Betco Corporations, Ltd. v. Malcolm D. Peacock, Marily Peacock, B. Holdings, Inc. and E. Holdings, LLC

Betco Corporation purchased the assets

of two bioaugmentation companies from Marilyn and

Malcolm Peacock. The Asset Purchase Agreement included

the sale of equipment at the Peacocks’ Beloit, Wisconsin plant.

Betco asked Malcolm to remain at the Beloit plant after the

sale as president. Eventually, Betco discovered that the Beloit

plant was delivering defective products to customers. It filed

2 No. 17‐1133

this suit against the Peacocks and their holding companies for

fraud, negligent misrepresentation, breach of contract, and

breach of the duty of good faith and fair dealing.

After two rounds of summary judgment and a bench trial,

the district court dismissed the entirety of Betco’s suit. Betco

appeals the dismissal of its breach of contract and breach of

the duty of good faith and fair dealing claims. We affirm.

I. BACKGROUND

Malcolm Peacock was the founder of Bio‐Systems Corporation

and Enviro‐Zyme International, LLC (together, Bio‐

Systems). The companies produced biodegradation products

that contained bacteria designed to break down various forms

of waste. Malcolm developed a “wet‐batch” process at Bio‐

Systems’s Beloit plant to produce the bacteria. Customers requested,

and often required, certificates of analysis documenting

the bacteria level in the product at the time of sale.

So Bio‐Systems counted the bacteria in a product before sale

using a spiral plater and “ProtoCOL” counter.

In 2010, Betco Corporation purchased Bio‐Systems’s assets

from Malcolm and Marilyn Peacock and their holding companies,

B. Holdings, Inc. and E. Holdings, LLC, (together, the

Peacocks). Before closing, Betco visited Bio‐Systems’s sites,

spoke with Bio‐Systems’s personnel, and examined Bio‐Systems’s

financial information. At closing, Betco paid the Peacocks

$5 million and placed $500,000 in escrow. The Asset

Purchase Agreement (“the Agreement”) required Betco to

pay out the $500,000 two years after closing if it did not identify

any problems in that time that required using the escrow

funds to fix.

No. 17‐1133 3

After closing, Betco asked Malcolm to continue to run the

Beloit plant just as he had before the sale but now as president

of Betco’s newly‐formed Bio‐Systems of Ohio (“Bio‐Ohio”).

Betco instructed Malcolm to focus on sales and profits. Later,

Betco identified problems with the products being shipped

from the Beloit plant. First, though Betco knew before closing

that the bacteria yields were inconsistent at the Beloit plant, it

learned within a year of closing that some products were being

shipped to customers with below‐specification bacteria

counts. A few months later, Betco nonetheless paid out the

escrow funds early in exchange for a 12% discount. Second,

after paying out the escrow, Betco discovered that certificates

of analysis were being re‐used or falsified by the sales team.

It’s unclear to what extent Malcolm concealed the issues

from Betco. According to some former employees, Malcolm

was not receptive when employees questioned Bio‐Ohio’s

methods. Further, one employee testified that Malcolm instructed

him to not speak directly with Betco personnel. But

other employees testified that Malcolm never discouraged

them from communicating with Betco after the sale. In fact,

Malcolm himself suggested that Betco’s Vice President of Research

and Development visit the Beloit plant for a week to

learn more about Bio‐Ohio. The vice president said that he

was busy, so he only made a number of short visits.

In April 2012, Betco sued the Peacocks in federal district

court in Ohio for fraud, negligent misrepresentation, breach

of contract, and breach of the duty of good faith and fair dealing.

The case was transferred to Wisconsin.

There, the court first dismissed Betco’s negligent misrepresentation

and breach of contract claims against the Peacocks,

finding both claims were time‐barred by Section 10.05

4 No. 17‐1133

of the Agreement. The court later dismissed Betco’s fraud

claim against the Peacocks and its breach of the duty of good

faith claim against all the defendants except Malcolm. After a

bench trial, the court ruled in Malcolm’s favor on the duty of

good faith claim. The court found that Betco failed to prove

that Malcolm violated the duty of good faith and, further, that

Betco hadn’t shown any cognizable injury from the alleged

violation.

