In the
United States Court of Appeals For the Seventh Circuit ____________________ No. 15‐2659 DUAL‐TEMP OF ILLINOIS, INC., Plaintiff‐Appellee,
v.
HENCH CONTROL, INC. and CAESAR‐VERONA, INC., Defendants‐Appellants. ____________________
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:09‐CV‐595 — Sharon Johnson Coleman, Judge. ____________________
ARGUED MARCH 29, 2016 — DECIDED MAY 6, 2016 ____________________
Before FLAUM, EASTERBROOK, and SYKES, Circuit Judges. FLAUM, Circuit Judge. Hench Control Corporation (“Hench I”), the predecessor to defendants Hench Control, Inc. (“Hench II”) and Caesar‐Verona, Inc., contracted with plain‐ tiff Dual‐Temp of Illinois, Inc. to supply a refrigeration control system. However, the Hench refrigeration control system de‐ livered to Dual‐Temp did not work properly, and Dual‐Temp brought suit against defendants for breach of contract. After a bench trial, the district court held that defendants had 2 No. 15‐2659
breached the contract and awarded damages and attorneys’ fees to Dual‐Temp. Defendants appeal. We affirm the district court’s conclusion that defendants breached the contract and its award of damages. I. Background A. Factual Background Dual‐Temp is a refrigeration contractor that installs refrig‐ eration systems. A crucial component of a refrigeration sys‐ tem is the refrigeration control system (“RCS”), which regu‐ lates the temperature, humidity, and ammonia levels in the refrigeration system and controls related equipment such as compressors and condensers. The RCS must maintain com‐ munication with the rest of the refrigeration system to func‐ tion properly. In 2006, Home Run Inn Pizza began the expansion of its pizza manufacturing facility and hired Milord Company as a general contractor. Milord subcontracted with Dual‐Temp to update Home Run Inn’s refrigeration system. Dual‐Temp so‐ licited bids from several companies to design an RCS for inte‐ gration into Home Run Inn’s refrigeration system. Hench I submitted a bid to supply an RCS to Dual‐Temp. Dual‐Temp accepted this bid and issued a purchase order on October 20, 2006. The purchase order states, in relevant part, that the Hench RSC was to “meet design specifications and function (1) as called for in the plans, specifications or ad‐ denda, (2) as herein set forth, and (3) as published or war‐ ranted by the manufacturer for the equipment involved.” The purchase order also states that “[i]n the event that [the Hench RCS] does not meet the foregoing requirements, [defendants] No. 15‐2659 3
shall immediately, upon notice, replace or repair same or rem‐ edy any deficiency without expense to [Dual‐Temp].” The parties do not dispute that Dual‐Temp and Hench I entered into a valid contract and were bound by the terms of the pur‐ chase order. On February 28, 2007, Caesar‐Verona acquired Hench I and proceeded to do business as Hench Control, Inc. (“Hench II”). The district court found that Caesar‐Verona and Hench II implicitly assumed Hench I’s liability on the Dual‐Temp con‐ tract. The parties do not appeal this finding. The Hench RCS components were shipped to Dual‐Temp beginning in January 2007. At the end of March 2007, Dual‐ Temp received additional RCS parts. Dual‐Temp’s affiliate, Spur Electric, Inc., installed the RCS at the Home Run Inn fa‐ cility. Dual‐Temp asserts that problems arose with the RCS immediately upon installation. For instance, Dual‐Temp dis‐ covered that the wiring diagrams for the RCS were misla‐ beled. Defendants sent replacement diagrams, but these were also incorrect. Defendants eventually sent the correct dia‐ grams. Defendants also sent Dual‐Temp a computer with in‐ correct software but corrected this error as well. After installing the RCS, Dual‐Temp had to connect it to the refrigeration system in the Home Run Inn facility, a pro‐ cess referred to as “startup.” In May 2007, defendants sent their technician, Steve Halvorsen, to assist with startup. Shortly after startup, the RCS began having frequent commu‐ nication failures. This problem persisted for months and was never resolved. A functional RCS would have been able to communicate with the refrigeration system to control all parts of the refrigeration system. Dual‐Temp and defendants sent 4 No. 15‐2659
