author: EASTERBROOK, Circuit Judge. POSNER, Circuit Judge,

text:
    BENTON COUNTY WIND FARM LLC, Plaintiff-Appellant, v. DUKE ENERGY INDIANA, INC., Defendant-Appellee.
    No. 15-2632
    United States Court of Appeals, Seventh Circuit.
    Argued February 26, 2016
    Decided December 6, 2016
    Andrew Woodbridge Hull, Attorney, Hoover Hull Turner LLC, Indianapolis, IN, Paul Alessio Mezzina, Ashley C. Parrish, Attorneys, David G. Tewksbury, King & Spalding LLP, Washington, DC, Clay Jackson Pierce, Attorney, Drinker Biddle & Reath, New York, NY, for Plaintiff-Appellant.
    John D. Papageorge, Michele L. Richey, Attorneys, Taft Stettinius & Hollister LLP, Indianapolis, IN, for Defendant-Ap-pellee.
    Gene Grace, Attorney, American Wind Energy Association, Washington, DC, for American Wind Energy Association, Ami-cus Curiae.
    Before POSNER, FLAUM, and EASTERBROOK, Circuit Judges.
   EASTERBROOK, Circuit Judge.

In 2005 Duke Energy Indiana offered to buy 100 megawatts of renewable energy at a price high enough to enable potential sellers to finance the construction of wind turbines. As part of the deal Duke would acquire renewable-energy credits that buyers or generators of wind energy can trade or sell to other utilities that lack wind generation. Benton County Wind Farm (Benton) accepted Duke’s offer and built a 100-megawatt facility that became operational in 2008. The contract between Duke and Benton requires Duke to pay Benton for all power delivered during the next 20 years. Duke does not have.its own transmission lines in Benton County, and the contract requires Benton to deliver to lines owned by Northern Indiana Public Service Company (NIPSCO) or some other place designated by the regional transmission organization, the Midcontinent Independent System Operator (MISO).

Electrical grids throughout North America are connected, and it is essential to ensure that none of the transmission lines becomes overloaded or fails to convey power to customers that are counting on it. The ten regional transmission organizations in North America develop technical standards for how smaller networks connect with each other. They also employ tools to monitor networks in order to prevent overloads or imbalances, which can cause blackouts.- Our opinion in MISO Transmission Owners v. FERC, 819 F.3d 329 (7th Cir. 2016), describes some of this regulatory and coordination function, and it includes a map showing MISO’s territory, which spans the middle of the continent from Manitoba through Louisiana — all or part of 15 states plus one province. It shares Indiana with PJM- Interconnection, a regional transmission organization whose territory includes Chicago, New York City, and all or part of 13 states plus the District of Columbia. Only MISO’s decisions affect this case.

Regional transmission organizations have concluded that the price system is the best tool to balance loads on the networks. Potential buyers of energy bid for power to be delivered over the network (this is done principally through utilities such as Duke and NIPSCO, which aggregate end-users’ demands); potential sellers such as Duke (on behalf of Benton) also submit bids for sale, and the regional transmission organization accepts the bid that clears the market.

When Benton’s wind farm started producing, the bidding was conducted once a day. Now it is conducted every five minutes — necessarily by computers. MISO uses a variant of a Vickrey auction to decide which bids are accepted at what price. Here’s a simple illustration. Buyer 1 bids $60 per megawatt-hour (MWh) for 200 megawatts of power; Buyer 2 bids $40 for another 200; Buyer 3 bids $30 for a further 200. If the transmission grid in the area can carry 300 megawatts, then Buyer 1 gets 200 megawatts and Buyer 2 gets 100; Buyer 3 gets nothing. The bid price is set at $40 per MWh, which is what the marginal buyer is willing to pay; in a Vick-rey auction, all buyers and sellers receive the same price. (Treasury securities are sold using a similar system.) Meanwhile Seller 1 offers 100 megawatts at $20 per MWh, Seller 2 offers 100 megawatts at $30, Seller 3 100 megawatts at $40, and Seller 4 100 megawatts at $50. The market-clearing price and quantity are $40 for 300 megawatts. MISO accepts the bids from Sellers 1, 2, and 3, and all three receive $40 per megawatt-hour.

For some kinds of suppliers, such as wind farms, the marginal cost of generating any unit of output is small, even though the capital cost of building wind turbines is high. Rather than accept no sales, Seller 4 may cut its price to $10 per MWh. Then the prevailing offer would be $30 (enough to attract a total of 300 megawatts, the most'the local grid can carry), and all three buyers would pay $30. Sellers 1, 2, and 3 may not take this lying down. They-may cut their own bids. If all sellers bid only enough to cover their marginal costs, the price in such a market could fall to, say, $1 per MWh, and even at that price one of the four potential sellers would be unable to make a sale.

This is roughly what has happened in central Indiana. When Benton started operating it was the only wind farm in the area, and NIPSCO’s facilities could carry its entire output. Duke purchased and paid for everything Benton could produce, and MISO cleared the transfers to the regional grid. But central Indiana has excellent conditions for generating power from wind, and by 2015, when the district court issued its opinion, aggregate capacity of local wind farms was not 100 megawatts but 1,745 megawatts. More wind farms are being built, The capacity of the local transmission grid has been exceeded. It is no longer possible for all of the local wind farms to generate power at the same time, because the grid cannot accept their full output. And because, local generation capacity substantially exceeds local transmission capacity, the market-clearing price in MISO’s auction has fallen — indeed, ■ the price sometimes is negative, and :then would-be producers must pay MISO to take the power qff their hands, and buyers get free electricity. Prices near or below zero induce some producers to stop supplying electricity and thus reduce output to what the grid can carry.

Until the end of February 2013 MISO allowed wind farms to deliver to the .grid no matter what other producers (coal, nuclear, solar, hydro, and so o.n) were doing, which meant that other classes of producers had to cut back. Sometimes the market price, in this must-carry-wind-power system fell below zero, which meant that wind generation alone had overtaxed the local grid. When that happened Duke paid a negative price, displacing other wind farms to ensure that Benton ran at capacity, So if the auction price was minus $10/MWh, Duke would pay MISO that amount and pay Benton' for the power; it would receive nothing for this power (save the potential value of renewable-energy credits) and charge the loss to its customers. Duke could recover some of the loss in its role as a buyer of power from MISO’s grid, because even if the power on NIPSCO’s grid goes north (Duke’s operations are in southern Indiana), a lower price on NIP-SCO’s network will depress prices on other grids, which will buy from NIPSCO and tell other sources to curtail their own output. But Duke believes that it loses more in its role as seller of Benton’s power than it gains in its role as buyer from MISO.

On March 1, 2013, the rules changed to put wind farms constructed after 2005 on a par with other classes of producers. Benton lost its status as a must-run facility. Duke responded to the new system by deciding to bid exactly $0, all the time, to put Benton’s power on the grid. When this bid is accepted, Duke gets the market-clearing price (usually positive but sometimes zero) and pays Benton the contract price (roughly $52 per MWh). But when the market-clearing price in MISO’s auction falls below $0, and Duke’s bid therefore is rejected, MISO instructs Benton not to deliver any power. Once Benton generates power it must deliver it (otherwise it would fry its own equipment), so an order not to deliver power equates to an order not to generate power, and Benton must stop its turbines from rotating. Under MISO’s new system, with Duke’s standing bid of $0/MWh, Benton has gone from delivering power 100% of the time the wind allowed to delivering (and being paid) only 59% of the tíme that the weather can drive its turbines at their capacity.

In this litigation Duke takes the position that, when MISO tells Benton to stop delivering power, it does not owe Benton anything. Benton takes the position that Duke could put Benton's power on the grid by making a lower bid (MISO accepts bids as low as negative $500 per MWh), thereby displacing other producers’ power, and that when Duke elects not to do this it owes liquidated damages under the contract. Sometimes for load-balancing or other technical reasons MISO tells Benton to stop delivering power even when the market price exceeds zero and Duke’s bid nominally has been accepted. Benton acknowledges that in this situation Duke need not pay damages.

The district court sided with Duke, ruling that it need pay only for power delivered to the “Point of Metering” where it is measured and passes to the local grid; when MISO issues a stop order that quantity is zero. 2015 WL 12559885, 2015 U.S. Dist. Lexis 181563 (S.D. Ind. Oct. 9, 2015). The parties have a second contract that requires Duke to cooperate, reasonably, in marketing Benton’s power; the district judge found that bidding $0 is “reasonable” cooperation because it usually leads Duke to suffer an out-of-pocket loss, since the market price will be less than what Duke must pay Benton. Indeed, on this understanding Duke might be entitled to bid $52 in MISO’s auction and ensure that it makes a profit on reselling every megawatt-hour that it buys from Benton.

