Balboa Capital Corporation v. Graphic Pallet and Transport, Inc. et al

Filing 57

MEMORANDUM Opinion and Order. The Court grants in part and strikes as moot in part plaintiff's motion for summary judgment 46 . The motion is granted as to the claims in Counts I-III and stricken as moot as to the claims in Counts IV and V. The parties have fourteen days from the date of this order to file an agreed proposed judgment order that is consistent with this order. If the parties cannot agree on a proposed judgment order, each party must file a proposed judgment order and support ing materials within the same fourteen-day period. Thereafter, the Court will enter judgment in this case. Status hearing date previously set for 2/12/15 is stricken. Signed by the Honorable Jorge L. Alonso on 2/6/2015. Notice mailed by judge's staff (ntf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

BALBOA CAPITAL CORPORATION,
Plaintiff,
v.
GRAPHIC PALLET AND
TRANSPORT, INC., JOHN
KRAWISZ, and CHRISTY KRAWISZ,
Defendants.

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No. 13 C 6503
Judge Jorge Alonso

MEMORANDUM OPINION AND ORDER
Plaintiff sues defendants Graphic Pallet Transport Corporation (“Graphic”) and its principals
John and Christy Krawisz for breach of contract, breach of guaranty, replevin, and detinue. The case
is before the Court on plaintiff’s Federal Rule of Civil Procedure (“Rule”) 56 motion for summary
judgment. For the reasons set forth below, the Court grants in part and strikes as moot in part the
motion.

Facts
On March 13, 2008, Graphic purchased an automated pallet nailing machine from plaintiff
pursuant to lease no. 141771-000 (“first lease”). (Defs.’ LR 56.1(b)(3)(B) Stmt. ¶ 7.) On August 18,
2008, Graphic purchased a mitre saw and a semi trailer from plaintiff pursuant to lease no. 141771-001
(“second lease”). (Id. ¶ 19.) John and Christy Krawisz guaranteed Graphic’s obligations under both
leases. (Id. ¶¶ 9-10, 21-22.)
The first lease had a term of thirty-six months and the second lease had a term of thirty-one
months. (Pl.’s LR 56.1(a) Stmt., Ex. A, Compl., Ex. 1, First Lease at 1; id., Ex. 3, Second Lease at 1.)

Both leases state that at the end of the term, Graphic:
may . . . purchase all . . . of the Equipment for a sum set forth on the front of this Lease
. . . . If a $1.00 or $101 buyout is indicated in the End of Term section on the front of
the Lease, then at the end of the Lease Term, you shall purchase the equipment for that
amount. If the Fair Market Value Purchase Option is indicated in the End of Term
section on the front of this lease then, at least 180 days prior to then end of the original
term, you must give us written notice, via certified mail, that you will purchase the
Equipment for its fair market value, which we shall determine in our reasonable
judgment, or that you will return the equipment to us. If you do not give us such
written notice or if you do not purchase or deliver the Equipment in accordance with
the terms and conditions of this Lease, then this Lease shall automatically renew for
a 12 month term, and thereafter renew for successive 3 month terms until you deliver
the Equipment to us. . . . Upon payment of End of Term option price . . . , we shall
transfer our interest in the Equipment to you . . . and this Lease will terminate. . . .
Until the End of Term Option price is actually paid, you will be responsible to continue
to pay rent at the monthly rate set forth in this Lease.
(Id., Ex. 1, First Lease at 1 & ¶ 16; id., Ex. 3, Second Lease at 1 & ¶ 16.) On the first page of each
lease in a box titled “End of Term Option” appear the words “Fair Market Value Purchase Option” in
bold type. (Id., Ex. 1, First Lease at 1; id., Ex. 3, Second Lease at 1.)
When the leases expired in early 2011, Graphic did not exercise the fair market value purchase
option or return the equipment. (Defs.’ LR 56.1(b)(3)(B) Stmt. ¶¶ 12, 15, 24 , 27.) Rather, it contends
it purchased the equipment in accordance with the $1.00 buyout option it had negotiated with
plaintiff’s agent, Kenny Segin. (Defs.’ LR 56.1(b)(3)(B) Stmt. Ex. 1, J. Krawisz Dep. at 60-63; id.,
Ex. 2, C. Krawisz Dep. at 23; see id., Ex. 3, Segin Dep. at 20, 55-56 (testifying that he had the
authority to set $1.00 lease buyouts, that customers received the buyout options they requested, and
that he “could have” discussed a $1.00 buyout with John Krawisz).)
On September 11, 2011, Graphic sued plaintiff for rescission of the leases. (See Defs.’ Resp.
Mot. Summ., J., Ex. A, Compl., Graphic Pallet & Trans., Inc. v. Balboa Capital Corp., No. 11 C 9101
(N.D. Ill.).) On May 30, 2012, Judge Bucklo granted Balboa’s motion to dismiss the suit on the
grounds that Graphic’s claim was barred by California’s parol evidence rule. (See generally Def.’s