technicians to troubleshoot the problem, but their efforts were unsuccessful. On April 29, 2008, Milord demanded that Dual‐Temp re‐ place the Hench RCS. In May 2008, Dual‐Temp paid Select Technologies, Inc. $113,500 to remove the Hench RCS and to design, build, and install a replacement RCS. Dual‐Temp as‐ serts that the new Select Technologies RCS has been operating and communicating properly since installation. B. Procedural Background On January 30, 2009, Dual‐Temp filed suit alleging that Hench I, Hench II, and Caesar‐Verona breached the contract with Dual‐Temp to provide an operational RCS. Dual‐Temp contended that the Hench RCS was defective because it inter‐ mittently lost communication with the refrigeration system. The district court conducted a bench trial in January 2014. At trial, Dual‐Temp relied on circumstantial evidence that de‐ fendants supplied a defective RCS. Defendants presented the expert testimony of Ron Vallort, an expert in the area of re‐ frigeration control. Vallort testified that external factors could have caused the communication failures and that in his opin‐ ion, the Hench RCS was not necessarily defective. According to Vallort, other potential explanations for the communication losses included installation errors, problems with the condi‐ tions at the Home Run Inn facility, flawed wiring work done by Spur Electric during installation, a faulty humidistat, dis‐ ruptive radio waves, power surges and voltage drops, design flaws in the refrigeration system, or continual additions and modifications. Vallort stated that “the cause or causes of the communication failures cannot be determined within a rea‐ sonable degree of certainty.” Vallort also testified that these No. 15‐2659 5
other factors could have damaged the Hench RCS, and that this damage could have continued to cause communication failures, even if the damage‐causing condition was later cor‐ rected. On September 30, 2014, the district court entered judg‐ ment in favor of Dual‐Temp, holding Hench I, Hench II, and Caesar‐Verona jointly and severally liable in the amount of $113,500 (the amount Dual‐Temp paid Select Technologies for the replacement RCS) plus interest and attorneys’ fees. Hench II and Caesar‐Verona appeal the judgment of the district court.1 II. Discussion On appeal, defendants argue that the evidence presented at trial was not sufficient to permit a reasonable trier of fact to find that defendants breached the contract. Following a bench trial, we review the district court’s legal conclusions de novo and its factual findings for clear error. Rain v. Rolls‐Royce Corp., 626 F.3d 372, 379 (7th Cir. 2010). “[D]ue regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.” Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting Fed. R. Civ. P. 52(a)) (internal quota‐ tion marks omitted). To prevail on its breach of contract claim, Dual‐Temp must demonstrate: (1) the existence of a valid and enforceable contract; (2) substantial performance by the Dual‐
1 Hench I did not appeal. Defendants originally appealed the award of
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In the
United States Court of Appeals For the Seventh Circuit ____________________ No. 15‐2659 DUAL‐TEMP OF ILLINOIS, INC., Plaintiff‐Appellee,
v.
