DuPage Business Litigation Attorney Jim Harkness Utilizes Effective Trial Skills in Control Solutions v. ELECSYS

Jim Harkness of Momkus LLC dissects complicated sequence of communications for substantial impeachment value while representing the defendant in the case Control Solutions v. ELECSYS.

Few cases presented to a jury involve a battle of the forms under the Uniform Commercial Code – and pre-trial emails – as complicated as Control Solutions v. ELECSYS, 2014 IL App (2d) 120251 (2nd Dist. 2014). The appellate decision recites six pages of communications and counter-communications. Seasoned DuPage business litigation trial attorney Jim Harkness of Momkus LLC, representing the defense, knew he had his work cut out for him when the plaintiff asked the jury to award $3.3 million in damages against his client arising out of a dispute over a cancelled military supply contract.

In business litigation cases like these, clear presentation of the relevant contractual communications to the jury is absolutely essential.  Absent a clear presentation of the evidence, the jury would be presented with a complicated contract interpretation under the Uniform Commercial Code.  The jury needed to know which emails and documents formed the basis for the disputed contract interpretation and which ones did not. The jury also needed to know which discussions were contractual, and which discussions showed evidence of authentic settlement negotiations, if any.  How the jury saw this would make a multi-million dollar difference in the result of the case.

The plaintiff, Control Solutions, was a manufacturer of military parts. The defendant, Momkus LLC’s client, was a supplier of military parts. For the jury, attorney Harkness boiled down the very complicated sequence of communications as follows:

  1. The defendant asked the plaintiff for a price quote for a potential Army contract.   
  2. In reply, the plaintiff gave the defendant a price quote.
  3. Based on that quote, the defendant sent plaintiff a large “Purchase Order” for parts destined for the Army. The P.O. included standard Terms and Conditions allowing it to cancel its order if the Army cancelled its order; the so-called “flow down” provision.
  4. By email the plaintiff accepted the defendant’s P.O., including its “flow down” provision, without any initial objection or modification. At that point, the defendant contended, a binding agreement between the parties was made, with the flow-down provision controlling.
  5. A month later, the plaintiff followed up and sent the defendant a formal “Order Acknowledgment.”  The O.A. included language making the order non-cancellable and non-refundable. The plaintiff contended that the NC-NF provision trumped the “flow down” provision.

The dispute boiled down to this:

After the plaintiff made and shipped $93,000 in parts, the Army cancelled the supply contract with the defendant, who in turn cancelled the order with the plaintiff. In a series of communications, the parties discussed the resulting contractual liability. In the end, the plaintiff asked for payment of the $93,000 for goods delivered, plus roughly $600,000 in lost profits (measured at 15%) on the balance of the contract.  The Army’s flow-down T&Cs did not allow for payment of lost profits on cancelled contracts, so this amount would have to come out of defendant’s pocket if it were to be paid. 

Defendant refused to pay and stood firm on the “flow-down” clause, arguing it became binding on the plaintiff when the plaintiff accepted the P.O. by email, not a month later when it sent the formal O.A. with the NC-NF language. In other words, defendant put its fate in the hands of its capable legal team and ultimately the jury to defend the contract it felt it had originally made.

At trial, the plaintiff asked the judge to preclude the defendant from introducing the series of post-cancellation emails in which the plaintiff said it would accept $600,000 as the amount due it under the contract.  The plaintiff’s position was that these emails, and the $600,000 demand, constituted evidence of settlement negotiations which Illinois law allows the court to keep from the jury upon motion by either party.

Illinois Evidence Code, rule 408, expressly excludes offers of settlement or compromise of claims both as irrelevant and because public policy favors settlement efforts which might be avoided if evidence thereof could be admitted at trial. This was the rule in contention.

Defense counsel strenuously opposed plaintiff’s effort to exclude this evidence. Attorney Harkness and his team argued that there must be a legitimate dispute as to liability or the amount claimed and that, in this case, there were neither. They pointed to the timing, content and context of the communications, arguing that these were not settlement negotiations, but rather, communications over the parties’ respective contract interpretations.

After allowing the jury to hear the evidence and adopting the defendant’s view, the trial judge himself observed on the record:

“I do want to make the record clear for a higher court… I want the Second District to understand the basis of my ruling …My ruling was based upon my call at that time and my continued position that these documents did not fall within the category of settlement documents. It was argued that they were, and I understand [that] argument certainly, and I understand the importance of that, and it was argued to the contrary by defense, and I made a judgment call that based upon the content of those documents, they simply did not fall within the bar of permissible evidence to a jury relative to prefiling settlement negotiations…”  (Emphasis added.)

From the jury, the plaintiff asked for an award of $3.3 million, claiming the entire balance of the contract was due; not just the $93,000 for goods made and delivered, and not just the $600,000 for lost profits at 15% on the entire contract.  In the face of this claim, defense counsel impeached the plaintiff with evidence of the aforesaid emails and its $3.3 million dollar contractual interpretation. The plaintiff was impeached with records showing that the disputed documents were actually used for accounting purposes and representations to third party investors, rather than being settlement discussions.

 On appeal, when discussing the intricacies of the Uniform Commercial Code and the disputed documents, effective impeachment also effectively simplified the issue for the higher court.  During argument Jim reviewed the transcript of plaintiff’s closing argument and impeached counsel’s argument with nine of their own references to lost “investment” verses lost “profits”, justifying the jury’s award with the plaintiff’s own words.  Attorney Harkness was able to use this transcript for substantial impeachment value.

The jury returned a verdict of $93,000, rejecting plaintiff’s claim for the full remaining contract value of $3.3 million and also rejecting the earlier figure demanded of $600,000. Though one never knows what goes on in the minds of jurors in a business litigation case, by all appearances the jury discredited the plaintiff for its overreaching demands and inconsistent position on contract value interpretation. The plaintiff appealed to the Second District, as the judge surmised it would.  In a total victory for the defendant/appellee, the Second District rejected all of the plaintiff/appellants contentions and affirmed the favorable trial result for the defendant. 

On the issue of alleged settlement negotiations, the appellate court took up the impeaching evidence and held: “Based on the evidence of record, the trial court could have reasonably concluded that plaintiff failed to make a substantial showing that an actual or apparent dispute existed between the parties when the communications at issue were exchanged. Moreover, even if the disputed communications were improperly admitted, any error was harmless where some of the information was elicited in testimony and exhibits outside of the purported settlement communications and where other information benefitted plaintiff.”

On the issue of damages, the plaintiff argued on appeal that the jury improperly applied the law and facts, and failed to follow the jury instructions.  Adopting the defendant’s position, the appellate court disagreed. “Plaintiff’s position ignores evidence that the contract terms and damages were controverted in this case. While the parties do not appear to dispute the formation of a contract, we note that the jury was presented with two conflicting theories as to when the contract was formed, the terms of the contract, and the resulting damages from the cancellation of the contract…”

For further details on the reported decision, go to Control Solutions v. ELECSYS, 2014 IL App (2d) 120251 (2nd Dist. 2014).  Momkus LLC, business litigation attorneys James F. McCluskey, James S. Harkness, Jennifer L. Friedland, and Patrick R. Boland were on the appeal for the successful defendant/appellee.

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