Question

Business Systems agreed to provide supplies to IBM as a subcontractor to a deal to update computer systems of the Chicago Transit Authority. The budget for this deal was set at $3.6 million; however, only $2.2 million of services were actually performed under the contract. Business Systems sued IBM, believing that it was entitled to an additional $1.4 million that it had not received in the performance of the project. As evidence of contract, Business Systems produced a spreadsheet detailing the ways in which the $3.6 million would be spent and an e-mail claiming “mutual agreement” to the $3.6 million budget. IBM claimed that it had performed all of its obligations under the contract and that Business Systems was not entitled to the $1.4 million because there was no contract specifying the amount that Business Systems was entitled to. Do you think that Business Systems was entitled to the $1.4 million? What consideration was exchanged between the two parties? [Business Systems v. IBM, 547 F.3d 882 (2008).]

Answer 1

(I)
In December 2001, the CTA entered into a contract with IBM under which IBM agreed to implement a new computer system for the CTA. A condition appended to the contract required IBM to subcontract not less than 30% of the total dollar value of the contract (which was $42 million) to "disadvantaged business enterprises."¹Business Systems was certified by the CTA as a disadvantaged business enterprise, and it was one of ten disadvantaged business enterprises that provided technical consultants for IBM to work on the CTA contract.

When utilizing the services of a supplier like Business Systems, IBM would first enter into a base agreement with the supplier that would govern their overall business relationship. Such agreements are common in the industry. The "Customer Solutions Agreement" ("CSA") was the specific base agreement governing the relationship between IBM and Business Systems; it was created prior to IBM's contract with the CTA. According to the detailed terms of the CSA, Business Systems was to provide "deliverables and services" according to the specifications contained in the relevant "statements of work." The CSA defined a "statement of work" as "any document ... which describes the Deliverables and Services, including any requirements, specifications or schedules." Business Systems was not to begin the tasks described in a statement of work, however, without a corresponding "work authorization," which the CSA defined as "a purchase order, bill of lading, or other [IBM] designated document." The CSA limited what IBM owed Business Systems to the amounts specified in statements of work and authorized in work authorizations. It stated that "the only amount due to [Business Systems] from [IBM]" was the "pre-approved expenses specified in the relevant" statements of work and the amount IBM would pay for "Deliverables and Services specified in a [purchase order] and accepted by" IBM.

Before the CTA executed its contract with IBM and work began, IBM had to submit to the CTA a "Schedule C: Letter of Intent from DBE to Perform as Subcontractor, Supplier and/or Consultant" signed by each disadvantaged business entity that was to provide work as a subcontractor, as well as a "Schedule D: DBE Utilization Plan" signed by IBM. The original Schedule C for Business Systems, attached as Exhibit 3 to Business Systems's original complaint, listed the "quantity/unit price" of "services" Business Systems was "prepared to provide" for the CTA project as $8,560,000. A revised Schedule C listed "services" of $2,124,550 and "software" of $1,500,000 as the "quantity/unit price" of what Business Systems was "prepared to provide" for the CTA contract. The Schedule D IBM submitted to the CTA for Business Systems listed "provid[ing] development resources for conversions, interfaces, and customizations" as the "type of work to be performed" in accordance with the revised Schedule C. It also listed $3.6 million under the heading "Contract Amount." All of the schedules stated that, after the CTA executed the contract, the parties would "enter into a formal written agreement for the above work."
The district court granted IBM's motion for summary judgment. It held that there was no evidence of a written contract for $3.6 million between IBM and Business Systems. According to the court, the documents upon which Business Systems relied were "too vague and incomplete to establish a legally enforceable agreement by which [Business Systems] could hold IBM accountable for the alleged breach." Bus. Sys. Eng'g, Inc. v. IBM Corp., 520 F.Supp.2d 1012, 1019 (N.D.Ill.2007). The district court also rejected Business Systems's oral contract theory. The court stated that although the facts established that Business Systems may have believed that it had an agreement with IBM for $3.6 million of work, the record did not contain any "evidence about what promises [Business Systems] made in exchange" for the $3.6 million of work on the CTA project. Id. at 1019.

After the district court granted IBM's motion for summary judgment, it entered a final judgment on all of Business Systems's claims pursuant to Federal Rule of Civil Procedure 54(b). That final judgement allowed Business Systems to appeal the district court's grant of summary judgment despite IBM's unresolved counterclaim for defamation against Business Systems and Nathan Paige, Business Systems's CEO.

