AEL Financial, LLC v. Countryside Publishing Co., Inc.
Filing
147
MEMORANDUM OPINION Signed by the Honorable John F. Grady on November 1, 2013. Mailed notice(cdh, )
11-404.131-RSK
November 1, 2013
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
AEL FINANCIAL, LLC,
Plaintiff,
v.
COUNTRYSIDE PUBLISHING CO.,
INC., ELEASE FUNDING, INC.,
JAMES SPRECHER, JOSEPH GLENNON,
GERALD P. RIGGIN a/k/a JERRY
RIGGIN, and GOVERNMENT
VERIFICATION LLC a/k/a
GOVERNMENT VERIFICATION LLC
d/b/a THE VERIFICATION COMPANY,
Defendants.
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No. 11 C 404
MEMORANDUM OPINION
Before the court are the cross-motions for summary judgment of
plaintiff AEL Financial, LLC (“AEL”) and defendant eLease Funding,
Inc. (“eLease”).
For the reasons explained below, we deny the
parties’ motions.
BACKGROUND
Defendant eLease brokers equipment loans.
(eLease’s Stmt. of
Material Facts (hereinafter, “eLease Stmt.”) ¶ 3.)
It obtains
funding for the loans from companies like plaintiff AEL.
(Id. at
¶
Company
4.)
In
2008,
defendant
Countryside
Publishing
(“Countryside”) sought (or purported to seek) financing to purchase
computer and telephone equipment from Government Verification LLC
- 2 -
d/b/a The Verification Company (“TVC”).1
(See AEL’s Stmt. of Facts
(hereinafter, “AEL Stmt.”) ¶ 7.) According to an itemized proposal
dated
March
26,
2008,
TVC
proposed
to
sell
Countryside
“Centralized Telecom Management System” for $315,833.00.
a
(See
Centralized Telecom Mgmt. Proposal, attached as Ex. 2 to Aff. of
Nick Kondras (hereinafter “Kondras Aff.”), attached as Ex. A to AEL
Stmt.)2
was
The proposal was executed by defendant Jerry Riggin, who
identified
Operations.”
in
the
proposal
(Id. at 2.)
as
TVC’s
“Vice
President
Countryside was an existing eLease
client, (see AEL Stmt. ¶ 14), and evidently approached eLease to
obtain financing for the TVC transaction.
On or about March 27,
2008, Countryside entered into an Equipment Finance Agreement
(“EFA”)
with
eLease
(as
“Lender”)
to
borrow
an
unspecified
“Collateral Advance” to acquire the equipment listed in an attached
schedule (the “Equipment”).
(See EFA, attached as Ex. 5.1 to
eLease Stmt.; Schedule A to EFA, attached as Ex. 5.2 to eLease
1/
Countryside published marketing materials (e.g., brochures) for the
construction industry. (See eLease Stmt. of Add'l Facts ¶ 2; see also Dep. of
James Sprecher ("Sprecher Dep."), attached as Ex. 2 to eLease Stmt. of Add'l
Facts, at 24, 38.) According to James Sprecher, one of the company's principals,
Countryside wanted the equipment to conduct cold calls to contractors. (See
Sprecher Dep. at 38.)
2/
eLease repeatedly objects to Kondras’s affidavit on the grounds that
he is a “business records custodian” without personal knowledge of the
Countryside transaction. (See, e.g., eLease Resp. to AEL Stmt. ¶ 7.) In his
affidavit, Kondras sometimes strays into matters that predate his tenure at AEL
and that are not strictly based upon the underlying documents.
(See, e.g.,
Kondras Aff. ¶ 31 (“Unbeknownst to AEL, JAMES SPRECHER and JOSEPH GLENNON, the
managers and insiders of Countryside, were authorized signers on the TVC
Account.”) (capitalization in the original; italics added).)
But it is
apparently undisputed that he is competent to lay a foundation to introduce the
documents attached to his affidavit into evidence as business records. (See
Kondras Aff. ¶¶ 8-9, 11.)
- 3 -
Stmt.)
Although AEL was not yet a party to the transaction, it
drafted the EFA form and provided it to eLease.
¶ 20.)
(See eLease Stmt.
Pursuant to the EFA, Countryside agreed to repay eLease
over a period of 36 months, and granted eLease a first priority
security interest in the Equipment to secure payment.
(See EFA at
1; see also id. at 2, ¶ 7 (“SECURITY INTEREST; RECORDING”).)
