The Boyd Group (U.S.) Inc. v. D'Orazio
Filing
80
MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr on 5/29/2015. Mailed notice(cdh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE BOYD GROUP (U.S.) INC.,
Plaintiff,
v.
ROGER A. D’ORAZIO JR.,
Defendant.
)
)
)
)
)
)
)
)
)
Case No. 14 CV 7751
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
This action involves several disputes arising from an April 14, 2014 transaction in which
Plaintiff The Boyd Group (U.S.) Inc. (“Boyd”) acquired Defendant Roger D’Orazio’s shares in
two entities that own collision repair centers in Illinois, Indiana, and Florida. Boyd initiated the
lawsuit on October 3, 2014, and soon thereafter filed a motion for a preliminary injunction [7].
The parties resolved one of their disputes related to sign permit applications, see [21], Joint
Stipulation ¶¶ 1–3, after which Boyd voluntarily dismissed Counts VII and VIII of its amended
complaint, see [30]. Currently pending before the Court are two motions to dismiss. In the first
motion [15], D’Orazio moves to dismiss Counts I through V and Counts IX and X of Boyd’s
amended complaint [6]. In the second motion [53], Boyd moves to dismiss Counts I, III and IV
of D’Orazio’s amended counterclaim [43]. D’Orazio also has moved for summary judgment on
Count I of his amended counterclaim and on Count VI of the amended complaint. See [27]. The
parties currently are conducting discovery on that motion. See [60, 72].
For the reasons set forth below, the Court grants in part and denies in part the pending
motions to dismiss, as follows. The Court grants D’Orazio’s motion to dismiss [15] with respect
to Counts I through V and X and denies it with respect to Count IX. The Court grants Boyd’s
motion to dismiss Mr. D’Orazio’s amended counterclaim [53] in full, with the exception of
subsection (a) of Count III, which alleges that Boyd breached the parties’ agreement by failing to
deliver its post-closing WIP Adjustment figure in the time frame provided by the agreement. All
of the dismissals are without prejudice. If the parties believe that they are able to amend their
pleadings to state valid claims, they may do so within 28 days of the date of this order.
I.
Background
The facts are drawn from Boyd’s amended complaint [6] and from D’Orazio’s amended
counterclaim [43]. For purposes of deciding the pending motions to dismiss, the Court assumes
as true all well-pleaded allegations set forth therein. See Killingsworth v. HSBC Bank Nevada,
N.A., 507 F.3d 614, 618 (7th Cir. 2007). Boyd is a Delaware corporation with its principal place
of business in Delaware. [6], Am. Compl. ¶ 2. It is the largest operator of collision repair
centers in North America. [43], Am. Counterclaim ¶ 3. D’Orazio is a citizen and resident of
Florida and was the sole shareholder of Dora Holdings, Inc., a corporation that owned Collision
Revision, Inc. and Collision Revision 13081, Inc. [6], Am. Compl. ¶¶ 3, 6, 7. D’Orazio’s
business was a “leader[] in the collision repair industry”; he owned 29 production facilities and
had six satellite offices and over 300 employees. [43], Am. Counterclaim ¶ 2. In early 2014,
Boyd became interested in acquiring D’Orazio’s business, and the parties entered into a Purchase
and Sale Agreement (the “PSA”) for his stock. See id. at ¶¶ 3, 5.
The PSA and the Post-Closing Adjustments
Under the PSA, the preliminary purchase price of the stock was $32.5 million, subject to
certain post-closing adjustments, including a “Working Capital Adjustment” and a work-inprogress adjustment (the “WIP Adjustment”). See [43], Am. Counterclaim ¶¶ 26, 36, 38. The
PSA further provided that $1,622,225 of the preliminary purchase price would be reserved by
2
Boyd to satisfy any Working Capital Adjustment that was payable to Boyd (the “$1.6 Million
Holdback”), and the remainder would be released to D’Orazio. Id. at ¶ 28. With respect to the
Working Capital Adjustment, § 2.06 of the PSA provided that Boyd would deliver to D’Orazio,
within 120 days of the closing, an audited statement setting forth the amount by which it
believed that net working capital was either greater or less than zero. See id. at ¶ 36. If
D’Orazio disagreed with Boyd’s figure, he could respond with a written Notice of Disagreement.
Id. at ¶ 37. Similarly, with respect to the WIP Adjustment, § 2.07(a)(1) of the PSA provided that
Boyd would deliver to D’Orazio, within 15 days of the closing, a written calculation of the WIP
Adjustment, which was the amount by which the WIP value was greater or less than the WIP
minimum value of $1,475,586 set forth in the PSA. Id. at ¶¶ 38, 64. Mr. D’Orazio had 15 days
thereafter to submit a Notice of Disagreement. Id. at ¶ 38.
Section 2.07A of the PSA describes how these two post-closing adjustments would affect
the purchase price of the stock. In particular, if the aggregate of the Working Capital Adjustment
and WIP Adjustment was negative, then the holdback amount and the preliminary purchase price
would be reduced by that number. [43], Am. Counterclaim ¶ 39. If the aggregate exceeded the
holdback amounts, the purchase price was further reduced by the product of multiplying the
amount by which such number exceeded the holdbacks by 0.5. Id.
Although it was due 15 days after closing, Boyd did not deliver its proposed WIP
Adjustment until August 12, 2014, or 120 days after closing. [43], Am. Counterclaim ¶ 65.
Boyd’s proposed WIP value was $632,400, which resulted in a WIP Adjustment of negative
$843,188. Id. at ¶ 66. D’Orazio alleges that Boyd’s calculation was flawed because it was based
on an inventory analysis at only one collision repair location. Id. at ¶ 66.
3
The Sherwin-Williams Release
Also relevant to the parties’ dispute are certain closing conditions set forth in the PSA,
including one related to an agreement that D’Orazio had with its paint supplier, SherwinWilliams.
By way of background, in 2010 D’Orazio agreed with Sherwin-Williams that
Collision Revision would purchase all of its automotive paints and associated products from
Sherwin-Williams (the “Paint Supply Contract”).
[43], Am. Counterclaim ¶¶ 22–23.
In
furtherance of the Paint Supply Contract, Collision Revision executed a Note payable to
Sherwin-Williams with a principal amount of $5 million, and D’Orazio executed the
accompanying Guaranty.
Id. at ¶ 22.
Given this outstanding agreement, one of Boyd’s
conditions to closing was its receipt of “evidence of payment of all monies owing pursuant to the
Paint Supply Contract” and Sherwin-Williams “confirm[ing] termination of the Paint Supply
Contract [and] releas[ing] each Company that is a party thereto from all obligations pursuant to
the Paint Supply Contract[.]” [43-8], PSA § 7.02(p).