(II).

On appeal, Business Systems only challenges the district court's determination that no contract for $3.6 million in work existed between Business Systems and IBM as a matter of law. We review a district court's grant of summary judgment de novo. See Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 677 (7th Cir.2008). We construe all facts and inferences in the light most favorable to Business Systems, the non-movant, when determining whether a genuine issue of material fact exists that would preclude summary judgment. Id. Because this is a diversity case, we apply the law of Illinois (the forum state) to the question of whether a contract exists. Id. In Illinois, "[t]he question of the existence of a contract is a

[547 F.3d 887]

matter of law for determination by the court." Arneson v. Bd. of Trs., McKendree Coll., 210 Ill.App.3d 844, 155 Ill.Dec. 252, 569 N.E.2d 252, 256 (1991).²

At the outset, we note that Business Systems's theory of how the contract for $3.6 million arose has fluctuated throughout the proceedings in this case. In its initial complaint, Business Systems alleged that the original Schedule C constituted a written agreement between it and IBM that was "voluntarily modifi[ed]" by the revised Schedule C. After the district court rejected that theory, Business Systems amended its complaint, this time alleging that the parties had a "written agreement" composed of various emails and letters between the parties along with the Schedules C and D. During discovery, Business Systems waffled between a written contract theory and an oral contract theory, sometimes asserting that the contract between the parties was oral, and at other points claiming that the Schedules C and D, as well as other documents, constituted a written contract. Then in opposition to IBM's motion for summary judgment, Business Systems switched entirely to an oral contract theory. Now on appeal, Business Systems reiterates its position on summary judgment that there was an oral contract between the parties and that the documents Business Systems cited in its amended complaint (including the Schedules C and D) are simply evidence of that oral agreement.

Regardless, however, of whether the alleged $3.6 million contract was written, oral, or otherwise, the district court was correct to grant summary judgment on Business Systems's breach of contract claim. The only contractual relationship that existed between the parties was established by the CSA in conjunction with the individual statements of work and the corresponding purchase orders. The CSA established, in writing, "the basis for a multinational procurement relationship under which [Business Systems would] provide [IBM] the Deliverables and Services described in [statements of work] issued" pursuant to the CSA. The CSA was clear that Business Systems was to "provide the Deliverables and Services as specified in the relevant" statements of work "only after receiving" a purchase order from IBM authorizing the work listed in each statement of work to be done. (Emphasis added). And the CSA expressly limited what IBM owed Business Systems to those amounts that were specified in the purchase orders and statements of work issued pursuant to the CSA. It stated that "pre-approved expenses specified in the

[547 F.3d 888]

relevant" statements of work and the amount IBM would pay for "Deliverables and Services specified in a [purchase order] and accepted by" IBM were to be "the only amount due to [Business Systems] from [IBM]."
The same cannot be said of Business Systems's alleged $3.6 million agreement. At best, the evidence in the record shows that IBM "intended" to offer Business Systems $3.6 million in subcontracting work. But a manifestation of an intent to be bound, by itself, is not enough to form a contract. Cheever, 161 Ill.Dec. 335,

[547 F.3d 890]

578 N.E.2d at 983. "Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain." Vill. of S. Elgin v. Waste Mgmt. of Ill., Inc., 348 Ill.App.3d 929, 284 Ill.Dec. 868, 810 N.E.2d 658, 672 (2004) (quoting Restatement (Second) of Contracts § 33(1) (1981)). The terms of a contract are reasonably certain only if "they provide a basis for determining the existence of a breach and for giving an appropriate remedy." Restatement (Second) of Contracts § 33(2) (1981). As we have discussed above, the documents that Business Systems points to as evidence of IBM's "intent to be bound" to the $3.6 million figure, such as the Schedules C and D, do not provide "a basis for determining the existence of a breach and for giving an appropriate remedy." Id. Put another way, conspicuously absent from the record is the answer to the question: "$3.6 million for what?" Because we have no way of determining with any specificity what Business Systems was supposed to do in exchange for the $1.4 million it claims IBM still owes it under the alleged $3.6 million contract, Business Systems's breach of contract claim fails as a matter of law, and the district court properly granted summary judgment on that claim.

