Consolidated Bearings Co. v. Ehret-Krohn Corp.

913 F.2d 1224, 1990 WL 134981
CourtCourt of Appeals for the Seventh Circuit
DecidedSeptember 20, 1990
DocketNo. 89-2779
StatusPublished
Cited by48 cases

This text of 913 F.2d 1224 (Consolidated Bearings Co. v. Ehret-Krohn Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Consolidated Bearings Co. v. Ehret-Krohn Corp., 913 F.2d 1224, 1990 WL 134981 (7th Cir. 1990).

Opinion

FLAUM, Circuit Judge.

This diversity case arose when the Consolidated Bearings Company (“Consolidated”) terminated Ehret-Krohn Corporation’s (“Ehret”) distributorship in 1982. Ehret refused to return consigned inventory to Consolidated and Consolidated sought re-plevin. Ehret counterclaimed, alleging that Consolidated wrongfully terminated [1226]*1226the contract, fraudulently induced Ehret to enter into the contract in 1973 and to accept a reduced commission schedule after 1975, and owed it commissions for storing the bearings after Consolidated cancelled the contract.1 The trial court severed the complaint and counterclaims. A jury denied the replevin complaint; the district judge granted Consolidated’s motion for a directed verdict on each counterclaim. Eh-ret appeals the directed verdicts. We find that the judge should have given two of the counterclaims to the jury and therefore vacate the judgment in part and remand those claims for trial.

I. Facts

Consolidated imports ball bearings from Europe and Asia and sells them in the United States through a network of regional distributors. In June of 1972, Consolidated was seeking a midwest distributor for its bearings, and proposed that Ehret, a representative of various industrial manufacturers, fill that niche. The two companies executed a contract in January, 1973, in which Consolidated agreed to pay Ehret a ten percent commission on sales to aftermarket distributors2 in its territory and a five percent commission on sales to original equipment manufacturers (“OEMs”). The contract provided for an additional five percent payment on shipments made from Eh-ret’s Chicago warehouse. In return, the agreement required Ehret to service and solicit aftermarket and OEM accounts and to file monthly reports of visits to those accounts (“call reports”). The contract renewed automatically each year absent a notice of termination by either party 60 days before the annual expiration date.

Things went well at the beginning. Consolidated’s sales in the region increased from approximately $75,000 in 1972 to $155,000 in 1973 and over $400,000 in 1974 and 1975. Consolidated’s overall sales and profits increased in equally dramatic fashion. Gross sales rose from $2.8 million in 1972 to almost $8.5 million in 1975; Consolidated’s net profits increased from $44,416 in 1972 to $81,152 in 1973 and $315,547 in 1974. Net profits declined slightly to $273,663 in 1975. Ralph Meerwarth, then Consolidated’s vice president, received (along with his father) salary increases of over $50,000 in 1974 and almost $8,000 in 1975.

Nevertheless, in June, 1975, Meerwarth phoned John Ehret, president of Ehret-Krohn, and told him that fluctuations in the German deutschemark were contributing to “losses in his company.” Meerwarth claimed that, because of these losses, the only way he could survive was to withdraw from the market unless Ehret was willing to accept a temporary reduction in its commissions. He added that he was asking all his distributors to do the same. Ehret agreed to the requested reduction on the condition that Consolidated agree to terminate the contract only for “serious cause.” Under the revised commission schedule, Ehret received a ten percent commission on its first $350,000 in sales to aftermarket distributors, and five percent on sales beyond that amount.

The parties operated under the modified contract until 1982. On January 15, 1982, Meerwarth sent Ehret a letter cancelling the contract effective March 19, stating that Ehret had failed to file call reports and to service and solicit OEM accounts. In place of the original contract, Consolidated proposed a new contract under which Ehret would not receive commissions on sales to OEM accounts it failed to service. The parties negotiated the proposed contract, but continued doing business under the terms of the original contract until November, when Consolidated notified Ehret that it was terminating their relationship on November 30 unless Ehret signed the revised contract. During this interval, John Ehret requested that Consolidated restore the commission rate to ten percent; in response, Paul Bederson, Consolidated’s vice president for finance told him: “Come off [1227]*1227it, John. Ralph was never really going to pay ten percent commission. That was just a titty up front to suck you in.”