Fiori D’Orazio, who is Roger D’Orazio’s uncle and the CEO of Collision Revision, was
tasked with negotiating the termination of the Paint Supply Contract and obtaining a release from
Sherwin-Williams.1 See [6], Am. Compl. ¶¶ 14, 15. Boyd alleges that, prior to the closing, Fiori
represented that Sherwin-Williams had agreed to provide a loan payout letter and release, but
that it would not be supplied until later on the day of closing or the day thereafter. Id. at ¶ 15.
Roger D’Orazio alleges that Fiori made a similar representation to him before the closing date—
in particular, that Sherwin-Williams had agreed in principle to terminate the Contract if Collision
Revision simply paid Sherwin-Williams all then outstanding amounts due under the Contract.
See [43], Am. Counterclaim ¶ 47. When it became apparent that a release for the Paint Supply
Contract—as well as releases on two other contracts with businesses called Cisco and Cal’s
1
To avoid confusion, the Court will refer to Fiori D’Orazio by his first name throughout this opinion.
4
Revision—would not be executed by the closing date, the parties decided to go forward with the
closing but agreed that an additional $4.2 million would be held back from the preliminary
purchase price (the “$4.2 Million Holdback”). See id. at ¶¶ 29–31. The Closing Statement
reflected the additional holdback. Exhibit A to the Statement explains:
Boyd US shall hold back $4,200,000 pending payoffs for the following: Sherwin
Williams, CISCO, Cal’s Revision. Once the payoffs are received, Boyd shall
make payments to the appropriate parties and release the remaining amount to
Seller within fifteen (15) days.
[43-9]. After receiving the Closing Statement, Boyd’s counsel followed up with an email to
D’Orazio’s counsel, stating:
[W]e need to confirm how we are dealing with monies held back in connection
with monies from Cisco, Sherwin Williams and Cal’s Collision. The Seller will
holdback $4,200,000 US (based on maximum aggregate amount owing plus some
extra funds) pending receipt from all 3 parties of acceptable payout statements
and full releases or undertaking to provide full releases after which Seller will
promptly pay the amounts owing up to the aggregate holdback and forward any
balance to Seller. If the amount owing exceeds the holdback Seller will
immediately pay the excess. Please confirm.
[6], Am. Compl. ¶ 16 (quoting Exh. B, 04/14/14 email). D’Orazio’s counsel confirmed that
understanding. Id. at ¶ 18. Boyd alleges that he closed on the anticipated closing date in reliance
on D’Orazio’s counsel’s representations as well as on Fiori’s representation that the SherwinWilliams release effectively had been obtained. See id. at ¶ 19.
D’Orazio alleges that he learned after the closing that Sherwin-Williams would not in
fact agree to terminate the Paint Supply Contract in exchange for payment of outstanding
amounts owed. [43], Am. Counterclaim ¶ 52. Although D’Orazio terminated his contracts with
Cisco and Cal’s Collision, he was unable to terminate the Paint Supply Contract. [6], Am.
Compl. ¶ 21. D’Orazio informed Boyd’s CEO of the situation with Sherwin-Williams, and
Boyd’s CEO allegedly stated that Boyd would take care of terminating the Contract and
5
obtaining the release, as Boyd had contacts at Sherwin-Williams.
See id. Based on that
conversation, D’Orazio alleges that he believed that Boyd had assumed responsibility for
securing the release. Id.
Thereafter, Boyd paid Sherwin-Williams $9.5 million for a release from any claims
related to the Paint Supply Contract (the “Release”). See [43], Am. Counterclaim ¶ 57; [43-1],
Release ¶¶ 1–2. The Release applies to Collision Revision and Boyd but states that it does not
release D’Orazio from his obligations under the Paint Supply Contract or the personal guaranty
that he signed. [43-1], Release ¶ 2. The Release also contemplates Boyd demanding payment
from D’Orazio for the $9.5 million that it paid to Sherwin-Williams and Sherwin-Williams
seeking recovery from D’Orazio for additional amounts owed under the Paint Supply Contract
that were not covered by the $9.5 million. See id. at ¶ 5. The Release further states that
Collision Revision will reimburse Sherwin-Williams for its related litigation expenses. Id. at ¶ 9.
Boyd alleges that he worked with Sherwin-Williams for months to negotiate the Release and that
D’Orazio refused to cooperate or participate. [6], Am. Compl. ¶¶ 25–26.
The Parties’ Claims and the Engagement of an Accounting Firm
Boyd’s amended complaint asserts eleven claims in connection with the foregoing events,
seven of which are relevant to the instant motion to dismiss.2 In Count I, Boyd alleges that
D’Orazio breached § 7.02(p) of the PSA by failing to terminate the Paint Supply Contract or to
obtain a release from Sherwin-Williams for Collision Revision. Counts II, III, and IV also are
based on D’Orazio’s failure to terminate the Paint Supply Contract and obtain a release but are
pleaded in the alternative to Count I.
Count II asserts that D’Orazio breached a “further
assurances” clause in the PSA. Count III is styled as a “common law” breach of contract claim
2
The amended complaint originally asserted thirteen claims, but Counts VII and VIII related to sign
permit applications were voluntarily dismissed by Boyd, as noted.
6
and does not cite any particular provision of the PSA. Count IV is an unjust enrichment claim.
Count V asserts a breach of the PSA’s indemnification clause. Counts IX and X are fraud and
negligent misrepresentation claims based on false statements that D’Orazio allegedly made about
Sherwin-Williams’ willingness to terminate the Paint Supply Contract.
D’Orazio brings four counterclaims, three of which Boyd moves to dismiss. In Count I,
D’Orazio alleges that the PSA should be reformed so that § 2.06 reflects the parties’ alleged
agreement that the $4.2 Million Holdback would be used to cover monies owed to SherwinWilliams, Cal’s Collision, and Cisco and would be treated the same as the $1.6 Million Holdback
for purposes of calculating the Working Capital Adjustment. Count III is a breach of contract
claim alleging that Boyd breached the PSA by (1) unreasonably delaying delivery of its proposed
WIP Adjustment, (2) excluding the $4.2 Million Holdback from its post-closing adjustments; and
(3) using monies owed to D’Orazio (presumably the $4.2 Million Holdback) to pay SherwinWilliams for a release that did not conform to that contemplated by the PSA. Count IV alleges,
in the alternative, that the PSA should be rescinded based on mutual mistake.
As noted, D’Orazio also has filed a motion for partial summary judgment in which he
requests that the Court enter an order stating that the $4.2 Million Holdback must be included in
the Working Capital Adjustment and that Boyd no longer is entitled to a WIP Adjustment
because its delay in providing that figure was a material breach of the PSA. See [27], Mot. at 1.
The parties have agreed to engage the accounting firm McGladrey, LLP to resolve the disputed
post-closing adjustments, but the firm will not begin its work until this Court resolves the legal
issues set forth in D’Orazio’s motion for summary judgment. See [28], Mem. 1–3; [21], Joint
Stipulation ¶¶ 4–6.
7
II.