Yvonne Shawn, Countryside’s president, executed the agreement on
Countryside’s
company’s
behalf
and
performance.
agreed
(See
to
EFA
at
personally
1.)
guarantee
Four
days
the
later,
Countryside executed a letter agreement — also drafted by AEL —
authorizing eLease to pay TVC $157,916.50 “even though some or all
of the collateral [had] not been delivered to and/or accepted by”
Countryside.
(See Authorization Letter, executed March 31, 2008,
attached as Ex. 7 to eLease Stmt.; see also eLease Stmt. ¶ 20.)
On
April 3, 2008, AEL sent a letter to eLease preliminarily approving
financing
in
the
amount
of
$295,000
diligence and other conditions.
subject
to
further
due
(eLease Stmt. ¶ 14; see also
Letter from J. Baltey to T. Williams, dated Apr. 3, 2008, attached
as Ex. 8 to eLease Stmt.)
The following week, Countryside and
eLease amended the EFA to reflect a “Collateral Advance” of
$315,833.00.
(See eLease Stmt. ¶ 19; see also Amend. No. 1 to EFA,
attached as Ex. 9 to eLease Stmt.)
- 4 -
eLease assigned the EFA to AEL on April 11, 2008.
(See
Assignment, dated Mar. 31, 2008, attached as Ex. 10 to eLease
Stmt.)3
In the Assignment, eLease represented and warranted that:
(i) the Agreements and all related instruments
genuine, enforceable and duly authorized . . . (iii)
statements made by [eLease] regarding the Agreements
Property are true; (iv) the Property described in
Agreements has been delivered to, and accepted by,
respective lessees . . . .
(Assignment.)4
AEL wired $157,916.50 to TVC’s bank account on the
same day that it executed the Assignment.
A
June
3,
are
all
and
the
the
2008
invoice
from
TVC
to
(See AEL Stmt. ¶ 31.)
Countryside
reflects
a
$157,916.50 “deposit,” half the total amount due. (See TVC Invoice,
dated June 3, 2008, attached as Ex. 6 to eLease Stmt.)
On June 4,
2008, eLease’s Vice President, Mark Williams, emailed Jerry Bertsch
at Countryside an “Acceptance Certificate,” also drafted by AEL.
(See AEL Stmt. ¶ 34; eLease Stmt. ¶ 20; see also Email from M.
Williams to J. Bertsch, dated June 4, 2008, attached to Dep. of
Mark Williams, attached as Ex. D to AEL Stmt. (“Attached is the
‘Acceptance Certificate’ for Yvonne Shawn to sign off on for the
job.
Please have signed, faxed back, and we’ll arrange the final
‘verbal authorization’ to commence immediately.”).)
The following
3/
The Assignment purports to be dated March 31, 2008, but the parties did
not execute the agreement until the following week. (See Assignment at 1.) The
parties effectively agree that the Assignment became effective when it was fully
executed on April 11. (See AEL Resp. to eLease Stmt. ¶ 21; eLease Stmt. ¶ 23
(stating that “AEL took the assigment on April 11, 2008").)
4/
At this point, AEL had already filed a UCC financing statement in its
capacity as "lender/secured party" under the EFA. (See Financing Statement,
filed April 8, 2008, attached as Ex. 11 to eLease Stmt.)
- 5 -
day,
Shawn
executed
the
Acceptance
Certificate
acknowledging
receipt of the Equipment:
I, acting on behalf of the Borrower named above,
acknowledge that I have personally inspected all
Equipment described in the above referenced Agreement
[the EFA]. The Equipment has been received, inspected
and installed to Borrower’s satisfaction and is complete,
operational and in good condition and working order and
satisfactory in all respects and conforms to all
specifications in the Agreement and the Supply Contract.
Borrower hereby accepts the Equipment and acknowledges
that, unless otherwise provided in the Agreement, the
Agreement commences on the Date of Acceptance stated
below. Borrower further acknowledges that this Agreement
is NON-CANCELABLE, ABSOLUTE AND IRREVOCABLE.
I
understand that Lendor [sic] will, and Borrower hereby
authorizes Lendor [sic] to, purchase the Equipment in
reliance on this Acceptance Certificate. I am authorized
to sign this Acceptance Certificate on Behalf of
Borrower.
(See Acceptance Certificate at 1.)
remaining $157,916.50 to TVC.
On June 6, 2008, AEL wired the
(AEL Stmt. ¶ 36.)
Countryside made
approximately $203,000.00 in installment payments before defaulting
in September 2010.
