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Kreg Therapeutics, Inc. v. VitalGo, Inc.

United States Court of Appeals, Seventh Circuit

March 14, 2019

Kreg Therapeutics, Inc., Plaintiff-Appellee,
v.
VitalGo, Inc., Defendant-Appellant.

          Argued December 3, 2018

          Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:ll-cv-06771 - Robert M. Dow, Jr., Judge.

          Before Sykes, Barrett, and St. Eve, Circuit Judges.

          ST. EVE, CIRCUIT JUDGE.

         Kreg Therapeutics, Inc., a medical-supply company, contracted with VitalGo, Inc., maker of the Total Lift Bed® (or the "bed"), for exclusive distribution rights in several markets. A year and a half later, the arrangement soured. VitalGo told Kreg that it had not made the minimum-purchase commitments required by the contract for Kreg to keep its exclusivity. Kreg thought VitalGo was wrong on the facts and the contract's requirements. This lawsuit ensued.

         In the district court, VitalGo did not make a strong showing in defending its case. The district court ruled during the summary-judgment stage that VitalGo breached the agreement, and the court treated that ruling as established for the case. That left only Kreg's damages. The case went to a bench trial, despite an eleventh-hour request from VitalGo to have it dismissed on pleading grounds. After the bench trial, the district court ordered VitalGo to pay Kreg a little over $1, 000, 000 in lost-asset damages and prejudgment interest.

         VitalGo appeals, arguing that the district court made a host of reversible errors. We see none and affirm.

         I. Background

         A. Factual History

         The Total Lift Bed, as the name suggests, can incline to a near 90-degree angle with the occupant harnessed and upright. Hospitals use the beds when treating obese and elderly patients. And the beds are expensive, with some models running more than $10, 000. Kreg is in the business of selling and renting specialty medical equipment to medical providers, and it sought a distribution arrangement with VitalGo for the beds.

         The two parties entered into a written agreement in December 2009. The agreement conferred exclusive distribution rights of the Total Lift Bed to Kreg in several geographic regions: Indiana, Illinois, Wisconsin, and Atlanta, Georgia (the "original territories"). Those rights lasted until January 31, 2011, but paragraph l.B. of the agreement contemplated their extension. If Kreg made a minimum-purchase commitment of $200, 000 in each of the four territories before January 31, 2011, then paragraph l.B. extended exclusivity for another year. The agreement also contained an in-writing clause. Per paragraph 23, any "notice or communication required or permitted" under the agreement "shall be made in writing and shall be sent by registered mail, return receipt requested."

         In April 2010, a few months into the agreement, Kreg and VitalGo added an amendment to it. The amendment granted Kreg exclusivity in several additional territories, including parts of Florida, New Jersey, and St. Louis, Missouri (the "additional territories"), through May 2012. The amendment did not make clear whether that date applied to the additional territories only or whether it covered the original territories as well.

         Kreg and VitalGo went about their business uneventfully until mid-2011. On June 2, 2011, Ohad Paz, VitalGo's CEO and Managing Director, emailed Craig Poulos, Kreg's President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. The email read: "Despite our conversation in January 2011 and the different options we spoke about, you did not make any commitment for purchase of our products for 2011, as you should have, in order to keep your exclusivity." Poulos responded a few days later that Kreg was "willing to agree to commit to future minimum purchases in 2011," but that it needed updates on design problems Kreg saw in the beds first. About a week later, on June 15, 2011, VitalGo and one of Kreg's competitors, RecoverCare, issued a press release announcing a nationwide exclusivity arrangement for the Total Lift Bed. They entered a multiyear agreement in August 2011.

         In September 2011, Kreg requested five new beds from Vi-talGo. VitalGo refused to fill the order. Kreg responded by filing this lawsuit.

         B. Procedural History

         Kreg's complaint brought one cause of action-breach of contract-and it sought only injunctive relief. On the day it filed the complaint, Kreg also moved the district court for a temporary restraining order. After a hearing, the district court denied the request and concluded that Kreg had not shown irreparable harm caused by VitalGo's alleged breach. VitalGo filed counterclaims, including for breach of contract, and the case entered discovery.

