In the
United States Court of Appeals
For the Seventh Circuit

Nos. 99-2958 and 99-3050

Midwest Grain Products of Illinois, Inc.,

Plaintiff-Appellant/Cross-Appellee,

v.

Productization, Inc. and CMI Corp.,

Defendants-Appellees/Cross-Appellants.



Appeals from the United States District Court
for the Central District of Illinois, Peoria Division.
No. 95-C-1339--Joe Billy McDade, Chief District Judge.


Argued April 4, 2000--Decided October 3, 2000



  Before Coffey, Rovner, and Diane P. Wood, Circuit
Judges.

  Diane P. Wood, Circuit Judge. This case presents
a classic contract dispute: A orders a product
from B, and B turns to C to manufacture it. When
A receives the product, it is not satisfied, and
it wants to hold C responsible for the alleged
flaws. We must decide whether there is enough
evidence of some kind of warranty, either express
or as a matter of law, to allow Midwest Grain
Products (Company A) to move beyond summary
judgment in its action against CMI Corporation
(Company C). (Midwest settled its claims against
Productization, Inc. (PI) (Company B), and so
that actor has not been part of this case for
some time.) The district court concluded that
Midwest’s evidence was lacking and that CMI was
entitled to judgment as a matter of law. It also
ruled that CMI was not entitled to its attorneys’
fees. Each company has appealed from the part of
the judgment adverse to it, but, finding no error
in the district court’s disposition of the
action, we affirm.

I
  On January 12, 1993, Midwest Vice President
Anthony Petricola sent a letter to PI President
Andrew Livingston requesting a quote on grain
dryers to be used in Midwest’s expansion of its
facility in Pekin, Illinois. Livingston responded
on January 26 with an offer on PI’s behalf to
provide two dryers for a total price of
$1,515,800. Midwest accepted PI’s offer on
February 25, through a purchase order sent to
Livingston.

  With the deal in hand, PI then turned to CMI to
manufacture the dryers. On April 29, 1993, it
sent CMI a set of specifications for the dryers
Midwest wanted. CMI replied with a fax giving
price terms and stating that "[a]cceptance of the
order will be subject to receipt by CMI of a
letter from Midwest Grain agreeing to make
payment, with checks made payable jointly to CMI
and Productization." The next day, April 30, PI
responded with a purchase order, which also
contained various specifications and drawings
related to the dryers. Also on April 30, CMI sent
a fax to PI confirming receipt of the purchase
order and requesting what it called "some minor
changes" in the wording of two sections. The
first change is unimportant for us, but the
second asked again that PI procure a letter from
Midwest agreeing to make payments with checks
made payable jointly to PI and CMI, and setting
out the timing of Midwest’s payments.

  On May 4, 1993, PI submitted a revised purchase
order that reflected PI’s commitment to obtain
the letter from Midwest that CMI wanted, and that
had a page of fine print "terms and conditions."
Paragraph 4 was entitled "Warranty," and read as
follows:

Seller expressly warrants that all materials and
work covered by this order will conform to the
specifications, drawings, samples, or other
description furnished or specified by Buyer, and
will be merchantable, of good material and
workmanship, and free from defect. Seller
expressly warrants that all the material covered
by this order which is the product of Seller or
in accordance with Seller’s specifications, will
be fit and sufficient for the purposes intended.

On May 10, Midwest’s Petricola sent the requested
letter directly to CMI. The letter commits
Midwest to "make payment for equipment purchased
by Productization, Inc. from CMI Corporation for
its [i.e., Midwest’s] project in Pekin, Illinois,
with check(s) payable jointly to Productization,
Inc. and CMI Corporation." It also mentions the
shipment, price, and storage terms of the PI/CMI
agreement and states that CMI will issue waivers
of liens to Midwest upon CMI’s receipt of
payment.

