Talcott Communications Corp. v. Quad/Graphics Printing Corp.
Filing
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MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 2/15/2018: For the reasons stated in the accompanying Memorandum Opinion and Order, the Court grants summary judgment in favor of Quad/Graphics on Talcott's claim, but denies Quad/Graphics' motion with respect to its counterclaim [dkt. no. 21]. The case is set for a status hearing on February 28, 2018 at 9:00 a.m. for the purpose of setting a trial date on the counterclaim and discussing the possibility of settlement. (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
TALCOTT COMMUNICATIONS CORP.,
Plaintiff,
vs.
QUAD/GRAPHICS PRINTING CORP., also
known as QUAD GRAPHICS, INC.,
Defendant.
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Case No. 17 C 2278
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
In 2009, Talcott Communications Corp. signed a contract with Quebecor, later
acquired by Quad/Graphics Printing Corp., to print the magazines Talcott publishes.
Between 2009 and 2011, Talcott accrued a balance of past-due invoices. In 2014,
after repeated printing delays on Quad/Graphics' part, Talcott's frustration came to a
boil as it began to lose advertisers because of the delays. The parties' relationship
came to an end, and Talcott later sued Quad/Graphics for breach of contract.
Quad/Graphics counterclaimed, alleging that Talcott was in breach for failing to pay its
invoices in timely fashion. Quad/Graphics has moved for summary judgment on
Talcott's claim and its counterclaim.
Background
Talcott is an Illinois corporation that publishes trade magazines, including
Giftware News, Fancy Food Magazine, Baby Magazine, and Chef Educator. It
publishes tens of thousands of its magazines each year. In 2009, it entered into a
printing contract with Quebecor. Quebecor was reorganized as World Color Press,
which Quad/Graphics subsequently acquired.
Between 2009 and 2011, Talcott did not pay several invoices. On December 18,
2011, it entered into an amended agreement with Quad/Graphics. The agreement laid
out an approach to remedy Talcott's outstanding balance. For future printings, Talcott
was required to pay 130 percent of the cost before the publication went to print, and the
payment would be applied to its oldest invoices first.
In July 2014, Quad/Graphics moved Talcott's projects to a new printing plant.
Problems arose almost immediately. The record contains numerous e-mails between
September and November 2014 in which Talcott employees complain about delays in
printing the magazines. For Talcott, the final straw was the loss of the advertisers who
had grown frustrated with the late publication of the magazines in which their ads were
placed. In 2017, Talcott sued Quad/Graphics for breach of contract. Quad/Graphics
counterclaimed that Talcott breached by failing to pay its outstanding balance.
Discussion
Quad/Graphics has moved for summary judgment on Talcott's breach of contract
claim, as well as its breach of contract counterclaim against Talcott. The contract
between Quad/Graphics and Talcott requires that New York law governs their dispute.
Def.'s Ex. A ¶ 29 (Printing Agreement). "The essential elements to pleading a breach of
contract under New York law are the making of an agreement, performance by the
plaintiff, breach by the defendant, and damages suffered by the plaintiff." Startech, Inc.
v. VSA Arts, 126 F. Supp. 2d 234, 236 (S.D.N.Y. 2000). To prevail on a motion for
summary judgment, Quad/Graphics must establish that no reasonable jury could find in
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Talcott's favor, even after the Court views all evidence and takes all reasonable
inferences in Talcott's favor. Blasius v. Angel Auto., Inc., 839 F.3d 639, 644 (7th Cir.
2016).
The first element of the breach of contract analysis is common to both Talcott's
claim and Quad/Graphics' counterclaim: whether an agreement existed between the
parties. The answer here is clearly yes. The parties have presented a written contract,
Def.'s Ex. A (Printing Agreement), and a subsequent amendment. Def.'s Ex. B
(Amended Agreement). Moreover, both parties have acknowledged in their pleadings
the existence of a "valid and enforceable" contract. See Answer ¶ 9 (admitting that
"[t]he Contract and Amendment between TALCOTT and QUAD GRAPHICS was valid
and enforceable at all times relevant to this Complaint.").