Legal Standard
Both parties have moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). The
purpose of a motion to dismiss is not to decide the merits of the case, but instead to test the
sufficiency of the complaint. See Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990).
As noted, when reviewing a motion to dismiss under Rule 12(b)(6), the Court takes as true all
factual allegations in the complaint and draws all reasonable inferences in the non-movant’s
favor. Killingsworth, 507 F.3d at 618.
To survive a Rule 12(b)(6) motion, the claim first must comply with Rule 8(a) by
providing “a short and plain statement of the claim showing that the pleader is entitled to relief”
(Fed. R. Civ. P. 8(a)(2)), such that the defendant is given “fair notice of what the * * * claim is
and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The factual allegations also must be
sufficient to raise the possibility of relief above the “speculative level,” assuming that all of the
allegations are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir.
2007) (quoting Twombly, 550 U.S. at 555). “A pleading that offers ‘labels and conclusions’ or a
‘formulaic recitation of the elements of a cause of action will not do.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). However, “[s]pecific facts are not
necessary; the statement need only give the defendant fair notice of what the * * * claim is and
the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly,
550 U.S. at 555) (ellipsis in original). The Court reads the complaint and assesses its plausibility
as a whole. See Atkins v. City of Chi., 631 F.3d 823, 832 (7th Cir. 2011).
8
III.
D’Orazio’s Motion to Dismiss the Amended Complaint [15]
The Court first addresses D’Orazio’s motion to dismiss Boyd’s (1) breach of contract
claims (Counts I, II, III & V); (2) unjust enrichment claim (Count IV); (3) common law fraud
claim (Count IX); and (4) negligent misrepresentation claim (Count X).
A.
Breach of Contract
D’Orazio moves to dismiss Boyd’s breach of contract claims, all of which are premised
on D’Orazio’s failure to terminate the Paint Supply Contract and obtain a release for Collision
Revision from Sherwin-Williams.
D’Orazio primarily argues that the claims are deficient
because they are not premised on a breach of a contractual obligation; rather terminating the
Paint Supply Contract and securing a release was only a condition precedent to Boyd’s
obligation to close the deal.
Under Illinois law (which the parties do not dispute governs), “[a] condition precedent is
some act that must be performed or event that must occur before a contract becomes effective or
before one party to an existing contract is obligated to perform.” Hardin, Rodriguez & Boivin
Anesthesiologists, Ltd. v. Paradigm Ins. Co., 962 F.2d 628, 633 (7th Cir. 1992). Failing to
perform a condition precedent may be construed as a breach of contract in appropriate
circumstances. See id. (citing Restatement (Second) of Contracts § 225(3)). According to the
Restatement, the “[n]on-occurrence of a condition is not a breach by a party unless he is under a
duty that the condition occur.” Restatement (Second) of Contracts § 225(3) (emphasis added);
see also TAS Distrib. Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 631 (7th Cir. 2007)
(“Only a duty imposed by the terms of a contract can give rise to a breach.”) (internal quotation
marks omitted). To determine whether the PSA imposed a duty on D’Orazio to terminate the
Paint Supply Contract and secure a release from Sherwin-Williams, the Court looks to the plain
9
language of the PSA with the “primary objective [of] determin[ing] and giv[ing] effect to the
intentions of the parties at the time they entered into the contract.” Tranzact Technologies, Ltd.
v. Evergreen Partners, Ltd., 366 F.3d 542, 546 (7th Cir. 2004) (quoting Ancraft Prods. Co. v.
Universal Oil Prods. Co., 427 NE.2d 585, 588 (Ill. 1981)). Ambiguity does not arise simply
because the parties disagree on the meaning of a particular term in the PSA. See id. at 548.
Count I is premised on a breach of § 7.02(p) of the PSA, which conditions Boyd’s
obligation to close on actual termination of the Paint Supply Contract. Section § 7.02(p) states:
The obligations of the Purchaser to effect the Transaction is subject to the
satisfaction at or prior to the Closing Time of the following additional conditions
* * * Purchaser receives evidence of payment of all monies owing pursuant to the
Paint Supply Contract and The Sherwin-Williams Company confirms termination
of the Paint Supply Contract releases each Company that is a party thereto from
all obligations pursuant to the Paint Supply Contract[.]
[43-8], PSA § 7.02(p). According to Boyd, this provision obligated D’Orazio to terminate the
Contract and obtain a release. See [6], Am. Compl. ¶¶ 11–12. The plain language of § 7.02(p)
does not support Boyd’s interpretation. As D’Orazio points out, subsection (p) does not even
mention D’Orazio or the Seller, let alone state that he is required to take any action with respect
to Sherwin-Williams or the Paint Supply Contract. Further, the cases that Boyd cites in support
of its claim simply stand for the proposition that failing to perform a condition may support a
breach of contract claim if the condition imposes a duty; none support Boyd’s reading of
§ 7.02(p), which would impose a duty on D’Orazio that is not present in the PSA. See, e.g.,
LaSalle Bank Nat’l Assoc. v. Paramont Properties, 588 F. Supp. 2d 840, 855 (N.D. Ill. 2008)
(finding valid breach of contract claim based on “mandatory precondition” provision and noting
use of “shall” language in provision). Accordingly, Count I is dismissed.
Counts II and V allege that D’Orazio breached other provisions of the PSA by failing to
terminate the Paint Supply Contract. Count II relies on a “Further Assurances” clause that states:
10
The parties agree (a) to furnish upon request to each other such information, (b) to
execute and deliver to each other such other documents, and (c) to do such acts
and things, all as the other parties may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in this
Agreement.
[43-8], PSA § 10.02. D’Orazio contends that this clause does not support a unique breach of
contract claim, because it does not impose a separate contractual obligation on him, apart from
his duty to cooperate to carry out his obligations under the PSA.
In support, D’Orazio cites several cases from other jurisdictions in which courts refused
to impose new or different obligations on parties pursuant to further assurance clauses. See 97th
St. Holdings LLC v. East Side Tenants Corp., 82 A.D.3d 473, 474 (N.Y. App. Div. 2011)
(additional obligation could not be imputed from “generalized language found in the contract’s
further assurances clause” as that “would amount to a reformation of the contract without
basis”); Madera Prod. Co. v. Atlantic Richfield Co., 1998 WL 292872, *6–7 (N.D. Tex. June 1,
1998) (clause that obligated parties to take “such further actions * * * that are necessary or useful
in carrying out the purpose of the Agreement” did not obligate defendant to agree to make
changes to contract).3 Boyd responds by clarifying that § 10.02 of the PSA “seeks to enforce
D’Orazio’s obligations under the PSA and not outside of its terms.”
[32], Resp. Br. 4–5
(emphasis added). The Court already has determined that § 7.02(p) of the PSA does not impose
on D’Orazio an obligation or duty to terminate the Paint Supply Contract, however; and Boyd
has not pointed to a different provision in the PSA under which D’Orazio was obligated to do so.
Accordingly, Count II is dismissed.
