H.D. Smith Wholesale Drug Co. v. Crawford
Filing
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OPINION (See Written Opinion): The Court GRANTS summary judgment on Counts I through III of H.D. Smith's First Amended Complaint. Before the Clerk enters final judgment on the amounts Crawford owes for his breach of the duly executed Promissory Notes and Primary Vendor Agreement, H.D. Smith SHALL prepare an accounting to present at a hearing in open court on May 13, 2013 at 3:00 p.m.. Entered by Judge Sue E. Myerscough on 4/29/2013. (VM, ilcd)
E-FILED
Monday, 29 April, 2013 09:29:34 AM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
H.D. SMITH WHOLESALE DRUG )
CO., a Delaware corporation,
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Plaintiff,
v.
DENNIS CRAWFORD d/b/a
CRAWFORD PHARMACIES,
Defendant.
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11-3448
OPINION
This matter comes before the Court on Plaintiff H.D. Smith
Wholesale Drug Co.’s (“H.D. Smith”) Partial Motion for Summary
Judgment (d/e 61) on Counts I through III of H.D. Smith’s First Amended
Complaint. H.D. Smith’s Motion is GRANTED because Defendant Dennis
Crawford, d/b/a Crawford Pharmacies (“Crawford”), has breached terms of
the duly executed First Promissory Note (Count I), Second Promissory Note
(Count II), and Primary Vendor Agreement (Count III). Further, Crawford
agrees to forego his unclean hands affirmative defense and fails to support
his Counterclaim that disputes the amount H.D. Smith says Crawford owes
for Crawford’s breach of the Promissory Notes and Primary Vendor
Agreement. H.D. Smith shall substantiate the amounts owed by Crawford
to H.D. Smith at a hearing in open court on May 13, 2013 at 3:00 p.m.
I.
FACTUAL BACKGROUND
H.D. Smith is a nationwide wholesale pharmaceutical company
headquartered in Springfield, Illinois. Until about October 1, 2011,
Crawford owned and operated retail pharmacies in Texas at these locations:
213 E. San Patricio, Mathis, Texas 78368; 907 North Main Street, Bandera,
Texas 78003; 19244 McDonald St., Lytle, Texas 78052; 407 E. Orange,
Orange Grove, Texas 78372; and 8103 N. State Hwy 16, Poteet, Texas
78065.
Between August 2, 2007 and November 23, 2011, H.D. Smith and
Crawford had an ongoing business relationship where Crawford purchased
health products on account from H.D. Smith. Crawford purchased health
products at agreed rates and pursuant to credit terms detailed in credit and
security agreements between Crawford and H.D. Smith. Crawford sold
these health products at his retail pharmacies.
Crawford voiced concerns about his debt to H.D. Smith. Crawford
believed he should have received additional discounts and different pricing
on some health products. Crawford spoke with H.D. Smith about a
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payment agreement and the terms of the parties’ business relationship
going forward.
In 2010 and 2011, H.D. Smith and Crawford began negotiating the
terms of new promissory note agreements and a new pricing structure. As
a negotiating tactic, Crawford intentionally misrepresented to H.D. Smith
that he had legal counsel. On or around June 6, 2011, Crawford received
draft promissory notes similar to those ultimately executed.
A.
The Parties Duly Executed Two Promissory Notes to Help
Crawford Manage His Debt to H.D. Smith
On August 17, 2011, at Crawford’s request, the parties met at H.D.
Smith’s office in Ft. Worth, Texas. Crawford and David Watkins, former
Chief Financial Officer for H.D. Smith, duly executed the First Promissory
Note for $2,514,739.95 with a yearly interest rate of 6.0% and the Second
Promissory Note for $474,972.04 with a yearly interest rate of 0%. See d/e
20, Ex. 1 at 3-6, 11-14. The Promissory Notes set up a plan for Crawford to
pay off his debt. H.D. Smith also forgave $474,974.04 of Crawford’s debt.
See d/e 61 at 13, 27.
