Druckzentrum Harry Jung GmbH & Co. KG v. Motorola Mobility LLC

                                 In the

    United States Court of Appeals
                  For the Seventh Circuit

No. 12-3057

DRUCKZENTRUM HARRY JUNG
GMBH & CO. KG,
                                                     Plaintiff-Appellant,

                                    v.

MOTOROLA MOBILITY LLC,
                                                    Defendant-Appellee.

             Appeal from the United States District Court
         for the Northern District of Illinois, Eastern Division.
               No. 09-CV-7231 — John W. Darrah, Judge.


    ARGUED APRIL 18, 2013 — DECIDED DECEMBER 18, 2014




   Before BAUER, FLAUM, and SYKES, Circuit Judges.
   SYKES, Circuit Judge. A German printing company sued
Motorola Mobility LLC, the cell-phone manufacturer, alleging
that it breached a supply contract for printing services. In early
2008 Motorola agreed to make a good-faith effort to purchase
2% of its cell-phone user-manual needs from Druckzentrum
2                                                   No. 12-3057

Harry Jung GmbH & Co., a printer based in northern
Germany. Halfway through the two-year contract period,
Motorola’s cell-phone sales contracted sharply. In response to
the downturn, Motorola decided to consolidate its cell-phone
manufacturing and distribution operations in China and buy
all related print products there. Motorola notified
Druckzentrum of the shift, and the two companies continued
to do business together for a few more months during the
transition.
    The loss of Motorola’s business did Druckzentrum in; the
printer entered bankruptcy in Germany and brought this suit
against Motorola alleging breach of contract and fraud in the
inducement of the contract. Among other things,
Druckzentrum claimed that the contract gave it an exclusive
right to all of Motorola’s user-manual printing business for cell
phones sold in Europe, the Middle East, and Asia during the
two-year contract period. The district judge rejected this claim
on the pleadings and later entered summary judgment for
Motorola on the rest of the case, finding no evidence to support
either a claim of breach of contract or fraud.
    We affirm. The parties’ written contract contains no
promise of an exclusive right to all of Motorola’s printing
business in Europe, the Middle East, and Asia. And because
the contract is fully integrated, Druckzentrum cannot use parol
evidence of prior understandings to upset the bargain the
parties put in writing. Moreover, although Motorola promised
to make a good-faith effort to purchase 2% of its cell-phone
user-manual printing needs from Druckzentrum for a two-year
period, the contract listed several reasons Motorola might
No. 12-3057                                                   3

justifiably miss the target. These included business downturns
of the sort Motorola experienced, and there is no evidence that
it acted in bad faith by moving its printing and distribution
activities away from Europe. Finally, the evidence is insuffi-
cient to create a jury issue on the claim that Motorola fraudu-
lently induced Druckzentrum to enter into the contract or
continue performing under it.


                        I. Background
    Druckzentrum is a printer based in Flensburg, Germany.
Motorola is based in Illinois but maintains operations globally.
In 1995 Motorola began using Druckzentrum to print user
manuals for its cell-phone products marketed in Europe, the
Middle East, and Asia—a marketing area apparently known in
the trade as the “EMEA” region. During this time period,
Motorola manufactured its phones in China and shipped them
to a distribution facility in Flensburg, where they were pack-
aged with user manuals printed by Druckzentrum and
distributed for sale throughout the EMEA region.
    In 2007 Motorola embarked on a program to improve the
way it purchased products from vendors. At workshops
conducted in fall 2007, Motorola educated vendors on the new
process by which they could bid for contracts. Vendors first
had to sign a “Corporate Supply Agreement” with a stated
effective date of October 1, 2007. Druckzentrum was among
the vendors invited to participate. After signing the agreement,
Druckzentrum representatives attended a workshop in Illinois.
4                                                    No. 12-3057