This is a contract dispute, so we must set out the contractual clauses that matter. We have tried to be parsimonious; interested readers can find more details in the district court’s opinion. There are two contracts—the first requiring Duke to buy Benton’s power, the second requiring Duke to cooperate with Benton. The parties call the first the Renewable Wind Energy Purchase Power Agreement or PPA; they call the second the Joint Energy Sharing and Operating Agreement or JESOA. We discuss the second contract briefly at the end of this opinion. For now, we refer- to the first contract as “the contract.”

We have already mentioned one clause. The contract requires Duke to purchase Benton’s output, which it defines as “the entire electrical output of the Plant delivered to the Point of Metering” (emphasis added). A separate clause defines that point as where Benton connects with the local grid (either NIPSCO’s or another designated by MISO). Benton relies principally on § 4.6(a) of the contract, a liquidated-damages clause captioned “Buyer’s Failure to Accept Delivery of Electrical Output”:

In the event that Buyer fails to accept delivery of all of the Electrical Output at the Point of Metering, whether due to Buyer’s failure to obtain Transmission Service (if applicable) or for any reason other than Seller’s failure to perform, an Emergency Condition, a Force Majeure Event that prevents such acceptance pursuant to Article 14 or the proper exercise by Buyer of its suspension rights pursuant to Section 15.2(a), then Buyer shall pay to.Seller as liquidated damages an amount equal to the positive difference,, if any, between (i)(x) the amount that would have been payable by Buyer to Seller hereunder if such Electrical Output had been accepted by Buyer plus (y) additional transmission charges, if any, reasonably incurred by Seller in delivering the Electrical Output to such third party purchaser-and (ii) the net amount, if any, that Seller using Commercially Reasonable Efforts, actually realizes through remarketing of such Electrical Output to Persons other than Buyer, 'provided that in the event Seller is unable to remarket such Electrical Output, then the net amount described in clause (ii) shall be $0 and the damages owed by Buyer shall also include the then-current amount of the PTC (on a per MWh basis) on an After-Tax Basis for each MWh of such Electrical Output that Seller was unable to remarket. The damages provided in this Section 4.6 shall be the sole and exclusive remedy of Seller for any failure of Buyer to accept delivery of Electrical Output that it is required to accept hereunder.

One more long clause matters. It is § 6.4, captioned “Transmission”:

Buyer represents that it intends to deliver and sell all of the Electrical Output to [MISO] at the Point of Metering and does not intend to utilize any Transmission Services. If Buyer nevertheless utilizes Transmission Services for the Electrical Output during the Term or is required (due to a change in the applicable transmission rules) to use Transmission Services in order to accept deliveries of the Electrical Output at the Point of Metering, • then Buyer shall be responsible for arranging for all Transmission Services required to effectuate Buyer’s acceptance of delivery of and purchase of Electrical Output, including, without limitation, obtaining Transmission Service, in an amount of capacity equal to the Designated Nameplate Capacity -Rating, and shall be responsible for the payment of any charges related to such Transmission Services hereunder, including, without limitation, charges for transmission or wheeling services, ancillary services, imbalance, control area services, congestion charges, location marginal pricing, transaction charges and line losses. The Parties acknowledge that the purchase price of Electrical Output does not include charges for such Transmission Services, all of which shall be paid by Buyer.

Finally, there is a definition of “transmission services” as:

all transmission or wheeling services, scheduling services, imbalance services, OASIS, congestion and congestion management services, tagging services, dispatch services, ancillary services, control area services, and other transmission services necessary' for Buyer to accept Electrical Output at the Point of Metering and transmit, and deliver Electrical Output from the Point of Metering, using the highest priority transmission service available.

Many other clauses and definitions potentially have some bearing, but we think that these few decide the case. The parties agree that Indiana law governs, but they do not rely on any principles unique to Indiana. The dominant principle is that courts follow contractual language unless ambiguity permits the use of parol evidence. The parties agree that this contract is clear (though not on what it means), and we too think it unnecessary to go beyond the document’s language.

Benton tells us that § 4.6(a) is a take-or-pay clause, requiring Duke to pay for energy whether taken or not. The district court was not persuaded, and neither are we, for then it would require Duke to pay Benton even if the reason for non-delivery is an instruction that MISO issues independent of how much Duke bid in the auction and independent of how much transmission capacity is available. MISO might issue such an order if, for example, there is a decline in demand on the buyers’ side of the market or a technical fault in some other grid, which cannot accept as much power from NIPSCO’s lines.

Yet Benton concedes that Duke need not pay when it receives such a stop order. Duke says, without contradiction from Benton, that the market-clearing price is positive 80% of the time and Duke’s $0 bid thus is accepted (just as a negative $500/ MWh bid would have been), but .that MISO allowed Benton to generate power only 59% of the time; the difference between 80% and 59% must be attributable to MISO’s decisions rather than Duke’s bid. If Duke need not pay Benton for energy when MISO’s choices, alone, account for non-generation, § 4.6(a) can’t be a standard take-or-pay clause. Nor does it call itself a take-or-pay requirement; it calls itself a liquidated-damages clause.

But the opposite view — that if energy is not generated and so does not cross the Point of Metering, and never counts , toward actual output, for any reason at all (including Duke’s entry of a standing $52/ MWh bid), then Benton need not be paid— also is unfaithful to the contractual language. Section 4.6(a) makes it clear that some reasons for Duke’s failure to take energy excuse payment; and from the limited range of reasons that justify nonpayment it follows that other reasons are inadequate and that payment remains due.

The key to resolving the parties’ dispute lies toward the beginning of § 4.6(a), which requires Duke to páy if it “fails to accept delivery of all of the Electrical Output at the Point of Metering, whether due to Buyer’s failure to obtain Transmission Service (if applicable) or for any reason other than ... [a list].” This covers the sort of situation that prevailed after MISO changed its dispatch rules at the end of February 2013 and no longer deemed Benton a must-carry generator. As of March 2013, Benton was being told to stop 41% of the time because transmission was unavailable at the price Duke was willing to offer — and could have been unavailable even if Duke had bid negative $500/MWh, if owners of the remaining local wind farms had made the same negative bid. With insufficient transmission capacity, someone (or a lot of someones) had to stop delivering energy to NIPSCO’s facilities no matter what price Duke offered.

But the contract provides what is to happen when the stoppage is “due to Buyer’s failure to obtain- Transmission -Services”. Duke is to pay for power not taken. Duke could build its own transmission lines or buy extra capacity from NIPSCO or some other firm. (Our opinion in MISO Transmission Owners 'describes the process by which MISO allocates the rights to build new lines or augment existing ones.) If there is a market for transmission services, as there surely is in central Indiana where more and more wind power is becoming available, then there will be a supply of transmission lines. It is only a matter of time until more capacity is built, whether by Duke or someone else. And § 4.6(a) tells us that, until this happens, Duke must pay Benton. The risk of inadequate transmission was contemplated by the contracting parties and allocated to Duke. By accepting this risk, Duke enabled Benton to finance its project; otherwise potential investors might have feared exactly the overcapacity situation that has come to pass. Duke wanted Benton’s facilities to exist and called them into existence by promising to pay even if a shortfall of transmission services should lead to curtailment of deliveries.

Duke resists that conclusion by pointing to the opening of § 6.4, and some equivalent language elsewhere in the: contract, which relate that Duke did riot plan or want to operate transmission lines, contemplated immediately handing Benton’s power to MISO at the Point of Metering, “and does not intend to utilize any Transmission Services.” That’s fine as a statement of Duke’s goal; maybe it believed that extra transmission capacity would be unnecessary of that NIPSCO would add to its own capacity as wind farms were built. But § 6.4 does not say that Duke will never need to add transmission capacity itself or that it is excused from paying Benton if it chooses not to.

To the contrary, three parts of the contract strongly imply that Duke must do what is needed to make transmission capacity available. One is the contract’s definition of “transmission services” to include “other transmission services necessary for Buyer to accept Electrical Output at the Point of Metering” (emphasis added). The second is in § 4.6(a), which says that Duke must pay if the failure to deliver powér is caused by “Buyer’s failure to obtain Transmission Service (if applicable)”. Now go back to the second sentence of § 6.4 for the third, which tells us that “[i]f Buyer nevertheless utilizes Transmission Services for the Electrical Output during the Term or is required (due to a change in the applicable transmission rules) to use Transmission Services in order to accept deliveries of the Electrical Output at the Point of Metering” then Buyer (Duke) must pay the full cost. What would be the point of this clause, if Duke never has an obligation to obtain transmission service for the power Benton is able.to generate? Sections 4.6(a) and 6.4 read together tell us that Duke must arrange for new transmission services if they prove to be necessary for Duke to accept all of Benton’s power after a “change in [MISO’sj applicable transmission rules”.