Illinois law applies to the terms of the Promissory Notes. The
Payment provision of the First Promissory Note states:
PAYMENTS. Borrower shall pay principal and interest in 36
equal weekly installments of $18,000.00 payable on Friday of
each week beginning on 8/26/11, Borrower shall then pay
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principal and interest in 82 equal weekly installments of
$25,000.00 payable on Friday of each week, with a final payment
of $7,962.73 on 11/29/13 until the balance is paid in full.
See d/e 20, Ex. 1 at 4.
Both Promissory Notes also contain these provisions:
DEFAULT. Lender may terminate this Promissory Note,
accelerate and declare the entire balance then outstanding under
this Agreement to be immediately due and payable, suspend or
cease any future credit and/or shipments, commence suit to
recover all sums due, commence a relevant action and charge the
default interest and reasonable costs of collection, including, but
not limited to, the reasonable legal fees incurred by Lender in the
event that any event of default shall occur. Events of default are
as follows: (a) Any fraud or material misrepresentation in
connection with any information provided in the credit
application, and/or any other Agreement incorporated herein by
express reference, by Borrower and/or any cross-corporate
guarantor; (b) Borrower does not meet the payment terms of this
Agreement and/or the payment terms of any trade debt
incidental to this Agreement; (c) Any Cross-corporate guarantor
does not meet the payment terms of any agreement it has
executed and delivered to Lender and/or fails to meet the
payment terms of any trade debt balance owed to Lender; (d)
Borrower or any cross-corporate guarantor fails to satisfy any
term, condition, and/or covenant of this Agreement or any
Agreement incorporated herein by express reference; (d) any
action or conduct adversely affects the value of the collateral, the
collateral of the Lender’s rights in the collateral; (e) any Bulk
transfer outside the ordinary course of business; (f) failure of
Maker to meet minimum purchases of $1,900,000.00 per
month, in any single month during term of this Note; and/or (g)
filing by or against Borrower or any Guarantor of a petition in
bankruptcy or for a receiver for Borrower or Guarantor or any
property thereof.
BULK TRANSFER PROHIBITION. Any transfer of the
Borrower's Assets in bulk outside the ordinary course of business
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shall be a term of default under this Agreement. In the event that
Borrower shall intend to make a transfer in bulk of any collateral,
it shall give the Lender twenty (20) days advance notice of such
transfer, including all transferees, the assets being transferred,
the consideration being paid, and the date and place of the
closing. All sums due to the Lender under this Agreement shall
become accelerated and shall become immediately due upon any
bulk transfer. Borrower hereby agrees not to accept any proceeds
of any sale unless certified funds have been tendered directly by
the transferee to the Lender to satisfy all debts then due or
overdue and owing.
See d/e 20, Ex. 1 at 4, 12.
Between August 26, 2011 and October 31, 2011, Crawford failed to
make two weekly installment payments of $18,000.00 on the First
Promissory Note. Crawford made his last payment on the First Promissory
Note on October 31, 2011. On November 2, 2011, H.D. Smith sent and
Crawford received an acceleration notice.
Crawford owes H.D. Smith at least $1.45 million on the First and
Second Promissory Notes. H.D. Smith is entitled to attorney’s fees, court
costs, and interest pursuant to the Default provision of the Second
Promissory Note.
B.
The Parties Also Duly Executed a Primary Vendor
Agreement to Manage the Parties’ Relationship Going
Forward
At the same August 17, 2011 meeting where the parties duly executed
the Promissory Notes, David Watkins and Ken Campbell, H.D. Smith’s
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Texas Division Manager, executed a Primary Vendor Agreement with
Crawford. H.D. Smith provided health products to Crawford pursuant to
the terms of the Primary Vendor Agreement. In the Agreement, Crawford
agreed to pay the usual and customary charges for all health products and
associated taxes and fees. Crawford also agreed to pay H.D. Smith
pursuant to the terms of the Primary Vendor Agreement which included a
1.5% monthly finance charge on any balance unpaid for ten days after the
due date. Crawford admits that he owes at least $184,000.00 under the
Primary Vendor Agreement.
C.
Crawford Sold His Business Without Notifying H.D. Smith
On October 1, 2011, without notifying H.D. Smith, Crawford sold all
of his pharmacies to a company called Crawford Network Pharmacies LLC
owned in part by Sam Maddali. Crawford has no ownership interest in this
business. In that same month, Crawford discontinued purchasing $1.9
million per month of health products from H.D. Smith. The Default
provisions of the Promissory Notes required Crawford to purchase $1.9
million per month in health products from H.D. Smith.