         In March 2012, the parties cross-moved for summary judgment. Kreg argued that there was no genuine issue of material fact relating to its breach-of-contract claim and that injunctive relief was warranted. VitalGo, meanwhile, contended that Kreg had not shown irreparable harm or performance under the contracts.[1] Those motions, like all summary-judgment motions filed in the Northern District of Illinois, were subject to Local Rule 56.1. Pursuant to Local Rule 56.1(a), both Kreg and VitalGo filed a statement of uncontested facts with their motions. But there ended VitalGo's compliance with the rule. VitalGo did not support its statement of facts with contemporaneously filed record evidence, as Local Rule 56.1(a) requires (and as Kreg did). Nor did VitalGo file a response to the opposition's statement of facts, as Local Rule 56.1(b) requires (and as Kreg did). VitalGo also did not file a response to Kreg's summary-judgment motion. The district court tried twice, unsuccessfully, to alert VitalGo's counsel to the filing failures.

         In March 2013, the district court issued a thorough opinion ruling on the cross motions. The court addressed at the outset VitalGo's noncompliance with Local Rule 56.1. According to well-established Seventh Circuit law, that noncompliance meant that the district court could exercise its discretion to accept Kreg's statements of fact as undisputed. See, e.g., Curtis v. Costco Wholesale Corp., 807 F.3d 215, 219 (7th Cir. 2015). The court did so, "to the extent" the facts were "supported by admissible and docketed evidence."

         On the merits, and applying New York law, the district court first decided that the agreement and the amendment were two distinct contracts. The agreement covered exclusivity obligations with respect to the original territories; the amendment governed the additional territories. As to the original territories, the district court ruled that Kreg had performed under the agreement and that VitalGo had breached it. Kreg's undisputed evidence showed that Poulos and Paz met in Chicago in December 2010-before the original territories' commitment date of January 2011-and there Poulos orally agreed to purchase $800, 000 worth of beds from VitalGo. That constituted Kreg's performance under the agreement, according to the district court. That Kreg's commitment was not in writing did not doom its claim, the court ruled, because the agreement did not require all communications to be made in writing, paragraph 23 notwithstanding.

         The district court therefore decided that, even viewing the facts in the light most favorable to VitalGo, Kreg had established the first three elements of a breach of contract: the existence of a contract, its performance, and VitalGo's breach. But it found Kreg's case lacking with respect to the fourth element: damages. See, e.g., Johnson v. Nextel Commc'ns, Inc., 660 F.3d 131, 142 (2d Cir. 2011) (identifying the four elements of a breach-of-contract claim under New York law). Kreg had claimed losses from the breach, but it had not shown that the parties foresaw such losses when they made the agreement- as required to collect consequential damages under New York law. See, e.g., Awards.com, LLC v. Kinko's, Inc., 834 N.Y.S.2d 147, 152 (N.Y App. Div. 2007). Kreg had also not established irreparable harm, a requirement for the injunctive relief Kreg requested. Yet not all was lost for Kreg, the district court explained. Under Federal Rule of Civil Procedure 54(c), a party can obtain any form of relief to which it is entitled-like monetary damages-even if the party did not expressly seek it.

         As to the additional territories, the district court saw no evidence of actual commitments from Kreg. The June 2011 emails evidenced only a willingness to commit. The district court thus granted in part and denied in part VitalGo's motion and denied Kreg's motion.

         The court held a status hearing the next month to chart the case's course. VitalGo's counsel failed to attend. Kreg's counsel told the court that it read the summary-judgment opinion as, in part, a ruling under Federal Rule of Civil Procedure 56(g), which permits a court to "enter an order stating any material fact ... that is not genuinely in dispute and treating the fact as established in the case." Kreg's counsel added that, after the opinion, "the only thing left" to address was damages with respect to the original territories. The district court agreed and set a briefing schedule for a second summary-judgment motion on damages.

         A couple months later, Kreg filed its second summary-judgment motion. VitalGo replaced its counsel before responding, and the court gave new counsel leave to take discovery on Kreg's damages. When VitalGo did respond-this time in compliance with Rule 56.1-it addressed Kreg's damages argument. But it also contended that Rule 56(g) should not apply, and that the issues of performance and breach should still be on the table. The district court, in ruling on the second motion, admitted that it should have cited Rule 56(g) in its first opinion, but it affirmed that its previous opinion established performance and breach as undisputed facts of the case. The court, however, again concluded that material issues of fact existed with respect to Kreg's damages.

         The court put the litigation on pause for about two years, after VitalGo entered bankruptcy in late 2014. When it emerged, the district court set a bench trial on the issue of damages for September 2016. A couple weeks before trial, VitalGo moved to dismiss the case pursuant to Federal Rule of Civil Procedure 12(c) and alternatively Rule 12(h)(2)(c), contending that Kreg had never pleaded damages. Kreg responded by filing a Rule 15 motion ...


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