(Id. at ¶ 41.)
At the time of Countryside’s
default, it owed AEL $168,319.38 ($142,064.72 in future payments
due, $21,181.91 in past due payments, and $5,073.75 in late
charges).
(Id.)
The Assignment does not require eLease to indemnify AEL for a
simple default.
fraud
However, AEL contends that it is the victim of a
implicating
several
of
eLease’s
representations
and
warranties. Yvonne Shawn was Countryside’s President in name only.
She planned parties and executed documents when they were brought
- 6 -
to her by the people who actually ran the company, including Gary
Sizemore, Jerry Bertch, Pam Sprecher, Joe Glennon, and James
Sprecher.
(AEL Stmt. ¶ 10; see also Dep. of Yvonne Shawn (“Shawn
Dep.”), dated Mar. 16, 2011, at 29-30, 43-44.)
James Sprecher,
Shawn’s husband in 2008 (see Shawn Dep. at 12-13), was convicted of
bank fraud in 1996 in the United States District Court for the
Middle District of Florida.
(See AEL Stmt. ¶ 13.)5
Although none
of the transaction documents disclosed any affiliation between
Countryside and TVC, Sprecher testified that Countryside (or an
entity affiliated with Countryside) purchased TVC in 2008.
(See
Sprecher Dep. at 36, 39, 96-98; but see id. at 40 (backing off of
his earlier testimony that the acquisition occurred “well before”
the eLease/AEL transaction).)
Moreover, Sprecher and Glennon
controlled the TVC account to which AEL wired the Equipment
purchase price.6
(AEL Stmt. ¶ 32; see also Dep. of Patricia
Truluck, attached as Ex. I to AEL’s Stmt., at 11.)
2008,
seven
days
after
it
received
the
first
On April 18,
$157,916.50
installment from AEL, TVC transferred $45,000.00 to Countryside.
5/
eLease purports to dispute this fact, suggesting that the “James D.
Sprecher” of Palm Harbor, Florida in the court record attached to AEL’s statement
of facts may not be the James D. Sprecher of Palm Harbor, Florida involved in
This argument, which is
this case.
(See eLease Resp. to AEL Stmt. ¶ 13.)
unsupported by any evidence, is frivolous.
(Compare Sprecher Dep. at 4, 7
(identifying himself as “James D. Sprecher” and listing his address as 2256
Toniwood Lane, Palm Harbor, Florida, 34685), with Crim. Dkt. in United States v.
James D. Sprecher, attached as Ex. G to AEL Stmt.(identifying the defendant as
James D. Sprecher residing at 2270 Toniwood Lane, Palm Harbor, Florida, 34685);
see also Shawn Dep. at 53 (referring to Sprecher’s felony conviction).)
6/
We dismissed AEL’s claims against Sprecher and Glennon for lack of
personal jurisdiction.
- 7 -
(AEL Stmt. ¶ 33.)
On June 9, 2008, three days after it received
the second $157,916.50 installment, TVC transferred $158,000.00 to
Countryside.
(Id. at ¶ 38.)
After Countryside defaulted, AEL demanded that Countryside
return the Equipment.
(Id. at ¶ 42; see also EFA at 2, ¶ 9.)
AEL
contends that Countryside did not comply because most of the
Equipment never existed.
TVC purported to charge Countryside
$148,920.00 for Dell computer equipment.
(See AEL Stmt. ¶ 18.)
Sandra Brooks, a Dell paralegal, searched Dell’s records and
confirmed that a company identified as “Verification Co.” purchased
six products from Dell in May 2008 matching serial numbers listed
in TVC’s June 3, 2008 invoice. (See id. at ¶ 44; see also Aff. of
Sandra Brooks, attached as Ex. C to Dep. of Sandra Brooks, attached
as Ex. J to AEL’s Stmt. (“Brooks Dep.”), ¶ 7.)
The serial numbers
listed for four other products are not actual Dell serial numbers.
(See Brooks Dep. at 14 (“The names refer to Dell systems, but the
products — the numbers provided are not Dell service tags.”).) The
invoice does not list serial numbers for the 96 "Dell Vostro
Desktops," which account for $72,192.00 of the $148,920.00 that TVC
purported to charge Countryside for Dell equipment. But Brooks was
able to use information gleaned from the purchases she was able to
verify — specifically, TVC’s name and telephone number — to search
for other orders placed by the same company.
19-20.)