  This was Midwest’s only direct appearance into
the dealings between PI and CMI. The latter two
companies continued to work out the details of
their contract from May through at least the end
of June. On May 14 and 17, CMI sent copies of its
equipment sales order to PI. These were
essentially order confirmation forms; they
detailed the units purchased, price, shipping
terms, and other terms of the sale. Then--and
this is where our case was born--CMI sent a third
"equipment sales order and security agreement" to
PI on June 29, 1993. That form mirrored the May
14 and May 17 forms, with two exceptions. The
first was a minor downward price adjustment of
$260 that concerns no one. The second was the
addition of a new page, again filled with fine
print, that presented CMI’s terms of sale.
Paragraph 1 of these terms included the following
language: "No other terms are acceptable and any
proposed terms or conditions which vary from or
are in addition to those contained in this order
shall be deemed rejected unless expressly
approved by CMI in a writing signed by it."
Paragraph 8 addressed warranties, and said in
pertinent part:

CMI warrants such equipment, accessories, parts
and other goods covered by this order and as are
manufactured by CMI against defective material or
workmanship for a period of six (6) months after
date of first delivery or for one thousand
(1,000) hours of use, whichever comes first; . .
. . THIS WARRANTY IS EXPRESSLY IN LIEU OF AND
EXCLUDES ALL OTHER WARRANTIES, EXPRESSED OR
IMPLIED (INCLUDING ANY WARRANTY OF
MERCHANTABILITY AND FITNESS OF ANY PRODUCT OR
GOODS FOR A PARTICULAR PURPOSE), AND ALL OTHER
OBLIGATIONS OR LIABILITIES ON CMI’S PART, AND CMI
NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON
TO ASSUME FOR CMI ANY OTHER LIABILITY IN
CONNECTION WITH THE SALE OF CMI’S PRODUCTS. THERE
ARE NOT ANY WARRANTIES WHICH EXTEND BEYOND THE
DESCRIPTION ON THE FACE OF THIS ORDER.

Last, paragraph 11 of the form set forth an
integration clause.
  After June 29, there were a few more exchanges
between PI and CMI. PI sent another purchase
order that contained the PI terms and conditions,
including its broader warranty language, and CMI
sent another equipment sales order, though it is
unclear whether the terms of sale page was
included that time.

  The first dryer reached Midwest in February
1994, but it was not put into service until 1995.
The other dryer was delivered in April 1994 and
was put into service two months later. Midwest
experienced a variety of problems with both
units. Initially, CMI and PI serviced them.
Midwest found their efforts unsatisfactory,
however, and it decided to call in a third party
to examine the equipment. Later, still unhappy
with PI and CMI, it filed this action in the
district court for the Central District of
Illinois, invoking the court’s diversity
jurisdiction for claims exceeding $75,000.
Midwest is an Illinois corporation with its
principal place of business in Illinois; PI is a
Kansas corporation with its principal place of
business there; and CMI is an Oklahoma
corporation with its principal place of business
also in Oklahoma.

II

  We consider first Midwest’s appeal from the
summary judgment against it. Both Midwest and CMI
have devoted a great deal of time in their briefs
to discussing issues such as the principles of
contract formation, the Uniform Commercial Code’s
provisions governing a "battle of the forms," see
U.C.C. sec. 2-207, and which facts were disputed
about these points. We find, however, that this
case can be resolved in a more straightforward
way. We also conclude that even if certain
assumptions are made in Midwest’s favor, the
district court’s judgment was still correct. In
conducting this review, we have of course taken
any material facts that are in dispute in the
light most favorable to Midwest, and we have
given de novo consideration to the district
court’s decision.


  A.   Choice of Law

  Because this is a diversity case, our first
task is to decide under what law we should assess
the claims. We begin, as instructed by Klaxon Co.
v. Stentor Electric Mfg. Co., 313 U.S. 487, 496
(1941), with the choice of law rules used by the
state in which the federal district court where
the case was filed sits--here, Illinois. Illinois
follows the Restatement (Second) of Conflict of
Laws in making such decisions. See Esser v.
McIntyre, 661 N.E.2d 1138, 1141 (Ill. 1996). For
cases like this one, the Restatement refers
courts either to a choice of law provision in the
contract at issue, or to the place of
performance. See Philips Electronics, NV v. New
Hampshire Ins. Co., 692 N.E.2d 1268, 1278 (Ill.
App. Ct. 1998) (contractual choice of law
provision); Boise Cascade Home & Land Corp. v.
Utilities, Inc., 468 N.E.2d 442, 448 (Ill. App.
Ct. 1984) (place of performance).