Count V asserts a breach of an indemnification clause in the PSA, pursuant to which
D’Orazio agreed to indemnify Boyd for losses arising from breaches of representations,
3
The parties do not cite any Illinois or Seventh Circuit law interpreting a further assurances clause like
the one at issue in the PSA, nor has the Court’s own research located any such cases.
11
warranties, covenants or other agreements contained in the PSA. See [43-8], PSA § 9.02(a).
Count V does not specify the underlying breach on which the indemnification claim is based; the
allegations merely state that D’Orazio “breached the PSA, by among other things, failing to
properly indemnify Boyd for its breaches as required by [the indemnification clause].” [6], Am.
Compl. ¶ 81. To the extent that Count V is premised on a breach of § 7.02(p) or the Further
Assurances provision in § 10.02, it likewise is deficient for the reasons explained above and is
dismissed.
Finally, Count III—styled as a “common law” breach of contract claim4 “pled in the
alternative to Count I”—is premised on emails that the parties exchanging regarding the $4.2
Million Holdback. In particular, Boyd alleges:
* * * Seller, through his counsel, confirmed, in an April 14, 2014 email, that Boyd
could hold back $4.2M of the purchase price until the termination and release of
the S-W Paint Supply Contract (and two other agreements) were provided. In
addition, Seller, through his counsel, agreed, in that same email, that Seller would
pay any excess amounts due and owing in connection with the termination and
release of those three agreements. * * * Seller breached his obligations pursuant
to that agreement by failing to terminate the S-W Paint Supply Contract and
secure a release[.] Seller further breached his obligations pursuant to that
agreement by failing to make Boyd whole * * * for the costs Boyd incurred in
terminating the Paint Supply Contract and securing [Collision Revision’s] release
therefrom.”
[6], Am. Compl. ¶¶ 66–70. These allegations suggest that D’Orazio breached an agreement
reached on April 14, 2014 by failing to terminate the Paint Supply Contract after the closing and
reimburse Boyd for costs that it incurred to terminate the Contract. Boyd maintains, however,
that it brings Count III “under the PSA” and that the alleged emails “merely confirm” D’Orazio’s
obligation under the PSA to terminate the Paint Supply Contract. [32], Resp. Br. 5, 9. The Court
4
Presumably, Boyd labeled Count III as a “common law” claim because it is not premised on an express
provision in the PSA. Although not material to the Court’s disposition of this claim, the Court notes that
all of Boyd’s breach of contract claims—whether premised on the PSA or another alleged agreement—
are common law claims.
12
accordingly understands Count III to be premised on the PSA—as opposed to on some sort of
secondary agreement outside of the PSA—and analyzes it as such.5 For the reasons that follow,
this claim must be dismissed.
As D’Orazio argues in his motion, the PSA contains an integration clause that states:
Entire Agreement. This Agreement (including the documents and instruments
referred to in this Agreement and any party signing a joinder agreement)
constitutes the entire agreement of the parties and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and is not intended to confer any other Person any rights or
remedies hereunder.
[43-8], PSA § 10.05. In light of this clause, D’Orazio argues that Boyd cannot rely on the April
2014 emails that discussed the $4.2 Million Holdback. In response, Boyd asserts that the emails
may be considered because they do not contradict the terms of the PSA. It further argues that to
the extent that the parties disagree on whether § 7.02(p) obligated D’Orazio to terminate the
Paint Supply Contract, the emails may be considered to clarify the parties’ intent.
The Court disagrees with Boyd on this point. “[W]here parties formally include an
integration clause in their contract, they are explicitly manifesting their intention to protect
themselves against misinterpretations which might arise from extrinsic evidence.” TAS Distrib.
Co., 491 F.3d at 636 (quoting Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882, 885 (Ill.
1999)). Accordingly, if a contract is facially unambiguous and contains an integration clause, as
is the case here, courts are barred from considering extrinsic evidence and the “four corners rule”
applies. Id. Under that rule, the Court may not consider evidence related to understandings “not
reflected in the terms of the [PSA], reached either before or at the time of the contract’s
execution, where those terms would vary or modify the terms of the [PSA] itself.” See id. at
637.
5
If the Court’s understanding is inaccurate, Boyd may clarify its allegations and the basis for its claim in
an amended pleading.
13
Based on the foregoing discussion, the Court must dismiss Count III. With respect to
D’Orazio’s alleged breach of a purported obligation to terminate the Paint Supply Contract, [6],
Am. Compl. ¶ 69, the Court already has explained that the PSA did not obligate him to do so.
To the extent that Boyd attempts to rely on emails to infer such an obligation in the PSA, the
Court cannot consider the emails, as inferring such an obligation from them would change §7.02,
which is an unambiguous provision within an integrated agreement.
With respect to Mr.
D’Orazio’s alleged breach of a purported obligation to pay Boyd for its costs in terminating the
Paint Supply Contract,” id. at ¶ 70, Boyd has not pointed to an existing contractual provision in
the PSA that imposes such an obligation him. As such, any alleged agreement that was reached
by the parties via email would change the PSA and likewise may not be considered under the
four corners rule. Count III accordingly is dismissed.
B.
Unjust enrichment
In Count IV, Boyd asserts an unjust enrichment claim. Specially, Boyd alleges that “[a]s
part of [the parties’] agreement [to sell Collision Revision], Boyd required that [Mr. D’Orazio]
terminate the Paint Supply Contract and secure a release for [Collision Revision] from it.” [6],
Am. Compl. ¶ 74. It further alleges that Mr. D’Orazio “failed and refused to terminate the Paint
Supply Contract * * * at great expense to Boyd.” Id. at ¶ 75. As a consequence, Boyd “has
suffered a detriment in excess of $8 million.” Id. at ¶ 76. Finally, Mr. D’Orazio’s “refusal to
make Boyd whole for its losses in connection with the sale of [Collision Revision] violates the
fundamental principles of justice, equity, and good conscience[.]” Id. at ¶ 77. The Court
concludes that these allegations fail to state an unjust enrichment claim.
Unjust enrichment provides a theory of recovery or restitution “that arises when the
defendant is retaining a benefit to the plaintiff’s detriment, and this retention is unjust.” Cleary
14
v. Philip Morris Inc., 656 F.3d 511, 517 (7th Cir. 2011). To state a claim, the plaintiff must
allege that “the defendant has unjustly retained a benefit to the plaintiff’s detriment, and that the
defendant’s retention of the benefit violates the fundamental principles of justice, equity, and
good conscience.” Id. at 516 (quoting HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc.,
545 N.E.2d 672, 679 (Ill. 1989)). Importantly, “[b]ecause unjust enrichment is based on an
implied contract, ‘where there is a specific contract which governs the relationship of the parties,
the doctrine of unjust enrichment has no application.’” People ex rel. Hartigan v. E & E
Hauling, Inc., 607 N.E.2d 165, 177 (Ill. 1992) (quoting La Throp v. Bell Fed. Savings & Loan
Ass’n, 370 N.E.2d 188 (Ill. 1977)). Although a party cannot recover under both breach of
contract and unjust enrichment theories, the claims may be pleaded in the alternative. See
Prudential Ins. Co. of America v. Clark Consulting, Inc. 548 F. Supp. 2d 619, 623–24 (N.D. Ill.
