Moran Foods , Inc . v. Mid -Atlantic Market Development Company , LLC

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 05-3656, 05-3735
M ORAN F OODS , I NC .,
Plaintiff-Appellant/
Cross-Appellee,
v.
M ID -A TLANTIC M ARKET D EVELOPMENT
C OMPANY , LLC, et al.,
Defendants-Appellees/
Cross-Appellants.
____________
Appeals from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 00 C 227—Robert L. Miller, Jr., Chief Judge.
____________
A RGUED N OVEMBER 9, 2006—D ECIDED F EBRUARY 5, 2007
____________
Before B AUER , P OSNER, and F LAUM , Circuit Judges.
P OSNER , Circuit Judge. This is a complicated diversity
suit with a federal-law counterclaim. We shall simplify
ruthlessly. Moran Foods franchises grocery stores under
the name “Save-A-Lot” and sells the stores many of the
groceries they need. Mid-Atlantic (and an affiliate that
we’ll ignore) was one of the franchisees. Mid-Atlantic’s
stores faltered, and eventually defaulted, leaving it owing

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2 Nos. 05-3656, 05-3735
Moran a considerable amount of money for groceries
bought but not paid for. Mid-Atlantic later declared
bankruptcy. Roger Camp, the owner of Mid-Atlantic, and
his wife, Susan Camp, had guaranteed the company’s debts
to Moran. (The various contracts recite that they are
governed by Missouri law.) When they refused to honor
their guaranties, Moran brought this suit for breach of
contract against the two Camps plus Mid-Atlantic. Mid-
Atlantic and Susan Camp counterclaimed. Mid-Atlantic
claimed that Moran had violated a provision of their
contract that required Moran to furnish certain account-
ing services to Mid-Atlantic. Susan Camp claimed that
Moran had violated the Equal Credit Opportunity Act,
which so far as relates to this case forbids “any creditor
to discriminate against any applicant, with respect to any
aspect of a credit transaction . . . on the basis of . . . marital
status.” 15 U.S.C. § 1691(a)(1).
The district judge granted summary judgment to Moran
on its breach of contract claim and awarded it damages
of $3,006,314 ($1.3 million for the unpaid groceries and
the rest for interest at the 22 percent annual rate specified
in the contract). The counterclaims were then tried to a
jury, which awarded Mid-Atlantic the identical $3,006,314
on its breach of contract claim and (as corrected by the
district judge) Susan Camp $21,428.57. Since the award to
Mid-Atlantic canceled the debts on which Moran had
based its suit, and with it Susan Camp’s guaranty of that
indebtedness, her damages were limited to guaranties of
three debts that Moran might still try to collect because
their collection was not yet barred by the judgment in this
case or by the statute of limitations. The defendants’ cross-
appeal challenges the grant of summary judgment to
Moran on its breach of contract claim and also asks that

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Nos. 05-3656, 05-3735 3
Susan Camp be awarded the attorney’s fees that she
incurred in litigating her claim under the Equal Credit
Opportunity Act, plus additional relief under the Act.
Mid-Atlantic’s argument that it did not break its con-
tract with Moran, and its argument that Moran’s breach
entitled Mid-Atlantic to damages exactly equal in amount
to the damages that the district judge awarded Moran
for Mid-Atlantic’s breach, come to the same thing. Essen-
tially Mid-Atlantic is arguing that had it not been for
Moran’s breach (which by the way is conceded), it would
not have run up any debt to Moran. Moran’s breach
consisted of its unexcused failure to furnish Mid-Atlantic
with profit and loss statements for the franchised stores
for the last three quarters of 1998. For a fee of $45 a week,
Moran had agreed to monitor the financial condition of
each of the stores and advise Mid-Atlantic every quarter of
their condition. In the last three quarters of 1998 that
condition was bad. Mid-Atlantic contends that had it
been advised of the parlous state of its stores it would
have taken steps to mitigate its losses by changing man-
agement or product mix, selling the stores or simply
closing them, and as a result it either would have had
greater revenues or would have stopped buying gro-
ceries from Moran altogether and either way it would
have avoided incurring the $1.3 million debt for unpaid
groceries and thus the interest on that debt as well.
The problem with this argument is that Mid-Atlantic
failed to present any evidence that would have enabled the
jury to quantify the loss the company incurred as a result
of Moran’s failure to provide the three quarterly financial
reports. Not that such evidence couldn’t have been pre-
sented; it just wasn’t. It is plausible that had Roger Camp
realized how badly the stores were doing, he would