  Either way, we agree with the district court
that Oklahoma law governs this case. If the terms
included with the June 29 equipment sales order
that CMI sent to PI are part of the contract (and
no one is disputing that at some point a contract
was formed between CMI and PI), this is an open-
and-shut matter. Paragraph 10 of the "terms of
sale" states that "[t]his agreement shall be
governed and construed in accordance with the
laws of Oklahoma." If those terms are not part of
the agreement, we look to the place of
performance. The CMI/PI contract was one for the
manufacture of goods; the manufacturing took
place entirely in Oklahoma; and the risk of loss
passed from CMI to PI in Oklahoma under the terms
of the agreement. Had this case been filed in an
Illinois court, we have no doubt that it would
have applied Illinois’s choice of law rules to
select Oklahoma law. The federal courts must do
so as well. (We note, incidentally, that this
means we will apply Oklahoma’s version of the
U.C.C. and contract law; Midwest’s efforts to
persuade us to prefer "uniform" interpretations
of the U.C.C. over Oklahoma’s rules is
reminiscent of the doctrine of general federal
common law articulated in Swift v. Tyson, 41 U.S.
1 (1842), and overruled by Erie Railroad Co. v.
Tompkins, 304 U.S. 64 (1938). The Commissioners
on Uniform State Laws draft proposed uniform laws
for the consideration of state legislatures, but
in the end it is the state that enacts the so-
called uniform law, with whatever modifications
it sees fit to include.)


  B.   Third-Party Beneficiary

  We begin with the question whether, under
Oklahoma law, Midwest has any claim to third-
party beneficiary status to the agreement between
CMI and PI. This may seem a bit like starting a
story in media res, but it allows us to evaluate
this case on the assumption that Midwest is
correct when it argues that the CMI/PI agreement
never incorporated CMI’s restrictive warranty
terms, and thus it enables us to avoid working
through the various documents that exchanged
hands between the two principal contracting
parties.

  Under Oklahoma law, a party may be a third-
party beneficiary to an agreement only if the
contracting parties intended the benefits of the
contract to run to the third party. See Great
Plains Federal Savings and Loan Ass’n v. Dabney,
846 P.2d 1088, 1093 (Okla. 1993); Copeland v.
Admiral Pest Control Co., 933 P.2d 937, 939
(Okla. Ct. App. 1996). In Copeland, the court
explained that "[i]t is not necessary that third-
party beneficiaries be specifically identified at
the time of contracting, but it must appear that
the contract was expressly made for the benefit
of a class of persons to which the party seeking
enforcement belongs." 933 P.2d at 939.

  There are only two pieces of evidence in this
record that link the CMI/PI contract to Midwest:
first, the fact that CMI knew that PI wanted the
dryers so that it could then sell them to
Midwest, and second, the fact that CMI insisted
that it be paid by checks that Midwest made
payable jointly to PI and to itself. Nothing in
Oklahoma law the parties have cited, and nothing
in Oklahoma law that we have been able to find
ourselves, comes close to holding that an
ultimate buyer is a third-party beneficiary of
every contract its seller enters into with
suppliers in order to fulfill the contract. Nor
are we referred to, or can we find, any Oklahoma
decision indicating that the kind of financial
arrangement CMI secured here is enough to give
the ultimate buyer third-party beneficiary
status. That step was enough to make Midwest a
surety for PI, and in that sense it allowed CMI
to look not only to PI for payment (a right it
had under the basic contract) but also to
Midwest. But it did not indicate that the
contract was expressly for Midwest’s benefit.
From CMI’s point of view, it was a contract for
the sale of goods, and it was not CMI’s problem
in the final analysis what PI wanted to do with
the dryers once it received them.

  Indeed, in the section of Midwest’s brief
entitled "Plaintiff’s third-party beneficiary
status was ignored or improperly addressed," it
cites not a single decision of an Oklahoma court.
It refers instead to one Illinois case, Olson v.
Etheridge, 686 N.E.2d 563 (Ill. 1997), and one
decision from this court in a diversity case
governed by Illinois law, Architectural Metal
Systems, Inc. v. Consolidated Systems, Inc., 58
F.3d 1227 (7th Cir. 1995). States vary in their
approach to rules like those governing the
recognition and rights of third-party
beneficiaries, and we would at least need some
reason to conclude that Oklahoma and Illinois
take the same approach before these authorities
would be persuasive.

