7th Circuit: Company responsible for debts

The 7th Circuit Court of Appeals affirmed a company and its principals need to pay more than $3.5 million to a company it bought supplies from, even though the purchaser accused the seller of price-gouging.

Knauf Insulation sold Southern Brands Inc. fiberglass insulation over many years, and by 2012 SBI was $3.5 million in debt to Knauf. Albert and Rosemary Dowd had signed a guaranty of their debt to Knauf in 2003. The U.S. Court for the Southern District of Indiana in Indianapolis awarded summary judgment on a suit brought by Knauf of the total and interest, and the Dowds appealed.

The Dowds said when they signed their guaranty they didn’t intent or contemplate being sued by Knauf and that SBI is an out-of-state distributor did not have contacts in Indiana to subject it to Indiana jurisdiction, but Circuit Judge Richard Posner said both of those arguments have no merit.

He said the guaranty, which explicitly names Indiana as the forum state, states in plain language that it covers future and current obligations. Also, Knauf did not need any contacts in Indiana to file suit.

Knauf was accused of conspiring with one company to sell fiberglass to it lower than to other competitors. SBI was originally part of class in that lawsuit against Knauf, but was later dismissed. That suit was settled and Knauf was later dismissed, but SBI filed a counterclaim later saying it was a victim of the price gouging Knauf allegedly engaged in.

However, Knauf filed the counterclaim too late to be litigated. The statute of limitations is four years, and SBI did not file the suit until seven years had passed. SBI claimed equitable tolling, or when a plaintiff can sue after the expiration of the limitations period, can apply, claiming it had good reason for its delay and suffered harm greater than the defendant suffered or is likely to suffer.

However, Posner said SBI had no such reasons. He said SBI should have known about the suit and should have done something about it at that point. It had no good reason for waiting.

“SBI couldn’t just sit on its fanny for nine years, making no inquiry into the status of the Columbus Drywall litigation, and insist that its indolence tolled the statute of limitations,” Posner wrote.

The case is Knauf Insulation, Inc. v Southern Brands, Inc. and Albert and Rosemary Dowd, 15-3157.