II. ANALYSIS

Betco raises two issues on appeal. First, Betco appeals the

district court’s summary judgment dismissal of its breach of

contract claim. It argues that the court erred in finding that

the claim was time‐barred. Second, Betco appeals the district

court’s judgment on the duty of good faith claim. It argues

that the court erred in finding that Malcolm had not violated

this duty and that Betco failed to prove damages even if he

had violated it.

We address each issue in turn.

A. The dismissal of Betco’s breach of contract claim

We review a grant of summary judgment de novo, construing

the facts in the light most favorable to the nonmovant. See

Consolino v. Towne, 872 F.3d 825, 829 (7th Cir. 2017). But this

court has “long refused to consider arguments that were not

presented to the district court in response to summary judgment

motions.” Laborers’ Int’l Union v. Caruso, 197 F.3d 1195,

1197 (7th Cir. 1999) (quoting Arendt v. Vetta Sports, Inc., 99 F.3d

231, 237 (7th Cir. 1996)). When a party presents an underdeveloped

or conclusory argument below, the party does not

preserve its claim for appeal. C & N Corp. v. Kane, 756 F.3d

1024, 1026 (7th Cir. 2014); United States v. Dunkel, 927 F.2d 955,

No. 17‐1133 5

956 (7th Cir. 1991) (“A skeletal ‘argument’, really nothing

more than an assertion, does not preserve a claim.”).

During the summary judgment phase, Betco told the court

that Section 10.05 of the Agreement bars any claim related to

a representation or warranty in the Agreement that is brought

more than one year after closing unless the claim is one for

fraud or intentional misrepresentation. It then went on to say

that its breach of contract claim was not time‐barred.

On appeal, Betco asks that we construe these two statements

as an argument that its breach of contract claim was not

time‐barred because it was a claim for intentional misrepresentation.

In essence, then, Betco wants the substance of its argument

to the district court to prevail over its form. But Betco

did not give the district court any substance. It did not give a

single reason why its breach of contract claim should be interpreted

as one for intentional misrepresentation. In fact, the

district court wrote that “Betco … offered no argument as to

how its breach of contract claim, Count Three … survives Section

10.05 of the [Agreement].” Betco Corp. v. Peacock, No. 14‐

cv‐193‐wmc, 2015 WL 856603, at *13 (W.D. Wis. Feb. 27, 2015)

(emphasis added).

Betco cannot revive a waived claim. It failed to develop

any argument in the district court to explain why its breach of

contract claim should be interpreted as one for intentional

misrepresentation instead. Therefore, we decline to consider

the merits of that argument now.

B. The judgment in Malcolm’s favor on Betco’s breach of the

duty of good faith claim

When hearing an appeal from a bench trial, we review legal

decisions de novo and findings of fact for clear error.

6 No. 17‐1133

Spurgin‐Dienst v. United States, 359 F.3d 451, 453 (7th Cir. 2004).

At trial on Betco’s breach of the duty of good faith claim

against Malcolm, the district court used the Agreement, not

Malcolm’s employment contract, as its starting point. Betco

doesn’t contest this on appeal, and we agree that it was

proper. The district court then ruled in Malcolm’s favor, finding

that Malcolm did not breach the duty and that Betco also

failed to prove damages from any alleged breach. On appeal,

Betco doesn’t contest the district court’s factual findings, so we

review the judgment de novo using the district court’s findings

of fact.