  If Midwest was not a third-party beneficiary of
the CMI/PI contract, which is our best
predication of what an Oklahoma court would find,
then it has no case. Because this point did not
receive as much attention as it might have at the
district court level, however, we address in the
alternative the other theories that were
litigated more fully.


  C.   Contract Formation, Terms, and Modifications

  Midwest argues strenuously that the district
court overlooked disputed issues of material fact
when it granted summary judgment based on the
conclusion that the definitive date on which PI
and CMI formed their contract was June 29,
through the equipment sales order from CMI
bearing that date. The contract might have been
formed, it suggests, at any of three earlier
times, and critically, at neither of those points
had CMI’s language excluding warranties entered
the picture. One possibility has CMI’s April 29
form as the offer, and PI’s April 30 fax as the
acceptance; a second possibility finds an offer-
acceptance sequence in the two April 30 exchanges
(the fax from PI to CMI and then the confirmation
fax from CMI back to PI); and the third regards
the April 30 fax from CMI to PI as the offer and
the May 4 purchase order as the acceptance.
Midwest points out, correctly enough, that under
U.C.C. sec. 2-204 (codified in Oklahoma as 12A
Okla. Stat. sec. 2-204; for simplicity we refer
to the U.C.C. alone) that "any manner sufficient
to show agreement" is enough to form a contract
for the sale of goods. Midwest also points out,
correctly in our view, that the district court
erred to the extent that it thought the facts
undisputedly pointed to the June 29 communication
as the document that clinched the formation of
this contract.

  But this is not enough, contrary to Midwest’s
view, to show that the result the district court
reached was in error. The real question is
whether the parties to the contract--PI and CMI--
chose to limit the warranty CMI was giving,
either at the time they contracted or in a later
modification. Here too Midwest has problems.
Under Oklahoma law, the limitation of warranty
language either entered into the contract at the
time of its formation, or the parties later
agreed to add it. Midwest’s assumption that
contracting parties cannot modify an agreement if
there is a third-party beneficiary whose rights
have vested is not supported by Oklahoma law, and
thus it cannot defeat later changes that the
parties themselves chose to make.

  We agree with the district court that the
testimony of PI President Livingston, to the
effect that "all of the purchase order" PI sent
to CMI was part of the deal, is not enough to
raise a genuine fact over the question whether
PI’s warranty terms took precedence over CMI’s
later limitation. No one directed Livingston’s
attention to warranties at this point in his
deposition. In fact, from the time CMI started
performing to the present neither of the parties
to the agreement thought that PI’s original
language survived. Without more, this was too
slender a reed to require jury resolution of the
question.

  We would reach the "battle of the forms"
question, which is governed by U.C.C. sec. 2-207,
only if the June 29 order is either the offer or
the acceptance. The U.C.C. does not give a clear
answer about the way courts must handle
contradictory terms (as opposed to "additional"
terms, see sec. 2-207(2)). Given that fact, and
our finding earlier that Midwest is not a third-
party beneficiary in any event, we prefer to
leave this problem for resolution in the Oklahoma
courts in a case where it matters. For what
little it is worth, we think it likely that
Oklahoma would take the same approach for
different terms as it does under U.C.C. sec. 2-
207(2)(a) for additional terms: that is, it would
not incorporate the new terms into a contract
between merchants where one form explicitly
limits acceptance to the terms of the offer.
Here, CMI’s form explicitly says that "[n]o other
terms are acceptable and any proposed terms and
conditions which vary from or are in addition to
those contained in this order are deemed
rejected." If that is correct, then Midwest has
no case under this theory either.

  Suppose, however, that a jury might conclude
that one of the earlier potential contracts was
the governing agreement. Here again, Midwest wins
only if the parties had no power to make later
changes that disfavored (the assumed) third-party
beneficiary. Midwest argues that they did not,
relying on the Restatement (Second) of Contracts
sec. 311(3), under which the principal parties’
power to modify the terms of an agreement ends
when the third-party beneficiary "manifests
assent to it at the request of the promisor or
promisee." This is what Midwest did when it sent
the May 10 letter concerning the payment terms,
it claims.