(See Brooks Dep. at
Using this information, Brooks was unable to find any
- 8 -
record that “Verification Co.” purchased the 96
from Dell.
confirm
(See id. at 17-18.)
that
“Verification
equipment from Dell.
Vostro Desktops
In total, Brooks was able to
Co.”
purchased
only
(See AEL Stmt. ¶ 44.)7
$64,640.00
of
Countryside also
purported to purchase $50,493.00 of “Vicidial” equipment from TVC.
(AEL Stmt. ¶ 19.)
Vicidial offers its telecommunications software
for free — it makes money selling consulting, training, and other
services.
(See Dep. of Matt Florell (“Florell Dep.”), attached as
Ex. K to AEL Stmt., at 6.)
It does not permit third parties to
sell licenses to use its free software.
(Id. at 16-17.)
It does
sell server equipment, (see id. at 17-18), but not under its own
brand name and it could not find any equipment orders placed by TVC
in its records.
eLease
(AEL Stmt. ¶ 50.)
contends
that
the
Equipment
was
delivered
to
Countryside, or at least that there is a material dispute about
whether it was or not.
25-26.)
First,
it
(See, e.g., eLease Stmt. of Add’l Facts ¶¶
relies
on
testimony
from
Gary
Sizemore,
Countryside’s in-house counsel, who testified that Countryside
installed a new “dialer system” for its telephone representatives
7/
eLease quibbles with some aspects of Brooks’s testimony. (See eLease
Resp. to AEL Stmt. ¶ 18.) For example, eLease contends that Brooks stated that
she “could not search for an order of equipment without serial numbers.” (Id.;
see also id. at ¶ 48.) Brooks testified that she could not search for orders by
product name (e.g., “Vostro”) without serial numbers. (See Brooks Dep. at 21-22.)
But she was able to search for other orders placed by the same company, and using
that method she was unable to find any other purchases by “Verification Co.”
corresponding to the products listed in the invoice.
(See id. at 20, 22.)
eLease also points out that Brooks could not recall whether she had searched for
the name “Riggin.” (See eLease Resp. to AEL Stmt. ¶ 18.) But it has not cited
any grounds for suspecting that Riggin would have ordered products in his own
name.
- 9 -
in or around June 2008.
(See eLease Stmt. of Add’l Facts ¶ 25; see
also Dep. of Gary Sizemore (“Sizemore Dep.”), attached as Ex. 11 to
eLease Stmt. of Add’l Facts, at 27-33, 171-75.)
But he did not
know whether the equipment that Countryside installed in 2008 was
the equipment identified in TVC’s proposal and invoice from that
same time period.
(See Sizemore Dep. at 173-74.)
eLease also
relies on James Sprecher’s testimony in Yvonne Shawn’s bankruptcy
case.
(See eLease Stmt. of Add’l Facts ¶ 26.)
As Sprecher
describes it, Jerry Riggin promised to install a sophisticated call
center for Countryside at the facility that the two companies
shared. (See id. at 36-37, 40; see also id. at 44 (stating that TVC
moved into Countryside’s facility after the acquisition).)
The
system did not operate as promised and was “ripped out” after less
than a year.
(Id. at 41.)
The two companies — TVC and Countryside
— “separated” and TVC took at least some of the equipment with it.
(Id. at 42-44.) eLease also cites an “Agreement for Termination of
Consulting Agreement,” dated June 3, 2009, between Morgan Fagerman
(TVC’s President), TVC, and Government Verification, LLC.
(See
Agmt. for Term. of Consulting Agmt. (“Termination Agreement”),
dated June 3, 2009, attached as Ex. 15 to eLease’s Stmt. of Add’l
Facts.)
This agreement terminates a consulting agreement between
Fagerman and Government Verification dated February 14, 2008 —
approximately
five
weeks
before
TVC’s
initial
proposal
to
- 10 -
Countryside
regarding
agreement,
Government
equipment
to
TVC.
the
Equipment.8
Verification
(See
Pursuant
also
Termination
to
the
transferred
Agreement
¶
same
certain
1.)
The
descriptions of the equipment in the Termination Agreement are at
least superficially similar to some of the equipment described in
TVC’s June 2008 invoice.9
In particular, the “PowerEdge 1950 III”
and “PowerEdge R900" computers may correspond to the equipment that
Dell
acknowledges
selling
to
“Verification
Co.”
in
May
2008
(although the quantities do not entirely match up, see supra n.9).