The district court rejected this line of reasoning, 2015 WL 12559885 at *21,. 2015 U.S. Dist, Lexis 181653 at *71-73, because MISO has not required Duke to add transmission capacity. In other words, the court understood the word “required” in § 6.4 to mean “required by MISO” and the parenthetical clause “if applicable” in § 4.6(a) to mean “if required under § 6.4.” Yet § 6.4 does not say “required by MISO”. It says “required (due to a change in the applicable transmission rules) ... in order to accépt deliveries of the Electrical Output at the Point of Metering.” And “Electrical Output” is defined,- as we have already quoted,' as all of the power that Benton generates, not just the power that can coexist on NIPSCO’s lines with all other wind-generated power in the area. MISO’s role in § 6.4 is not to require Duke to build transmission capacity, but to change the rules of dispatching power over whatever transmission capacity happens to exist. MISO did that; the upshot was that it no longer accepted all of Benton’s output; and the consequence under § 4.6(a) and § 6.4- is that Duke must either build (or arrange for) more transmission capacity or pay Benton the amount specified in § 4.6(a).

Potential buyers and sellers of electricity could and did foresee when negotiating this contract (and others like it) that electrical grids may be swamped by new sources of renewable power, which usually is located far from the centers of demand. They needed to allocate the risk of that development, which predictably would compel MISO to alter its rules for which sources could put power on the grid. Allocating the risk to Benton would have made it hard, perhaps impossible, to finance the project’s construction, while leaving Duke and similar utilities no incentive to expand the regional grids as wind power became available. Allocating the risk to Duke facilitates both construction of renewable-energy sources and better incentives to match the size of the transmission grid to the capacity for local generation. We read this contract as allocating the risk to Duke, which. means, that Benton receives the compensation provided by § 4.6(a) and Duke has the right incentives to build or buy extra transmission capacity.

Duke contended in the district court that MISO’s 2013 rules are an “Emergency Condition” for the purpose of § 4.6(a) and prevent any recovery. It has not renewed that argument on appeal, perhaps because it is hard to think of a long-term set of rules for pricing and dispatching power as an “emergency,” We could imagine an argument that an unanticipated change in MISO’s rules is enough of an “emergency” to give Duke time to build or acquire new transmission capacity without needing to compensate Benton in the interim, but MISO announced the new-rules years in advance and phased them in slowly. Duke did not attempt to add transmission capacity in the time between the rules’ announcement and their 2013 application to post-2005 wind farms — and as far as we can tell it has not attempted to build or buy new transmission capacity in Benton County since then. This line of argument therefore is unavailable.

We have so far not discussed the terms of the second contract, which the parties call JESOA. Because we have concluded that Benton prevails -under, the, first contract, the second would be important only if it entitles Benton to a larger recovery. The damages clauses of the two contracts differ (as do the clauses that determine each party’s responsibilities), so that it is possible in principle that Duke could be liable under one, the other, or both, and owe different damages under each. But we do not understand Duke to contend that its recovery under the second contract would exceed its recovery under the first. Indeed, Benton’s briefs in this court mention the second contract only once, in passing, and make nothing of it substantively. 'We therefore think it unnecessary to decide whether Duke is liable under the second contract and, if so, what damages that contract would provide.

. The judgment is reversed, and the case is remanded with instructions to determine the relief to which Benton is entitled.

POSNER, Circuit Judge,

concurring.

I agree with the decision to reverse the judgment of the district court and remand for a calculation of damages. But I think the majority opinion’s analysis could be simplified, and in addition I disagree with the majority’s discussion of damages for the breach of the second contract.

This is a diversity suit that presents issues of Indiana contract law. Benton County Wind Farm, the plaintiff and appellant, operates a plant in northwestern Indiana’ that uses wind to push turbines that generate electricity, which it sells. In 2006, before construction of the wind farm had begun, Duke Energy, a large electrical company also in Indiana, signed a 20-year contract with Benton in which Duke agreed either to pay a fixed price for the output of the wind-powered electrical plant that Benton was planning to build, or to refuse to accept the output and instead pay liquidated damages to compensate Benton for the loss of business. In 2007 Benton proposed tb construct additional turbines, which would increase the wind farm’s capacity to generate electricity; and Duke and another buyer, called Vectren Power Supply (not a party to this case), agreed to split the purchase of the additional power. A second contract, this one between Benton on the one hand and both Duke and Vectren on the other, defined the amounts Vectren and Duke would each purchase, resolved certain issues arising from the fact that there would be two buyers for Benton’s output, and forbade Duke to take steps to reduce Benton’s output. The first contract is the “Renewable Wind Energy Project Purchase Power Agreement” (I’ll call it just the “Purchase Power Agreement”) and the second (discussed in the majority opinion only for its relevance to liability) is the “Joint Energy Sharing and Operating Agreement.” I’ll discuss the two contracts in that order.

MISO (Midcontinent Independent System Operator) — the Regional Transmission Organization that coordinates and to a considerable extent controls the transmission of electricity in a number of midwest-ern and southern states, including Indiana, and also in a chunk of Canada — buys energy from producers like Benton. It. had begun acquiring wind-powered electricity on the basis of competitive offers instead of buying all the wind energy offered to it. Sometimes producers of wind energy would even have to pay MISO to induce it to accept their energy, which they were willing to do because even if they lost money on the sale they’d get a valuable tax credit for producing renewable energy.

Duke would be an intermediary between Benton and MISO, buying from Benton and selling to MISO. It offered the energy it was buying from Benton to MISO at a price of $0/MWh (that is, at a zero price for each unit of energy equal to the amount of electricity that a megawatt of output would transmit to MISO over one hour). Obviously that offer price was.not a market price, and MISO paid Duke (as it did the other suppliers of electricity to the transmission grid) the market price if it exceeded the offer price. If however the market price happened to be zero, Duke still would deliver the energy to MISO at the, free offer price (i.e., $0/MWh), but it would never sell to MISO at a negative price, as that would mean that Duke was paying both Benton (for the energy) and MISO (for accepting delivery of the energy)-

It might seem that a market price would never be negative, but actually it could be because of an excessive supply of wind energy and/or inadequate transmission capacity. And- when it was negative, and Duke therefore wouldn’t pay MISO to take Benton’s energy, MISO would tell Benton to stop producing; otherwise the electricity could keep coming, even though MISO was surfeited with electricity, which is why it wouldn’t accept any more wind-powered electricity unless paid to take it.

The Purchase Power Agreement, the first of the two agreements between Benton and Duke at issue in this case, requires that “Buyer [Duke] shall accept and purchase from Seller [Benton] Electrical Output of the Plant,” and “Seller will not have the right to sell to third parties any of the Electrical Output” unless Duke has refused to accept it. The contract goes on to provide that “in the event that Buyer fails to accept delivery of all of the Electrical Output at the Point of Metering, whether due to Buyer’s failure to.obtain Transmission Service .... or for any [other] reason” (with some exceptions), Duke must pay Benton liquidated damages unless Benton can find some other company to buy the power that Duke is refusing to accept from it. The liquidated damages are to consist of the contract price for-the power plus- the production tax credit that Benton would have earned by producing the power. The credit is a tax break that the federal government provides to-producers of renewable energy sources, such as wind power, to encourage efficiency in the production and transmission of electricity. U.S. Department of Energy, “Renewable Electricity Production- Tax Credit (PTC),” http:// energy.gov/savings/renewable-electricity-production-tax-credit-pte (visited December 5, 2016).

Duke argues and the district court ruled that because the contract defines “Electrical Output” as “the entire electric energy output of the " [Benton] Plant delivered to the Point of Metering,” Duke has no liability for refusing power not delivered to that point. The district court’s ruling ignores, however, the fact — not contested by Duke, and surely known by senior staff in the electrical-generation and transmission industry of Indiana and therefore implicit in any contract made by the electrical firms in that market — that it’s -physically impossible for Duke to reject electricity that has reached the Point of Metering. Electricity dispatched by Benton flows to the Point of Metering but doesn’t stop there, because traveling as it does at upwards of half the speed of light it enters almost instantaneously into the transmission grid.

