the audit.
       a. The Implied Duty of Good Faith
   Acheron’s primary argument relies on the ICC’s implied
duty of good faith.
    Every contract governed by the ICC “imposes an obliga-
tion of good faith in its performance or enforcement.” Ind.
Code § 26-1-1-203. The ICC defines good faith as “honesty in
fact and observance of reasonable commercial standards of
fair dealing in the trade.”
Id. § 26-1-1-201(19).
However, the
Comment to UCC § 1-203 (from which ICC § 26-1-1-203 is
adopted) clarifies that this implied duty of good faith “does
not create a separate duty of fairness and reasonableness
which can be independently breached.” Instead, it “applies
generally … to the performance or enforcement of every con-
tract or duty,” so that “a failure to perform or enforce, in good
faith, a specific duty or obligation under the contract, constitutes
breach of that contract.” Comment to Uniform Commercial
Code § 1-203 (emphasis added). Regarding Illinois’ version of
§ 1-203, we have explained: “The obligation of good faith and
fair dealing … does not … permit a party to enforce an obli-
gation not present in the contract.” McArdle v. Peoria Sch. Dist.
No. 150, 
705 F.3d 751
, 755 (7th Cir. 2013). Instead, where a con-
tract grants a party discretion in performing its obligations,
this implied duty requires that party to exercise its discretion

App. 1976) (applying provisions of the Indiana Uniform Commercial
Code to a distributorship agreement).
8                                       Nos. 19-2315 & 19-2410

in good faith, rather than take opportunistic advantage of the
other party. See Wilson v. Career Educ. Corp., 
729 F.3d 665
, 675
(7th Cir. 2013) (applying Illinois law) (“[T]he implied cove-
nant of good faith is used as a construction aid to assist the
Court in determining whether the manner in which one party
exercised its discretion under the contract violated the reason-
able expectations of the parties when they entered into the
contract.”).
    There is unfortunately very little Indiana precedent inter-
preting or applying the ICC’s duty of good faith. However,
Acheron relies heavily on a Seventh Circuit case in which we
applied another provision of the ICC. In Biomet Orthopedics,
Inc. v. TACT Med. Instruments, Inc., 
454 F.3d 653
(7th Cir. 2006),
the parties entered an agreement under which TACT would
distribute Biomet’s products in Japan. The agreement pro-
vided TACT could require Biomet to repurchase the remain-
ing inventory at the end of the distributorship and required
Biomet to pay for any delivery cost, but it did not specify
whether the inventory would be shipped back to the United
States or delivered to Biomet in Japan. TACT chose to ship the
inventory back to the United States, despite Biomet’s request
for delivery in Japan. This cost Biomet a substantial amount
in customs duties and greatly delayed its ability to compete
in the Japanese market.
Id. at 654.
    We looked to the ICC’s provision for determining place of
delivery when the contract is silent on that point.
Id. at 655
(quoting Ind. Code §§ 26-1-2-308, 26-1-2-504). The ICC im-
posed a duty on TACT either to make the inventory available
at its own place of business or to “make reasonable provision
for delivery.”
Id. The jury’s
finding that TACT’s shipment of
the inventory back to the United States was not reasonable
Nos. 19-2315 & 19-2410                                         9

was well supported by the evidence and commercial norms.
Id. Acheron cites
Biomet to support its contention that the ICC
required Cook to act reasonably and therefore obligated Cook
to undergo the necessary audit.
   Biomet does not support Acheron’s argument. First, Biomet
was based on a much more specific gap-filling provision of
the ICC, and second, that provision only clarified the unde-
cided details of a duty expressly contemplated by the agree-
ment.
    To the first point: Biomet dealt with a very specific ICC pro-
vision that requires reasonable provision for delivery to be
made when the parties’ agreement is silent on that point. That
provision specifically addresses the gap the Biomet parties left
in their contract: place of delivery. It also gives specific guid-
ance on how to fill that gap: in the case of silence, the seller
must either make the goods available at its place of business
or make reasonable provision for shipment. Biomet had al-
ready agreed to repurchase the inventory and to pay for de-
livery. Only the place of delivery remained uncertain, and the
ICC provision was expressly created to fill that gap. By con-
trast, Acheron is relying only on the ICC’s general implied
duty of good faith. This is not a specific provision written to
address a circumstance in which the contract is silent on a spe-
cific term.
   Second, the ICC did not require TACT to undertake an af-
firmative duty not provided for in the parties’ agreement. It
was already agreed by the parties that in the event of a repur-
chase TACT would make delivery in some form and Biomet
would bear the costs. The only item left uncertain by the
agreement was where that delivery would be made. Con-
versely, the Agreement in this case included no obligation for
10                                            Nos. 19-2315 & 19-2410