But the Termination Agreement does not include any serial numbers,
making it impossible to confirm that any of the listed equipment
corresponds
Countryside.
obtained
to
equipment
that
TVC
purportedly
sold
to
Also, it is unclear how Government Verification
title
Countryside,
the
or
to
why
equipment
Government
that
TVC
purportedly
Verification
would
sold
return
to
the
equipment to TVC.
Sprecher was also vague about what equipment Countryside still
had in its possession at the time of Shawn’s bankruptcy in 2011.
8/
The consulting agreement itself is not included in the parties’
summary-judgment materials.
9/
Among other equipment, Exhibit A to the Termination Agreement appears
to list (1) two “PowerEdge 1950 III” computers; (2) one “PowerEdge R900;” and (3)
two “SupMicro Intel Dual Core[s], 2.3 Ghz, 133 MHZ FSB, 4G RAM, 4 140 SAS (RAID
10 w/1 Hot Spare, Sangoma A104X Quad T1 card.”(See Termination Agmt. at Ex. A
(emphasis added).) (We are assuming that equipment listed more than once in the
exhibit represents more than one unit, although it may be that one piece of
equipment (“PowerEdge 2950 III”) served two purposes (“IVR (OpenSource)” and
“Storage”).)
TVC’s June 2008 invoice listed (1) two “PowerEdge 1950 III”
computers; (2) four “PowerEdge R900" computers; and (3) four “Sangoma A104 FourPort T1/E1/J1 Card[s].” (See Invoice, dated June 3, 2008, at 1-2.)
- 11 -
He testified that he asked Riggin to inspect Countryside’s facility
for the equipment that AEL had financed.
(See id. at 43.)
Sprecher’s hearsay testimony about what Riggin says he found is
difficult
to
follow.
Our
best
guess
is
that,
according
to
Sprecher, Riggin did not find any equipment from the “original
package” at Countryside’s facility.
(Id. (“He identified pieces —
a lot that’s in the warehouse storage, but he — as far as where
we’re at right now, there as absolutely nothing that he recalled
ever putting in or as part of that original package.”). Riggin did
identify “numerous pieces” stored in an unidentified warehouse, and
apparently some of that equipment was on the “original list.” (Id.
at 43-44.) But Riggin acknowledged taking “file servers.” (Id. at
44.)
In their motion to withdraw as counsel, Countryside’s
attorneys represented that the company filed an assignment for the
benefit of creditors in 2012.
2.)
(See Mot. to Withdraw, Dkt. 96, ¶
Neither party in this case has filed any records from that
proceeding indicating what assets (if any) Countryside has to
satisfy the claims of its creditors.
DISCUSSION
A.
Legal Standard
“The court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
P. 56(a).
Fed. R. Civ.
In considering such a motion, the court construes the
- 12 -
evidence and all inferences that reasonably can be drawn therefrom
in the light most favorable to the nonmoving party.
See Pitasi v.
Gartner Group, Inc., 184 F.3d 709, 714 (7th Cir. 1999). “The court
need consider only the cited materials, but it may consider other
materials in the record.”
Fed. R. Civ. P. 56(c)(3).
judgment should be denied if the dispute is ‘genuine’:
“Summary
‘if the
evidence is such that a reasonable jury could return a verdict for
the nonmoving party.’”
Talanda v. KFC Nat’l Mgmt. Co., 140 F.3d
1090, 1095 (7th Cir. 1998) (quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986)).
The court will enter summary
judgment against a party who does not “come forward with evidence
that would reasonably permit the finder of fact to find in [its]
favor on a material question.” McGrath v. Gillis, 44 F.3d 567, 569
(7th Cir. 1995).
B.
AEL’s Motion for Summary Judgment
The elements of a claim for breach of contract are “(1) offer
and acceptance, (2) consideration, (3) definite and certain terms,
(4) performance by the plaintiff of all required conditions, (5)
breach, and (6) damages.”
MC Baldwin Financial Co. v. DiMaggio,
Rosario & Veraja, LLC, 845 N.E.2d 22, 30 (Ill. App. Ct. 2006).10
The parties dispute the fifth and sixth elements.
AEL contends
that eLease breached its representations that: (1)the Equipment had
10/
The parties agree that AEL’s claim is governed by Illinois law pursuant
to the Assignment’s choice of law provision. (See Assignment at 1.)
- 13 -
“been delivered to, and accepted by,” Countryside; and (2)the EFA
“and all related instruments” were “genuine” and “enforceable.”
1.