It’s not that electricity can’t be stopped because of the speed at which it travels; every time one turns off an appliance that draws electricity the electrical flow to the appliance is stopped. But a flow of electricity can’t be stopped at the Point of Metering, because it’s merely the point at which electricity flowing from the Benton Wind Farm enters the grid (the Purchase Power Agreement refers to it as an “interconnection point”). There is no switch at that point, which could be turned off to stop the flow of electricity. Once energy is generated by Benton and transmitted to the Point of Metering, Duke has no way to prevent it from flowing into the grid.

This is not to say that points of metering are unimportant; they -play an important role in billing and more generally in managing the flow of electricity between electrical companies. See New York Independent System Operator, “Revenue Metering Requirements Manual” p.- .1-1- (August 2013), www.nyiso.com/public/webdocs/ markets_operations/documents/Manuals_ and_Guides/Manuals/Administrative/rev_ mtr_req_mnl.pdf (also visited on December 5, 2016). But a point of metering is not a wall or an on-off switch. Article 8 of the Purchase Power Agreement is explicit that the equipment at the point of metering consists of meters (measuring devices), not on-and-off switches or shut-off valves.

Because there is no such equipment at the Point of Metering, 'the only way Duke can refuse to receive Benton’s electricity is to tell it not to send its output to (which also means beyond) the Point of Metering. Unless required to pay liquidated damages to Benton when it tells Benton not to send electricity to the Point of Metering, Duke would be avoiding all liability simply by telling Benton not to send electricity Duke’s way; the liquidated-damages clause in the contract would thus be a nullity.

Benton further appeals to a provision in the contract which states that “the Parties will reasonably cooperate with each other with respect to the bidding and scheduling with ... the RTO [i.e., MISO] of the Electrical Output to be sold and delivered by Seller [Benton] and accepted and purchased by Buyer [Duke]. Buyer will be responsible for all such bidding and scheduling.” Reasonable cooperation would appear to require that Duke not block Benton from supplying power to MISO without compensating Benton in accordance with the liquidated-damages provision. This interpretation is reinforced by section 6.3 of the contract, which provides that “nothing in Section 6.2 ... shall require Seller [i.e., Benton] to take any action effecting ... any reduction in the Electrical Output.” By. ordering and-thus compelling Benton to reduce its delivery of. energy to the Point of Metering, Duke could be thought to be violating, section 6.3 by requiring Benton to reduce its output, and therefore to be required to pay liquidated damages to compensate Benton for the loss of revenue resulting from the reduction in delivery.

Another provision in the Purchase Power Agreement states, however, that the “Seller [i.e., Benton] will not have the right to sell to third parties any of the Electrical Output” unless Duke “fails to accept delivery.” The clause we've italicized frees Benton to sell to other electrical companies if Duke refuses to buy from it, and if Benton sells to other companies at the same price that Duke would pay, it would not be entitled to liquidated damages, because it wouldn’t have.suffered a loss (aside from extra transmission expenses, which the contract covers). Similarly, if Benton finds another buyer willing to buy its energy but only at a lower price than Duke is willing to pay, the liquidated damages owed by Duke to Benton will fall by the amount of revenue that Benton is able to recoup from the new buyer.

That the Purchase Power Agreement itself does not mention that electricity generated by Benton and fed into Duke’s transmission line does not stop at the Point of Metering, but continues unaltered into the transmission grid, is not fatal to Benton’s argument for liquidated damages. A court cannot decide a suit for breach of contract by ignoring facts critical to the alleged breach. Krieg v. Hieber, 802 N.E.2d 938, 944 (Ind. App. 2004). ‘“This is upon the principle that the court may be placed, in regard to the surroundings and circumstances, as nearly as possible in the position of the parties whose writings are to be interpreted.” Ransdel v. Moore, 153 Ind. 393, 53 N.E. 767, 769 (1899). The district judge indicated awareness of the physics of transmission, how a wind turbine works, and how MISO structures its bidding process. All these were uncontested facts essential to understanding the contracts at issue, facts of which the judges on this panel can take judicial notice. And though hardly necessary we can also appeal to the familiar analogy of the medieval law regarding '‘blood letting” in the streets of the Italian city of Bologna— the law that, as famously explained in William Blaekstone’s Commentaries on the Laws of England, vol, 2, p. 60 (1765), stated that “whoever drew blood in the streets should be punished with the utmost severity.” Blackstone asked whether the law should have been interpreted to make punishable a surgeon “who opened the vein of a person that fell down in the street with a fit.” He thought not, saying that “the . fairest and most rational method to interpret the will of the legislator, is by exploring his intentions at the time when the law was made, by signs the most .natural and probable. And these signs are either the words, the context, the subject matter, the effects and consequence, or the spirit and reason of the law — As to the effects and consequence, the rule is, where words bear either none, or a very absurd signification,' if literally understood, we nmst a little deviate from the received sense of them” (emphases added). The law did not mention surgeons, but Blackstone thought it obvious that the legislators, who must have known something about surgeons (actually “barber surgeons”), had not intended' the law to apply to them. It is likewise obvious that firms engaged in the production and transmission of electricity know that it doesn’t stop at a “Point of Metering,” as if it were water stopped by a dam.

Another factor to be considered, however, is the duration of the contract — 20 years. As pointed out in an amicus' curiae brief submitted by the American Wind Energy Association “in Support- of-Neither Party,” wind energy entrepreneurs must make a large investment in creating wind farms, and having a predictable flow of revenue is important in enabling the entrepreneurs to attract the needed investment. Benton County Wind Farm, will have lost that predictable flow if the .district court’s decision is affirmed. Cutting the other way, however, is the pincers that Duke Energy has been placed in as a result of developments apparently not foreseen by the parties when they drafted the Purchase Power Agreement back in 2006— namely the sprouting of a number of other wind energy farms in Indiana where once Benton had been one of only a few. The electrical energy transmitted by the growing Indiana wind energy industry crowded the transmission grid and led to efforts by MISO to reduce the flow. The electricity that Duke buys from Benton is sold -to MISO at the Point of Metering at what is called the Locational Marginal Price (LMP), which is based on energy costs, congestion costs, and line losses. The price is set unilaterally by MISO rather than negotiated with Duke. As additional wind energy farms came on line, the congestion component of the LMP soared to the point at which sellers to MISO, such, as Duke, had to pay MISO to take their electricity; that is, the price to MISO had turned negative. That meant that for electricity bought from Benton and sold to MISO at the point of metering, Duke would be losing money because it would be paying both Benton for the electricity and MISO for accepting the electricity forwarded to it by Duke.

Duke could avoid such a loss by bidding $0/MWh to MISO, so that upon receiving a negative-price offer from MISO (that is, being told by MISO that MISO would not pay a positive price for electricity generated by Benton for resale by Duke to MISO), MISO would direct Benton not to transmit electricity to Duke. The result was to curtail Benton’s output and revenues, except insofar as Benton was able to find other buyers for its electricity — an issue not illuminated by the parties’ submissions in this litigation.

Duke is arguing that the change in the market caused by wind energy congestion, which in turn caused MISO,often to refuse to accept transmission of such energy without being paid to accept it, altered Duke’s obligations under the contract, which had not contemplated Duke’s having to pay both Benton and MISO for the same electricity — Benton to transmit the electricity at the Point of Metering and MISO to receive it there from Duke. Recall the provision in Duke’s contract with Benton that requires the parties to “reasonably cooperate with each other with respect to the bidding and scheduling with ... [MISO] of the Electrical Output to be sold and delivered by [Benton] and accepted and purchased by [Duke].” One possible interpretation of reasonable cooperation is that Duke must buy all the electricity that Benton wants to sell it, but another is that Benton must accept a reduction in the amount of electricity bought from it by Duke in recognition that “reasonable cooperation” requires a compromise in which both parties accept a reduction in compensation as a result of a development beyond them control — that development in this case being the advent of an unexpected number of new wind energy farms, requiring in turn an alteration in MISO’s purchasing policies. But it’s unlikely that this provision was intended to place limits on the financial obligations of the parties to each other in the bidding process — the clause is terribly fuzzy and the liquidated damages clauses deal adequately with the problem.