II.
PROCEDURAL BACKGROUND
On November 23, 2011, H.D. Smith filed a five-count
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Complaint in Sangamon County Circuit Court, Illinois alleging Crawford
breached terms of the First Promissory Note (Count I), Second Promissory
Note (Count II), and Primary Vendor Agreement (Count III), and raising a
claim for Action on Crawford’s unpaid account (Count IV) and seeking
relief in Quantum Meruit (Count V). H.D. Smith sought over
$3,000,000.00 in damages.
On December 24, 2011, Crawford filed a Notice of Removal, a general
denial to the Complaint, and four affirmative defenses. See d/e 1, Ex. 3 at
2-4. Crawford’s affirmative defenses included duress, unclean hands,
fraud, and setoff. This Court struck Crawford’s fraud and duress defenses.
This Court also recharacterized as a Counterclaim Crawford’s setoff defense
which states:
Defendant is not liable to Plaintiff because all proper setoffs
have not been taken by Plaintiff. Defendant acknowledges that
he owes Plaintiff a sum of money, but denies that the amount
claimed by Plaintiff contains all proper setoffs, discounts, and
other deductions that Defendant is entitled to.
See d/e 71. Crawford’s unclean hands affirmative defense remains.
H.D. Smith filed this Partial Motion for Summary Judgment on its
claims that Crawford breached terms of the First Promissory Note (Count
I), Second Promissory Note (Count II), and Primary Vendor Agreement
(Count III). See d/e 61. H.D. Smith now seeks judgment of $2,348,732.21
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in damages, $60,411.63 in attorney’s fees, and $5,630.20 for costs. See d/e
61, Ex. 16, 17. H.D. Smith concedes that Crawford paid $1 million to H.D.
Smith via wire transfer, and that H.D. Smith received the money on
December 13, 2012. See d/e 61, Ex. 15. However, this payment has not
been included in the damages H.D. Smith seeks. H.D. Smith also notes that
interest is accruing at $392.59 per day on the amount owed under the First
Promissory Note and $154.69 per day on the amount owed under the
Primary Vendor Agreement. Further, H.D. Smith requests leave to submit
an Affidavit for additional attorney’s fees and costs before the Court enters
final judgment. See d/e 61 at 17, 20, 24.
III. JURISDICTION AND VENUE
H.D. Smith is a Delaware Corporation with its principal place
of business in Springfield, Illinois. Dennis Crawford, a sole proprietor
doing business as Crawford Pharmacies, operates in Texas. The Parties are
considered citizens of different states and the amount in controversy
exceeds $75,000.00. Therefore, the Court has subject matter jurisdiction
pursuant to the Court’s diversity jurisdiction. See 28 U.S.C. § 1332.
Moreover, the parties agreed in the Promissory Notes and Primary
Vendor Agreement that this Court would hear matters arising under the
Agreements. See d/e 20 at ¶¶ 19, 22, 29; see also d/e 22 at ¶¶ 19, 22, 29.
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Neither party has objected to the forum selection clauses. Therefore, this
Court will honor the forum selection clauses in the Agreements at issue.
IV. LEGAL STANDARD
Summary judgment is appropriate when “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986) (quoting Fed.R.Civ.P. 56(c)). This requires the moving party to
show that no “reasonable jury could return a verdict for the nonmoving
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-54, 106 S.Ct.
2505, 91 L.Ed.2d 202 (1986); see also Gleason v. Mesirow Fin., Inc., 118
F.3d 1134, 1139 (7th Cir. 1997). At this stage, a court must view the facts
and draw all reasonable inferences in the light most favorable to the
nonmoving party. Trentadue v. Redmon, 619 F.3d 648, 652 (7th Cir. 2010).