Whether the EFA and All Related Documents Were Genuine
An instrument is “genuine” if it is “free of forgery or
counterfeiting.”
Black’s Law Dictionary at 755 (9th Ed. 2009).
“[F]orgery, under Illinois law, includes any alteration or false
writing in an instrument made for the purpose of defrauding a
transferee of the instrument.”
Roodhouse Nat’l Bank v. Fidelity
and Deposit Co. of Maryland, 426 F.2d 1347, 1349 (7th Cir. 1970)
(citing People v. Mau, 36 N.E.2d 235 (Ill. 1941) and People v.
Kubanek, 19 N.E.2d 573 (Ill. 1939)).
In Roodhouse, a used car
dealer assigned vehicle installment contracts to the plaintiff in
exchange for credit.
Id. at 1348.
The installment contracts were
fraudulent — the purchaser and the car associated with each
contract were fictitious.
Id.
Construing Illinois law, the Court
held that the false installment contracts constituted “forgery”
within the meaning of an insurance bond issued by the defendant.
Id. at 1349.
Similarly, in Capitol Bank of Chicago v. Fid. & Cas.
Co. of N.Y., 414 F.2d 986, 988 (7th Cir. 1969), the Court held that
offering falsified accounts receivable as collateral for a loan
constituted “forgery.”
On AEL’s theory of the case, Countryside
and TVC falsified the initial proposal, Schedule A to the EFA, the
June
3,
2008
invoice,
and
the
fraudulently obtain credit from AEL.
Acceptance
Certificate
to
If AEL is correct, then we
- 14 -
agree that the just-cited cases support its argument that the
documents are not “genuine.”
eLease does not attempt to distinguish these authorities,
arguing instead that the representations and warranties in the
Assignment are not binding. AEL approved the financing arrangement
before the parties executed the Assignment.
(See eLease Stmt. ¶
14.)11 So, according to eLease, the Assignment “was a mere formality
to complete a transaction which was already approved by AEL.”
(eLease Resp. at 6.)
We disagree.
The fact that AEL pre-approved
the transaction does not render the agreements memorializing the
transaction a nullity.
eLease, as “Lender,” executed the EFA and
then executed a separate agreement (the Assignment) transferring
the EFA and related documents to AEL.
There is no basis in the
record to excuse eLease, a sophisticated party, from honoring the
terms of agreements that it voluntarily executed.
If eLease was
dissatisfied with the provisions of AEL’s form agreements, it
should have negotiated different terms or simply not done business
with
AEL.
Similarly,
we
reject
eLease’s
argument
that
the
representations and warranties are irrelevant because AEL did not
rely on them when it made payments to TVC.
11/
(See eLease Resp. at 6-
eLease contends that AEL verbally approved the transaction even before
eLease and Countryside executed the EFA. (See eLease Resp. at 6 (citing Aff. of
J. Thomas Williams, attached as Ex. 12 to eLease’s Stmt. Add’l Facts, ¶ 54).)
But eLease did not include this fact in its Rule 56.1 statements. So, we will
not rely on it in ruling on the parties’ motions. See, e.g., Byrd–Tolson v.
Supervalu, Inc., 500 F.Supp.2d 962, 966 (N.D.Ill. 2007) (“[F]acts are properly
presented through the framework of the Rule 56.1 statements, and not through
citation in the briefs to raw record material.”).
- 15 -
7.)
on
First, AEL’s prior approval is not inconsistent with reliance
the
Assignment’s
terms.
Countryside
executed
the
letter
agreement authorizing eLease to make the initial payment to TVC on
March 31, 2008, but AEL did not wire any money to TVC until April
11, 2008 — the same day that it executed the Assignment.
Indeed,
it would have been absurd for AEL to pay a large sum of money to
Countryside
without
first
entering
into
the
obtaining the contractual right to repayment.
Assignment
and
Second, and more
importantly, reliance is not an element of breach of contract. See
MC Baldwin Financial, 845 N.E.2d at 30.
eLease warranted that the
EFA and related documents were “genuine.”
If they were not, then
AEL is entitled to recover from eLease any damages caused by the
breach.
The real issue is whether the EFA and related documents are so
clearly “false writings” that we can take the issue away from a
jury and decide the question as a matter of law.
TVC’s proposal
and invoice purport: (1) to charge $9,600 for licenses to use
software available for free on the Internet; (2) to sell “Vicidial”
branded equipment that does not exist; and (3) to sell Dell
equipment with apparently fabricated serial numbers.