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LR 56.1(a) Stmt., Ex. D, Mem. Opinion & Order, Graphic Pallet & Trans., Inc. v. Balboa Capital
Corp., No. 11 C 9101 (N.D. Ill. May 30, 2012).) On September 11, 2013, Balboa filed this suit.
On March 17, 2014, defendants returned to plaintiff the pallet nailing machine that was the
subject of the first lease. (Defs.’ LR 56.1(b)(3)(B) Stmt. ¶ 17.) The same day, they told plaintiff they
had just discovered that the semi trailer financed under the second lease had been stolen from one of
their customers in 2011. (Id. ¶ 29.) Because the leases require Graphic to replace stolen equipment
or pay plaintiff its residual value, on March 14, and April 8, 2011, Graphic offered to replace or pay
for the trailer. (Defs.’ LR 56.1(b)(3)(B) Stmt., Ex. 4, Parks Aff., Ex. A, Letter from Parks to Darcy
(Mar. 14, 2014); id., Ex. B, Letter from Parks to Darcy (Apr. 8, 2014).) Plaintiff did not respond to
either offer. (Id., Ex. 4, Parks Aff. ¶ 6.)
In August 2014, defendants returned the mitre saw, the second piece of equipment that was
financed under the second lease, to plaintiff. (Pl.’s LR 56.1(a) Stmt., Ex. C, Edson Aff. ¶ 36.)

Discussion
To succeed on a summary judgment motion, “the movant [must] show[] that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). At this stage, we do not weigh evidence or determine the truth of the matters asserted.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). We view all evidence and draw all
inferences in favor of the non-moving party. Michas v. Health Cost Controls of Ill., Inc., 209 F.3d
687, 692 (7th Cir. 2000). Summary judgment is appropriate only when the record as a whole
establishes that no reasonable jury could find for the non-moving party. Id.

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To prevail on its breach of contract claim, plaintiff must prove “(1) the existence of the
contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the
resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 250 P.3d 1115, 1121 (Cal.
2011).1 Citing their agreement with Kenny Segin, defendants argue that the first element is lacking.
Plaintiff contends that the contract claim was decided against Graphic by Judge Bucklo, and thus the
doctrine of res judicata precludes Graphic from relitigating it here.
The federal doctrine of res judicata bars relitigation of a claim only if the same claim was
decided on the merits in a prior suit. See Adams v. City of Indianapolis, 742 F.3d 720, 736 (7th Cir.),
cert. denied, 135 S. Ct. 286 (2014).2 Judge Bucklo decided that plaintiff’s claim for rescission was
barred by the parol evidence rule. (See generally Mem. Opinion & Order, Graphic Pallet & Transp.,
Inc. v. Balboa Capital Corp., No. 11 C 9101 (N.D. Ill. May 30, 2012).) But she did not rule that
Graphic had breached the leases, which is the claim plaintiff asserts here. Accordingly, res judicata
does not apply.

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The parties agree that California law governs. See Auto-Owners Ins. Co. v. Websolv
Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009) (“‘Courts do not worry about conflict of laws
unless the parties disagree on which state’s law applies.’”) (quoting Wood v. Mid-Valley Inc., 942
F.2d 425, 427 (7th Cir. 1991)).
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“‘The preclusive effect of a federal-court judgment is determined by federal common
law.’” Adams, 742 F.3d at 735 (quoting Taylor v. Sturgell, 553 U.S. 880, 891 (2008)).