Under Wisconsin law, “[e]very contract implies good faith

and fair dealing between the parties to it, and a duty of cooperation

on the part of both parties.” Beidel v. Sideline Software,

Inc., 842 N.W.2d 240, 250 (Wis. 2013) (quoting Chayka v. Santini,

176 N.W.2d 561, 564 n. 7 (Wis. 1970)). This duty is “halfway

between a fiduciary duty (the duty of utmost good faith)

and the duty merely to refrain from active fraud.” Mkt. St. Assocs.,

Ltd. v. Frey, 941 F.2d 588, 595 (7th Cir. 1991). The plaintiff

bears the burden of showing a breach of good faith and fair

dealing. See Zenith Ins. Co. v. Empl’rs Ins. of Wausau, 141 F.3d

300, 308 (7th Cir. 1998) (applying Wisconsin law).

A party may breach its implied duty of good faith when it

follows “the letter but not the spirit of an agreement” because

otherwise parties could “‘accomplish[] exactly what the

agreement of the parties sought to prevent.’” Beidel, 842

N.W.2d at 250–51 (quoting Chayka, 176 N.W.2d at 564). In

other words, the duty of good faith accompanies not just what

the contract says but also what the parties expected to occur.

See Wis. JI‐Civil 3044 (2007); cf. Foseid v. State Bank of Cross

Plains, 541 N.W.2d 203, 212 (Wis. Ct. App. 1995) (“[A] party

No. 17‐1133 7

may be liable for breach of the implied contractual covenant

of good faith even though all the terms of the written agreement

may have been fulfilled.”).

We look to what the parties expected from the arrangement

because a plaintiff must offer some evidence that the

party accused of bad faith has actually denied the plaintiff the

intended benefits of the contract. Zenith, 141 F.3d at 308. The

duty of good faith “means that each party to a contract will

not do something which will have the effect of injuring or destroying

the [ability] of the other party to receive the benefits

of the contract.” Wis. JI‐Civil 3044 (2007); see also Metro. Ventures,

LLC v. GEA Assocs., 717 N.W.2d 58, 69 (Wis. 2006) (describing

the duty as a guarantee not to “destroy[] … the right

of the other party to receive the fruits of the contract”) (quoting

Ekstrom v. State, 172 N.W.2d 660, 661 (Wis. 1969)).

To be sure, a party can act in bad faith without injuring or

destroying the other party’s ability to receive the benefits of

the contract. In such a circumstance, the plaintiff can’t succeed

on a claim for breach of the duty of good faith. See Horicon

Foods, Inc. v. Gehl Foods, LLC, No. 15–C–0689, 2016 WL

4926189, at *8 (E.D. Wis. Sept. 15, 2016) (dismissing claim for

the breach of the duty of good faith because plaintiff had not

shown that any alleged breach caused harm); Marine Travelift,

Inc. v. Marine Lift Sys., Inc., No. 10–C–1046, 2013 WL 6255689,

at *17–18 (E.D. Wis. Dec. 4, 2013) (dismissing claim because

the plaintiff failed to show that it suffered any injury as a result

of the defendant’s challenged behavior); Dennehy v. Cousins

Subs Sys., Inc., No. Civ. 02–1772(RHK/JSM, 2003 WL

1955168, at *4 (D. Minn. Apr. 21, 2003) (applying Wisconsin

law to dismiss the claim when the plaintiffs “received exactly

what they bargained for”).

8 No. 17‐1133

This is exactly the case here. Malcolm should not have instructed

the plant employees to falsify certificates of analysis

and to ship product with bacteria counts too low to meet specifications.

Still, Betco did not demonstrate that Malcolm’s actions

at Bio‐Ohio destroyed its contractual expectations.

When Betco purchased Bio‐Systems, it expected that Bio‐

Ohio would be profitable and wouldn’t face customer claims

for shipping products with intentionally falsified certificates

of analysis. This is what it received. Moreover, Betco did not

expect that it was purchasing flawless processes.