The nonmoving party, however, must also provide evidence in opposition to
the motion. Specifically, “to oppose a motion for summary judgment, the
nonmoving party . . . must do more than raise a metaphysical doubt as to
the material facts. Rather, [that party] must come forward with specific
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facts showing that there is a genuine issue for trial.” Gleason, 118 F.3d at
1139 (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 586-87, 106 S.Ct. 1348, 1356 (1986) (citations and internal
quotation marks omitted)). A genuine issue of material fact exists if
sufficient evidence favoring the nonmoving party would permit a jury to
return a verdict for that party. Springer v. Durflinger, 518 F.3d 479, 484
(7th Cir. 2008) (citing Sides v. City of Champaign, 496 F.3d 820, 826 (7th
Cir. 2007), and Brummett v. Sinclair Broad. Group, Inc., 414 F.3d 686, 692
(7th Cir. 2005)).
V. ANALYSIS
Crawford agrees to forego his unclean hands affirmative defense.
See d/e 63 at 2. Crawford also admits that he breached terms of the
Primary Vendor Agreement. See d/e 63 at 2. Crawford argues, however,
that he never mutually assented to the debt amounts rolled into the First
and Second Promissory Notes. See d/e 63 at 4-5. No mutual assent would
mean the Promissory Notes were never valid contracts. Further, in the
Counterclaim, Crawford disputes the amount H.D. Smith says Crawford
owes for Crawford’s breach of the duly executed Promissory Notes and
Primary Vendor Agreement. See d/e 63 at 5.
A.
The Parties’ Assented to the Terms of the Promissory Notes
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Crawford argues first that H.D. Smith did not provide proper
discounts before the parties executed the Promissory Notes. See d/e 63 at
2. Crawford asserts that H.D. Smith’s failure to provide these discounts
means that the debt rolled into the Promissory Notes was not calculated
correctly. See d/e 63 at 2. Because Crawford disagrees with the amounts
due under the Promissory Notes, he argues that he never mutually assented
to the Promissory Notes’ terms. See d/e 63 at 4-5.
The parties agree that Illinois contract law governs. See d/e 61 at ¶¶
19, 30; d/e 63 at ¶ 6. See also Cont’l Cas. Co. v. Am. Nat’l Ins. Co., 417 F.3d
727, 734 n.8 (7th Cir. 2005) (applying Illinois contract law when parties did
not dispute its applicability). In Illinois, a valid contract requires mutual
assent by the parties to the essential terms and conditions of the
contractual relationship. IMI Norgren, Inc. v. D & D Tooling Mfg., Inc.,
306 F. Supp. 2d 796, 801-02 (N.D. Ill. 2004). A signature shows mutuality,
although, mutuality may also be shown by the objective acts or conduct of
the parties. AGA Shareholders, LLC v. CSK Auto, Inc., 467 F. Supp. 2d 834,
846 (N.D. Ill. 2006); see also Steinberg v. Chicago Med. Sch., 69 Ill.2d 320,
13 Ill.Dec. 699, 371 N.E.2d 634, 640 (1977)). Further, when a contract’s
basic facts are not in dispute, whether a valid contract exists is a question of
law. Echo, Inc. v. Whitson Co., Inc., 121 F.3d 1099, 1102 (7th Cir. 1997).
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Here, Crawford accumulated a significant debt to H.D. Smith before
signing the Promissory Notes and Primary Vendor Agreement. See d/e 61
at ¶ 2; d/e 63 at ¶ 6. Crawford voiced concerns to H.D. Smith regarding the
amount of his debt. Crawford also told H.D. Smith he should receive
additional discounts and different pricing on some health products already
received. See d/e 61 at ¶ 3; d/e 63 at ¶ 6.
In 2010 and 2011, Crawford and H.D. Smith began negotiating and
exchanging draft promissory note agreements and discussing a new pricing
structure going forward. See d/e 61, Ex. 1 at 9-25; d/e 61 Ex. 4 at 9-11; see
also d/e 61 at ¶ 5; d/e 63 at ¶ 6. As a negotiating tactic, Crawford
intentionally misrepresented having counsel. See d/e 61, Ex. 1 at 20; see
also d/e 61 at ¶ 7; d/e 63 at ¶ 6. On June 6, 2011, Crawford received draft
promissory notes similar to those ultimately executed. See d/e 61, Ex. 3;
see also d/e 61 at ¶ 6; d/e 63 at ¶ 6.
On August 17, 2011, at Crawford’s request, H.D. Smith and Crawford
held a meeting to discuss the parties’ business relationship going forward.
