Sanchelima International, Inc. et al v. Walker Stainless Equipment Company, LLC et al

Filing 66

ORDER denying 47 Motion to Amend Complaint; granting 59 Motion for Leave to File Proposed Findings of Fact; and denying 44 Motion for Partial Summary Judgment. Signed by District Judge James D. Peterson on 12/1/2017. (jls)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

SANCHELIMA INTERNATIONAL, INC., and
SANCHELIMA INTERNATIONAL S. DE R.L. DE
C.V.,
Plaintiffs,
v.

OPINION & ORDER

WALKER STAINLESS EQUIPMENT COMPANY,
LLC, BULK SOLUTIONS, LLC, and
BULK TANK INTERNATIONAL, S. DE R.L. DE
C.V.,

16-cv-644-jdp

Defendants.
This is a contract case. Defendants manufacture dairy silos; plaintiffs distribute dairy
silos. Defendants and plaintiffs entered into a distribution agreement under which defendants
designated plaintiffs as their exclusive distributor of dairy silos in 12 Latin American countries.
Plaintiffs contend that defendants breached the contract by selling or marketing to plaintiffs’
customers in at least one of those Latin American countries, among other things.
Defendants have moved for summary judgment that the distribution agreement’s
remedy limitations provisions bar plaintiffs from recovering consequential damages, which are
the only damages plaintiffs seek in this action. Dkt. 44. Because defendants’ proposed
interpretation of the limitations provisions would deprive plaintiffs of a minimum adequate
remedy for a breach of the defendants’ main obligation under the contract, the limitations
provisions are unenforceable under that interpretation. The court will deny defendants’
motion.

PRELIMINARY MATTERS
Plaintiffs move for leave to amend their complaint to include allegations of additional
breaches and a claim for breach of implied covenant of good faith. Dkt. 47. Defendants argue
that plaintiffs have not shown good cause for amendment under Rule 16(b)(4)’s heightened
standard, but the court already explained that Rule 15, not Rule 16, governs a motion to amend
a complaint after the court-imposed deadline for amending without the court’s leave. See Dkt.
38, at 1–2. Under Rule 15, the court should freely give leave to amend when justice so requires.
The court need not grant leave “when there is undue delay, bad faith, dilatory motive, undue
prejudice to the opposing party, or when the amendment would be futile.” Bethany Parmacal
Co. v. QVC, Inc., 241 F.3d 854, 861 (7th Cir. 2001).
Here, the issue is undue delay. Plaintiffs moved to amend their complaint after
defendants moved for summary judgment, more than six months after the amendments
deadline set by the court’s scheduling order. See Dkt. 28, at 1. Plaintiffs explain that the factual
basis for the new allegations and claim only became apparent during discovery, but discovery
had been open for more than seven months by the time plaintiffs filed their motion, and
plaintiffs do not explain when they learned of the new breaches or why they couldn’t have
learned of them earlier. They argue that defendants would not be prejudiced by the amendment
because “they are already in possession of the additional documents in support of Plaintiffs’
additional claims,” Dkt. 47, at 3, but that’s not the point. The purpose of a complaint is to
“give the defendant fair notice” of the claim and its basis. Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). To allow plaintiffs to
assert new claims now, after defendants moved for summary judgment, would unduly prejudice

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defendants and contradict the purpose of a complaint. The court will deny plaintiffs’ motion
to amend their complaint.
Defendants move for leave to file their proposed findings of fact. Dkt. 59. As defendants
acknowledge, the court requires parties to submit a statement of proposed findings of fact with
their summary judgment motions. The purpose of the proposed findings of fact “is to clearly
identify the material facts and to allow the court to determine whether those facts are genuinely
in dispute.” Dkt. 28, at 8. Defendants failed to file a statement of proposed findings of fact
with their summary judgment motion, and so they move for leave to correct their error. In
many cases, the failure to abide by the court’s procedures on summary judgment could result
in automatic denial of the summary judgment motion. See id. at 2 (“The court will not consider
any document that does not comply with its summary judgment procedure.”). But here, no
facts are in dispute; the issues on summary judgment are ones of contract interpretation and
enforcement. So the court will grant defendants’ motion and accept their proposed findings of
fact.

UNDISPUTED FACTS
In April 2013, the parties entered into a distribution agreement under which plaintiffs
would distribute dairy silos and related products manufactured by defendants. See Dkt. 39-1.
Under the terms of the agreement, plaintiffs would act as defendants’ “exclusive distributor”
in 12 Latin American countries, including Mexico. Id. at 3. Two contractual provisions are
relevant to defendants’ summary judgment motion. The first, titled “Manufacturer Liability
Limitations,” limits plaintiffs’ recovery for claims arising “out of any purchase order, the
products manufactured or delivered under such purchase order or any accompanying

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documentation” to “the amount(s) paid by” plaintiffs to defendants under the purchase order.
Id. at 12. The second, titled “Liability Exclusions,” states that plaintiffs may not recover from
defendants “any special, indirect, incidental or consequential losses or damages including,
without limitation, any lost profits or punitive damages, arising out of or in connection with
this agreement.” Id.
In September 2016, plaintiffs filed suit against defendants, alleging that defendants sold
silos in Mexico in violation of the distribution agreement and breached several other
contractual provisions. Plaintiffs claim at least “$650,000 in lost profits, plus loss of good will
and damage to [their] business reputation,” as damages. Dkt. 39, at 7.