    The materials distributed during the workshop made it
clear that vendors would bid for a particular product
“segment”—e.g., printed materials, cardboard boxes, plastic
packaging, and so forth. It was less clear whether vendors were
bidding for a particular region as well. Although the bidding
materials contain many references to regions and vendors were
supposed to state a bid in reference to a particular region, it is
not clear whether Motorola would actually award work on a
regional basis.
    During the bidding process, Motorola shared its sales
forecasts with vendors. Bidders needed to know what sales
volume they could expect in order to set prices and ensure that
they had capacity to meet demand. Motorola told
Druckzentrum that it expected to sell 37 million mobile phones
in the EMEA region in 2008 and made other rosy projections.
    After bidding for the print segment in the EMEA region,
Druckzentrum was given an “Initial Award” consisting of a
“base share” of 2% and a “swing share” of 8%, meaning that
Motorola made a “commitment” to buy 2% of print products
from Druckzentrum and could, at its option, buy another 8%
of print products from the company. The percentages were
stated on the basis of global spending; thus, 2% of print means
2% of global print purchases, not 2% of EMEA print purchases.
But there was no “commitment” in an absolute sense; rather,
Motorola promised only to make a good-faith effort to hit the
target and identified various commercial factors that might
lead it to miss. All of this was embodied in a Notice of Initial
Award, which the parties refer to as the “NIA” but we will
simplify and just call “the contract.”
No. 12-3057                                                   5

    Motorola sent a signed copy of the contract to
Druckzentrum on January 23, 2008, although the previously
executed Corporate Supply Agreement, which was incorpo-
rated by reference, stated an effective date of October 1, 2007.
Another quirk is that the parties did not finalize prices until
after Motorola awarded Druckzentrum the contract. As a result
Motorola purchased nothing from Druckzentrum for the first
few months of the contract. As the parties negotiated over
prices during the winter and early spring of 2008, Motorola
regularly sent updated sales forecasts to Druckzentrum. The
updated forecasts showed revised downward sales projections,
but they were in a different format than the earlier forecasts;
Druckzentrum’s fraud claim centers on the change in format-
ting.
     After finalizing pricing, Druckzentrum countersigned the
contract in April 2008, and Motorola started placing orders. By
its terms, the contract was good through September 30, 2009,
“unless terminated earlier.” Among various other grounds for
early termination, Motorola could terminate the contract “for
convenience” on 90 days’ written notice.
    Throughout calendar year 2008, Motorola’s cell-phone sales
in the EMEA region dropped precipitously, and by November
of that year, Motorola decided to shutter its German operations
in favor of a “direct ship” model. Under the new model,
everything would happen in China, including the printing of
user manuals. Motorola orally notified Druckzentrum of this
decision by phone on November 4, 2008. On November 18
Motorola’s purchasing agent in Germany notified
Druckzentrum by email that all business would conclude by
6                                                  No. 12-3057

the end of the first quarter of 2009. Motorola and
Druckzentrum continued to do business during this transition
period. When orders ceased, Druckzentrum sent a notice of
cancellation dated April 24, 2009. On July 1, 2009, Motorola
faxed a formal letter terminating the contract.
    Sometime after losing Motorola’s printing business,
Druckzentrum entered bankruptcy in German courts.
Druckzentrum then sued Motorola in federal court in the
Northern District of Illinois alleging claims for breach of
contract and fraud. First, Druckzentrum alleged that it had a
two-year exclusive right to all of Motorola’s print business for
cell-phone products destined for the EMEA market, and by
moving the work to a Chinese vendor, Motorola breached the
contract. Another theory of breach centered on Motorola’s
failure to meet the 2% purchasing target. On the fraud claim,
Druckzentrum alleged that Motorola fraudulently misrepre-
sented its sales prospects during the bidding process, inducing
Druckzentrum to bid at lower prices and continue performing
to its detriment.
    The district court dismissed the exclusivity claim on the
pleadings, holding that the contract did not give
Druckzentrum an exclusive right to Motorola’s printing
business in the EMEA region. Following extensive discovery,
Motorola moved for summary judgment on the remaining
claims, and the court granted the motion. The judge explained
that the contract required that Motorola make a good-faith
effort to hit the purchasing target but also provided that
changes in commercial circumstances would excuse a miss.
Because there was no evidence of bad faith—Motorola had
No. 12-3057                                                              7

moved its operations to China in response to plummeting
sales—the judge concluded that there was no breach. The
judge also held that Motorola gave proper notice of termina-
tion by emailing Druckzentrum on November 18, 2008, saying
that business would cease and the Flensburg facility would
close by the end of the first quarter 2009.
    Finally, Druckzentrum’s fraud claim rested on an argument
that the sales forecasts Motorola provided during the bidding
process were misleading. The judge rejected this claim as well,
holding that there was no evidence that Motorola “knowingly
misled [Druckzentrum] about its sales forecasts in an attempt
to induce [it] to reduce pricing or otherwise enter into an
agreement.” After resolving a few other disputes not relevant
here,1 the judge entered final judgment for Motorola, and
Druckzentrum appealed.


