## Facts

- L.S. Heath & Son, Inc., an Illinois manufacturer, sought to replace an obsolete computer system and solicited proposals from multiple vendors, including AT&T Information Systems, Inc.
- AT&T representatives worked with Heath to assess business needs and prepared a written “Recommendation and Proposal” describing a phased plan to build an integrated voice/data processing and communications network meeting Heath’s stated objectives.
- Heath accepted AT&T’s proposal and executed a short “Master Agreement” intended to govern future purchases.
- The Master Agreement did not set out key commercial terms such as equipment lists, software, services, or prices, but contemplated later orders.
- The Master Agreement contained a conspicuous disclaimer purporting to exclude express and implied warranties and limiting AT&T’s obligations largely to providing equipment in good working order.
- Over time, Heath purchased and installed additional components under the Master Agreement; early phases appeared successful and AT&T used the project in marketing materials describing the system as tailored to Heath.
- The system later experienced serious performance problems, failed to deliver the level of integration Heath expected, and AT&T could not correct the deficiencies.
- Heath attempted to revoke acceptance and stopped further performance; AT&T sought payment for amounts due.

## Issues

1. Whether the Master Agreement was a complete and exclusive integration that barred reliance on the earlier proposal and related materials as sources of express warranties.
2. Whether the Master Agreement effectively disclaimed the implied warranties of merchantability and fitness for a particular purpose under Illinois U.C.C. principles.
3. Whether summary judgment was proper against Heath on express warranty, common-law fraud, and Illinois Consumer Fraud and Deceptive Business Practices Act claims.
4. Whether Heath’s Lanham Act claim based on AT&T’s advertising could survive summary judgment.
5. Whether AT&T was entitled to summary judgment on its counterclaims for payment despite Heath’s performance complaints.

## Decision

- Affirmed summary judgment for AT&T on its counterclaims for amounts due under the parties’ transactions.
- Affirmed summary judgment against Heath on implied warranty claims, holding the disclaimer was conspicuous and specifically addressed merchantability and fitness.
- Reversed summary judgment against Heath on the express warranty claim, holding factual disputes existed as to whether the proposal and related materials were part of the parties’ agreement and created express warranties.
- Reversed summary judgment against Heath on the Illinois Consumer Fraud Act claim and remanded, holding the 1990 amendment eliminating any “public injury” requirement applied to the case.
- Reversed summary judgment in part on the common-law fraud claim and remanded, holding a jury could find AT&T’s ongoing assurances were knowingly false or made with reckless disregard.
- Affirmed summary judgment against Heath on the Lanham Act claim.

## Legal Principles

- A merger clause and brief “master” writing do not automatically establish complete integration where the transaction is complex, evolves over time, and key terms are supplied by other documents; integration may present a fact question.
- Express warranties may arise from written proposals and sales representations that become part of the bargain; whether they are part of the contract can depend on the parties’ course of dealing and the writings’ relationship to later orders.
- Implied warranties of merchantability and fitness may be disclaimed by a conspicuous writing that specifically mentions the disclaimed warranties and otherwise satisfies U.C.C. requirements.
- Fraud may be based on assurances about future performance when a factfinder could infer the speaker knew the assurances lacked a realistic basis or acted in reckless disregard of their truth, particularly as problems become apparent over time.
- The Illinois Consumer Fraud Act, as amended in 1990, does not require proof of public injury; that change applied to this dispute on appeal.
- A Lanham Act claim based on advertising requires an actionable theory and cognizable injury; consent to use a customer’s name and lack of proof of harm support summary judgment for the advertiser.

## Conclusion

The Seventh Circuit enforced AT&T’s disclaimer to defeat implied warranty claims and upheld AT&T’s entitlement to payment, but required further proceedings on whether AT&T’s proposal created express warranties and whether AT&T’s continuing assurances and related conduct supported liability for fraud and Illinois statutory consumer fraud; the Lanham Act claim remained dismissed.


L.S. Heath & Son, Inc. v. AT&T Info. Sys., Inc., 9 F.3d 561 (7th Cir. 1993)