2008). D’Orazio argues that Count IV should be dismissed because Boyd fails to properly plead
its unjust enrichment claim in the alternative to its breach of contract claims. The Court agrees
and also concludes that the claim lacks certain allegations that are necessary to state a claim.
As to the alternative pleading point, the Court concludes that Boyd has not properly
alleged its claim in the alternative. Although the caption of Count IV states, “pled in the
alternative to Count I,” the first paragraph of the count states that it “incorporates by reference
paragraphs 1 through 46 of [the] Amended Complaint.”
[6], Am. Compl. ¶ 72.
These
paragraphs allege that an express contract, the PSA, governed the parties relationship; paragraph
one, for example, states that the lawsuit arises from D’Orazio’s “failure to honor the explicit
terms of [the] [PSA],” id. at ¶ 1. Boyd also references the PSA in the unjust enrichment count by
alleging: “Seller sold [Collision Revision] * * * to Boyd for a substantial amount of money. As
part of that agreement, Boyd required that Seller terminate the Paint Supply Contract[.]” Id. at
15
¶¶ 73–74 (emphasis added). Because the unjust enrichment claim references the PSA and
incorporates paragraphs that allege that the PSA was breached, it must be dismissed. See, e.g.,
Cole-Haddon, Ltd. v. Drew Philips Corp., 454 F. Supp. 2d 772, 777 (N.D. Ill. 2006) (dismissing
unjust enrichment claim because plaintiff reasserted all allegations previously alleged, including
one that alleged the existence of a contractual agreement between the parties); Team
Impressions, Inc. v. Chromas Technologies Canada, Inc., 2003 WL 355647, at *4 (N.D. Ill. Feb.
18, 2003) (dismissing unjust enrichment claim because it included allegations of a specific
contract governing the parties’ relationship).
More significantly, Boyd has failed to sufficiently allege that D’Orazio retained a benefit,
or any specifics of such a benefit, as is required to state an unjust enrichment claim. See Cleary,
656 F.3d at 517. Boyd only vaguely references “Seller’s failure to pay amounts due Boyd for the
benefits received by Seller,” [6], Am. Compl. ¶ 78, but it fails to allege any facts in support that
conclusory allegation. Indeed, instead of setting forth a viable unjust enrichment theory, the
amended complaint, as alleged, implies that D’Orazio simply breached his obligation to secure a
release from Sherwin-Williams. This, of course, is the basis for Boyd’s breach of contract
claims, which the Court already has dismissed. For all of these reasons, Count IV is dismissed.
C.
Fraud
In Count IX, Boyd brings a fraud claim against D’Orazio based on alleged
misrepresentations that were made by his agent, Fiori D’Orazio, about the status of the SherwinWilliams release. To plead a common law fraud action, a plaintiff must allege “(1) a false
statement of material fact; (2) defendant’s knowledge that the statement was false; (3)
defendant’s intent that the statement induce the plaintiff to act; (4) plaintiff’s reliance upon the
truth of the statement; and (5) plaintiff’s damages resulting from reliance on the statement.”
16
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 841 (7th Cir. 2007)
(quoting Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d 584, 591 (Ill. 1996)). Fraud allegations
are subject to the heightened pleading requirements of Rule 9(b), which require the plaintiff to
plead the “who, what, when, where, and how” of the alleged fraud.” DiLeo v. Ernst & Young,
901 F.2d 624, 627 (7th Cir. 1990). As D’Orazio points out, a fraud claim may not be premised
on the mere breach of a contract; rather there must be a “fraudulent act distinct from the alleged
breach of contract.” See Greenberger v. GEICO General Ins. Co., 631 F.3d 392, 401 (7th Cir.
2011). Based on the foregoing discussion, the Court concludes that Boyd’s allegations are
sufficient to state a fraud claim.
In particular, Boyd alleges that prior to the closing, Fiori D’Orazio (acting on behalf of
Roger D’Orazio) falsely stated to Boyd that “he was in the process of terminating the Paint
Supply Contract and securing a release,” and that Sherwin-Williams “had agreed to provide a
loan payout letter and a release of the [Contract].” [6], Am. Compl. ¶¶ 15, 107. Boyd alleges
that Fiori made these statements to induce Boyd to close the deal, knowing that SherwinWilliams had never agreed to terminate the Contract.
See id. at ¶¶ 108–109. Boyd further
alleges that it relied on these representations in deciding to go ahead with the deal despite not
having the release in hand on April 14, 2014. See id. at ¶ 112. Although Boyd knew that the
release would not be brought to the closing, it believed that the release effectively had been
negotiated and obtained and would be delivered shortly thereafter.
Moreover, none of the purported deficiencies that D’Orazio identifies in his motion
require dismissal of this claim. D’Orazio’s first contention that the claim is merely a recitation
of Boyd’s breach of contract claims—thus warranting dismissal under Greenberger—is
incorrect. To the contrary, the fraud claim is premised on alleged false statements that were
17
made prior to the closing about the status of the Sherwin-Williams release and D’Orazio’s ability
to eventually obtain it. These alleged representations qualify as fraudulent misrepresentations
separate and apart from D’Orazio’s breach on an alleged obligation to terminate the Paint Supply
Contract, unlike those that were found to be insufficient in Greenberger. See 631 F.3d at 401
(dismissing fraud claim because it was “just a reformulation of the contract clam [as] [the
plaintiff] failed to identify any fraudulent act distinct from the alleged breach of contract[.]”).
D’Orazio next contends that Boyd has failed to allege a false statement of present or preexisting fact. Under Illinois law, unless a plaintiff had pleaded a scheme to defraud, fraud claims
are limited to misrepresentations concerning present or past facts, as opposed to false statements
of intent regarding future conduct. Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 570 (7th
Cir. 2012). Boyd’s fraud allegations comport with this rule, as it alleges that Fiori D’Orazio was
dishonest about the status of the Paint Supply Contract and Sherwin-Williams’ position on
terminating it.
Although the actual termination of the Contract, and the execution of the
accompanying release, were to occur in the future, Fiori’s alleged misrepresentations concerned
present or past facts—namely that “he was in the process of terminating the Paint Supply
Contract and securing a release,” and that Sherwin-Williams “had agreed to provide a loan
payout letter and a release of the [Contract].” [6], Am. Compl. ¶¶ 15, 107 (emphasis added).