                            II. Discussion
A. Breach of Contract
  Druckzentrum argues that it had an exclusive right to all of
Motorola’s user-manual printing business for cell phones
marketed in the EMEA region during the two-year contract


1
 For example, the parties disputed the import of the contract’s backdated
effective date. Recall that although the parties did not begin performing
until price negotiations concluded and the award was countersigned in
April 2008, the effective date listed on the Corporate Supply Agreement
was October 1, 2007. The dispute over the effective date of the contract is
relevant only on the question of damages, and because there was no breach
of the contract, we need not resolve it.
8                                                    No. 12-3057

period. If that’s true, then Motorola broke its exclusivity
promise by moving its printing business to a Chinese vendor
halfway through the contract period.
    Druckzentrum admits, as it must, that the written contract
does not contain an express exclusivity promise. Rather,
Druckzentrum contends that Motorola made the promise
during the bidding process. This argument requires resort to
parol evidence, which is foreclosed by the contract’s integra-
tion clause. The contract contains an “Entire Agreement”
provision clearly stating that “[t]his Agreement is the entire
understanding between the parties concerning this Initial
Award and supersedes all earlier discussions, agreements and
representations regarding this Initial Award.”
   The Uniform Commercial Code, as adopted in Illinois,
provides as follows:
      § 2-202 Final written expression: parol or extrin-
      sic evidence.
      Terms with respect to which the confirmatory
      memoranda of the parties agree or which are
      otherwise set forth in a writing intended by the
      parties as a final expression of their agreement with
      respect to such terms as are included therein may
      not be contradicted by evidence of any prior agree-
      ment or of a contemporaneous oral agreement but
      may be explained or supplemented
          (a) by course of performance, course of deal-
          ing, or usage of trade … ; and
No. 12-3057                                                       9

           (b) by evidence of consistent additional terms
           unless the court finds the writing to have been
           intended also as a complete and exclusive state-
           ment of the terms of the agreement.
810 ILL. COMP. STAT. 5/2-202 (emphases added).
    Druckzentrum tries to fit the facts of this case into subsec-
tion (b), which permits the importation of consistent terms
from prior agreements but only if the contract is not fully
integrated. Id. § 5/2-202(b); see also id. cmt. 1. Motorola counters
that the contract is in fact fully integrated and cannot be
supplemented by parol evidence of prior agreements. In the
words of the Illinois statute, the contract was “intended … as
a complete and exclusive statement of the terms of the agree-
ment.” Id. § 5/2-202(b) (emphasis added).
    The contract language supports Motorola’s position. The
integration clause plainly states that “[t]his Agreement is the
entire understanding between the parties … and supercedes all
earlier discussions, agreements and representations … .”
(Emphases added.) In an effort to overcome this unambiguous
text, Druckzentrum argues that because the contract incorpo-
rates extrinsic materials by reference, it cannot reasonably be
understood to be an exclusive statement of the parties’ agree-
ment despite the presence of an apparently conclusive integra-
tion clause. This argument backfires. When a contract expressly
incorporates specific extrinsic materials by reference, the
proper inference is that other, unmentioned extrinsic agree-
ments are not part of the contract.
10                                                   No. 12-3057

    Moreover, the rule in Illinois is that “[i]f the additional
terms are such that if agreed upon, they would certainly have
been included in the document in the view of the court, then
evidence of their alleged making must be kept from the trier of
fact.” 810 ILL. COMP. STAT. 5/2-202 cmt. 3 (explaining when a
contract is fully integrated). Druckzentrum’s claim of exclusiv-
ity in the EMEA region suggests that it considers this to be one
of the key benefits of the deal. If the parties truly contemplated
that Motorola was making such a critical promise, they
certainly would have included it in the written contract.
    Finally, Druckzentrum argues that the contract award is
ambiguous and the presence of ambiguity means that the
contract cannot be fully integrated. Even if the factual premise
of this argument is correct, the legal conclusion does not
follow. The existence of contractual ambiguity may allow
consideration of extrinsic evidence to clarify those portions of
the contract that are unclear. But it does not warrant a conclu-
sion that the contract is not fully integrated such that evidence
of prior agreements can be used to import entirely new terms.
    And indeed the factual premise is not correct.
Druckzentrum’s argument about contractual ambiguity hinges
on an implausible interpretation of the structure of the initial
award. By its terms, the contract awarded Druckzentrum “2%
of Base Share for the Print Segment with up to an additional
8% Swing Spend.” Druckzentrum points out that 2% + 8% =
10%, and notes that 10% just happens to be the percentage of
Motorola’s worldwide print spending attributable to the
EMEA region. Druckzentrum suggests that by stating the
No. 12-3057                                                              11