(III)

The CSA, along with the statements of work and purchase orders issued pursuant to that agreement, formed the only basis of a contractually binding agreement between the parties. Regardless of what the parties intended from the outset, IBM had no contractual duty to provide Business Systems with any work beyond what was authorized in the statements of work. Because it is undisputed that IBM paid Business Systems all that was due for performing work pursuant to the statements of work, we AFFIRM the decision of the district court granting summary judgment in favor of IBM on Business Systems's breach of contract claim.

FOOT NOTES:-

1. The contract defined a "disadvantaged business enterprise" as "a small business concern awarded certification by the CTA as a business owned and controlled by socially and economically disadvantaged individuals in accordance with U.S. DOT Regulation 49 CFR, Part 23 and Section 106(c)."

2. Business Systems argues that the existence of a contract in this case was a question of fact that should have been left for the jury. Business Systems is correct that a jury should decide the question of whether a contract exists when the facts bearing on that issue are disputed. See, e.g., Hany v. Gen. Elec. Co., 221 Ill.App.3d 390, 163 Ill.Dec. 790, 581 N.E.2d 1213, 1217 (1991) ("When a factual dispute is present, the question of whether a contract exists is for the jury to decide."). But in this case the material facts are not disputed. IBM does not question, for instance, the existence or authenticity of the Schedules C and D, or even that IBM evinced an intent to be bound to the $3.6 million figure. Rather, the issue here is whether the evidence presented by Business Systems suffices to show a binding contract obligating IBM to provide Business Systems with $3.6 million in work. That question was properly determined by the district court, and not a jury. See Bank of Benton v. Cogdill, 118 Ill.App.3d 280, 73 Ill.Dec. 871, 454 N.E.2d 1120, 1125 (1983); see also Mansourou v. John Crane, Inc., 248 Ill.App.3d 963, 188 Ill.Dec. 119, 618 N.E.2d 689, 692 (1993) ("The determination of whether there exists a clear and definite promise is not for the trier of fact to determine, but is, rather, `a threshold question of law to be determined by the court.'" (quoting Harrell v. Montgomery Ward & Co., 189 Ill.App.3d 516, 136 Ill.Dec. 849, 545 N.E.2d 373, 376 (1989))).

3. Business Systems did not argue before the district court, as it does now, that the spreadsheet evidenced some of the terms of the alleged contract. "[A]rguments not raised before the district court are waived on appeal." Hicks v. Midwest Transit, Inc.,500 F.3d 647, 652 (7th Cir.2007). Nevertheless, even considering the spreadsheet, Business Systems still falls far short of establishing, with any definiteness, what services it was to provide for IBM in exchange for the last $1.4 million of the alleged $3.6 million contract.

                                      (I)
In December 2001, the CTA entered into a contract with IBM under which IBM agreed to implement a new computer system for the CTA. A condition appended to the contract required IBM to subcontract not less than 30% of the total dollar value of the contract (which was $42 million) to "disadvantaged business enterprises."¹Business Systems was certified by the CTA as a disadvantaged business enterprise, and it was one of ten disadvantaged business enterprises that provided technical consultants for IBM to work on the CTA contract.

When utilizing the services of a supplier like Business Systems, IBM would first enter into a base agreement with the supplier that would govern their overall business relationship. Such agreements are common in the industry. The "Customer Solutions Agreement" ("CSA") was the specific base agreement governing the relationship between IBM and Business Systems; it was created prior to IBM's contract with the CTA. According to the detailed terms of the CSA, Business Systems was to provide "deliverables and services" according to the specifications contained in the relevant "statements of work." The CSA defined a "statement of work" as "any document ... which describes the Deliverables and Services, including any requirements, specifications or schedules." Business Systems was not to begin the tasks described in a statement of work, however, without a corresponding "work authorization," which the CSA defined as "a purchase order, bill of lading, or other [IBM] designated document." The CSA limited what IBM owed Business Systems to the amounts specified in statements of work and authorized in work authorizations. It stated that "the only amount due to [Business Systems] from [IBM]" was the "pre-approved expenses specified in the relevant" statements of work and the amount IBM would pay for "Deliverables and Services specified in a [purchase order] and accepted by" IBM.