Finally, D’Orazio contends that Boyd fails to sufficiently allege that it reasonably relied
on Fiori D’Orazio’s misrepresentations. In his view, the reliance allegations are “conclusory,”
and Boyd could not have reasonably relied on Fiori’s statements, given that the parties
conditioned Boyd’s obligation to close on actual confirmation from Sherwin-Williams that the
Paint Supply Contract was terminated. As to the first point, although the reliance allegations are
not particularly comprehensive or protracted, they are sufficient for purposes of surviving a
18
motion to dismiss, where the Court assesses allegations by reading the complaint as a whole, see
Atkins v. City of Chi., 631 F.3d 823, 832 (7th Cir. 2011). Here, Boyd alleges that it decided to
close as planned based in part on Fiori’s representations about his ability to obtain the release
from Sherwin-Williams shortly after closing.
In context, these relatively simple and
straightforward reliance allegations are plausible and sufficient.
With respect to second point, the Court declines to dismiss the fraud claim based on the
purported unreasonableness of Boyd’s reliance. Whether reliance is reasonable is generally illsuited for determination on a motion to dismiss. See Rowe v. Maremont Corp., 850 F.2d 1226,
1234 (7th Cir. 1988) (“In a common law fraud case, we * * * held [ ] that the trier-of-fact can
best decide whether a plaintiff reasonably relied on a defendant’s misstatements.”); Sims v.
Tezak, 296 Ill. App. 3d 503, 511 (Ill. App. Ct. 1st Dist. 1998) (“[T]he justifiable reliance element
of fraud is a question of fact * * * the facts may very well show that plaintiffs were unjustified in
relying upon the representations made by defendants * * * such questions are to be determined
by the finder of fact and not by the trial court as a matter of law.”). In addition, D’Orazio has not
cited any authority that supports his position that Boyd could not justifiably rely on statements
by persons that operated the business that it was preparing to purchase, merely because its
obligation to close was conditioned on certain events.
For all of the reasons stated above, the Court finds that Boyd has stated a valid common
law fraud claim and denies D’Orazio’s motion to dismiss Count IX.
D.
Negligent Misrepresentation
Count X is premised on the same allegations as Count IX, but under a negligent
misrepresentation theory. D’Orazio moves to dismiss this claim under Moorman Manufacturing
Company v. National Tank Company, 91 Ill. 2d 69 (Ill. 1982). Under the Moorman doctrine, a
19
plaintiff may not recover for “solely economic loss unless the defendant either ‘intentionally
makes false representations’ or ‘is in the business of supplying information for the guidance of
others in their business transaction [and] makes negligent misrepresentations.’” Rankow v. First
Chicago Corp., 870 F.2d 356, 362 (7th Cir. 1989) (quoting Moorman Mfg. Co., 91 Ill. 2d at 88–
89)).
Boyd does not dispute the applicability of the Moorman rule to his negligent
misrepresentation claim, but contends that he has stated a valid claim because D’Orazio was in
the business of supplying information, thus triggering an exception to the rule. See [32], Resp.
Br. 14–15. The Court disagrees.
For one, Boyd has not pleaded, even in conclusory fashion, that D’Orazio was in the
business of supplying information, thus warranting dismissal of its claim. See, e.g., DixiePortland Flour Mills, Inc. v. Nation Enterprises, Inc., 613 F. Supp. 985, 990 (N.D. Ill. 1985)
(dismissing negligent misrepresentation claim because counter-plaintiff failed to allege that
counter-defendant was in such a business). Even overlooking the omission, Boyd has not
pleaded facts that plausibly suggest that D’Orazio’s collision repair business qualifies as a
business that supplies information for the guidance of others. To determine whether a defendant
qualifies under this exception, courts ask whether a defendant’s product or part of its product is
“information.” See Rankow, 870 F.2d at 364. Courts accordingly have held that stockbrokers,
real estate brokers, and termite inspectors qualify because they supply actual “information,”
whereas developers, builders, and manufacturers do not. See id. at 363–64. Any information
supplied by the latter group is merely incidental to their products. See id.
Here of course, D’Orazio is alleged to be in the collision repair business. Boyd contends
that D’Orazio nonetheless qualifies as a supplier of information because he had to provide Boyd
with certain information about the status of the Paint Supply Contract under the PSA. See [32],
20
Resp. Br. 15. But any such information was meant merely to facilitate the transaction between
the parties; it was not part of D’Orazio’s business or his product. See Rankow, 870 F.2d at 361.
Count X therefore is dismissed.
IV.
Boyd’s Motion to Dismiss the Amended Counterclaim [53]
Having decided D’Orazio’s motion to dismiss, the Court turns to Boyd’s motion to
dismiss D’Orazio’s counterclaims, which allege that (1) the PSA should be reformed, (2) Boyd
breached the PSA, and (3) alternatively, the Court should rescind the PSA. The Court addresses
these claims in turn below.
A.
Reformation of the PSA
In his first counterclaim, D’Orazio requests that the Court enter an order reforming
§ 2.06(a) of the PSA, which addresses the $1.6 Million Holdback. As written, the PSA states:
Holdback. At closing, $1,622,225 of the Preliminary Purchase Price (the
“Holdback Amount”) shall be reserved by the Purchaser to satisfy any PostClosing Working Capital Adjustment payable to the Purchaser as provided in
Section 2.06(b). The remainder of the Holdback Amount, if any, shall be released
to the Seller in accordance with Section 2.04(c) on the Holdback Release Date.
[43-8], PSA § 2.06(a). D’Orazio contends that this section should be reformed so that it “treats
the $4.2 Million Holdback the same as the $1.6 Million Holdback for purposes of the postclosing adjustment for Net Working Capital.” [43], Am. Counterclaim ¶ 83.
“Reformation is available when the parties, having reached an agreement and having then
attempted to reduce it to writing, fail to express it correctly in the writing.” Indiana Ins. Co. v.
Pana Community Unit School Dist. No. 8, 314 F.3d 895, 903–04 (7th Cir. 2002) (quoting
Restatement (Second) of Contracts, § 155 cmt. a). Reformation is used to “insert[ ] some
omitted provision or delet[e] some existing provision so that the document conforms to the
original agreement of the parties.” Wheeler-Dealer, Ltd. v. Christ, 379 Ill. App. 3d 864, 869 (Ill.
21
App. Ct. 1st Dist. 2008). The elements of reformation include: “(1) * * * a meeting of the minds
resulting in an actual agreement between the parties; (2) the parties agreed to reduce their
agreement to writing; and (3) at the time the agreement was reduced to writing and executed,
some agreed upon provision was omitted or one not agreed upon was inserted [ ] through mutual
mistake[.]” Indiana Ins. Co., 314 F.3d at 904 (quoting Alliance Syndicate v. Parsec, Inc., 741
N.E.2d 1039, 1048 (Ill. App. Ct. 2000)). Boyd argues that Count I fails because D’Orazio does
not sufficiently allege that the parties reached an agreement regarding the treatment of the $4.2
Million Holdback, particularly given that D’Orazio alleges that the parties disagreed (postclosing) on how the Working Capital Adjustment would account for the holdback.