award in this way, Motorola promised exclusivity in the EMEA
region, and parol evidence would confirm that interpretation.
    It’s true that the award is stated in technical terms. But it is
not unclear. Motorola did not promise Druckzentrum 10% of
its worldwide print spend; it promised 2% of its worldwide
print spend with another 8% constituting a “swing spend” that
it could award at its discretion. Because the contract is fully
integrated and unambiguous (or at least unambiguous on this
point), Druckzentrum cannot use parol evidence to prove up
an enforceable promise of exclusivity in the EMEA region.
    Druckzentrum also argues that Motorola breached the
contract by failing to meet the 2% target during the contract
period based solely on its own commercial interests. There is
obviously no dispute that Motorola missed the target after it
ceased doing business with Druckzentrum at the end of the
first quarter of 2009.2 Motorola responds that it promised only
a good-faith effort to meet the purchasing target, and the
contract specified that the actual purchases would vary based
on a number of commercial factors, including changes in
business conditions.



2
  Motorola notes that it exceeded the 2% target for the financial quarters
during which it was making purchases from Druckzentrum—sometimes by
a significant amount—and that when spread over the life of the contract, its
purchases came close to meeting the 2% target. Druckzentrum counters that
Motorola’s performance cannot be spread over the life of the contract but
must be judged on a quarterly basis. We do not need to resolve this dispute.
As we explain in the text, the contract required only a good-faith effort to
meet the purchasing target. Because there is no evidence of bad faith on
Motorola’s part, there was no breach.
12                                                   No. 12-3057

     More specifically, the contract provides as follows:
             Motorola will use good faith efforts to award
        Products to Druckzentrum Harry Jung that in
        the aggregate, are reasonably likely to achieve
        the target percentage identified in the Initial
        Award. However, the actual percentage realized
        by Druckzentrum Harry Jung may vary from the
        target percentage due to a variety of factors,
        including but not limited to the following: i) one
        or more Motorola products in which Products
        are used does not achieve the level of success in
        the marketplace that was expected by Motorola;
        ii) one or more products in which Products are
        used, or the Products themselves, launches late,
        has a quality problem, is delayed in qualification,
        experiences a production interruption, is rejected
        by a Motorola customer, or is cancelled for
        whatever reason; iii) divestiture or other major
        change in Motorola’s business; or iv) factors
        outside of Motorola’s reasonable control that
        impact the percentage realized. Motorola is not
        liable, and Druckzentrum Harry Jung will have
        no claim against Motorola, for any percentage
        variance from the target percentage identified in
        the Initial Award.
    Read fairly and in context, this provision means that
Motorola will not be liable for breach if, despite its good-faith
efforts, one of the listed circumstances or something compara-
ble prevented it from meeting the 2% purchasing target. In
No. 12-3057                                                     13

other words, Motorola did not assume an absolute duty to
meet the purchasing target during the contract period; rather,
it assumed a duty to make a good-faith effort to meet the
target. Certain adverse business circumstances—including a
drop in the level of success of Motorola’s products in the
marketplace—might excuse a miss.
    And the evidence is undisputed that Motorola imple-
mented its direct-ship distribution model in response to
plummeting sales in the EMEA region. This entailed moving its
user-manual printing business to China, where its cell phones
were manufactured. A falloff in sales is specifically listed in the
contract as one of the circumstances that would justify missing
the 2% purchasing target. “Contract law does not require
parties to behave altruistically toward each other … .” Original
Great Am. Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd.,
970 F.2d 273, 280 (7th Cir. 1992). Rather, bad faith occurs when
“a provision [is] invoked dishonestly to achieve a purpose
contrary to that for which the contract had been made.” Id.
Motorola’s promise to make a good-faith effort to meet a
purchasing target did not require it to adhere to a business
model that protected Druckzentrum’s interests even in the face
of a significant downturn in its cell-phone sales. To the con-
trary, the contract specifically contemplated that Motorola
might miss the target if its products were less successful than
anticipated or in the event of a “major change in [its] business.”
    The situation might be different if Motorola had switched
to a cheaper print vendor in China while retaining its original
distribution model; if that were the case, it might be possible
for a jury to find that Motorola acted in bad faith. The situation
14                                                             No. 12-3057