Before the CTA executed its contract with IBM and work began, IBM had to submit to the CTA a "Schedule C: Letter of Intent from DBE to Perform as Subcontractor, Supplier and/or Consultant" signed by each disadvantaged business entity that was to provide work as a subcontractor, as well as a "Schedule D: DBE Utilization Plan" signed by IBM. The original Schedule C for Business Systems, attached as Exhibit 3 to Business Systems's original complaint, listed the "quantity/unit price" of "services" Business Systems was "prepared to provide" for the CTA project as $8,560,000. A revised Schedule C listed "services" of $2,124,550 and "software" of $1,500,000 as the "quantity/unit price" of what Business Systems was "prepared to provide" for the CTA contract. The Schedule D IBM submitted to the CTA for Business Systems listed "provid[ing] development resources for conversions, interfaces, and customizations" as the "type of work to be performed" in accordance with the revised Schedule C. It also listed $3.6 million under the heading "Contract Amount." All of the schedules stated that, after the CTA executed the contract, the parties would "enter into a formal written agreement for the above work."
The district court granted IBM's motion for summary judgment. It held that there was no evidence of a written contract for $3.6 million between IBM and Business Systems. According to the court, the documents upon which Business Systems relied were "too vague and incomplete to establish a legally enforceable agreement by which [Business Systems] could hold IBM accountable for the alleged breach." Bus. Sys. Eng'g, Inc. v. IBM Corp., 520 F.Supp.2d 1012, 1019 (N.D.Ill.2007). The district court also rejected Business Systems's oral contract theory. The court stated that although the facts established that Business Systems may have believed that it had an agreement with IBM for $3.6 million of work, the record did not contain any "evidence about what promises [Business Systems] made in exchange" for the $3.6 million of work on the CTA project. Id. at 1019.

After the district court granted IBM's motion for summary judgment, it entered a final judgment on all of Business Systems's claims pursuant to Federal Rule of Civil Procedure 54(b). That final judgement allowed Business Systems to appeal the district court's grant of summary judgment despite IBM's unresolved counterclaim for defamation against Business Systems and Nathan Paige, Business Systems's CEO.

(II).

On appeal, Business Systems only challenges the district court's determination that no contract for $3.6 million in work existed between Business Systems and IBM as a matter of law. We review a district court's grant of summary judgment de novo. See Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 677 (7th Cir.2008). We construe all facts and inferences in the light most favorable to Business Systems, the non-movant, when determining whether a genuine issue of material fact exists that would preclude summary judgment. Id. Because this is a diversity case, we apply the law of Illinois (the forum state) to the question of whether a contract exists. Id. In Illinois, "[t]he question of the existence of a contract is a

[547 F.3d 887]

matter of law for determination by the court." Arneson v. Bd. of Trs., McKendree Coll., 210 Ill.App.3d 844, 155 Ill.Dec. 252, 569 N.E.2d 252, 256 (1991).²

At the outset, we note that Business Systems's theory of how the contract for $3.6 million arose has fluctuated throughout the proceedings in this case. In its initial complaint, Business Systems alleged that the original Schedule C constituted a written agreement between it and IBM that was "voluntarily modifi[ed]" by the revised Schedule C. After the district court rejected that theory, Business Systems amended its complaint, this time alleging that the parties had a "written agreement" composed of various emails and letters between the parties along with the Schedules C and D. During discovery, Business Systems waffled between a written contract theory and an oral contract theory, sometimes asserting that the contract between the parties was oral, and at other points claiming that the Schedules C and D, as well as other documents, constituted a written contract. Then in opposition to IBM's motion for summary judgment, Business Systems switched entirely to an oral contract theory. Now on appeal, Business Systems reiterates its position on summary judgment that there was an oral contract between the parties and that the documents Business Systems cited in its amended complaint (including the Schedules C and D) are simply evidence of that oral agreement.

Regardless, however, of whether the alleged $3.6 million contract was written, oral, or otherwise, the district court was correct to grant summary judgment on Business Systems's breach of contract claim. The only contractual relationship that existed between the parties was established by the CSA in conjunction with the individual statements of work and the corresponding purchase orders. The CSA established, in writing, "the basis for a multinational procurement relationship under which [Business Systems would] provide [IBM] the Deliverables and Services described in [statements of work] issued" pursuant to the CSA. The CSA was clear that Business Systems was to "provide the Deliverables and Services as specified in the relevant" statements of work "only after receiving" a purchase order from IBM authorizing the work listed in each statement of work to be done. (Emphasis added). And the CSA expressly limited what IBM owed Business Systems to those amounts that were specified in the purchase orders and statements of work issued pursuant to the CSA. It stated that "pre-approved expenses specified in the