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That does not mean, however, that Graphic can relitigate the parol evidence issue. Because
Judge Bucklo decided that issue on the merits in the prior suit between the parties, collateral estoppel
bars Graphic from litigating it again. See Adair v. Sherman, 230 F.3d 890, 893 (7th Cir. 2000) (stating
that the elements of collateral estoppel are: “(1) the issue sought to be precluded is the same as that
involved in a prior action; (2) the issue was actually litigated; (3) the determination of the issue was
essential to the final judgment; and (4) the party against whom estoppel is invoked was represented
in the prior action.”).
Defendants nonetheless argue that the doctrine does not apply because California parol
evidence law changed after Judge Bucklo rendered her decision. See Riverisland Cold Storage, Inc.
v. Fresno-Madera Prod. Credit Ass’n, 291 P.3d 316, 324 (Cal. 2013) (stating that the parol evidence
rule was not intended to preclude the proof of fraud, and overruling the line of cases that held
otherwise). However, the case they cite to support their argument, Multi Denominational Ministry of
Cannabis & Rastafari, Inc. v. Gonzales, 474 F. Supp. 2d 1133 (N.D. Cal. 2007) relied on dictum in
State Farm v. Duel, 324 U.S. 154 (1945), which has since been abrogated. See Multi Denominational,
474 F. Supp. 2d at 1143 ((“[R]es judicata’s preclusive force is extinguished by an intervening change
in the law.”) (citing State Farm, 324 U.S. at 162 (“[I]t is . . . the general rule that res judicata is no
defense where between the time of the first judgment and the second there has been an intervening
decision or a change in the law creating an altered situation.”), abrogated by Federated Dep’t Stores,
Inc. v. Moitie, 452 U.S. 394, 398 (1981) (stating that the “res judicata consequences of a final,
unappealed judgment on the merits [are not] altered by the fact that the judgment may have been
wrong or rested on a legal principle subsequently overruled in another case.”)). Accordingly, as a
matter of law, plaintiff has established the first element of its contract claim.
Plaintiff has also established the last three elements of the claim. See Oasis W. Realty, 250

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P.3d at 1121 (setting forth claim elements). There is no dispute that plaintiff performed its obligations
under the leases as interpreted by Judge Bucklo, Graphic did not, and plaintiff was damaged as a result.
(Pl.’s 56.1(a) Stmt. ¶¶ 15-18, 27-36, 40-41.)
Though all of the claim elements are established, Graphic argues that plaintiff cannot recover
for breach of the leases because they are unconscionable. The doctrine of unconscionability has “both
a procedural and a substantive element, the former focusing on oppression or surprise due to unequal
bargaining power, the latter on overly harsh or one-sided results.” Walnut Producers of Calif. v.
Diamond Foods, Inc., 114 Cal. Rptr. 3d 449, 457 (Cal. App. Ct. 2010) (quotation omitted). “[B]oth
the procedural and substantive elements must be met before a contract or term will be deemed
unconscionable.” Id. (quotation omitted). The record shows that: (1) the Krawiszes incorporated
Graphic in 1995; (2) they created another entity, JCK, to hold title to a 30,000 square foot facility that
JCK rents to Graphic and another entity; (3) Graphic employs 25 people and has annual revenues of
approximately $2 million; (4) since it has been in business, Graphic has purchased or leased twentythree trailers and other equipment from six leasing companies; (5) the Krawiszes had the opportunity
to read the leases and negotiate their terms with Kenny Segin; and (6) “Fair Market Value Purchase
Option” appears in bold type on the front of each lease under the heading “End of Term Option.”
(Pl.’s LR 56.1(a) Stmt., Ex. A, Compl., Ex. 1, First Lease at 1; id., Ex. 3, Second Lease at 1; Defs.’
LR 56.1(b)(3)(B) Stmt., Ex. 1, J. Krawisz Dep. at 6-28, 60-61; id., Ex. 2, C. Krawisz Dep. at 9-23.)
In short, the record contains no evidence that suggests the leases are unconscionable.
Even if the leases are enforceable, defendants contend that plaintiff cannot recover all of the
damages it seeks because it failed to mitigate. Specifically, defendants argue that plaintiff should have
filed this suit immediately after Judge Bucklo dismissed defendants’ suit in May 2012. “Ordinarily
a person injured by the breach of an obligation has the duty to minimize damages and avoid or reduce