HENCH CONTROL, INC. and CAESAR‐VERONA, INC., Defendants‐Appellants. ____________________
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:09‐CV‐595 — Sharon Johnson Coleman, Judge. ____________________
ARGUED MARCH 29, 2016 — DECIDED MAY 6, 2016 ____________________
Before FLAUM, EASTERBROOK, and SYKES, Circuit Judges. FLAUM, Circuit Judge. Hench Control Corporation (“Hench I”), the predecessor to defendants Hench Control, Inc. (“Hench II”) and Caesar‐Verona, Inc., contracted with plain‐ tiff Dual‐Temp of Illinois, Inc. to supply a refrigeration control system. However, the Hench refrigeration control system de‐ livered to Dual‐Temp did not work properly, and Dual‐Temp brought suit against defendants for breach of contract. After a bench trial, the district court held that defendants had 2 No. 15‐2659
breached the contract and awarded damages and attorneys’ fees to Dual‐Temp. Defendants appeal. We affirm the district court’s conclusion that defendants breached the contract and its award of damages. I. Background A. Factual Background Dual‐Temp is a refrigeration contractor that installs refrig‐ eration systems. A crucial component of a refrigeration sys‐ tem is the refrigeration control system (“RCS”), which regu‐ lates the temperature, humidity, and ammonia levels in the refrigeration system and controls related equipment such as compressors and condensers. The RCS must maintain com‐ munication with the rest of the refrigeration system to func‐ tion properly. In 2006, Home Run Inn Pizza began the expansion of its pizza manufacturing facility and hired Milord Company as a general contractor. Milord subcontracted with Dual‐Temp to update Home Run Inn’s refrigeration system. Dual‐Temp so‐ licited bids from several companies to design an RCS for inte‐ gration into Home Run Inn’s refrigeration system. Hench I submitted a bid to supply an RCS to Dual‐Temp. Dual‐Temp accepted this bid and issued a purchase order on October 20, 2006. The purchase order states, in relevant part, that the Hench RSC was to “meet design specifications and function (1) as called for in the plans, specifications or ad‐ denda, (2) as herein set forth, and (3) as published or war‐ ranted by the manufacturer for the equipment involved.” The purchase order also states that “[i]n the event that [the Hench RCS] does not meet the foregoing requirements, [defendants] No. 15‐2659 3
shall immediately, upon notice, replace or repair same or rem‐ edy any deficiency without expense to [Dual‐Temp].” The parties do not dispute that Dual‐Temp and Hench I entered into a valid contract and were bound by the terms of the pur‐ chase order. On February 28, 2007, Caesar‐Verona acquired Hench I and proceeded to do business as Hench Control, Inc. (“Hench II”). The district court found that Caesar‐Verona and Hench II implicitly assumed Hench I’s liability on the Dual‐Temp con‐ tract. The parties do not appeal this finding. The Hench RCS components were shipped to Dual‐Temp beginning in January 2007. At the end of March 2007, Dual‐ Temp received additional RCS parts. Dual‐Temp’s affiliate, Spur Electric, Inc., installed the RCS at the Home Run Inn fa‐ cility. Dual‐Temp asserts that problems arose with the RCS immediately upon installation. For instance, Dual‐Temp dis‐ covered that the wiring diagrams for the RCS were misla‐ beled. Defendants sent replacement diagrams, but these were also incorrect. Defendants eventually sent the correct dia‐ grams. Defendants also sent Dual‐Temp a computer with in‐ correct software but corrected this error as well. After installing the RCS, Dual‐Temp had to connect it to the refrigeration system in the Home Run Inn facility, a pro‐ cess referred to as “startup.” In May 2007, defendants sent their technician, Steve Halvorsen, to assist with startup. Shortly after startup, the RCS began having frequent commu‐ nication failures. This problem persisted for months and was never resolved. A functional RCS would have been able to communicate with the refrigeration system to control all parts of the refrigeration system. Dual‐Temp and defendants sent 4 No. 15‐2659
technicians to troubleshoot the problem, but their efforts were unsuccessful. On April 29, 2008, Milord demanded that Dual‐Temp re‐ place the Hench RCS. In May 2008, Dual‐Temp paid Select Technologies, Inc. $113,500 to remove the Hench RCS and to design, build, and install a replacement RCS. Dual‐Temp as‐ serts that the new Select Technologies RCS has been operating and communicating properly since installation. B. Procedural Background On January 30, 2009, Dual‐Temp filed suit alleging that Hench I, Hench II, and Caesar‐Verona breached the contract with Dual‐Temp to provide an operational RCS. Dual‐Temp contended that the Hench RCS was defective because it inter‐ mittently lost communication with the refrigeration system. The district court conducted a bench trial in January 2014. At trial, Dual‐Temp relied on circumstantial evidence that de‐ fendants supplied a defective RCS. Defendants presented