Cook to make its confidential sales records available to the
VA. 5 This is a far cry from the contract in Biomet that expressly
contemplated delivery but simply never specified where it
would occur.
    In an effort to identify a specific duty within the Agree-
ment through which the duty of good faith and fair dealing
would require Cook to undergo the audit, Acheron points to
the Agreement’s force majeure provision. The Agreement
states that neither party may be liable for a delay or default
     caused by force majeure, including, without limitation
     … act of government or … agency …. The party af-
     fected by such a condition shall use every possible ef-
     fort to correct or eliminate the cause which prevents
     performance and resume performance as soon as pos-
     sible.




     5Although the district court found Cook “had not anticipated that it
would have to provide the extensive information required by the VA,”
Acheron argues Cook reasonably should have known when entering the
Agreement that providing the VA with access to its sales records would
be necessary because the requirement was spelled out in the VA’s regula-
tions and on its website. Acheron’s own pleadings, however, acknowl-
edged that the parties negotiated the Agreement in part because Acheron
represented it possessed knowledge and experience in government con-
tracts processes and would be able to educate and help Cook enter that
market. In Acheron’s own words: “the processes of [the VA and DOD] are
difficult for a vendor to navigate absent familiarity with them. Acheron
offered that familiarity and the consequent opportunity to facilitate sales
of Cook’s medical products to the DOD and VA by educating Cook on the
government purchasing programs.” (Complaint, District Court Docket 1,
at ¶10.) Acheron should have known better than to leave the important
detail of the VA audit off the negotiation table.
Nos. 19-2315 & 19-2410                                        11

(District Court Docket 1-1, at 9.) Acheron asserts the VA’s de-
nial of the FSS was a force majeure event, and therefore this
provision required Cook to act in good faith and take all rea-
sonable steps—including submitting to the VA audit—to help
Acheron overcome that obstacle.
    But the provision requires the party affected by a force
majeure condition to use every reasonable effort to correct or
eliminate the cause. Acheron contends both Cook and Ach-
eron were “affected” by the VA’s refusal to award an FSS,
since this refusal prevented Acheron from performing which
in turn prevented the object of the Agreement from being re-
alized. However, every instance of a force majeure preventing
one party from performing its obligations will “affect” both
parties in the sense that it prevents the contract from being
performed. Since the parties specifically chose to limit the ob-
ligation in the force majeure provision to “the party affected,”
we must assume they intended the party whose performance
is directly prevented by the event. The plain language of the
provision forecloses Acheron’s argument to the contrary,
without even reaching the question of whether “all reasona-
ble steps” would include Cook submitting to the VA audit.
    In short, the duty of good faith requires that a party per-
form its obligations and exercise its discretion under the con-
tract in good faith. But it does not require a party to undertake
a new, affirmative obligation that the party never agreed to
undertake. No part of the Agreement, including the force
majeure provision, obligates Cook to undergo an audit of its
confidential sales records. As such, Cook did not breach the
implied duty of good faith by refusing to do so.
12                                      Nos. 19-2315 & 19-2410