Yet some years ago, Wisconsin Electric Power Co. v. Union Pacific R.R., 557 F.3d 504 (7th Cir. 2009), noted that “the doctrine-of impossibility in the common law of contracts excuses performance when it would be unreasonably costly (and sometimes downright impossible) for a party to carry out its contractual obligations. If the doctrine is successfully invoked, the contract is rescinded without liability. The standard explanation for the doctrine is that nonperformance is not a breach if it is caused by a circumstance ‘the nonoccurrence, of which was a “basic assumption on which the contract was made.’”” Id. at 505, quoting Restatement (Second) of Contracts, introductory note to ch. 11, preceding § 261 (1981), quoting UCC § 2-615. Conceivably, to require Duke to pay a positive price to Benton for wind-powered energy and receive a negative price for the same energy from MISO (that, or pay liquidated damages), resulting in Duke’s obtaining zero or negative revenue, could be regarded as “unreasonably costly” to Duke, requiring a modification of its contract with Benton. But neither in the district' court nor in this court has Duke argued impossibility. It did plead as an affirmative defense a provision in the contract which states that enforcement is to be limited by general principles of equity, including “concepts of ... reasonableness.” But it can’t be that the mere fact that additional wind farms were built in Indiana after the contract was signed made enforcement of the contract, and in particular invocation of the liquidated-damages provision by Benton, unreasonable.

So Duke violated the Purchase Power Agreement, and therefore I agree with the majority that the judgment of the district court regarding that branch of the case must be reversed and the case remanded for a determination of the amount of liquidated damages to which Benton is entitled.

The second agreement between Duke and Benton is the Joint Energy Sharing and Operating Agreement. This agreement requires Duke to buy part of the additional output of the Benton wind farm resulting from its increasing its production capacity by 30 megawatts, and (in this respect much like the Purchase Power Agreement) denies Duke “the right to curtail or reduce [Benton’s] Total Facility Output,” defined as “the total electrical energy produced by [Benton] ... as measured at the Delivery Point,” which is another name for the Point of Metering. Duke violated the contract by using MISO’s competitive bidding process to curtail Benton’s production whenever market prices are negative. Since Duke can curtail Benton’s output only as “expressly provided” in the Purchase Power Agreement, and the only express provision for reducing output requires Duke to pay liquidated damages, Duke’s curtailment of Benton’s output without paying liquidated damages is a breach of the second contract between the parties as well as of the first.

This is clear enough to require reversal of the district court’s rejection of Benton’s argument that Duke breached the second contract. The majority opinion treats Duke’s breach of the second contract as a duplicate source of the same damages as required by the breach of the first contract. But the second contract determines how much of the expanded output of the Benton wind farm Duke is required to pay for, and if it fails to pay, how much in damages it will owe Benton.

Regarding the second point, the issue of damages, the second contract (the Joint Energy Sharing and Operating Agreement) provides that “each party’s liability hereunder shall be limited to direct actual damages only,” and “neither party shall be liable for ... lost profits or other business interruption damages.” There is no definition of “direct actual damages,” and the meaning of the term has not been briefed on appeal. Duke may owe Benton less in “direct actual damages” for its failure to buy any of the expanded output of the Benton wind farm than it would owe were there a liquidated-damages clause in the second contract. Benton’s losses from not operating its wind farm seem most like “lost profits or other business-interruption damages.” The amount of damages to which Benton is entitled by Duke’s breach of the second agreement therefore remains to be determined on remand. A further complication is that although there’s no liquidated-damages clause in the second contract, the contract refers to the Purchase Power Agreement throughout in such a way as to indicate that the parties may have expected the liquidated-damages clause to apply, for otherwise,. given that direct actual damages are likely to be zero or close to zero, the. purpose of the Joint Energy Sharing and Operating Agreement would be defeated. Benton wanted to secure a steady income stream before it began constructing the new turbines, just as it had wanted before constructing the plant in the first place. It had the incentive under both contracts to have fallback protection in the form of a liquidated-damages clause.

I trust that on remand the district judge will be conscious of the “long tradition in contract law of reading contracts sensibly,” not as “parlor games but [as] the means of getting the world’s work done.” Beanstalk Group, Inc. v. AM General Corp., 283 F.3d 856, 860 (7th Cir. 2002), quoting Rhode Island Charities Trust v. Engelhard Corp., 267 F.3d 3, 7 (1st Cir. 2001).


source: Caselaw Access Project

author: MAGNUS-STINSON, District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Marcus Sherod HARRIS, Defendant-Appellant,
    No. 16-1023
    United States Court of Appeals, Seventh Circuit.
    Argued November 4, 2016
    Decided December 7, 2016

      Christopher V. Párente, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.
    Paul Camarena, Attorney, North & Sedgwick Law, Chicago, IL, for Defendant-Appellant.
    Before FLAUM and KANNE, Circuit Judges, and MAGNUS-STINSON,. District Judge.

       Of the Southern District of Indiana, sitting by designation.

   MAGNUS-STINSON, District Judge.

Marcus Harris committed three armed robberies in 2013, two in Indiana and one in Illinois. He was arrested and charged in state court for one of the Indiana robberies. While the Indiana case was pending, federal authorities sent Harris a target letter concerning the Illinois robbery. Harris requested and was appointed a federal public defender, but his federal public defender failed to advise Harris or his state defense attorney of the progress of the federal proceedings before his guilty plea and sentencing in Indiana state court. He was later charged by federal indictment and pled guilty in federal court to the Illinois robbery, and stipulated to the uncharged Indiana robbery as relevant offense conduct.

At his federal sentencing, the parties agreed that Harris’ federal public defender’s failure to update him about the federal proceedings - prejudiced Harris because had he not been convicted in state court, and had all of the robberies been charged in one federal proceeding, his sentencing guideline range in his federal court case would have been lower. The parties agreed to a hypothetical guideline range to compensate for the federal public defender’s error. Harris claims that the district court committed procedural error when it failed to accept the hypothetical guideline range or to explain why it rejected it. We disagree and affirm his sentence.

I. Background

In 2013, Harris committed three armed robberies as a member of an organized group of armed robbers: 1) on January 28, 2013, he robbed a T-Mobile store in Scher-erville, Indiana; 2) on January 31, 2013, he robbed a Sprint store in Addison, Illinois; 3)-and on February 4,.2013, he robbed an AT&T store in LaPorte, Indiana. Shortly after the last robbery, he was arrested by Indiana authorities and charged in state court for the robbery in LaPorte. While in state custody, Harris received a target letter from federal authorities informing him that he might be charged in federal court for the robbery in Addison. In early March 2013, Harris requested and was appointed a federal public defender to represent him with respect to any federal charges. The parties agreed that his federal public defender failed to advise him or his state defense attorney of the progress of the federal proceedings.

Harris pled guilty in state court on December 20, 2013, and was sentenced to ten years in prison on January 24, 2014. On February 6, 2014, Harris was charged by federal indictment for the robbery in Addison and for brandishing a firearm during the robbery. On January 8, 2015, he pled guilty to Count 2 for robbery and Count 8 for brandishing a firearm. As part of the plea agreement, he stipulated that he committed the robbery in Schererville and agreed to its consideration as relevant conduct for purposes of the sentencing guidelines.

On December 10, 2015, the district court conducted Harris’ sentencing. Harris’ counsel pointed out that the parties agreed to a lower sentencing guideline range because they recommended grouping Harris’ conviction in state court as though it were part of his federal case rather than as a separate state court conviction. This hypothetical guideline calculation would have resulted in an adjusted offense level of 28 and a criminal history category of III, which would have given the district court a hypothetical sentencing guideline range of 97 to 121 months for Count 2. The parties agreed that this hypothetical sentencing guideline range was a way to ameliorate the federal public defender’s failure to notify Harris or his state defense attorney about the federal proceedings. The parties also raised other considerations, including that Harris had already served three years of his state court sentence and that his federal sentence should run concurrently with his state court sentence.

After considering the parties’ recommendation, the district court determined that because Harris did plead guilty in state court, that conviction was part of his criminal history rather than a grouped offense in his federal case. Given this fact, the district court calculated an adjusted offense level of 27 and a criminal history category of IV, which resulted in a guideline range of 100 to 125 months for Count 2 with, a mandatory consecutive sentence of 84 months for Count 3. Rejecting the Government’s recommendation of 204 months, the district court calculated a sentence of 196 months — 112 months for Count 2 and 84 months consecutive for Count 3 — but it reduced the sentence by 36 months to give Harris credit for the three , years that he served in state custody. The district court sentenced Harris to a total of 160 months in federal custody to run concurrently with his state court sentence.

II. Analysis

Harris argues that the district court erred when it failed to adopt the hypothetical sentencing guideline range or explain why it rejected it. Harris reiterates that the parties agreed to this recommendation because of the error by Harris’ federal public defender.

In response, the Government claims that the district court did address this issue and that it gave Harris every consideration that he requested in his sentence. The Government asserts that the district court’s treatment of Harris’ Indiana conviction as a prior conviction and not as a stipulated offense was proper under the Guidelines.