The Court disagrees. D’Orazio alleges that as of the closing date, Sherwin-Williams was
owed $4 million, and Cisco and Cal’s Revision were owed $200,000. [43], Am. Counterclaim
¶ 32. The parties further “understood that all or a portion of the $4.2 Million Holdback would be
either used to pay off the liabilities reflected * * * [in] the Closing Statement or be transmitted to
D’Orazio to the extent he paid off those liabilities himself.” Id. at ¶ 33. With this background in
mind, D’Orazio alleges that the parties “understood that to the extent the liabilities * * *
reflected [in] the Closing Statement remained on [Collision Revision’s] books as of the closing
date, for purposes of the post-closing adjustment to the Purchase Price the parties would treat the
$4.2 Million Holdback in the same manner as the $1.6 Million Holdback under Section 2.06 of
the PSA.” Id. at ¶ 34. These allegations are sufficient to plausibly allege that the parties had
reached an agreement as to the treatment of the $4.2 Million Holdback for purposes of
calculating the adjusted purchase price.
With that said, the claim still must be dismissed, as there are no allegations suggesting
that the parties’ failure to memorialize their agreement in the PSA was due to a factual mistake,
22
which is “a prerequisite for relief in a reformation action,” Wheeler-Dealer, Ltd., 379 Ill. App. 3d
at 871. To the contrary, D’Orazio’s allegations suggest that the parties opted to close on time,
knowing that the PSA did not reflect their understanding with respect to the $4.2 Million
Holdback. This does not qualify as a mutual mistake under Illinois law.
In particular, “[a] mutual mistake is one where both parties understand that the real
agreement is what one party alleges it to be, then, unintentionally, a drafted and signed contract
does not express the true agreement.” Cameron v. Bogusz, 305 Ill. App. 3d 267, 272 (Ill. App.
Ct. 1st Dist. 1999) (emphasis added). See also Spies v. De Mayo, 396 Ill. 255, 272 (Ill. 1947) (a
mutual mistake that supports reformation occurs when “the parties intended to say a certain thing
but mistakenly expressed another.”). Reformation is appropriate in such circumstances because
“an actual understanding has been reached by the parties, but through some error, their written
contract does not express their actual understanding.” Wheeler-Dealer, Ltd., 379 Ill. App. 3d at
871 (emphasis added); see also Young v. Verizon’s Bell Atlantic Cash Balance Plan, 667 F.
Supp. 2d 850, 894 (N.D. Ill. 2009) (reformation is appropriate where “a written agreement does
not reflect the clear intent of the parties due to a drafting error.”) (emphasis added).
Here, D’Orazio alleges that the parties “failed to amend the PSA to fully and accurately
reflect their agreement regarding the $4.2 Million Holdback” due to “the last minute nature of
the agreement regarding the [ ] Holdback,” and their “haste of trying to close the transaction.”
[43], Am. Counterclaim ¶¶ 35, 82. Not having enough time to amend the PSA does not qualify
as a drafting error, or any other sort of error, that would make reformation appropriate; and there
are no other allegations—apart from the conclusory allegation that a “mutual mistake” occurred,
id. at ¶ 83—that might plausibly indicate that the parties unintentionally entered the PSA
believing that it addressed their agreement on the $4.2 Million Holdback. The Court therefore
23
dismisses the reformation claim.
B.
Breach of Contract
In Count III, D’Orazio alleges that Boyd breached the PSA by (1) unreasonably delaying
delivery of its WIP Adjustment; (2) improperly excluding the $4.2 Million Holdback from its
proposed post-closing adjustments; and (3) using monies owed to Mr. D’Orazio under the PSA
to obtain a release from Sherwin-Williams that did not comply with that contemplated by
§ 7.02(p) of the PSA. See [43], Am. Counterclaim ¶ 88. These claims are addressed below.
1.
Delayed delivery of the proposed WIP Adjustment
D’Orazio first alleges that Boyd breached the PSA by failing to deliver its proposed WIP
Adjustment on time in violation of § 2.07 of the PSA. [43], Am. Counterclaim ¶¶ 65, 88.
In
particular, subsection (a)(1) obligated Boyd to deliver its proposed WIP figure within 15 days of
the closing date; Boyd allegedly failed to deliver it until 120 days after closing. See id. Boyd
contends that this claim should be dismissed because D’Orazio fails to sufficiently allege that he
was damaged by Boyd’s delay. Under Illinois law, a valid breach of contract claim requires that
the plaintiff sufficiently allege damages that resulted from the other party’s breach. TAS Distrib.
Co., 491 F.3d at 631.
The Court respectfully disagrees with Boyd on this point. D’Orazio alleges that Boyd’s
delay “severely impacted [his] accountants’ ability to meaningfully respond to [Boyd’s]
proposed WIP Adjustment,” as allowed under the PSA. [43], Am. Counterclaim ¶ 67. In
support, he further alleges that “inventory in a collision repair facility is fluid and changes daily,”
meaning that 120 days after closing, “it would be nearly impossible * * * to accurately determine
the percentage of work that was completed with respect to each of the 1,015 repair orders that
were open at the time of closing.” Id. D’Orazio also sufficiently alleges a nexus between
24
Boyd’s delay (the breach) and his injury (a potentially lower price). He alleges that Boyd’s WIP
Adjustment “materially understated the Companies’ actual WIP” because Boyd based its
analysis on inventory at only one of 25 locations. Id. at ¶ 66. Boyd valued WIP at only
$632,400, or less than half of the “Minimum WIP Value” set forth in the PSA. Id. at ¶¶ 64, 66.
This resulted in a WIP Adjustment of negative $843,188, meaning that Boyd’s position is that it
is entitled to reduce the preliminary purchase price by at least this amount based on its claimed
WIP shortfall. See id. at ¶¶ 66, 69; see also [64], Opp’n Br. 5. These allegations are sufficient to
put Boyd on notice of damages that allegedly were caused by its delay; they also are specific
enough to state a plausible claim.
2.
Excluding the $4.2 Million Holdback from the post-closing
adjustments
D’Orazio alleges that Boyd further breached the PSA by “incorrectly calculating its PostClosing Working Capital and WIP Adjustments by improperly excluding the $4.2 Million
Additional Holdback.” [43], Am. Counterclaim ¶ 88. In its motion to dismiss, Boyd essentially
argues that this claim must be dismissed because the PSA, as executed, did not address the $4.2
Million Holdback or obligate Boyd to treat the holdback monies in a particular way with respect
to the post-closing adjustments. In fact, as Boyd points out, the PSA contemplated disputes over
the adjustment figures and included procedures to resolve such disputes.