Vicidial has
no record of any sales to TVC, and Dell can account for only some
of the equipment listed on the invoice.
When combined with
Sprecher’s criminal background, Shawn’s figurehead status within
the
company,
the
undisclosed
affiliation
between
TVC
and
- 16 -
Countryside,
and
the
suspicious
transfers
between
companies, the inference of fraud is quite strong.
those
two
On the other
hand, Countryside represented that it had received the Equipment
and
repaid
defaulting.
AEL
approximately
$203,000.00
before
eventually
These facts certainly do not rule out fraud, (see
infra), but they may indicate that the financing transaction was
legitimate.
See Berry v. Chicago Transit Auth., 618 F.3d 688, 691
(7th Cir. 2010) (“It is not for courts at summary judgment to weigh
evidence or determine the credibility of [a witness’s] testimony;
we leave those tasks to factfinders.”).
Dell did sell some of the
Equipment to TVC, and Sizemore and Sprecher testified that TVC
installed a call center for Countryside in 2008.
record is notable for what is missing.
Finally, the
There is no testimony from
Riggin or any other officer of TVC to shed light on its role in the
transaction. For example, there is no evidence in the record about
how TVC generated the equipment lists in the invoice and the EFA.
And
there
is
no
evidence
that
any
third
party
inspected
Countryside’s facility to verify its representation that it had
received the Equipment.
(Cf. Letter from J. Baltey to T. Williams
(letter from AEL preliminarily approving the Countryside loan
subject to “review and approval of the Equipment and vendors with
a
verbal
audit”).)
confirmation,
and
if
necessary,
an
Equipment
field
If TVC sold and delivered the Equipment to Countryside,
then the transaction was “genuine,” even if the parties later acted
- 17 -
in ways that frustrated AEL’s attempts to obtain repayment (e.g.,
by removing the equipment).
All of AEL’s arguments are based on its theory that the
Countryside transaction was a sham.
So, our holding with respect
to the "genuineness" of the transaction also provides a basis for
denying AEL’s motion with respect to the EFA’s other terms.
But
more fundamentally, as we discuss below, we disagree with AEL’s
interpretation of those other terms in the context of the entire
transaction.
2.
Whether eLease Breached Its Representation that the
Equipment had “Been Delivered to, and Accepted by,”
Countryside
eLease represented and warranted in the Assignment that the
Equipment “has been delivered to, and accepted by, the respective
lessees . . . .”
eLease contends that the parties mistakenly
included this term in the Assignment.
reformation
of
a
contract
is
(See eLease Mem. at 11.)
proper
when
‘at
the
time
“A
the
[contract] was reduced to writing and executed, some agreed-upon
provision was omitted or one not agreed upon was inserted either
through mutual mistake or through mistake by one party and fraud by
the other.’”
2010
WL
Luza v. JPMorgan Chase Bank, N.A., No. 09 C 7709,
2836705,
*3
(N.D.
Ill.
July
15,
2010)
(quoting
Wheeler–Dealer, Ltd. v. Christ, 885 N.E.2d 350, 355 (Ill. App. Ct.
2008)).
The party proposing the modification has the burden to
show the parties’ mutual mistake by clear and convincing evidence.
- 18 -
Wheeler-Dealer, 885 N.E.2d at 355.
On March 31, 2008, Countryside
executed a letter agreement, on a form provided by AEL, authorizing
eLease to make an initial payment to TVC “as if all the Collateral
had been delivered to and accepted by Debtor as of [March 27,
2008].”
(See Authorization Letter (emphasis added); see also id.
(“[Countryside] hereby authorizes [eLease] to make payment in the
amount of $157,916.50 to The Verification Company, Inc. (“Vendor”)
covering the Collateral listed on [the EFA] even though some or all
of the Collateral has not been delivered to and/or accepted by
Debtor.”) (underlining in original; italics added).
Between the
execution of this document and the execution of the Assignment
containing the delivery representation on April 11, 2008, TVC did
not purport to deliver, and Countryside did not purport to accept,
the
Equipment.
Countryside
did
Certificate until June 5, 2008.
not
execute
the
Acceptance
AEL insists that eLease breached
the delivery representation, but it does not explain — or even
attempt to explain — why eLease would represent that the equipment
was delivered when both parties knew that was not true.
Given the
sequence of events, the only plausible explanation for the delivery
representation
is
that
parties
executed
AEL’s
form
agreement
without making a change conforming the Assignment to the actual
transaction.