  The problem here for Midwest, once again, is
that Oklahoma law governs this case. Oklahoma has
not adopted sec. 311 of the Restatement (Second)
of Contracts as its law. Indeed, as a general
matter the Oklahoma courts do not seem to be
inclined to adopt rules from the Contracts
Restatement, perhaps because Title 15 of the
Oklahoma Code is a comprehensive legislative
statement of the law of contracts in that state.
Oklahoma law says only that "[a] contract, made
expressly for the benefit of a third person, may
be enforced by him at any time before the parties
thereto rescind it." 15 Okla. Stat. sec. 29
(1996). Nothing in this language suggests that
Oklahoma has limited the power of the principal
parties to modify their agreement. Even if
Midwest is correct, therefore, that there was
once an agreement with no limitation of
warranties and the parties later modified it, it
had no right to prevent that modification and
thus no claim today against CMI.
  D.   Breach of Contractual Warranties

  Last, and briefly, Midwest alleges a breach of
CMI’s express six-month warranty to PI. It claims
that CMI was unable or unwilling to correct
existing problems. What it does not explain,
however, is what kind of defect in materials or
workmanship caused the drums to be
unsatisfactory. The express warranty extended
only to such defects. It was also limited to the
buyer and was "not assignable or otherwise
transferrable." If we regard PI as the buyer,
then Midwest was excluded by the latter language
and there was no breach of the express warranty.
If, perhaps because of the payment clause, we
regard Midwest as a joint buyer, then Midwest
still loses because of its failure to point to
evidence showing defects in materials or
workmanship.

  In the final analysis, the party that Midwest
needed to pursue was its seller, PI. Indeed, it
did include PI in this action at the outset. The
terms of its settlement with PI are not pertinent
to its case against CMI and are not in any event
a matter of record. We hold only that, under the
facts as presented and the governing law, the
district court correctly granted summary judgment
in the case Midwest wanted to bring against CMI.

III

  Having won before the district court, CMI now
wants more, in the form of its attorneys’ fees.
Its claim rests on an Oklahoma statute, 12 Okla.
Stat. sec. 936, which provides:

In any civil action to recover on [a] contract
relating to the purchase or sale of goods . . .
unless otherwise provided by law or the contract
which is the subject of the action, the
prevailing party shall be allowed a reasonable
attorney fee to be set by the court, to be taxed
and collected as costs.

The district court decided that this statute was
not applicable, because for purposes of
attorneys’ fees it was required to follow
Illinois rules, and Illinois has no such statute.
This decision is the basis of CMI’s cross-appeal.

  We agree with the district court that we must
begin once again with the question of choice of
law. It is especially important in doing so to
avoid the common terms "substantive" and
"procedural." As a shorthand matter, courts and
lawyers often say that the Rules of Decision Act,
28 U.S.C. sec. 1652, coupled with Erie, requires
federal courts to apply "substantive" state law
in diversity cases, while they continue to use
federal "procedural" law by virtue of the Rules
Enabling Act, 28 U.S.C. sec. 2072, and Supreme
Court decisions such as Hanna v. Plumer, 380 U.S.
460 (1965). But some things do not lend
themselves readily to such categories. A statute
of limitations, for example, is the kind of issue
that state law governs, see, e.g., Walker v.
Armco Steel Corp., 446 U.S. 740 (1980), but the
internal state system might consider it
"procedural" for other purposes. Cf. Sun Oil Co.
v. Wortman, 486 U.S. 717, 726 (1988) (rejecting
notion that there is "an equivalence between what
is substantive under the Erie doctrine and what
is substantive for purposes of conflict of
laws"). We think it more accurate, therefore, to
ask the question to whom has the authority to
make certain decisions been allocated, under the
various statutes and decisions (and their kin)
that we have just mentioned.

  With respect to attorneys’ fees, it is clear
that there is no federal statute or procedural
rule that would give either party a right to fees
in a case like this one. The Tenth Circuit, which
has frequently been called on to determine the
applicability of the Oklahoma statute at issue
here in diversity cases, has routinely held,
applying Erie, that the statute’s applicability
should be determined under the law of the forum
state. See, e.g., Boyd Rosene & Assoc., Inc. v.
Kansas Municipal Gas Agency, 174 F.3d 1115, 1118
(10th Cir. 1999) ("[E]ven though attorney’s fees
are substantive for diversity purposes, they are
not thereby necessarily substantive under [the
forum state’s] choice-of-law rules."); Hefley v.
Jones, 687 F.2d 1383 (10th Cir. 1982). We are
persuaded that this approach is correct.