ANALYSIS
Defendants move for summary judgment that the distribution agreement’s limitations
provisions bar plaintiffs from recovering any damages. Summary judgment is appropriate if
defendants show that they are “entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
To avoid summary judgment, plaintiffs must “demonstrate that the record, taken as a whole,
could permit a rational finder of fact to rule in [their] favor.” Johnson v. City of Fort Wayne, 91
F.3d 922, 931 (7th Cir. 1996).
No material facts are in dispute here; the parties’ dispute centers on the interpretation
and enforceability of the agreement’s limitations provisions. The parties agree that Wisconsin
law governs. They dispute nearly everything else. Defendants contend that the limitations
provisions “explicitly prevent [plaintiffs] from recovering lost profits, which are the only
damages alleged.” Dkt. 58, at 2. Plaintiffs contend that the limitations provisions do not
prevent recovery of consequential damages or lost profits, and that even if they did, they would

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be unenforceable. Setting the interpretation disputes aside for the moment, the court will focus
on the ultimate question: if the limitations provisions do bar plaintiffs from recovering lost
profits, are they enforceable?
Under Wisconsin’s version of the Uniform Commercial Code § 2-719, contractual
provisions

limiting

or

excluding

consequential

damages

are

enforceable

unless

(1) “circumstances cause an exclusive or limited remedy to fail of its essential purpose” or
(2) “the limitation or exclusion is unconscionable.” Wis. Stat. § 402.719. As the Wisconsin
Supreme Court explains, § 402.719 “gives the parties substantial latitude to fashion their own
remedies for breach of the contract. However, the UCC disfavors limitations on remedies and
provides for their deletion where they would effectively deprive a party of reasonable protection
against breach.” Murray v. Holiday Rambler, Inc., 83 Wis. 2d 406, 265 N.W.2d 513, 519–20
(1978). In other words, parties to a contract for sale “must accept the legal consequence that
there be at least a fair quantum of remedy for breach of the obligations or duties outlined in
the contract.” Id. at 520 (quoting U.C.C. § 2-719 cmt. 1 (Am. Law Inst. & Unif. Law Comm’n
1977)). When a limitations provision “provides neither a minimum nor adequate remedy” for
a breach of the contract, it is unconscionable. Trinkle v. Schumacher Co., 100 Wis. 2d 13, 301
N.W.2d 255, 259 (Ct. App. 1980).
Here, the analysis is straightforward. Defendants’ proposed interpretation of the
limitations provisions would deprive plaintiffs of any remedy for a breach of the exclusivity
obligations in the distribution agreement. Therefore, the limitations provisions “must give way
to the general remedy provisions” of the UCC. Murray, 265 N.W.2d at 520 (quoting U.C.C. §
2-719 cmt. 1).

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Defendants cite several Wisconsin cases concerning arbitration provisions and the
economic loss doctrine for the proposition that the limitations provisions are enforceable. But
these cases are inapplicable here because the case does not involve an arbitration provision or
tort damages barred by the economic loss doctrine. Defendants argue that both parties are
“sophisticated,” and therefore the limitations provisions cannot be unconscionable. Dkt. 58,
at 3. But unconscionable limitations provisions may exist even when the contract is negotiated
between sophisticated parties. See Trinkle, 301 N.W.2d at 259. Defendants also argue that the
limitations provisions leave plaintiffs with a minimum adequate remedy: the amounts paid by
plaintiffs to defendants under the purchase order. Recovery of amounts paid under a purchase
order may adequately remedy some breaches of the agreement, but not the ones at issue here.
The limitations provisions would be enforceable, for example, if a defective product caused
plaintiffs to lose a customer and the resulting profits associated with that customer. “[T]he fact
that a limited remedy provides no relief in one set of circumstances does not mean the remedy
fails of its essential purpose,” but it does fail when “a party is unfairly deprived of the
substantial value of its bargain.” S. Fin. Grp., LLC v. McFarland State Bank, 763 F.3d 735, 741
(7th Cir. 2014).
Here, the limited remedy provides no relief for any breach of defendants’ main
obligation under the contract. Defendants’ breach of the exclusivity provision would not result
in a purchase order, and therefore plaintiffs could never recover for such a breach, essentially
rendering the exclusivity provision an empty promise by defendants. This is exactly the type of
limitation that § 402.719 renders unenforceable. The court will deny defendants’ motion for
summary judgment.

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ORDER
IT IS ORDERED that:
1. Plaintiffs’ motion for leave to amend their complaint, Dkt. 47, is DENIED.
2. Defendants’ motion for leave to file a statement of proposed findings of fact,
Dkt. 59, is GRANTED.
3. Defendants’ motion for summary judgment, Dkt. 44, is DENIED.
Entered December 1, 2017.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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