First, Betco failed to present any evidence that it did not

receive a profitable company free of consumer claims. In fact,

the district court noted that it was “not apparent that any customers

had complained post‐sale about the quality of the

product they received.” Betco Corp. v. Peacock, No. 14‐cv‐193‐

wmc, 2016 WL 7429460, at *10 (W.D. Wis. Dec. 23, 2016). There

was no evidence “that any customers: challenged [Bio‐Ohio’s]

practices; complained of falsified or inaccurate certificates of

analysis; complained about product testing; or raised any issue

regarding inaccurate product specifications.” Id. The district

court gave Betco the opportunity to show that it had

damages “aris[ing] directly out of sales of product with inaccurate

certificates of analysis or of product before acquisition

or post‐acquisition,” and Betco said it was not able to do so.

(Doc. 191, Trial Tr., at 10). We are not persuaded by Betco’s

post‐argument memorandum suggesting that it in fact submitted

evidence on customer‐related damages. The district

court did not rule on the admissibility of that evidence, and it

was not introduced, or even proffered, at trial.

The district court further found that Betco received what

it expected to receive: “a business producing, manufacturing

No. 17‐1133 9

and selling a successful line of products to the satisfaction of

its customer base.” Betco Corp., 2016 WL 7429460, at *10. Betco

does not contest this factual finding. Instead, Betco argues

that it should have been permitted to introduce evidence that

“the company it purchased was … worth far less than what

Betco paid for it.” (Appellant’s Br. at 34.) But, under Wisconsin

law, the relevant inquiry for a breach of good faith is not

whether Betco paid the appropriate price for the company—

as it would be in an action for intentional misrepresentation

or fraud—but whether Betco received the benefits that it expected

when it entered into the contract. It did.

Second, Betco was aware when it entered the contract that

bacteria yields were inconsistent at the Beloit plant. Thus,

Betco knew that it could be acquiring flawed processes, and it

must have expected that it might have to expend funds to

make the bacteria yields consistent. Accordingly, Malcolm’s

actions in producing products with bacteria counts too low to

meet specifications could not have destroyed Betco’s contractual

expectations.

As a final note, Betco’s claim of injury at trial was that, had

it known of the problems with the plant earlier, it would have

sued for a breach of contract before the Agreement’s one‐year

time limit expired or it would have withheld the money retained

in escrow. But, “[i]t is not a breach of the duty of good

faith if a course of action available to [Betco] could have

avoided the harm and the course was not followed.” Wis. JICivil

3044 (2007). Had Betco timely investigated the concerns

of plant employees, it would have discovered the issues

within the one‐year time limit. And if it had not paid out the

escrow money early, it could have withheld it to remedy the

issues.

10 No. 17‐1133

Though we do not condone Malcolm’s actions, the parties’

contract compelled the district court’s award of attorney’s fees

to the Peacocks. Under the Agreement, the parties explicitly

agreed that the “prevailing party” would receive attorney’s

fees and costs whenever a party brought an action. See Betco

Corp., 2016 WL 7429460, at *11. The district court concluded

that Betco did not prevail on any of its claims and that the

Peacocks were entitled to the dismissal of every claim. Thus,

the district court properly found that the Peacocks were the

prevailing party entitled to attorney’s fees and costs.

Betco failed to develop its argument in the district court

that its breach of contract claim was in fact a claim for intentional

misrepresentation that should have survived the

Agreement’s one‐year time limit. Thus, it waived this claim,

and we decline to hear its merits.

However, Betco did not waive its claim against Malcolm

Peacock for breach of the duty of good faith. But our only inquiry

in analyzing this claim is whether Malcolm acted in a

way that injured or destroyed Betco’s ability to receive the

benefits of the contract. Because Betco proffered no evidence

at trial of consumer complaints, it cannot show that it was deprived

of its contractual expectations. To the contrary, Betco

received a company producing a successful line of products

to the satisfaction of its customers.

For these reasons, we AFFIRM the dismissal of Betco’s

breach of contract claim against the Peacocks, and we also

AFFIRM the judgment in favor of Malcolm Peacock on Betco’s

breach of the duty of good faith and fair dealing claim.