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the loss suffered by the offender.” See Seaboard Music Co. v. Germano, 101 Cal. Rptr. 255, 257 (Cal.
App. Ct. 1972). However, defendants do not cite and the Court has not found any support for the
notion that a non-breaching party is required to file suit, let alone do so as quickly as possible, to
mitigate its damages. Thus, the Court rejects this argument.
Alternatively, Graphic argues that plaintiff cannot recover any rent due under the second lease
after March 2014, when Graphic offered to provide a replacement trailer for the one that was stolen
or to pay plaintiff its fair market value. The Court disagrees. The second lease covered both the trailer
and the mitre saw. (See Pl.’s LR 56.1(a) Stmt., Ex. A, Compl., Ex. 3, Second Lease, Ex. A & Vehicle
Addendum.) Though plaintiff offered to replace or pay for the trailer in March 2014, plaintiff asserts,
without contradiction by defendants, that defendants did not return the mitre saw until August 2014.
(Id., Ex. C, Edson Aff. ¶ 36.) Because defendants did not return all of the property that was the
subject of the second lease until August 2014, plaintiff is entitled to collect damages up to that date.

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Defendants further argue that plaintiff should not be allowed to collect late fees and
prejudgment interest, though the leases provide for the recovery of both, because enforcement of these
provisions would be unfair. Again, the Court disagrees. Contract provisions for recovery of
prejudgment interest and late fees are enforceable under California law. See, e.g., Cal. Civil Code §
3289 (stating that “[a]ny legal rate of interest stipulated by a contract remains chargeable after a breach
thereof”); Roodenburg v. Pavestone Co., L.P., 89 Cal. Rptr. 3d 558, 563 (Cal. App. Ct. 2009)
(interest); Cf. Bronco Wine Co. v. Frank A. Logoluso Farms, 262 Cal. Rptr. 899, 907-08 (Cal. App.
Ct. 1989) (late fees and interest). Defendants have not offered any facts or law that support relieving
them of the contractual obligations they freely undertook.3
In short, there is no genuine issue of material fact as to plaintiff’s breach of contract claim
against Graphic. Therefore, the Court grants plaintiff’s motion for summary judgment on this claim.
There is also no triable fact issue as to plaintiff’s breach of guaranty claims. It is undisputed
that John and Christy Krawisz guaranteed Graphic’s obligations under the leases, that Graphic
breached the leases, and that John and Christy did not pay Graphic’s debt. (Defs.’ LR 56.1(b)(3)(B)
Stmt. ¶¶ 9-10, 21-22, 41, 43, 55-58); see Torrey Pines Bank v. Superior Court, 265 Cal. Rptr. 217, 220
(Cal. App. Ct. 1989) (setting forth the elements of a breach of guaranty claim). Accordingly, plaintiff
is entitled to judgment as a matter of law on Counts II and III.
That leaves Counts IV and V for replevin and detinue, respectively. Given the undisputed fact
that defendants have returned all of plaintiff’s equipment, the Court dismisses these claims as moot.

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Defendants do not dispute that attorney’s fees are recoverable but contend that fees should
be addressed by separate motion pursuant to Local Rule 54.3. In this case, however, plaintiff is
seeking fees as an element of contract damages, not as a prevailing party in a suit. Thus, attorney’s
fees are recoverable as part of the judgment.

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Conclusion
For the reasons set forth above, the Court grants in part and strikes as moot in part plaintiff’s
motion for summary judgment [46].

The motion is granted as to the claims in Counts I-III and

stricken as moot as to the claims in Counts IV and V. The parties have fourteen days from the date
of this order to file an agreed proposed judgment order that is consistent with this order. If the parties
cannot agree on a proposed judgment order, each party must file a proposed judgment order and
supporting materials within the same fourteen-day period. Thereafter, the Court will enter judgment
in this case.
SO ORDERED.

ENTERED:

February 6, 2015

__________________________________
HON. JORGE ALONSO
United States District Judge

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