We review de novo a district court’s, sentencing procedures. United States v. Howard, 729 F.3d 655, 664 (7th Cir. 2013). The district court commits procedural error by not adequately explaining its choice of sentence. United States v. Spiller, 732 F.3d 767, 769 (7th Cir. 2013) (citing United States v. Schlueter, 634 F.3d 965, 966-67 (7th Cir. 2011)). It must show that it exercised its discretion by commenting on a defendant’s principal arguments that are “not so weak as not to merit discussion;” however, “little explanation is necessary when a court decides to impose a sentence within the Guidelines range.” Howard, 729 F.3d at 664 (citations omitted):

At the outset of Harris’ sentencing hearing, the district court acknowledged the parties’ hypothetical guideline calculation. The district court noted, however, that because Harris had in fact been convicted in state court, his adjusted offense level was 27 and his correct criminal history category was IV, which resulted in a sentencing guideline range of 100 to 125 months. The district court further explained that whether it followed the parties’ recommendation or not, it was aware of the difference and indicated that it was under no obligation to adopt the hypothetical sentencing guideline range because the state court conviction had actually occurred. Thus, the district court sufficiently considered the issue and committed no error. See United States v. Gary, 613 F.3d 706, 711 (7th Cir. 2010) (“The district court is required only to consider the argument, at least to the extent it pointed to anything unusual about ... [the] circumstances, and to provide a sufficient explanation of its treatment of the issue.”).

In addition, the district court afforded Harris considerable leniency in determining his sentence. After considering the parties’ arguments and the sentencing factors pursuant 18 U.S.C. § 3553(a), the district court concluded that the proper sentence for Harris was 196 months. It then subtracted 36 months to account for the three years that Harris had served in state custody, which resulted in a sentence of 160 months. It further ordered the sentence to run concurrently with his state court sentence. The sentence imposed was below both the hypothetical arid actual guideline ranges. We therefore conclude that the district court committed no error, adequately addressed Harris’ arguments, and sufficiently explained its below guidelines sentence.

Harris further claims that after the district court imposed his sentence, it failed to ask whether it addressed the parties’ main arguments as directed by United States v. Garcia-Segura, 717 F.3d 566 (7th Cir. 2013). In Gardar-Segura, we encouraged district courts to inquire whether defense counsel is satisfied that the court has addressed the defense’s principal arguments after imposing a sentence but before advising the defendant of his right to appeal. Id. at 569. Although the district court did not make this specific inquiry, it did inquire of each party whether the court had omitted anything. Harris clearly understood the import of this inquiry, as he responded by asking if the court would order that the sentence begin immediately and if the court would recommend a facility near Chicago. The district court affirmatively responded to both requests. We find no error, as Harris was both given an opportunity to respond, and did respond, following the district court’s determination of his sentence.

In any event, the district court’s shorthand question here would be harmless error — if any — given that Harris was able to appeal the sentencing issue rather than having it deemed waived. See United States v. Cruz, 787 F.3d 849, 850 (7th Cir. 2015) (“[Defendant’s] arguments were waived when, at the end of the sentencing hearing, the judge asked if he had addressed all of the arguments, and [Defendant’s] lawyer answered yes.”).

III. Conclusion

For the reasons noted above, we AFFIRM Harris’ sentence.

      . A criminal complaint was filed in federal court on December 6, 2013, and it detailed three robberies, including the robbery in Addison. It named two codefendants and referenced several potential unnamed codefen-dants. Harris was later identified as one of the unnamed codefendants when he was charged by federal indictment on February 6, 2014.

      . The District Court applied the 2015 Sentencing Guidelines, which resulted in a lower offense level,'


author: ROVNER, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Walter FREEMAN, Defendant-Appellant.
    No. 15-3664
    United States Court of Appeals, Seventh Circuit.
    Argued September 23, 2016
    Decided December 7, 2016

      Debra Riggs Bonamici, Jennie Levin, Attorneys, Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.
    Lisa Lundell Wood, Attorney, Blegen & Garvey, Chicago, IL, for Defendant-Appellant.
    Before RIPPLE, ROVNER, and SYKES, Circuit Judges.
   ROVNER, Circuit Judge.

On September 6, 2012, the defendant Walter Freeman was charged in a five-count indictment: in Counts 1 and 2, with distribution of 28 grams or more of a mixture containing cocaine base in violation of 21 U.S.C. § 841(a)(1); in Count 3, with possession of a firearm as a felon, in violation of 18 U.S.C. § 922(g)(1); in Count 4, with distribution of marijuana in violation of 21 U.S.C. § 841(a)(1); and in Count 5 with possession of a firearm in furtherance of a drug trafficking crime, in violation of 18 U.S.C. § 924(c)(1)(A). Freeman pled guilty to Counts 1 and 5. In an addendum to the plea agreement, Freeman also stipulated to the commission of a third offense, possession of a firearm after being convicted of a felony, which had been the basis of a different indictment. The facts underlying those charges are not relevant to the issues on appeal; in brief, the record indicated that Freeman distributed approximately 28 grams of crack cocaine and traded marijuana for four firearms. Freeman admitted that he had been selling crack cocaine to a small group of customers since at least 1999 and bought and sold 80 firearms — 40 between 1999 and 2001 to a high ranking member of the Gangster Disciples and 40 in a 2-month period from October 2010 to December 2010 to a different Gangster Disciples member, although only the latter 40 were included for purposes of relevant conduct. The district court calculated the guidelines range as 140 to 175 months on Count 1 and the stipulated count, and 60 months’ consecutive imprisonment on Count 5. After considering the factors under 18 U.S.C. § 3553(a), the court imposed a sentence below the guidelines range, sentencing Freeman to 132 months’ imprisonment on Count 1 and the stipulated offense, and a 60 months’ consecutive sentence on Count 5.

Although Freeman received a below-guidelines sentence, he nevertheless challenges that sentence on three grounds. First, he argues that the district court erred in failing to consider one of his principal arguments, which was that the district court should sentence him using a 1:1 crack-to-powder ratio instead of the. 18:1 ratio encompassed within the Sentencing Guidelines. In addition, Freeman asserts that his sentence should be vacated because the district court relied on its own speculations as to uncharged criminal conduct and improperly determined the sentence. Finally, Freeman maintains that the district court- erred in allowing its frustration with his litigation tactics to affect his sentence. We address these arguments in turn.

Freeman argued to the district court that it should categorically reject the 18:1 crack-to-powder ratio set forth in the Guidelines, and instead apply a 1:1 ratio. Freeman argued that the 18:1 ratio was the result of legislative compromise rather than sound data, and that any disparity between the crack and powder cocaine guidélines was inappropriate and unjust. That argument was not an as-applied challenge, based on any specific facts regarding Freeman or his criminal conduct, but rather was a categorical challenge to the ratios. In imposing its sentence, however, the district court did not explicitly address this argument, and Freeman asserts that sentence should be vacated and the case remanded for the court to do so.

As an initial matter, we note that this type of claim, as to whether a district court has properly addressed an argument, should be an issue that we seldom see in the future because it will be resolved in the district court rather than on appeal. As long as district courts follow the approach we set forth in United States v. Garcia-Segura, 717 F.3d 566, 569 (7th Cir. 2013), the district court will be apprised immediately if defense counsel believes -issues were, not addressed, and the district court can clarify its position at that time. Specifically, in Garcia-Segura, we identified the preferred approach as follows:

we encourage sentencing courts to inquire of defense counsel whether they are satisfied that the court has addressed their main arguments in mitigation. If.the response is in the affirmative, a later challenge for failure to address a principal mitigation argument under the reasoning of [U.S. v. ]Cunningham [429 F.3d 673 (7th Cir. 2005) ] would be considered waived. If not, the trial .court would have the opportunity to clarify whether it determined that the argument was “so weak as not to merit discussion,” lacked a factual basis,, or has rejected the argument and provide a reason why.

Id.; see also United States v. Rosales, 813 F,3d 634, 638 (7th Cir. 2016). We urge district courts to ask that question and thereby prevent this type of issue from recurring.

Turning to the issue in this appeal, a district court must consider all of a defendant’s principal, non-frivolous arguments in sentencing. Rosales, 813 F.3d at 637. That requirement serves as a safeguard to ensure that the district court has considered the principal issues. Id. That does not mean, however, that the district court must respond expressly to every argument; to impose such a burden would require the courts to respond in each case to numerous boilerplate categorical challenges, undoubtedly with the court’s own boilerplate, response, regardless of whether those claims have been routinely rejected by the court in prior cases. We do not require such a formulaic exercise. Accordingly, we have held that a district court need only respond to arguments of recognized legal merit that have a factual basis. Id.