       b. The Prevention Doctrine
    Acheron also argues the common law prevention doctrine
compels a decision in its favor. Indiana courts have recog-
nized the prevention doctrine, under which a party’s perfor-
mance may be excused “where the other party wrongfully
prevents that performance.” Rogier v. Am. Testing & Eng’g
Corp., 
734 N.E.2d 606
, 620 (Ind. Ct. App. 2000); see also Stephen-
son v. Frazier, 
399 N.E.2d 794
, 798 (Ind. Ct. App. 1980). The
Indiana cases discussing this doctrine reveal two related ap-
plications: (1) a party who breaches a contract may not “take
advantage of his breach to relieve him of his contractual obli-
gations,” 
Rogier, 734 N.E.2d at 620
; 
Stephenson, 399 N.E.2d at 798
, and (2) a party who prevents the fulfillment of a condi-
tion precedent on which that party’s obligation was depend-
ent may not rely on the failure of that condition to avoid its
obligations, 
Rogier, 734 N.E.2d at 621
. The Restatement (Sec-
ond) of Contracts § 245 summarizes this doctrine as follows:
“Where a party’s breach by non-performance contributes ma-
terially to the non-occurrence of a condition of one of his du-
ties, the non-occurrence is excused.”
    The prevention doctrine does not apply here for two rea-
sons. First, this case does not involve a prevented condition
precedent, because the Agreement does not explicitly state
that Acheron’s obtaining an FSS was a condition precedent to
Cook’s performance. A condition precedent is “a condition
which must be satisfied before an agreement becomes en-
forceable or a condition which must be fulfilled before the
duty to perform an already existing contract arises.” Sand
Creek Country Club, Ltd. v. CSO Architects, Inc., 
582 N.E.2d 872
,
875 (Ind. Ct. App. 1991). Under Indiana law, conditions prec-
edent are “generally disfavored and must be stated explicitly
Nos. 19-2315 & 19-2410                                        13

within the contract.” Sasso v. Warsaw Orthopedic, Inc., 
45 N.E.3d 835
, 840 (Ind. Ct. App. 2015). Further, “[w]hen the re-
quired action to be taken is an integral part of the contract, it
is not a condition precedent.”
Id. The Agreement
does not ex-
plicitly condition its enforceability or any of Cook’s obliga-
tions on the award of the FSS. Instead, Acheron’s duty to ob-
tain an FSS is an integral part of the Agreement. It is not a
condition precedent.
    Second, as explained in the previous section, Cook did not
breach the Agreement by refusing to submit to the VA audit
because it was not obligated to do so. Acheron’s assertion that
Cook “wrongfully prevented” Acheron from performing its
obligation begs the question of Cook’s obligation to submit to
the audit. “The doctrine of prevention as an excuse for non-
performance of a contractual duty is inapplicable when the
conduct alleged to have prevented performance was permis-
sible under the express or the implied terms of the contract.”
13 Williston on Contracts § 39:11 (4th ed.). This conclusion is
further supported by the comment to Restatement (Second)
of Contracts § 245: “The rule stated in this Section only ap-
plies, however, where the lack of cooperation constitutes a
breach, either of a duty imposed by the terms of the agree-
ment itself or of a duty imposed by a term supplied by the
court.” Acheron argues the duty of good faith provides the
necessary “duty imposed by a term supplied by the court,”
but as we have already discussed, the duty of good faith does
not suffice here.
    This case does not present a scenario in which one party
actively sought to sabotage the other party’s performance to
escape its own obligations or obtain an unfair advantage. In-
stead, the parties failed to come to an agreement about an
14                                     Nos. 19-2315 & 19-2410

important aspect of the FSS approval process. We decline to
infer an agreement on Cook’s part to undergo the audit.
       c. Compliance with Federal Regulations
    Acheron next contends that applicable federal regulations
obligated Cook to submit to the VA audit. As Acheron points
out, unless a contract provides otherwise, “all applicable law
in force at the time the agreement is made impliedly forms a
part of the agreement without any statement to that effect.”
Miller v. Geels, 
643 N.E.2d 922
, 928 (Ind. Ct. App. 1994). Ach-
eron additionally relies on what is known as the Christian doc-
trine, under which relevant federal regulations are incorpo-
rated as a matter of law into federal contracts.
    When a reseller without significant sales to the general
public petitions to obtain an FSS, the VA requires access to the
manufacturer’s commercial sales records to confirm its pric-
ing. Accordingly, federal regulation requires such a reseller to
obtain written authorization from the manufacturer for the
VA to access the manufacturer’s sales records. 48 CFR
§ 515.408(b)(5). The regulation also states the reseller “should
advise the manufacturer(s) of this requirement.”
Id. Acheron argues
this regulation was incorporated into the Agreement,
creating an obligation on Cook to undergo the audit. For its
part, Acheron sought and obtained a letter, signed by Walters,
granting permission to the VA to access Cook’s sales records.
This letter did not amount to a valid amendment or modifica-
tion of the Agreement. According to Acheron, however, since
it fulfilled its obligation under § 515.408(b)(5) to obtain writ-
ten permission, Cook was then obligated by the same regula-
tion to honor the authorization letter and submit to the audit.
Nos. 19-2315 & 19-2410                                        15