The Court reviews the remaining questions of each claim—performance, breach,
and damages—separately. Startech, 126 F. Supp. 2d at 236. The Court first considers
Talcott's breach of contract claim, then reviews Quad/Graphics' counterclaim.
I.
Talcott's breach of contract claim
Talcott alleges that Quad/Graphics breached its contract by repeatedly delivering
printing orders late, which caused Talcott's advertisers to flee. To prevail on its breach
of contract claim, Talcott must show that (1) it performed under the contract, (2)
Quad/Graphics breached, and (3) it suffered damages. Id. To obtain summary
judgment, Quad/Graphics must show that no jury could reasonably find in Talcott's favor
on these elements. Blasius, 839 F.3d at 644. Quad/Graphic focuses its argument on
two elements. First, it argues that no reasonable jury could find that it breached the
contract. Def.'s Mem. in Supp. of Summ. J. at 10.
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Second, Quad/Graphic contends
that no reasonable jury could conclude that Talcott is entitled to damages. Id. at 8. The
Court does not address Quad/Graphic's first argument, as it finds that Quad/Graphics is
entitled to summary judgment on the basis of the second point.
Quad/Graphics argues it is entitled to summary judgment because Talcott cannot
recover its proposed damages—losses in advertising revenue—as it disclaimed
consequential damages in the contract. Id. at 8-11. The contract states that
Quad/Graphics shall not be liable for "special, incidental or consequential damages,"
including "lost profits." Def.'s Ex. A ¶ 15 (Printing Agreement). Talcott, in response,
argues that the damage waiver is unconscionable and, therefore, unenforceable. Pl.'s
Resp. Br. at 6. Quad/Graphics responds that Talcott, through its complaint, conceded
the enforceability of the waiver. Def.'s Reply Br. at 4. Quad/Graphics also argues that
the contract, an agreement between two sophisticated corporations, is not
unconscionable. Id. at 5. The Court need not resolve the first contention, as
Quad/Graphics prevails on the second.
Quad/Graphics argues that no reasonable jury would conclude that its contract
with Talcott is unconscionable. An unconscionable contract is unenforceable. Gillman
v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 10, 534 N.E.2d 824, 828 (1988). To
show the contract is unconscionable under New York law, Talcott must show the
contract was procedurally unconscionable, "which requires some showing of an
absence of meaningful choice on the part of one of the parties," and that it was
substantively unconscionable, which requires showing "contract terms which are
unreasonably favorable to the other party." Id. (internal quotation marks and citations
omitted).
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Did Talcott lack "meaningful choice" when it contracted away its right to
consequential damages? Id. To analyze whether the contract is procedurally
unconscionable, "[t]he focus is on such matters as the size and commercial setting of
the transaction . . . , whether deceptive or high-pressured tactics were employed, the
use of fine print in the contract, the experience and education of the party claiming
unconscionability, and whether there was disparity in bargaining power." Id. at 11, 534
N.E.2d at 828. Talcott entered into the agreement waiving consequential damages with
Quebecor—not Quad/Graphics—in 2009, and it has presented no evidence suggesting
that Quebecor engaged in anything untoward during negotiations. Talcott tries to skirt
this issue by focusing on the negotiation between Quad/Graphics and Talcott after
Quad/Graphics acquired World Color, the reorganized Quebecor entity. Pl.'s Resp. Br.
at 8-9. Talcott characterizes itself as vastly outgunned by Quad/Graphics, given the
disparity in size between the firms and Talcott's existing debt to Quebecor. Id.
Quad/Graphics rightly points out that Talcott is a sophisticated business that publishes
numerous magazines across the country, and that Talcott failed to show Quad/Graphics
employed any coercive negotiating tactics. Def.'s Reply Br. at 6. Nor has Talcott cited
any case in which a court invalidated a contract between two business entities as
procedurally unconscionable on the ground that it was negotiated while one entity was
indebted to another.