In Rosales, 813 F.3d at 637-38, we considered whether a district court must address a challenge to a career offender guideline, and we distinguished between as-applied and categorical challenges to guidelines provisions as follows:

The court is not obliged to address all such arguments questioning the reasonableness of Guidelines provisions. The court may pass over in silence a blanket policy challenge like Rosales’s argument that the career offender guideline was poorly conceived and is overbroad. See United States v. Estrada-Mederos, 784 F.3d 1086, 1088 (7th Cir.2016) (collecting cases). But an as-applied challenge to a guideline, provided it is grounded in the facts of the case, not frivolous, and adequately presented to the court, is one that must be addressed. See United States v. Schmitz, 717 F.3d 536, 542 (7th Cir.2013) (distinguishing between categorical and as-applied challenges to guideline); see also, e.g., United States v. Morris, 775 F.3d 882, 887 (7th Cir.2015) (vacating sentence and remanding where district court failed to address defendant’s argument that crack-to-powder cocaine ratio resulted in excessive sentencing range given that most of drug quantity attributed to him comprised counterfeit crack cocaine).

Thus, district courts need not explicitly address blanket challenges to the reasonableness of guidelines in every case in which such boilerplate challenges are raised. The court may of course choose to address such challenges and to agree or disagree with the guidelines, but such routine challenges to the reasonableness of the guidelines do not require explicit rejection. The challenge brought by Freeman to the ratio is a categorical one, and therefore under Rosales such a blanket policy challenge can be passed over in silence.

Freeman nevertheless contends that the Rosales court is in conflict with other decisions of this court in which we found error in the district court’s failure to respond to arguments for a reduced crack-to-powder ratio including United States v. Morris, 775 F.3d 882 (7th Cir. 2015), United States v. Johnson, 643 F.3d 545 (7th Cir. 2011), and United States v. Arberry, 612 F.3d 898 (7th Cir. 2010). Those decisions, however, are not in conflict with Rosales. First, Johnson and Arberry both concerned challenges to the 100:1 crack-to-powder ratio that was in place at that time. The excessive impact that such a drastic ratio had on sentences caused a groundswell of opposition-that extended from courts to the Justice Department itself. See United States v. Matthews, 701 F.3d 1199, 1202 (7th Cir. 2012) (discussing history). As we noted in Matthews, the Justice Department recommended elimination of the 100:1 disparity and actively advocated against its use in some criminal cases. Id. Therefore, at the time Johnson and Arberry were decided, categorical challenges to the 100:1 ratio were regularly granted, at times with the agreement of the Justice Department itself. In that climate, silence could not be interpreted as acquiescence in the status quo because no such consensus as to i-ea-sonableness existed. Although some courts have determined that the 18:1 ratio at issue in this case is also unreasonable, Freeman points to no such frequent rejection as was present with respect to the 100:1 ratio and which rendered silence ambiguous. As for Morris, which did involve the 18:1 ratio, some broad language in that case, citing Johnson and Arberry, indeed indicated that a defendant’s argument for a reduced crack-to-powder ratio is not an argument that is so weak as to not merit discussion. Morris, 775 F.3d at 887. But the Rosales court cited Morris in holding that only as-applied challenges need to be explicitly addressed, noting that in Morris the defendant argued that the ratio resulted in an excessive sentencing range given that most of the drug quantity attributed to him comprised counterfeit crack cocaine. Rosales, 813 F.3d at 638. Accordingly, the Morris court faced a guidelines challenge that was premised on the application to the defendant’s specific facts, in which case the district court must explicitly address the challenge. For that reason alone, Morris is not inconsistent with the holding of Rosales, which controls in this case. We note, however, that even if Morris had not included an as-applied challenge, the determination as to whether a categorical challenge requires a response is not a static inquiry. Arguments that are novel at one point in time and require explicit discussion may, after a period of years, no longer require explicit discussion once a consensus emerges or such challenges have been repeatedly rejected such that silence, absent an indication otherwise, would signal agreement with the conventional disposition of such claims. By this point in time, district courts clearly are aware of their discretion to disagree with the policies and provisions of the Guidelines; accordingly, when routine categorical challenges are made, absent unusual circumstances, the district court’s silence as to it may properly be construed as a rejection of that challenge and agreement with the Guidelines provision. See e.g. United States v. Petty, 467 Fed.Appx. 520, 522 (7th Cir. 2012) (unpublished) (holding as early as 2012 that circuit precedent was against a categorical challenge to the 18:1 ratio and that the argument was raised solely to preserve it for Supreme Court or subsequent circuit review); United States v. Knox, 496 Fed.Appx. 649, 656 (7th Cir. 2012) (unpublished) (noting that we have repeatedly held that there was adequate justification for treating crack offenses more seriously and that the court was not required to consider the argument that the 18:1 ratio is not supported by empirical evidence.). The district court’s silence regarding the categorical challenge to the 18:1 ratio was therefore not reversible error in this case.

Freeman’s remaining two challenges to the sentence are also -without merit. First, Freeman challenges the court’s analysis of his request for a variance based on his criminal history. Freeman fell within a Criminal History Category V and argued that his criminal history was overstated because nearly all of his criminal history points came from misdemeanor convictions and most were the result of driving on a suspended license. He had been convicted of a single felony offense which occurred when he was 18 years old, and all other criminal history points were because of driving offenses such as driving on a suspended license, as well as possession of marijuana and unlawful use of a weapon misdemeanors. Defense counsel argued that a Criminal History Category II would be more appropriate, rendering a guidelines range of 97 to 121 months, and suggested that a sentence of 120 months would be appropriate.

Freeman takes issue with the district court’s analysis of the issue, quoting the court as follows:

And the Court does believe the criminal history category is overstated in one way. That most of your convictions except for one early on they are all for traffic violations. When you look at it, those are the convictions. That’s what it is. But this Court would be naive to believe that your background is only one of driving infractions, and that also is underscored by what I’ll talk about later, how smart you are, how intelligent you are. You get stopped for a reason and then you get driving on a suspended.
You’ve been, as your lawyer said, selling little bits of drugs here and there for a while. And the Court — that’s why you were stopped. And somehow you were too smart and all they could get you on was driving on a suspended license. That would be what common sense would tell me.

Sent. Tr. 34-35. Freeman argues that the court lacked any basis for its assumption that he had engaged in other criminal activity which had not already been accounted for as relevant conduct in the guidelines, and that his driving offenses evidenced other criminal conduct. He concludes that the district court’s § 3553(a) analysis is therefore flawed because it was based on unreliable information. That argument fails on two grounds. First, it is not irrational for a court to conclude that the criminal history is not overstated merely because it involved mainly driving offenses given the nature of the criminal conduct here. Even concerning the driving on a suspended license offenses themselves, the status of a person’s license is not apparent prior to the stop, thus supporting the court’s reflection that the initial stop was based on a different criminal concern. More significantly, Freeman failed to include the entire discussion, in which the court then clarifies that it was the nature of Freeman’s criminal conduct and the extent of it that indicated his criminal history was not overstated. Here is the discussion in its entirety, with the italicized portion being the portion of the paragraph not discussed by Freeman in which the court clarifies what its “common sense” would tell it:

You’ve been, as your lawyer said, selling little bits of drugs here and there for a while. And the Court — that’s why you were stopped. And somehow you were too smart and all they could get you on was driving oh a suspended licenses. That would be what common sense would tell me. That that’s too many years, you’re too old for all of a sudden to go from basically a fairly minor crime to all of a sudden selling guns and drugs on the street like just a total professional. You build up to that. It just doesn’t happen. I’ve seen the cases where somebody needs money. Because of their situation they try to make a fast buck by selling some type of sawed off or half working gun out of the back of their car to an undercover agent and they get caught. I’ve seen those. That’s not what this is.

That full quote reveals that the court’s focus was not on whether his traffic stop álóne signaled other criminal conduct was occurring, but whether the circumstances as a whole indicated that his criminal history was not overstated. The court did not err in opining that Freeman’s criminal history was not overstated merely because it involved largely driving offenses, given that the nature of those driving offenses and the professionalism and extent of his criminal conduct in this case both indicate that he indeed had an extensive criminal history. In fact, the undisputed facts before the court provided some confirmation that his criminal history was not overstated, in that the guidelines range included 40 firearms that Freeman sold to a Gangster Disciples member from October 2010 to December 2010 but not 40 other firearms that Freeman sold to different high-ranking Gangster Disciples member from 1999 to 2001,

Therefore, the. court could properly reject Freeman’s argument that the criminal history category was overstated, but the court did not go that far. The court in fact credited that argument and adjusted the sentence in part based on that. The district court imposed a sentence below the guidelines, and in its Statement of Reasons the district court indicated as one reason its issue with the criminal history category, and specifically that Freeman’s background of eight offenses involving driving on a suspended license and two other offenses, serving less than a year in jail, do not support a criminal history category of five. Therefore, the district court accepted Freeman’s argument in substantial part and rejected imposition of the criminal history category in the guidelines. Accordingly, there is no reversible .error, on -this ground.