    Regardless of whether Acheron properly sought written
authorization, the regulation does not place any obligation on
Cook to undergo the audit. As the district court correctly held,
the regulation governs only the relationship between the re-
seller and the VA, not the manufacturer. If anything, the reg-
ulation’s requirement that the reseller obtain written authori-
zation and its recommendation that the reseller “advise the
manufacturer” of the audit requirement emphasizes why
Acheron should have ensured the Agreement expressly obli-
gated Cook to provide access to its confidential sales records.
Acheron did not do this, however, and the Agreement does
not include any such obligation. Section 515.408(b)(5) does
not suffice to imply one.
       d. Election of Remedies
    Finally, Acheron argues Cook forfeited its right to termi-
nate the Agreement by choosing to keep the contract in force,
citing the “election-of-remedies” doctrine. Acheron also cites
the equitable principles of waiver, estoppel, and modification
to the same end.
    Under the contractual election-of-remedies doctrine to
which Acheron refers, when a breach by one party allows the
non-breaching party to terminate the agreement, but the non-
breaching party elects instead to continue accepting perfor-
mance from the breaching party, then the non-breaching
party has re-affirmed the contract and forfeits its right to ter-
minate that contract. See Restatement (First) of Contracts
§ 309. Waiver comes into play where a party’s conduct mani-
fests an intent to waive a known right. Ogle v. Wright, 
360 N.E.2d 240
, 245 (Ind. Ct. App. 1977). Estoppel may be invoked
when one party misleads the other party into believing a right
will not be enforced, causing that party to act to his detriment.
16                                     Nos. 19-2315 & 19-2410

Saverslak v. Davis-Cleaver Produce Co., 
606 F.2d 208
, 213 (7th
Cir. 1979). Finally, modification refers to parties mutually
agreeing to modify their contract. City of Indianapolis v. Twin
Lakes Enters., Inc., 
568 N.E.2d 1073
, 1084 (Ind. Ct. App. 1991).
    Soon after the VA denied Acheron’s FSS petition, Walters
sent an email to Acheron explaining Cook had decided not to
submit to the VA audit. In that same email, Walters stated “the
contract remains in place and we will continue to consider
business opportunities with Acheron under the terms and
conditions of that agreement.” Acheron Medical Supply Co.,
2017 WL 4310163
, at *5. The district court rejected Acheron’s
argument that this statement represented Cook’s re-affir-
mance of the contract despite the breach. The court found
that, without an FSS or DAPA sales, there was nothing left to
be accomplished by the Agreement, and therefore Walter’s
statement that “the contract remains in place” was meaning-
less.
    Acheron correctly points out the district court erred by
concluding there was no longer any business to be conducted
without an FSS. Walters testified in his deposition the contract
could still govern transactions of business through other gov-
ernment contract vehicles and other forms of business with
the VA. The FSS was only one contract vehicle through which
the Agreement gave Acheron the right to resell Cook Medi-
cal’s products, as seen on the Commission Schedule attached
as Exhibit A to the Agreement. (District Court Docket 68-3, at
15.) Cook does not argue otherwise.
   Furthermore, Cook improperly focuses its response on In-
diana’s judicial election-of-remedies doctrine, missing the
point of Acheron’s contractual election-of-remedies argument.
Cook argues Indiana law allows a party to pursue separate
Nos. 19-2315 & 19-2410                                       17

and contradictory claims in litigation so long as the party does
not pursue one to completion and then pursue a subsequent,
inconsistent remedy. See Hoover v. Hearth & Home Design Ctr.,
Inc., 
654 N.E.2d 744
, 745 (Ind. 1995). That principle has no
bearing on whether a party who has affirmed a contract de-
spite the other party’s breach and continued to accept perfor-
mance may later reverse course and sue for breach. Acheron’s
argument raises the latter question.
     However, the district court also pointed out Acheron’s
election-of-remedies argument relied solely on citations to
non-Indiana cases and the Restatement of Contracts, without
any authority demonstrating Indiana has adopted that doc-
trine (or to what extent it has done so). Acheron’s principal
brief acknowledges this part of the district court’s holding yet
still fails to provide any Indiana case law adopting or apply-
ing the doctrine. Acheron makes no argument why we, bound
to apply Indiana law in this case, should assume Indiana fol-
lows this rule without any supporting case law.
    In any event, there is no genuine dispute that Walters,
merely a “sales account executive” at Cook, was not an officer
with authority to speak or act on Cook’s behalf. The record
contains no support for the conclusion that Walters had the
authority to bind Cook to a course of action, to affirm the con-
tract, to modify the contract, or to waive Cook’s right to ter-
minate the contract. Accordingly, the district court properly
rejected Acheron’s argument that Cook affirmed the contract
despite Acheron’s breach, as well as its arguments for waiver,
estoppel, and modification.
18                                     Nos. 19-2315 & 19-2410