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4 Nos. 05-3656, 05-3735
have taken steps to cut his losses, and the steps might
have been effective—and maybe it was too late to take
them nine months later, when he at last discovered the
extent of the losses. We are not much impressed by
Moran’s argument that Camp’s opening several addi-
tional Save-A-Lot stores after he learned the true condi-
tion of the existing ones severs any possible causal con-
nection between Moran’s breach and Mid-Atlantic’s
running up a large debt to Moran. The new stores may
have been in better locations and therefore could reason-
ably have been expected to do better than the existing
stores—in fact they did do better, though not by enough
to offset the losses on the existing stores, losses that
eventually drove Mid-Atlantic under. But all this is specu-
lation. For Mid-Atlantic to be entitled to damages for
Moran’s breach, it had to present evidence from which
a reasonable jury could estimate with reasonable ob-
jectivity the loss that the breach inflicted.
Mid-Atlantic should have proceeded in two steps. The
first would have been to present evidence of when the
missing quarterly reports, if received, would have in-
duced Mid-Atlantic to take actions designed to minimize
the losses that the reports revealed. It is not obvious that
the first report, showing bad results for the first quarter
of 1998, would have precipitated drastic action; but it
might have. (The reactions of other Moran franchisees
who receive bad news about their financial performance
in one quarter would have been helpful evidence on this
question.) Suppose the first report would have caused Mid-
Atlantic to take action. If so, the second step in proving
damages would then have been for Mid-Atlantic to pre-
sent evidence of the costs and benefits of the most effec-
tive action that it could have taken, such as altering

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Nos. 05-3656, 05-3735 5
management or product mix or selling or closing the
stores. Each of those efforts at mitigation of loss would
have cost something; and then the question would be
how quickly a given effort would have produced a re-
duction in the stores’ costs and how great the reduction
would have been. Conceivably the early warning pro-
vided by the quarterly reports, had Mid-Atlantic re-
ceived them, would have enabled it to cut its losses so
rapidly and deeply that rather than trying and failing
to recoup by opening additional stores, it would have kept
current with its obligations to Moran. But there is no
evidence to firm up such a conjecture.
In any event it is doubtful that such evidence would
have justified damages measured by the debt that Mid-
Atlantic incurred to Moran as a result of the failure of the
stores. There is a “for want of a nail the kingdom was lost”
flavor to Mid-Atlantic’s theory of damages. The company’s
ultimate demise is not plausibly attributable solely to a
nine-month delay in the receipt of quarterly profit and
loss statements. And only the first statement was de-
layed nine months; the other two were delayed six and
three months respectively. Roger Camp was an experi-
enced operator of grocery stores and surely knew that
his Save-A-Lot stores were not doing well, even if he
didn’t know the details. Knowing that the stores were
losing money, he was irresponsible in allowing months
to pass without wondering where the quarterly reports
were. His lassitude undermines his contention that time
was of the essence in avoiding a mounting debt to Moran.
It is hard to believe that for $45 a week Mid-Atlantic had
bought an insurance policy, with no cap, against its bus-
iness losses, however careless the insured was in letting
them mount up. Of course there was no formal insurance