the expert testimony of Ron Vallort, an expert in the area of re‐ frigeration control. Vallort testified that external factors could have caused the communication failures and that in his opin‐ ion, the Hench RCS was not necessarily defective. According to Vallort, other potential explanations for the communication losses included installation errors, problems with the condi‐ tions at the Home Run Inn facility, flawed wiring work done by Spur Electric during installation, a faulty humidistat, dis‐ ruptive radio waves, power surges and voltage drops, design flaws in the refrigeration system, or continual additions and modifications. Vallort stated that “the cause or causes of the communication failures cannot be determined within a rea‐ sonable degree of certainty.” Vallort also testified that these No. 15‐2659 5
other factors could have damaged the Hench RCS, and that this damage could have continued to cause communication failures, even if the damage‐causing condition was later cor‐ rected. On September 30, 2014, the district court entered judg‐ ment in favor of Dual‐Temp, holding Hench I, Hench II, and Caesar‐Verona jointly and severally liable in the amount of $113,500 (the amount Dual‐Temp paid Select Technologies for the replacement RCS) plus interest and attorneys’ fees. Hench II and Caesar‐Verona appeal the judgment of the district court.1 II. Discussion On appeal, defendants argue that the evidence presented at trial was not sufficient to permit a reasonable trier of fact to find that defendants breached the contract. Following a bench trial, we review the district court’s legal conclusions de novo and its factual findings for clear error. Rain v. Rolls‐Royce Corp., 626 F.3d 372, 379 (7th Cir. 2010). “[D]ue regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.” Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting Fed. R. Civ. P. 52(a)) (internal quota‐ tion marks omitted). To prevail on its breach of contract claim, Dual‐Temp must demonstrate: (1) the existence of a valid and enforceable contract; (2) substantial performance by the Dual‐
1 Hench I did not appeal. Defendants originally appealed the award of
attorneys’ fees. However, defendants later conceded that this Court does not have appellate jurisdiction over this issue because the attorneys’ fee award has not yet been quantified and thus is not a final appealable order. McCarter v. Ret. Plan for Dist. Managers of Am. Family Ins. Grp., 540 F.3d 649, 654 (7th Cir. 2008). 6 No. 15‐2659
Temp; (3) a breach by defendants; and (4) resultant damages. Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 764 (7th Cir. 2010) (applying Illinois law). The only element defendants challenge on appeal is whether a breach occurred. The district court found that defendants breached the con‐ tract because the purchase order stated that defendants were to supply an RCS “to meet requirements of plan and specifi‐ cations,” and the Hench RCS did not meet this requirement since it could not properly communicate with the refrigera‐ tion system. On appeal, defendants contend that the evidence was insufficient to establish breach. They make two argu‐ ments: one based on Vallort’s expert testimony, and one based on the timing of the communication failures. We do not find either argument persuasive. First, defendants argue that they presented evidence of an equally plausible cause of the communication failures—Val‐ lort’s testimony that external factors caused the communica‐ tion failures—and thus, there was not sufficient evidence for the district court to find breach. According to defendants, the district court accepted Vallort’s testimony and found that it was equally plausible that the communication failures were caused by external factors and not by a defect in the RCS. This argument fails because it mischaracterizes the district court’s opinion. The court stated: “[Defendants] argue [they] put for‐ ward an equally plausible explanation for the communication losses—namely Vallort’s expert testimony … .” The district court neither accepted Vallort’s testimony nor stated that it found his theory to be equally plausible. Defendants insist that the district court accepted Vallort’s testimony when the court found unavailing Dual‐Temp’s ef‐ forts to discredit Vallort by pointing out that he was on pain No. 15‐2659 7