Talcott unsuccessfully tries to analogize its position to the position of the plaintiff
in Brennan v. Bally Total Fitness, 198 F. Supp. 2d 377 (S.D.N.Y. 2002). In Brennan, the
court struck down an arbitration agreement that an employer foisted upon an employee
after she alleged her supervisor sexually harassed her. Id. The Brennan plaintiff was a
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single mother who, while in the midst of a high-risk pregnancy, depended on her
employer for her health insurance. Id. at 383. She believed she would be fired if she
did not sign the sixteen-page, single-spaced arbitration agreement immediately. Id.
Talcott is not the least bit similar to the plaintiff in Brennan. It has not offered any
evidence that Quad/Graphics engaged in high-pressure tactics, and certainly nothing
approaching the conduct the plaintiff in Brennan suffered. Def.'s Reply Br. at 5.
Brennan affords Talcott no help.
Talcott also argues that the contract was procedurally unconscionable because it
was a contract of adhesion. Pl.'s Resp. Br. at 9. "Typical contracts of adhesion are
standard-form contracts offered by large, economically powerful corporations to
unrepresented, uneducated, and needy individuals on a take-it-or-leave-it basis, with no
opportunity to change the contract's terms." Klos v. Polskie Linie Lotnicze, 133 F.3d
164, 168 (2d Cir. 1997) (citations omitted). See also App. of Whitehaven S.F., LLC v.
Spangler, 45 F. Supp. 3d 333, 351 (S.D.N.Y. 2014) ("[A] 'contract of adhesion' is one
that contains terms that are unfair and nonnegotiable and arises from a disparity of
bargaining power or oppressive tactics.") (internal quotation marks and citations
omitted). For reasons already discussed, Talcott has not shown that there was a
disparity between the parties that warped negotiations, nor has it offered any evidence
that Quad/Graphics employed oppressive tactics. In sum, there is no evidence to
support the proposition that the contract was procedurally unconscionable.
The next issue is whether the contract was substantively unconscionable, which
depends on whether its terms were "unreasonably favorable" to Quad/Graphics.
Gillman, 73 N.Y.2d at 10, 534 N.E.2d at 828. An unconscionable contract is one which,
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"in light of the mores and business practices of the time and place" is so "grossly
unreasonable" that it cannot be enforced. Id. Talcott argues that the consequential
damage waiver unreasonably favors Quad/Graphics, because it "gives Quad/Graphics a
free pass to intentionally breach the contract without any serious repercussions and
without any remedies to make the customer whole again." Pl.'s Resp. Br. at 10. This is
untrue: the contract expressly permits compensatory damages. Def.'s Ex. A ¶ 15
(Printing Agreement). New York courts regularly affirm contract terms that waive
consequential damages. See, e.g., Russell Publ'g Grp., Ltd. v. Brown Printing Co., No.
13 Civ. 5193 (SAS), 2014 WL 6790762, *7 (S.D.N.Y. Dec. 2, 2014) (holding that a
clause between a publisher and a printer that waived consequential damages was
enforceable, as "[b]oth parties are sophisticated entities operating in a commercial
environment."). See also Daily News, L.P. v. Rockwell Int'l Corp., 256 A.D.2d 13, 13,
680 N.Y.S.2d 510, 510 (1998) (upholding a contract that "expressly excludes as a
remedy the recovery of consequential damages"). In sum, there is no evidence to
support the proposition that Talcott's contract was procedurally or substantively
unconscionable.
For these reasons, Quad/Graphics is entitled to summary judgment on Talcott's
breach of contract claim.
II.
Quad/Graphics' breach of contract counterclaim
Quad/Graphics also seeks summary judgment on its breach of contract
counterclaim. A motion for summary judgment should be granted if only "no jury could
reasonably find in the nonmoving party's favor." Blasius, 839 F.3d at 644. Thus to
prevail on its motion for summary judgment, Quad/Graphics must establish that no
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reasonable jury could find against it on the following propositions: (1) it performed under
the contract, (2) Talcott breached, and (3) it suffered damages. Startech, 126 F. Supp.
2d at 236.