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6 Nos. 05-3656, 05-3735
policy, but because liability for breach of contract is a
form of strict liability, a promisor is in effect a guarantor
of performance even if he is unable and not merely unwill-
ing to perform his contractual obligations. Zapata Hermanos
Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385, 389-
90 (7th Cir. 2002); United States v. Blankenship, 382 F.3d
1110, 1133-34 (11th Cir. 2004); see Oliver Wendell Holmes,
“The Path of the Law,” 10 Harv. L. Rev. 457, 462 (1897). This
gives an insurance dimension to many contracts. Winniczek
v. Nagelberg, 394 F.3d 505, 508-09 (7th Cir. 2005).
Generally—to continue with the insurance analogy
(contract as insurance)—the lower the insurance premium
the narrower the coverage of the policy. Of course there
are some very one-sided contracts, but one thing that a
court can look at in determining the scope of any con-
tract, when that scope is unclear from the contractual
language, is whether it seems commensurate with the
consideration paid by the party seeking to enforce the
contract. Rhone-Poulenc Inc. v. International Ins. Co., 71 F.3d
1299, 1303 (7th Cir. 1995); In re Kazmierczak, 24 F.3d 1020,
1022 (7th Cir. 1994).
Also helpful in interpreting insurance contracts, in-
cluding noninsurance contracts that have an insurance
dimension, is the notion of “moral hazard.” That is the
tendency to carelessness if you’re fully insured (or, worse,
overinsured). Phelps Dodge Corp. v. Schumacher Electric
Corp., 415 F.3d 665, 668 (7th Cir. 2005); Federal Ins. Co. v.
Hartford Steam Boiler Inspection & Ins. Co., 415 F.3d 487, 498-
99 (6th Cir. 2005). It’s why an insurer will not insure your
house against fire for more than it’s worth, and why an
insured has a duty to mitigate his losses, though it is a
“duty” not in the sense of giving rise to damages for
its breach but only in the sense of being a precondi-

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Nos. 05-3656, 05-3735 7
tion to the insured’s being able to recover all his losses
from the insurance company.
The duty may be stated explicitly in the contract, as in
Witcher Construction Co. v. Saint Paul Fire & Marine Ins. Co.,
550 N.W.2d 1, 7-8 (Minn. App. 1996), or may be imposed
by the court as a “common law duty,” 12 Couch on Insurance
§ 178:10 (3d ed. 2005), though in the latter case it is more
precisely described as a duty that courts read into every
contract. It is the duty laid on one party to a contract not
to take advantage of the other during the performance
stage should circumstances deliver the latter into the
power of the former, as often happens when the perfor-
mance of the parties is not simultaneous. Parties can be
expected to agree to such a duty—the duty of “good faith”
in contractual performance, e.g., Original Great American
Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970
F.2d 273, 280 (7th Cir. 1992)—explicitly if they think of it.
The expectation is firm enough to justify the courts in
trying to save the parties the bother by imputing the
duty in every contract, thus economizing on the costs of
negotiating and drafting contracts without infringing
freedom of contract.
The duty to mitigate damages is such a duty. It forbids
the victim of a breach of contract, which might well be
involuntary, to allow his damages to balloon (when he
could easily prevent that from happening), as he might be
tempted to do in order to force a lucrative settlement. The
duty to mitigate damages is of course a general contractual
duty, Restatement (Second) of Contracts § 350 (1981), not
anything special to insurance, illustrating our earlier point
about the insurance function of contracts that are not
explicit contracts of insurance.
Thus, either Mid-Atlantic’s losses were an unforesee-
able (to Moran) consequence of delay in delivery of the