  We therefore turn once again to Illinois law,
under Klaxon, and ask where Illinois thinks this
decision should be made. If Illinois regards
attorneys’ fees as the kind of thing that should
follow the law of the contract, then it would
look to the Oklahoma fee statute; if instead
Illinois regards attorneys’ fees as an aspect
governing use of the judicial system (i.e.
"procedural"), then an Illinois court hearing
this case would follow Illinois rules on fees
regardless of what Oklahoma had to say.

  Aside from the general reference to Oklahoma’s
law, the contract is silent on the issue of
attorneys’ fees. (If fees were specifically
addressed, of course, that would be a different
matter, and both Oklahoma and Illinois would
follow the parties’ agreement. See, e.g., In re
Adoption of K.M.S., 997 P.2d 856, 857 (Okla. Ct.
App. 1999); Hofmeyer v. Willow Shores Condominium
Ass’n, 722 N.E.2d 311, 315 (Ill. App. Ct. 1999).)
In our view, that reference alone is not enough
to answer the question before us. The parties
obviously could not impose the Oklahoma rules of
civil procedure on a foreign court, nor could
they require a foreign court to recognize certain
items as compensable costs, using the term as 28
U.S.C. sec. 1920 does, even if Oklahoma chooses
to do so.

  Illinois follows its own law in determining
whether an issue is substantive or procedural
(or, more accurately, whether authority to decide
it should be allocated using the choice of law
rules for primary conduct or should be retained
by the Illinois courts). See Boersma v. Amoco Oil
Co., 658 N.E.2d 1173, 1180 (Ill. App. Ct. 1995).
Under Illinois law, a rule is considered
"procedural" unless "the primary purpose of the
. . . rule . . . is to affect decision of the
issue rather than to regulate the conduct of the
trial." Id. If a rule "affect[s] only the remedy
available and not the substantive rights of the
parties," it is considered procedural. Cox v.
Kaufman, 571 N.E.2d 1011, 1015 (Ill. App. Ct.
1991). Rules governing the award of attorneys’
fees do not affect the substantive rights of the
parties; rather, they are closer to rules that
regulate the conduct of the trial or affect the
remedy available, so it is likely that Illinois
would consider these rules to be procedural
rather than substantive.

  Analysis of Illinois’s treatment of attorneys’
fees in other contexts lends additional support
to this conclusion. Illinois characterizes
attorneys’ fees as procedural for retroactivity
purposes, and so it applies new fee statutes to
pending cases. See Songer v. State Farm Fire and
Casualty Co., 414 N.E.2d 768, 772 (Ill. App. Ct.
1980). Even in cases in which another state’s law
governs the substantive issues, the Illinois
courts have applied Illinois law to decide
whether to award attorneys’ fees as a sanction
for frivolous litigation. See Olsen v. Celano,
600 N.E.2d 1257 (Ill. App. Ct. 1992). Other cases
and contexts also indicate that Illinois views
fees as a fundamental part of the judicial system
and thus would not allocate authority for
deciding whether they are recoverable to the law
of another state. See House of Vision, Inc. v.
Hiyane, 245 N.E.2d 468, 472 (Ill. 1969); Miller
v. Pollution Control Board, 642 N.E.2d 475, 485
(Ill. App. Ct. 1994); Waller v. Board of
Education of Century Community Unit School Dist.,
328 N.E.2d 604, 608 (Ill. App. Ct. 1975). The
common theme in these cases appears to be the
courts’ insistence that the Illinois legislature
must have authorized the award of fees. Illinois
also follows the American rule, under which
parties normally bear their own legal costs.
  While the question is not free from doubt, that
is not unusual in diversity cases. It is our best
guess that an Illinois court hearing the
identical case would refuse to follow Oklahoma’s
attorneys’ fee statute, even in a contract case
governed by Oklahoma law. We therefore affirm the
judgment of the district court on CMI’s cross-
appeal.

IV

  The judgment of the district court is Affirmed in
all respects. Costs on appeal will be taxed
against Midwest.