     2. Deactivation of Cook’s DAPA
    Acheron also argues Cook breached the Agreement by
continuing to make direct sales to the DOD and refusing to
deactivate its DAPA, inhibiting Acheron from making sales to
the DOD through its own DAPA. The district court held this
was not a breach, because the Agreement only appointed Ach-
eron as an exclusive agency for DOD distribution and no term
in the Agreement prevented Cook, the principal, from making
direct sales. The court also noted the Agreement contemplated
continued direct sales by providing for commissions to be
paid to Acheron on these direct sales.
    Acheron makes three main arguments on appeal. First, it
argues Cook Medical is itself the distribution arm of its sister
company, Cook Incorporated, and therefore Acheron’s exclu-
sive distributorship prevents Cook Medical from acting as a
distributor of Cook Incorporated. Second, Acheron argues the
district court misinterpreted the provision allowing Cook to
continue making direct sales to the DOD, which is only per-
missible under limited circumstances. Finally, Acheron ar-
gues not implying an obligation on Cook to deactivate its
DAPA effectively reads out of the contract Acheron’s appoint-
ment as a distributor and denies Acheron the benefit of its bar-
gain.
    The argument that Cook Medical is itself a distributor is
creative, but fails nonetheless. Acheron admits Cook Incorpo-
rated was not a signatory to the Agreement; Cook Medical
was. All references in the Agreement to “COOK” refer to
Cook Medical. Thus, regardless of the exact organizational re-
lationships between the various arms of Cook’s overall enter-
prise, the Agreement contemplates an exclusive agency
through which Acheron is appointed as Cook Medical’s
Nos. 19-2315 & 19-2410                                       19

exclusive distributor. Acheron’s argument could only hold
water if the Agreement appointed it as Cook Incorporated’s ex-
clusive distributor. It does not.
    Next, Acheron argues a proper interpretation of the
Agreement only allowed Cook to make direct sales under lim-
ited circumstances. Those circumstances, according to Ach-
eron, allowed direct sales to the VA on particular product
lines while the parties awaited an FSS application for that
product line to be approved. It was only those sales, Acheron
contends, that Cook was permitted to make while the FSS ap-
proval process was ongoing and would entitle Acheron to a
3% commission.
    This interpretation, however, is simply not supported by
the plain language of the Agreement. The Agreement clearly
allows Cook to make direct sales in “the Territory” (defined
as including both the VA and the DOD) both during the an-
ticipated FSS approval period (between March 1, 2014 and the
end of 2014) as well as after an FSS was in place for the prod-
ucts being sold. (District Court Docket 1-1, at 5.) No language
in the Agreement places the kinds of limits upon direct sales
that Acheron argues it does. The district court correctly held
the Agreement contemplates continued direct sales by Cook.
    Finally, Acheron argues an obligation for Cook to deacti-
vate its own DAPA must be implied, or else Acheron’s ap-
pointment as Cook’s distributor is rendered a nullity and
Acheron is deprived of the benefit of its bargain. This is essen-
tially the same argument we rejected regarding an implied
duty for Cook to undergo the VA audit. Deactivation of
Cook’s DAPA to allow for sales through Acheron’s DAPA
was undoubtedly an important term the parties should have
negotiated and included in their Agreement, but they did not.
20                                    Nos. 19-2315 & 19-2410