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8 Nos. 05-3656, 05-3735
quarterly statements, or Mid-Atlantic failed to mitigate its
losses as required by contract law, or both. So its claim of
damages fails, Turner v. Shalberg, 70 S.W.3d 653, 659 (Mo.
App. 2002); Birdsong v. Bydalek, 953 S.W.2d 103, 116-17 (Mo.
App. 1997); Mansfield v. Trailways, Inc., 732 S.W.2d 547, 552-
53 (Mo. App. 1987); American Surety Co. v. Franciscus, 127
F.2d 810, 815 (8th Cir. 1942) (Missouri law); USA Group
Loan Services, Inc. v. Riley, 82 F.3d 708, 712 (7th Cir. 1996);
Restatement (Second) of Contracts, supra, §§ 350(1), 351(1)
and comments a and b, and we turn to the issue of
Moran’s liability to Susan Camp under the Equal Credit
Opportunity Act.
Mid-Atlantic argues that we have no jurisdiction to
consider Moran’s challenge to the judgment for Camp,
because Moran did not mention that judgment in its
notice of appeal, as required by Fed. R. App. P. 3(c) (the
notice of appeal must “designate the judgment, order or
part thereof appealed from”). Moran’s notice of appeal
just mentioned the order turning down its motion for
judgment as a matter of law (or alternatively for a new
trial), and that motion was limited to its dispute with Mid-
Atlantic. But the district judge had earlier indicated his
unwillingness to question the validity of the regulation of
the Federal Reserve Board on which, as we are shortly
to see, Susan Camp’s claim is based. In effect Moran has
treated that indication as an interlocutory order, which an
appeal from the final order in the case, turning down
Moran’s motions directed at Mid-Atlantic, would bring up
to the court of appeals. E.g., Kunik v. Racine County, 106
F.3d 168, 172 (7th Cir. 1997). An indication is not an
order, but it is close enough, as there is no suggestion of
prejudice to Mid-Atlantic, and “inept” attempts to comply
with Rule 3(c) are accepted as long as the appellee is not

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Nos. 05-3656, 05-3735 9
harmed. Foman v. Davis, 371 U.S. 178, 180-82 (1962);
AlliedSignal, Inc. v. B.F. Goodrich Co., 183 F.3d 568, 571-72
(7th Cir. 1999); Cardoza v. Commodity Futures Trading
Commission, 768 F.2d 1542, 1546-47 (7th Cir. 1985). So on to
the merits.
At first blush, the Equal Credit Opportunity Act has no
relevance to this case. So far as the prohibition against
discrimination on the basis of marriage is concerned
(the Act prohibits discrimination on grounds of race, sex,
age, etc., as well), it is apparent that what the Act was
intended to do was to forbid a creditor to deny credit to a
woman on the basis of a belief that she would not be a
good credit risk because she would be distracted by
child care or some other stereotypically female responsi-
bility. Midkiff v. Adams County Regional Water District, 409
F.3d 758, 771 (6th Cir. 2005); Anderson v. United Finance Co.,
666 F.2d 1274, 1277 (9th Cir. 1982). Susan Camp was not
an applicant for credit, and neither received credit nor
was denied it. Instead she guaranteed her husband’s
debt and by doing so enabled his company to buy gro-
ceries from Moran on credit.
The Federal Reserve Board, however, has defined
“applicant” for credit (the term in the statute) to include
a guarantor. 12 C.F.R. §§ 202.2(e), 202.7(d). We doubt
that the statute can be stretched far enough to allow
this interpretation. (Anderson v. United Finance Co., supra,
666 F.2d at 1276-77, assumes the validity of the regulation,
but without discussion of the point.) It is true that courts
defer to administrative interpretations of statutes when a
statute is ambiguous, Ford Motor Credit Co. v. Milhollin,
444 U.S. 555, 559-60 (1980), and that this precept applies to
the Federal Reserve Board’s interpretation of ambiguous
provisions of the Equal Credit Opportunity Act. Diaz v.