[547 F.3d 888]

relevant" statements of work and the amount IBM would pay for "Deliverables and Services specified in a [purchase order] and accepted by" IBM were to be "the only amount due to [Business Systems] from [IBM]."
The same cannot be said of Business Systems's alleged $3.6 million agreement. At best, the evidence in the record shows that IBM "intended" to offer Business Systems $3.6 million in subcontracting work. But a manifestation of an intent to be bound, by itself, is not enough to form a contract. Cheever, 161 Ill.Dec. 335,

[547 F.3d 890]

578 N.E.2d at 983. "Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain." Vill. of S. Elgin v. Waste Mgmt. of Ill., Inc., 348 Ill.App.3d 929, 284 Ill.Dec. 868, 810 N.E.2d 658, 672 (2004) (quoting Restatement (Second) of Contracts § 33(1) (1981)). The terms of a contract are reasonably certain only if "they provide a basis for determining the existence of a breach and for giving an appropriate remedy." Restatement (Second) of Contracts § 33(2) (1981). As we have discussed above, the documents that Business Systems points to as evidence of IBM's "intent to be bound" to the $3.6 million figure, such as the Schedules C and D, do not provide "a basis for determining the existence of a breach and for giving an appropriate remedy." Id. Put another way, conspicuously absent from the record is the answer to the question: "$3.6 million for what?" Because we have no way of determining with any specificity what Business Systems was supposed to do in exchange for the $1.4 million it claims IBM still owes it under the alleged $3.6 million contract, Business Systems's breach of contract claim fails as a matter of law, and the district court properly granted summary judgment on that claim.

                                       (III)

The CSA, along with the statements of work and purchase orders issued pursuant to that agreement, formed the only basis of a contractually binding agreement between the parties. Regardless of what the parties intended from the outset, IBM had no contractual duty to provide Business Systems with any work beyond what was authorized in the statements of work. Because it is undisputed that IBM paid Business Systems all that was due for performing work pursuant to the statements of work, we AFFIRM the decision of the district court granting summary judgment in favor of IBM on Business Systems's breach of contract claim.

FOOT NOTES:-

1. The contract defined a "disadvantaged business enterprise" as "a small business concern awarded certification by the CTA as a business owned and controlled by socially and economically disadvantaged individuals in accordance with U.S. DOT Regulation 49 CFR, Part 23 and Section 106(c)."

2. Business Systems argues that the existence of a contract in this case was a question of fact that should have been left for the jury. Business Systems is correct that a jury should decide the question of whether a contract exists when the facts bearing on that issue are disputed. See, e.g., Hany v. Gen. Elec. Co., 221 Ill.App.3d 390, 163 Ill.Dec. 790, 581 N.E.2d 1213, 1217 (1991) ("When a factual dispute is present, the question of whether a contract exists is for the jury to decide."). But in this case the material facts are not disputed. IBM does not question, for instance, the existence or authenticity of the Schedules C and D, or even that IBM evinced an intent to be bound to the $3.6 million figure. Rather, the issue here is whether the evidence presented by Business Systems suffices to show a binding contract obligating IBM to provide Business Systems with $3.6 million in work. That question was properly determined by the district court, and not a jury. See Bank of Benton v. Cogdill, 118 Ill.App.3d 280, 73 Ill.Dec. 871, 454 N.E.2d 1120, 1125 (1983); see also Mansourou v. John Crane, Inc., 248 Ill.App.3d 963, 188 Ill.Dec. 119, 618 N.E.2d 689, 692 (1993) ("The determination of whether there exists a clear and definite promise is not for the trier of fact to determine, but is, rather, `a threshold question of law to be determined by the court.'" (quoting Harrell v. Montgomery Ward & Co., 189 Ill.App.3d 516, 136 Ill.Dec. 849, 545 N.E.2d 373, 376 (1989))).

3. Business Systems did not argue before the district court, as it does now, that the spreadsheet evidenced some of the terms of the alleged contract. "[A]rguments not raised before the district court are waived on appeal." Hicks v. Midwest Transit, Inc.,500 F.3d 647, 652 (7th Cir.2007). Nevertheless, even considering the spreadsheet, Business Systems still falls far short of establishing, with any definiteness, what services it was to provide for IBM in exchange for the last $1.4 million of the alleged $3.6 million contract.