Once again, as the party touting its experience and knowledge
of government contracts, Acheron should have ensured Cook
understood the need and agreed to deactivate its DAPA. The
Agreement places no such obligation on Cook, but instead ex-
pressly allows for Cook to continue direct sales so long as a
commission is paid.
    Furthermore, the lack of an obligation on Cook to deacti-
vate its DAPA does not render Acheron’s appointment as ex-
clusive distributor meaningless, nor does it deprive Acheron
of the benefit of its bargain. Even without Cook deactivating
its DAPA, Acheron would be able to distribute Cook’s prod-
ucts to the VA and through other contract vehicles, and Ach-
eron was also entitled to and did receive commissions for all
of Cook’s direct sales to the DOD. That was the benefit for
which Acheron bargained, and the benefit it received.
    In sum, the Agreement did not obligate Cook either to sub-
mit to the VA audit or deactivate its DAPA. The district court
properly held Cook did not breach the Agreement, and there-
fore Acheron’s failure to obtain an FSS was a material breach
of the Agreement.
     3. Acheron’s Liability
    Having established Acheron breached the Agreement by
failing to obtain an FSS, we turn to the final issue on appeal:
whether Acheron owed damages for that breach. In its coun-
terclaim against Acheron, Cook sought damages in the
amount of the commissions it paid to Acheron for direct sales
made to the VA during the period Acheron was seeking the
FSS award. The district court held after the bench trial that
Acheron’s liability was excused by the Agreement’s force
majeure provision. The court also held the commissions were
Nos. 19-2315 & 19-2410                                        21

paid to Acheron as consideration for Acheron’s work in pur-
suit of the FSS award; they were not conditioned on Acheron’s
eventual procurement of an FSS. Cook appeals both holdings.
Since we hold the force majeure provision completely ab-
solves Acheron of liability for the breach, we do not need to
address the second holding.
   As explained previously, the Agreement’s force majeure
provision provides neither party
   shall be liable for any delay or default caused by force
   majeure, including, without limitation … act of gov-
   ernment or … agency. The party affected by such a
   condition shall use every reasonable effort to correct or
   eliminate the cause which prevents performance and
   resume performance as soon as possible.
(District Court Docket 1-1, at 9.) Acheron’s breach was unde-
niably caused by an act of a government agency (the VA’s de-
nial of the FSS award), and Acheron used every reasonable
effort to correct or eliminate that cause (by attempting to ob-
tain Cook’s authorization for the audit, and by offering other
sources of pricing information to the VA). Nevertheless, the
force majeure remained.
    Cook argues the denial of the FSS award due to Cook’s re-
fusal to submit to the VA audit was not a true force majeure
because it was foreseeable (to Acheron, at least). Cook points
to the fact that the applicable regulations and the VA website
made clear that an audit would be necessary, and thus Ach-
eron—the party touting its experience with and knowledge of
the government contracts purchasing process—should have
reasonably expected to encounter this roadblock, even though
Cook did not.
22                                              Nos. 19-2315 & 19-2410

    But the question of whether the audit was foreseeable is ir-
relevant to the application of the force majeure provision. The
event that prevented Acheron from performing was not the
VA’s request to complete an audit of Cook’s sales records. Ra-
ther, it was the VA’s denial of the FSS award, precipitated by
Cook’s refusal to submit to the audit. Even if Acheron could
reasonably expect the VA would require a commercial sales
audit, that does not mean Acheron should have reasonably
foreseen circumstances would result in the VA denying the
FSS award. Thus, the VA’s denial of the FSS qualifies as a force
majeure event outside both parties’ anticipation 6 and cer-
tainly Acheron’s control. The force majeure provision excuses
Acheron of any liability.
                               III. Conclusion
    In summary, the district court correctly held Cook had no
obligation to submit to the VA audit or deactivate its DAPA.
It also correctly held Acheron breached the Agreement by not
obtaining the FSS but was not liable for that breach due to the



     6 We further note the provision nowhere requires the force majeure
event be unforeseen, nor does it reference foreseeability at all. Cook cites
the definition of “force majeure” as an event that can be neither antici-
pated nor controlled, but the Indiana Court of Appeals has held “the scope
and effect of a force majeure clause depends on the specific contract lan-
guage, and not on any traditional definition of the term.” Specialty Foods of
Indiana, Inc. v. City of South Bend, 
997 N.E.2d 23
, 27 (Ind. Ct. App. 2013). In
that case, the court held a force majeure clause “contain[ing] nothing
about foreseeability” was intended to apply regardless of whether the par-
ties could have reasonably foreseen the event that precluded performance.
Id. at 27.
However, because we hold the force majeure provision applies
even assuming the event had to be unforeseen, we need not analyze fur-
ther whether the force majeure in this case required foreseeability.
Nos. 19-2315 & 19-2410                                23

force majeure provision. Accordingly, the judgment of the
district court is AFFIRMED.

Source:  CourtListener

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