The first issue is whether a reasonable jury could find that Quad/Graphics did not
perform under the contract. Under New York law, "one of the essential elements of a
cause of action for breach of contract is the performance of its obligations by the party
asserting the cause of action for breach." County of Jefferson v. Onondaga Dev., LLC,
151 A.D.3d 1793, 1795-96, 59 N.Y.S.3d 203, 206 (2017). Quad/Graphics argues that,
because it never received written notice of a breach as required by the contract, it fully
performed under the contract. Def.'s Mem. in Supp. of Summ. J. at 13. Talcott disputes
this argument, pointing to the fact that Quad/Graphics delivered its magazines well past
the deadline on several occasions, and refused outright to print the November 2014
issue of Giftware News. Pl.'s Resp. Br. at 13-14.
Quad/Graphics' argument is unconvincing. "[A] party who seeks to recover
damages from the other party to the contract must show that he himself is free from
fault in respect of performance." Onondaga Dev., 151 A.D.3d at 1795, 59 N.Y.S.3d at
206 (citation omitted). Talcott has presented a good deal of evidence suggesting that
Quad/Graphics' record of performance was not free from fault. Quad/Graphics began to
miss publishing deadlines once it began printing Talcott's magazines at a new plant.
Von Rabenau Aff. ¶ 22. In September 2014, a Talcott employee e-mailed
Quad/Graphics with concerns about "[p]roblems at the new plant." Pl.'s Ex. B (Sept. 9,
2014 e-mail). In October, a Quad/Graphics employee e-mailed to "apologize" for the
"lag in service" that Talcott suffered. Pl.'s Ex. H (Oct. 8, 2014 e-mail). Affidavits from
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Talcott's employees describe numerous delays in printing. See, e.g., Mowrey Aff. ¶ 25
("On October 9, 2014, I received an e-mail from Mark Czech wherein he informed me
that Quad/Graphics was trying to cure the late printing and shipping of Giftware News
that I made him aware of on October 8, 2014."). Likewise, whether Quad/Graphics'
decision not to print the November 2014 issue of Giftware News was a breach remains
an issue on which reasonable jurors could disagree. See Pl.'s Resp. Br at 14; Def.'s
Reply Br. at 4. Talcott's claimed failure to give sufficient written notice of a breach might
be a factor for a jury to consider in deciding whether Quad/Graphics performed, but it is
not dispositive on an affirmative claim by Quad/Graphics. Quad/Graphics is therefore
not entitled to summary judgment on its counterclaim.
The second issue is whether a reasonable jury could find that Talcott did not
breach the contract. Under the 2011 amendment, Talcott agreed to pay 130 percent of
the cost of any future order. Talcott also agreed that each payment would be applied to
its oldest outstanding invoice. Def.'s Ex. B at 22 (Agreement Amendment).
Quad/Graphics contends that Talcott breached the contract by failing to pay the
remaining invoices. Def.'s Mem. in Supp. of Summ. J. at 13-14.
Quad/Graphics has not sufficiently shown how Talcott's unpaid invoices
breached the contract. After the 2011 amendment was adopted, Talcott relied on the
amendment by pre-paying its invoices at 130 percent of the actual cost, and
Quad/Graphics has not offered evidence suggesting that Talcott has failed to make any
payments under the amended contract. Per the terms of the amended contract,
Talcott's most recent invoices remain unpaid—but only because its oldest invoices were
paid off first. Quad/Graphics has failed to show that the issue of a breach by Talcott
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can be determined by the Court as a matter of law, at least not based on the record
presented in connection with the motion for summary judgment. The Court therefore
denies Quad/Graphics' motion for summary judgment on its counterclaim. For this
reason, the Court does not need to address the arguments regarding Quad/Graphics'
damages, including arguments about interest and attorneys' fees. See Def.'s Mem. in
Supp. of Summ. J. at 14; Pl.'s Resp. Br. at 15; Def.'s Reply Br. at 3.
Conclusion
For the foregoing reasons, the Court grants summary judgment in favor of
Quad/Graphics on Talcott's claim, but denies Quad/Graphics' motion with respect to its
counterclaim [dkt. no. 21]. The case is set for a status hearing on February 28, 2018 at
9:00 a.m. for the purpose of setting a trial date on the counterclaim and discussing the
possibility of settlement.
________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: February 15, 2018
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