medication and recovering from surgery while preparing his report. But the fact that the district court was unpersuaded by Dual‐Temp’s attacks on Vallort’s “state of mind and instinc‐ tual rigor” does not mean that the court found Vallort’s theory as persuasive as Dual‐Temp’s theory of breach. Although the court did not find Vallort’s health issues, standing alone, to be sufficient to discredit his testimony, it was still within the role of the district court to consider Vallort’s overall credibility and weigh his testimony against other theories posited at trial. See Goodpaster v. City of Indianapolis, 736 F.3d 1060, 1068 (7th Cir. 2013) (noting that in a bench trial, the district court judge must determine the credibility of expert witnesses and that credi‐ bility determinations are findings of fact reviewed for clear error). Defendants have not shown that the district court’s credibility determinations were clearly erroneous. In any event, there is no evidence supporting Vallort’s speculation that the communication failures were caused by external factors. And Vallort did not testify that the commu‐ nication failures were actually caused by one or more of the external factors. He merely offered them as theoretical alter‐ natives to breach and stated that “the cause or causes of the communication failures cannot be determined within a rea‐ sonable degree of certainty.” Thus, we are not convinced by defendants’ contention that the parties’ alternative explana‐ tions—Dual‐Temp’s argument that the RCS was defective and defendants’ argument that external factors caused the com‐ munication failures—are in equipoise. In contrast to defendants’ lack of evidence supporting Val‐ lort’s speculation, there is sufficient circumstantial evidence for a reasonable factfinder to conclude that the communica‐ tion failures were caused by a defect in the Hench RCS. See 8 No. 15‐2659
Michalic v. Cleveland Tankers, Inc., 364 U.S. 325, 330 (1960) (not‐ ing that direct evidence of a fact is not required and that cir‐ cumstantial evidence can be sufficient). Dual‐Temp experi‐ enced problems with the Hench RCS from the start, the com‐ munication failures of the Hench RCS were never fixed, and the communication failures ceased once the Hench RCS was replaced with the Select Technologies RCS. At trial, Dual‐ Temp presented evidence that it worked with Spur Electric to determine whether external factors interfered with the RCS communication and found that they did not.2 Additionally, Milord independently contracted with AMS Mechanical Sys‐ tems, Inc., an independent mechanical contractor, to review and troubleshoot the Hench RCS. AMS Mechanical Systems concluded that the communication failures were caused by the Color Master, which is a software component of the Hench system. Given this evidence, a reasonable trier of fact could properly find that the communication failures were caused by a defect in the RCS and not by external factors.
2 At trial, the Vice President of Spur Electric testified that the wiring had
been installed according to Hench’s standards. Dual‐Temp also contends that the Select Technologies’ replacement RCS used the same wiring as the Hench RCS. A former Dual‐Temp employee testified that he tried to alle‐ viate the communication problems by checking the communication cable between the compressors and the panels, examining the grounding of the electrical system, and making sure that nobody was using a two‐way ra‐ dio at the installation site that might cause radio wave interference, but that his efforts did not fix the communication issues. Though one techni‐ cian hired by defendants suggested that a faulty humidistat might have caused the problem, a former Dual‐Temp employee testified that the hu‐ midistat was replaced and had not affected the communication problems. No. 15‐2659 9
Defendants’ second argument is that there is evidence that the RCS functioned properly for one month before the com‐ munication problems started, and therefore it is more likely that something happened during the first month—a power surge, for instance—that damaged the RCS and caused the communication failures. In support of this argument, defend‐ ants point to the testimony of Milord’s principal stating that the RCS began experiencing communication problems “within a few weeks after turning the system on.” Defendants also emphasize the testimony of Home Run Inn maintenance manager, Joe Bures, who stated that the communication prob‐ lems began within a month after installation. However, defendants seem to confuse installation with startup. Installation occurred from the end of March through April 2007. After installation, the RCS still had to be connected to the refrigeration system through startup. Defendants’ in‐ stallation technician assisted with startup in May 2007. The communication failures also began in May 2007, shortly after startup, and about one month after installation. Additionally, the RCS had to be connected to the refrigeration system through startup in order to communicate with the refrigera‐ tion system. Thus, the communication failures could not have commenced prior to startup. Finally, even if we assume for the sake of argument that the Hench RCS did operate properly for some time after startup, there is sufficient circumstantial evidence, as discussed above, for a reasonable factfinder to conclude that the communication failures were caused by a defect in the Hench RCS. Therefore, the district court properly concluded that defendants breached the contract.
10 No. 15‐2659
III. Conclusion For the foregoing reasons, we AFFIRM the district court’s conclusion that defendants breached the contract and its award of damages.