We conclude that eLease has shown, by clear and
convincing evidence, that the parties mistakenly included the
- 19 -
delivery representation in the Assignment and reform the contract
to exclude that term.
3.
Whether eLease Breached its Representation that the EFA
was “Enforceable”
eLease also represented and warranted that the EFA and related
instruments were “enforceable.”
granted
eLease
Equipment.
(and
later
Pursuant to the EFA, Countryside
AEL)
a
security
interest
in
the
According to AEL, because the Equipment did not exist,
its security interest in the Equipment was not “enforceable.” (See
AEL Mem. at 13.)
There is no dispute that Shawn had the legal
authority to enter into the EFA and bind Countryside to its terms.
If, as AEL contends, the Equipment never existed, then AEL has the
right to pursue damages against Countryside for breach of contract.
So, the EFA is “enforceable,” even if as a practical matter AEL
cannot
exercise
all
of
its
rights
under
the
agreement.
We
conclude, as a matter of law, that eLease did not breach its
representation
that
the
EFA
and
related
documents
were
“enforceable.”
C.
eLease’s Cross-Motion for Summary Judgment
For the reasons we have already discussed, we reject eLease’s
attack on the sufficiency of AEL’s evidence.
A reasonable jury
could conclude that the Countryside transaction was a sham in
violation of eLease’s warranty that the EFA and all related
documents were “genuine.”
(See supra.)
We also reject eLease’s
argument that AEL waived its rights under the Assignment. Although
- 20 -
it is not entirely clear from its brief, we understand eLease to
argue that AEL waived its right to pursue eLease for breach of
contract by (1) accepting payments from Countryside, and (2)
failing to notify eLease of problems with the transaction before
filing this lawsuit.
may
indicate
that
As we said earlier, Countryside’s payments
the
EFA
was
genuine
and
defaulted because it fell on hard times.
that
the
company
Or they may have been
part of a Ponzi-like scheme to obtain credit by fraud while
maintaining the appearance of propriety by make some payments on
the debt.
That is for a jury to decide.
With respect to the
notice issue, there is no evidence that AEL had any inkling that
something was awry before Countryside defaulted in September 2010.
In January 2011, AEL filed a straightforward complaint against
Countryside for breach of contract, replevin, and detinue.
AEL
only joined eLease as a defendant after it amended its complaint to
allege the underlying fraud and after it demanded that eLease
repurchase the loan for breaching the “genuineness” representation.
(See AEL Stmt. ¶ 53.)
The fact that AEL did not assert rights that
it did not know it had does not support waiver.
D.
Damages
Finally, the parties dispute the proper measure of damages
should AEL establish eLease’s liability.
AEL contends that it is
entitled to the entire amount of the unpaid debt plus late charges.
(See AEL Mem. at 13-14.)
eLease responds that the proper measure
- 21 -
of expectation damages is the resale value of the Equipment rather
than the unpaid portion of the loan.
See Rest. (Second) Cont. §
347 cmt. 1 (1979) (“Contract damages are ordinarily based on the
injured party’s expectation interest and are intended to give him
the benefit of his bargain by awarding him a sum of money that
will, to the extent possible, put him in as good a position as he
would have been in had the contract been performed.”).
As eLease
points out, it did not guarantee that Countryside would never
default on its obligation to pay AEL.
Instead, it represented and
warranted that the EFA and related documents were “genuine,” which
in this case means that the Equipment existed and could be sold to
offset AEL’s losses in the event of a default.
eLease
has
raised
a
significant
objection
So, we think that
to
AEL’s
damages
calculation. However, this issue is undeveloped in the briefs. We
will reserve ruling at this time regarding the proper measure of
damages.
CONCLUSION
AEL’s motion for summary judgment [125] is denied.
motion for summary judgment [129] is denied.
factual
dispute
about
whether
eLease
eLease’s
There is a material
materially
breached
its
representation that the EFA and related documents were “genuine.”
Pursuant to Federal Rule of Civil Procedure 56(g), the court finds
that: (1) eLease did not breach its representations that the EFA
and related documents were “enforceable;” and (2) the parties
- 22 -
mistakenly included a representation that TVC had already delivered
the Equipment to Countryside on the date of the Assignment.
court reserves ruling on the proper measure of damages.
The
A status
hearing is set for November 13, 2013 at 10:30 a.m. to set a trial
date.
DATE:
November 1, 2013
ENTER:
___________________________________________
John F. Grady, United States District Judge
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