would also be different if Motorola’s switch to the direct-ship
model was motivated specifically by a desire to ditch
Druckzentrum as a vendor. And the situation would certainly
be different if Motorola had retained its existing business
model and simply switched to a cheaper print vendor in
Germany. But these are not the facts here. Motorola’s decision
to cease purchasing from Druckzentrum was part of a broader
change in its business model undertaken in response to a
significant downturn in sales. Druckzentrum points to no
evidence of bad faith.
    Finally, Druckzentrum complains about the form of
Motorola’s termination notice. The contract provided that
“Motorola may terminate for convenience upon ninety
(90) days prior written notice to Supplier.” Druckzentrum
argues that the November 18, 2008 email was not sufficient
because it was not a “written notice.” Druckzentrum also notes
that the email did not comply with other contractual formali-
ties;3 a formal notice of termination was not sent until July 1,
2009. For its part, Motorola insists that the email sufficed as
formal written notice of termination.
   We don’t need to resolve this skirmish. Druckzentrum is
not arguing that the claimed inadequacy of the November 18
notice is an independent basis on which to find a compensable


3
  For example, the contract specified that “notices and other required
communications will be in writing, in the English language and will be
transmitted … by: (i) personal delivery; (ii) expedited delivery service;
(iii) registered or certified mail … ; or (iv) electronic facsimile.” The email
was in German and was not transmitted by any of the specified delivery
methods.
No. 12-3057                                                   15

breach of contract. Instead, the dispute about the sufficiency of
the notice relates only to the proper measure of damages. In
other words, if the November 18 email sufficed as a notice of
termination, then any damages for Motorola’s failure to meet
the 2% purchasing target would stop accruing 90 days after
that date. Because there was no breach of contract in the first
place, the dispute about the emailed termination notice is
immaterial.


B. Fraudulent Inducement
    Druckzentrum also contends that Motorola’s sales forecasts
fraudulently induced it to enter into the contract and to
continue performing under it. Early on in the case,
Druckzentrum claimed that Motorola’s initial sales forecasts
were inflated and that Motorola knew it. By the time the case
reached summary judgment, however, Druckzentrum had
disclaimed this theory. And rightly so—its own employees
testified that they did not believe Motorola’s initial forecasts
were knowingly false.
    Instead, Druckzentrum’s fraud claim rests entirely on an
argument about the updated forecasts Motorola provided
during price negotiations over the winter and early spring of
2008. Under Illinois law, “a party who had made a statement
which at that time is true, but who subsequently acquires new
information which makes it untrue or misleading, must
disclose such information to anyone whom he knows to be
acting on the basis of the original statement or be guilty of
fraud.” Williams v. Chi. Osteopathic Health Sys., 654 N.E.2d 613,
16                                                      No. 12-3057

620 (Ill. App. Ct. 1995); see also St. Joseph Hosp. v. Corbetta Const.
Co., 316 N.E.2d 51, 71 (Ill. App. Ct. 1974) (same).
   Druckzentrum contends that the updated forecasts were
misleading because a change in formatting made it difficult to
compare them to Motorola’s earlier sales projections. But the
duty to disclose newly acquired information does not include
a duty to use exactly the same format for the disclosure.
Druckzentrum has not identified anything in the updated
forecasts that was inaccurate, much less willfully false.
    Finally, Druckzentrum argues that because it was induced
to agree to pricing based on a promise of exclusivity in the
EMEA region, Motorola had a duty to identify which portions
of the revised forecasts were specifically applicable to it. This
argument is new on appeal and as such is considered waived.
Williams v. Dieball, 724 F.3d 957, 961 (7th Cir. 2013) (“We have
specifically emphasized that ‘a party has waived the ability to
make a specific argument for the first time on appeal when the
party failed to present that specific argument to the district
court, even though the issue may have been before the district
court in more general terms.’” (quoting Fednav Int’l Ltd. v.
Cont’l Ins. Co., 624 F.3d 834, 841 (7th Cir. 2010))).
   For the foregoing reasons, the record supports neither a
fraud claim nor a breach-of-contract claim. The district court
properly entered summary judgment for Motorola.
                                                          AFFIRMED.