Freeman’s last challenge to the sentence rests on a mischaracterization of the district court’s decision. The district court in the course of the sentencing hearing noted Freeman’s intelligence and ability to organize and manage the trial process. In that discussion, the district court noted that Freeman was “very specific and very calculating as to what he.thinks is going to serve his situation best, .arid that he worked with one lawyer who was very good and worked hard and then when, that lawyer stepped aside he again was able to work with the second lawyer and present the best case in his defense. Freeman argues that the statements indicate the court’s .frustration with his litigation tactics, including his decision to fire his first lawyer, and that the court cannot properly increase a defendant’s sentence based on that defendant’s burdensome litigation strategy. A natural reading of the court’s statements does not support Freeman’s conclusion that the court sought to increase his sentence because he burdened the court with his litigation tactics. The comments cited by Freeman were part of a series of examples provided by the district court reflecting Freeman’s intelligence, and the need for specific deterrence -because that intelligence both provided Freeman with other non-criminal options to make a living and potential for rehabilitation but also the potential to engage successfully in criminal activity. There is no merit to the argument that the court’s statements reflect a frustration with Freeman’s litigation strategy and desire to increase the sentence on that basis.

Accordingly, the court’s sentence must be affirmed. In closing, we again urge the district court to avoid some of the issues appealed here by inquiring at the close of the sentencing hearing whether defense counsel are satisfied that the court has addressed their main arguments in mitigation. See Garcia-Segura, 717 F.3d at 569; Rosales, 813 F.3d at 638. That inquiry will ensure that the parties’ arguments are fully heard, and eliminate appeals on the basis that the arguments were not properly addressed.

The decision of the district court is AFFIRMED. ' .


author: POSNER, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Shaft JONES, Defendant-Appellant.
    No. 15-3547
    United States Court of Appeals, Seventh Circuit.
    Argued November 2, 2016
    Decided December 12, 2016

      David E. Hollar, Attorney, Office of the United States Attorney, Hammond, IN, for Plaintiff-Appellee.
    Eric C. Bohnet, Attorney;- Indianapolis, IN, for Defendant-Appellant.
    Before WOOD, Chief Judge, and POSNER and WILLIAMS, Circuit Judges. .
   POSNER, Circuit Judge.

A federal jury found the defendant guilty of conspiring to possess, with intent to distribute, five or more kilograms of cocaine, and of related crimes including carrying a gun in connection with drug trafficking. The district judge sentenced him to 270 months in prisoh.

A government informant named Martinez had arranged with Jones to sell him 20 kilograms of powder cocaine. (The term he used was “20 eggs” for making omelettes. Obviously that was code.) At their rendezvous outside a car wash police seized Jones, who drove his luxury SUV through the car wash and emerged to a semicircle of waiting police cars, and in a pat-down search found a loaded pistol and four magazines each containing 20 bullets. The police also found an assault rifle in the back seat of Jones’s car together with four more magazines, each containing 30 bullets, plus a night-vision scope and bags containing a total of $353,443 in cash. Pursuant to a search warrant, police found in his home and in a second car parked there another $321,280 in cash plus more guns and ammunition, -a bullet-proof vest, a money counter, and a digital scale.

By the time their searches were done, they had seized $890,210 from Jones, including cash from several bank accounts. There was no evidence that he could have obtained this much cash from lawful business dealings; indeed there was no credible evidence that he had any lawful sources of money. While in jail awaiting trial he told another prisoner that he’d been at the car wash to buy “keys,” which is a street name for cocaine. He bragged that he never bought less than $100,000 worth of cocaine at a time. The cash, which the judge found to be proceeds of drug dealing, was evidence that Jones had sold 31.79 kilograms of cocaine, assuming a price of $28,000 a kilogram. Adding the 20 kilograms promised in the sting operation, the judge concluded that Jones had engaged in an ongoing scheme that had involved the purchase and resale of more than 50 kilograms of cocaine. There was also evidence that he’d conspired with brokers in the criminal drug trade to purchase illegal drugs and resell them.

The judge, concerned particularly about the considerable weaponry found in Jones’s car when he was arrested, and about the magnitude of his drug activity, sentenced him to 270 months in prison, a sentence at the top of the applicable guidelines range.

The arguments for reversal made by the defendant’s lawyer in his briefs and at oral argument were exceptionally weak, including his argument that the $353,443 in cash found in the defendant’s car could have been for anything, when obviously it was to purchase cocaine from Martinez, the informant. There was no evidence of any other possible use of the. money, or any other possible motive for meeting with the informant, who testified plausibly about his negotiations and meeting with the defendant. No motive was offered for carrying so much weaponry if the money was to be given to the recipient (Martinez) for a legal transaction. He argues that he did not have enough money with him to complete the transaction: he had agreed to buy 20 kilograms of cocaine at $26,000 per kilogram, but as 5 of those kilograms were to be bought on credit the immediate cost to him would be $390,000. A lot of money— yet it would hardly have been a surprise if he’d tried to bargain down the price that he’d agreed to pay by pleading that $353,443 was all he had — an amount equal to 90.6 percent of the agreed-on price of $390,000, and therefore not trivial. Or he might have thought the seller would agree to front him even more of the cocaine for later payment, or reduce the amount of cocaine that he would buy. A final bit of evidence of the defendant’s involvement in the cocaine trade is that as noted earlier a digital scale was found in his home.

At oral argument the defendant’s lawyer said that his client had been a boxing promoter, but no explanation was offered for why a boxing promoter should be carrying so much cash and weaponry, and the evidence that Jones had ever been one was slim: Martinez testified that the brokers, in suggesting Jones as a potential client, referred to him as a “boxing trainer” who “always pa[id] on time,” and Jones told the waitress at the restaurant that he had taught one of the brokers to box. The notion that the deal between Jones and Martinez had something to do with Jones’s work as a boxing promoter (if indeed he ever did such work) could not be squared with his having bragged to Martinez that he’d been in business for 26 years without ever having been imprisoned — a comment that a real boxing promoter would not have made.

The defendant also disputes the sufficiency of the evidence supporting his conspiracy conviction. He could not be convicted of conspiring with the government’s confidential informant, United States v. Bey, 725 F.3d 643, 649 (7th Cir. 2013), and was not; he was convicted of having conspired with two brokers to obtain cocaine from Martinez, who held himself out as a cocaine supplier. The brokers largely dropped out of the picture before the transaction between the defendant and Martinez, but a conspiracy is just an agreement, not the acts that the conspirators agree to commit, and there was an agreement between the defendant and the brokers and it is irrelevant that it wasn’t implemented. The brokers had expected that they would be paid for their part in the deal, even though Jones had not wanted them to be present at the transaction.

The defendant also argues that much of the evidence presented at his trial should have been excluded. He claims that the police did not have probable cause to arrest him and therefore that the evidence seized during the searches of his SUV and then of his property should have been excluded as the fruits of an illegal search. But the agents who arrested him knew he’d been negotiating a sizeable drug deal and had tried to flee when he saw the police at the car wash. They thus had probable cause to suppose that he was committing a drug offense. He claims that the statements by the brokers, because they didn’t testify at trial, should have been excluded as hearsay. But the court did not err in concluding on the basis of Martinez’s testimony and the content of the brokers’ statements that the brokers were Jones’s co-conspirators.

He further argues that the recordings from the recording .device that Martinez had worn during his conversations with Jones were unreliable because the batteries of the device failed midway through one meeting and because the tapes displayed an incorrect date. But the government had produced a chain of custody for the recordings, and the district judge was entitled to admit the recordings and let the jury decide for itself whether to believe them.

Last, Jones challenges his sentence, arguing that he wasn’t responsible for more than 50 kilograms of cocaine. But the district judge had two good reasons to think he was: calculating backward from the money the government seized, and relying on testimony that Jones had purchased 90 kilograms through one of the brokers. The government had the defendant cold, and the district judge..was on solid footing in saying that a sentence above the guideline range would be reasonable given the magnitude of Jones’s criminal activity, though ultimately the judge sentenced Jones within the guidelines range.

Affirmed