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10 Nos. 05-3656, 05-3735
Virginia Housing Development Authority, 117 F. Supp. 2d
500, 506-07 (E.D. Va. 2000); see 15 U.S.C. § 1691b(a)(1). But
there is nothing ambiguous about “applicant” and no
way to confuse an applicant with a guarantor. What is
more, to interpret “applicant” as embracing “guarantor”
opens vistas of liability that the Congress that enacted the
Act would have been unlikely to accept. If a person is
denied credit, or given credit but charged a higher inter-
est rate, on some basis forbidden by the Act, the dam-
ages will usually be modest. One can imagine cases
where for want of credit from a particular lender a tremen-
dous business opportunity was lost, but such cases—
another example of appeal to the want-of-a-nail adage—are
rare and difficult to prove. Damages in other cases will
be limited to the cost of the higher interest, or the incon-
venience of arranging alternative credit or getting one’s
credit restored, or embarrassment at being thought not
creditworthy, or emotional distress at being thought a
deadbeat or at feeling oneself a victim of discrimination.
See, e.g., Philbin v. Trans Union Corp., 101 F.3d 957, 963 n. 3
(3d Cir. 1996) Casella v. Equifax Credit Information Services,
56 F.3d 469, 474-75 (2d Cir. 1995); Guimond v. Trans Union
Credit Information Co., 45 F.3d 1329, 1333 (9th Cir. 1995);
Stevenson v. TRW, Inc., 987 F.2d 288, 296-97 (5th Cir. 1993);
Pinner v. Schmidt, 805 F.2d 1258, 1265 (5th Cir. 1986). It is
otherwise if a guaranty is found to be unlawful. For then,
as Susan Camp (not content with the modest damages
that she obtained in the district court) contends in the
cross-appeal, the guaranty would be unenforceable and
the creditor might lose the entire debt.
But even if the Federal Reserve Board’s interpretation
is authorized, Susan Camp must lose because she failed
to prove discrimination. All that the evidence shows on
that score is that when Moran looked at the list of assets

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Nos. 05-3656, 05-3735 11
submitted by Roger Camp, who had agreed to guarantee
repayment of any debts that Mid-Atlantic incurred to
Moran, it noticed that several residences were included
and so it naturally and correctly assumed that Mrs. Camp
had an interest in those assets. The residences of a married
couple are usually owned either jointly or by the spouse
other than the one who included them in the list of assets
that he submitted to obtain credit. Often spouses don’t
know the precise allocation of property between them
because it has been made by their lawyer in order
to minimize estate tax or to make it harder for creditors
to seize property in the event of a default. In fact some
$2.5 million of the $8.2 million in assets listed on Mr.
Camp’s credit application were actually owned by Mrs.
Camp. It was therefore sound commercial practice unre-
lated to any stereotypical view of a wife’s role for Moran
to require that she guarantee the debt along with her
husband. As far as appears, had they been unmarried but
living together whether as boyfriend and girlfriend or as
siblings, or father and daughter, or just roommates, as
soon as Moran learned that Roger Camp was living
with someone it would have realized that one or more
of the residences on Camp’s list of assets might be owned
with someone else or maybe owned entirely by some-
one else. And so it would have insisted on the guaranty.
If so, there was no discrimination on the basis of marital
status. Crestar Bank v. Driggs, No. 93-1036, 1993 WL 198187,
at *1 (4th Cir. June 11, 1993) (per curiam) (“the evidence
supports the defendant’s contention that Kimberlee
Driggs was asked to assume liability on the note because
the loan officers believed she was a principal in the
transaction”); cf. McKenzie v. U.S. Home Corp., 704 F.2d 778,
779 (5th Cir. 1983); 12 C.F.R. § 202.7(d)(4). And as far as the
record reveals, it is so.

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12 Nos. 05-3656, 05-3735
We conclude that Mid-Atlantic failed to prove any
amount of damages to offset against the debt that it
owed Moran, and that Moran infringed no right that
Susan Camp has under the Equal Credit Opportunity
Act. The judgment of the district court is therefore
reversed and the case remanded with instructions to
enter a final judgment for Moran on all claims.
R EVERSED AND R EMANDED , WITH D IRECTIONS .
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-5-07

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