The parties negotiated the terms of Promissory Notes as is evidenced by
Crawford’s deposition testimony:
Q. You said previously that this meeting at these offices on
August 17 started midmorning, is that right?
A. Yes.
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Q. About how long did they - - did the meeting last?
A. A couple hours.
Q. Okay. Describe what happened at the meeting for me.
A. They presented - - came in, then presented the document to
me. I told them I wasn’t happy with it, I didn’t like it. I
absolutely thought I should have gotten a greater discount for
the generic purchases that I should have gotten. And they left
the room, came back and took half the interest off, and then
agreed to - - to set up a second note at zero percent. I still
wasn’t happy with that. I told them I didn’t think there should
be any interest because the delay I got on my cost minus four to
cost minus two, that cash flow helped cause me to be in this
situation for the penalties and interest.
See d/e 61, Ex. 1 at 35.
Further, as part of the deal, H.D. Smith forgave $474,974.04 of
Crawford’s debt. See d/e 61 at 13, 27. Both parties signed the new
Promissory Notes at the close of this meeting. See d/e 20, Ex. 1 at 6, 14.
Crawford’s communications with H.D. Smith prior to the meeting, the
meeting that involved further negotiations, the debt written off by H.D.
Smith, and the parties’ signatures on the Promissory Notes objectively
demonstrate mutual assent to the terms of the Promissory Notes.
B.
Crawford Breached Terms of the Primary Vendor
Agreement and Promissory Notes
Moreover, Crawford admits that he breached terms of the Primary
Vendor Agreement. Crawford also failed to make two weekly installment
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payments of $18,000.00 pursuant to the Payment provision of the First
Promissory Note. See d/e 61 at ¶ 23; d/e 63 at ¶ 6. Further, Crawford
failed to make purchases equaling $1.9 million per month and sold all of his
pharmacies on October 1, 2011. These latter two acts violate terms of the
Default and Bulk Transfer Prohibition provisions in the First and Second
Promissory Notes. See d/e 61 at ¶¶ 37-38; d/e 63 at ¶ 6. Crawford’s
concession regarding the Primary Vendor Agreement and his conduct that
breached the First and Second Promissory Note provisions demonstrate
that he is liable for a breach of all three Agreements.
C.
Crawford Has Failed to Present Evidence to Support His
Claim that He Owes Less than H.D. Smith Alleges
Crawford also argues in his Counterclaim that he owes some amount,
but H.D. Smith says Crawford owes more than he actually does. See d/e 71
at 3. Crawford bases this argument on discounts and pricing issues that
occurred prior to the parties duly executing the Promissory Notes and
Primary Vendor Agreement. Crawford contends that a dispute exists
regarding the amount Crawford owes to H.D. Smith and, therefore, that
summary judgment is not appropriate. See d/e 63 at 5.
However, Crawford has failed to provide evidence to support his
Counterclaim. Instead, Crawford merely insists that he owes some amount
but that “[t]he amount in question is unknown to Crawford.” See d/e 63 at
Page 14 of 17
5. Crawford’s conclusory statement does not overcome H.D. Smith’s
entitlement to summary judgment for Crawford’s breach of the duly
executed Promissory Notes and Primary Vendor Agreement. See Gleason,
118 F.3d at 1139 (citing Matsushita Elec. Indus. Co., Ltd, 475 U.S. at 58687. But the amounts Crawford owes to H.D. Smith have changed during
the pendency of this Motion due to interest that has accrued, a $1 million
payment made by Crawford, and attorney’s fees and costs that have
accumulated. Consequently, H.D. Smith will need to substantiate the
amounts owed at a hearing in open court.
VI. CONCLUSION
The Court GRANTS summary judgment on Counts I through III of
H.D. Smith’s First Amended Complaint. Before the Clerk enters final
judgment on the amounts Crawford owes for his breach of the duly
executed Promissory Notes and Primary Vendor Agreement, H.D. Smith
SHALL prepare an accounting to present at a hearing in open court on May
13, 2013 at 3:00 p.m.
IT IS SO ORDERED.
ENTER: April 29, 2013
FOR THE COURT:
s/ Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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