II. Fraud

Ehret claims fraud largely on the basis of this comment.3 Consolidated’s promise to pay a ten percent commission in 1973, it argues, was part of a scheme to sucker Ehret into the contract and then to pull the rug out once Ehret had made investments that it would have to eat if Consolidated cancelled the contract. Ehret contends that Consolidated accomplished its scheme in 1975 when Meerwarth extorted a fifty percent reduction in the commission schedule.

When reviewing directed verdicts in diversity cases, we use the state’s standard of review. Mele v. Sherman Hosp., 838 F.2d 923, 924 (7th Cir.1988). The parties agree that the Illinois standard is set forth in Pedrick v. Peoria & Eastern R.R. Co., 37 Ill.2d 494, 510, 229 N.E.2d 504, 513-14 (1967): “[Vjerdicts ought to be directed ... only in those cases in which all of the evidence, when viewed in its aspect most favorable to the opponent, so overwhelmingly favors movant that no contrary verdict based on that evidence could ever stand.” See also Kokinis v. Kotrich, 81 Ill.2d 151, 154-55, 40 Ill.Dec. 812, 813-14, 407 N.E.2d 43, 44-45 (1980) (restating Pedrick). To prove its fraud claims, Ehret had to show that Consolidated knowingly made false statements of material fact with the intent to induce Ehret’s actions and that Ehret reasonably relied to its detriment on those statements. Soules v. General Motors Corp., 79 Ill.2d 282, 286, 37 Ill.Dec. 597, 599, 402 N.E.2d 599, 601 (1980). Each of these elements must be proved by clear and convincing evidence. Hofmann v. Hofmann, 94 Ill.2d 205, 222, 68 Ill.Dec. 593, 600, 446 N.E.2d 499, 506 (1983); Niemoth v. Kohls, 171 Ill.App.3d 54, 68, 121 Ill.Dec. 37, 46, 524 N.E.2d 1085, 1094 (1988); Kinsey v. Scott, 124 Ill.App.3d 329, 336, 79 Ill.Dec. 584, 589, 463 N.E.2d 1359, 1364 (1984).4

Ehret’s 1973 fraud claim fails to measure up. Meerwarth’s agreement to pay a 10 percent commission was not a statement of material fact; it was a promise. Ehret invokes an Illinois rule that holds actionable promises that are “part of a scheme to defraud,” General Motors Acceptance Corp. v. Central Nat’l Bank, 773 F.2d 771, 780 (7th Cir.1985) (citing Illinois law), but that exception applies only when the promise is not carried out. See, e.g., Steinberg v. Chicago Medical School, 69 Ill.2d 320, 334, 13 Ill.Dec. 699, 706, 371 N.E.2d 634, 641 (1977) (exception applies to false

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Goulding v. Miller
N.D. Illinois, 2023
Weiss, M. v. Thomas Jefferson Univ.
Superior Court of Pennsylvania, 2019
IPOX Schuster, LLC v. Nikko Asset Mgmt. Co., Ltd.
304 F. Supp. 3d 746 (E.D. Illinois, 2018)
Patricia Botelho v. City of Pawtucket School Department
130 A.3d 172 (Supreme Court of Rhode Island, 2016)
Hongbo Han v. United Continental Holdings, Inc.
762 F.3d 598 (Seventh Circuit, 2014)
AAA Valley Gravel, Inc. v. Totaro
325 P.3d 529 (Alaska Supreme Court, 2014)
Riley J. Wilson v. Career Education Corporation
729 F.3d 665 (Seventh Circuit, 2013)
Country Mutual Insurance v. Styck's Body Shop, Inc.
918 N.E.2d 1195 (Appellate Court of Illinois, 2009)
Federal Trade Commission v. IFC Credit Corp.
543 F. Supp. 2d 925 (N.D. Illinois, 2008)
Azat v. Farruggio
875 A.2d 778 (Court of Special Appeals of Maryland, 2005)

Cite This Page — Counsel Stack

Bluebook (online)
913 F.2d 1224, 1990 WL 134981, Counsel Stack Legal Research, https://law.counselstack.com/opinion/consolidated-bearings-co-v-ehret-krohn-corp-ca7-1990.