In his response brief, D’Orazio essentially concedes that the PSA, as executed, did not
require Boyd to include the $4.2 Million Holdback in its proposed post-closing adjustments. He
explains that this claim rather is based on a breach of a reformed PSA, as detailed in his
reformation claim (Count I). See [64], Opp’n Br. 6 (“Mr. D’Orazio alleged that the PSA should
be reformed as the parties agreed to treat the $4.2 Million Holdback the same as the $1.6 Million
Holdback[.] * * * As reformed, the PSA requires the $4.2 Million Holdback be included in the
25
calculation of the Post-Closing Adjustments under Section 2.06[.]”). The Court already has
concluded, however, that D’Orazio’s reformation claim must be dismissed. Because his breach
of contract claim is premised on a valid reformation claim, the Court likewise must dismiss
Count III to the extent that it alleges that Boyd breached the PSA by excluding the $4.2 Million
Holdback from its post-closing adjustment figures.
3.
The Sherwin-Williams release obtained by Boyd
Finally, D’Orazio alleges that Boyd breached the PSA by obtaining a release from
Sherwin-Williams that did not release him from liability under the Paint Supply Contract. He
alleges that Boyd’s release “was materially different from what the parties contemplated and
agreed would be obtained pursuant to Section 7.02(p) of the PSA: namely, the complete
termination of the Sherwin-Williams Agreement and a full release by Sherwin-Williams of both
[Collision Revision] and D’Orazio.” [43], Am. Counterclaim ¶ 58. As the Court already has
explained, however, § 7.02(p) is merely a condition to Boyd’s obligation to close the transaction.
Although the condition may have contemplated a release that included D’Orazio, see [43-8],
PSA § 7.02(p), the condition did not impose a duty on either D’Orazio or Boyd to actually obtain
the release. Accordingly, just as Boyd cannot claim that D’Orazio breached § 7.02(p) by failing
to obtain a release, D’Orazio cannot claim that Boyd breached it by negotiating a release that
differed from that described in § 7.02(p).
C.
Rescission of the PSA
In his final counterclaim, D’Orazio alleges that the PSA should be rescinded based on the
parties’ mutual mistake concerning Sherwin-Williams’ willingness to terminate the Paint Supply
Contract for approximately $4 million. Under Illinois law, a contract may be rescinded due to
mutual mistake if: “(1) the mistake is of a material nature; (2) the mistake is of such consequence
26
that enforcement is unconscionable; (3) the mistake occurred notwithstanding the exercise of due
care by the party seeking rescission; and (4) rescission can place the other party in status quo.”
Al Maha Trading & Contracting Holding Co. v. W.S. Darley & Co., 936 F. Supp. 2d 933, 944
(N.D. Ill. 2013) (quoting Siegel v. Levy Org. Develop. Co., Inc., 607 N.E.2d 194, 199 (Ill.
1992)). Boyd challenges the sufficiency of the allegations on each of these elements. For the
reasons that follow, the Court concludes that the claim must be dismissed because D’Orazio has
not alleged a mutual mistake under Illinois law.
The type of mistake that allows for rescission must “relat[e] to an essential element of the
contract” and “prevent a meeting of the minds of the parties” such that no agreement is made.
Wheeler-Dealer, Ltd., 379 Ill. App. 3d at 871 (quoting Harley v. Magnolia Petroleum Co., 378
Ill. 19, 28 (Ill. 1941)). Importantly, the type of mutual mistake that supports rescission is one
that is of such grave consequence that it causes the contract not to express the true agreement
that the parties had. See Cameron, 305 Ill. App. 3d at 272; Diedrich v. Northern Illinois Pub.
Co., 39 Ill. App. 3d 851, 857 (Ill. App. Ct. 2d Dist. 1976) (explaining that rescission is available
“[i]f by reason of a mistake of fact * * * the contract is different with respect to the subject
matter or terms from what was intended”). Such mistakes are “fundamental in character” and
usually include those concerning “the existence and identity of the subject matter [and] errors as
to price [and] quantity.” MAN Roland Inc. v. Quantum Color Corp., 57 F. Supp. 2d 576, 579
(N.D. Ill. 1999) (quoting Harley, 37 N.E.2d at 765). See, e.g., Al Maha Trading, 936 F. Supp. 2d
at 944–45 (purchaser of firetrucks stated claim for rescission because the trucks that purchaser
received had diesel engines that required a type of fuel not available in the country where the
trucks were to be used); Piper v. DPFA, 2010 WL 2836814, at *6–7 (N.D. Ill. July 20, 2010)
(purchaser of sculpture stated valid rescission claim where sculpture turned out not to be unique
27
and was instead part of an edition). Mistakes about the cost of performance do not provide
grounds for rescission, “because each party assumes the risk that their assumption as to the cost
of performance was wrong,” or that the “contract is less profitable” than anticipated. Bond Drug
Co. of Illinois v. Amoco Oil Co., 274 Ill. App. 3d 630, 635 (Ill. App. Ct. 1st Dist. 1995). See also
MAN Roland Inc., 57 F. Supp. 2d at 580 (explaining that a mistake that relates to the value of a
transaction is not grounds for rescission).
Here, the rescission allegations do not suggest that the PSA failed to capture the parties’
true agreement. To the contrary, the PSA contemplated that the Paint Supply Contract perhaps
could not be terminated by the closing, as the parties’ obligations to close expressly were
conditioned on its termination. See [43-8], PSA § 7.02(p) (conditioning buyer’s obligation to
close on Sherwin-Williams confirming termination of Contract); id. at § 7.03(e) (conditioning
seller’s obligation to close on having “reached an agreement with Sherwin-Williams for the
resolution of the * * * Paint Supply Contract upon terms and condition[s] acceptable to Seller.”).
There are no allegations suggesting that the parties’ mistaken belief about Sherwin-Williams’
willingness to terminate the Paint Supply Contract for a particular price caused the PSA to
express something other than what the parties intended. Relatedly, the parties obviously were
aware of the outstanding Paint Supply Contract when they drafted the PSA and decided to close.
As such, any “mistake” that the parties made in deciding to close as planned relates to the cost
and value of the transaction, not to a material fact or assumption on which the PSA was based.
See Bond Drug Co., 274 Ill. App. 3d at 635–36 (rejecting rescission claim based on parties’
mistake about consequences of a petroleum leak from underground storage tank, because
defendant knew of the leak and “how to protect itself contractually from such risks prior to
negotiating and entering into the [contract]”).
28
In addition, the parties’ mistake about Sherwin-Williams’ willingness to terminate the
Paint Supply Contract for a certain price is collateral to the main purpose of the PSA—namely,
the sale of D’Orazio’s collision repair businesses to Boyd. Although the Paint Supply Contract
certainly was a substantial liability for both parties, the allegations do not indicate that their
mutual mistake about what it would cost to terminate the Contract went to the purpose or subject
matter of the PSA, as is required to state a rescission claim. See, e.g., Van Schouwen v.
Connaught Corp, 782 F. Supp. 1240, 1244 (N.D. Ill. 1991) (dismissing claim to rescind stock
purchase agreement—the price of which was based on incorrect figures—because “the alleged
mistake in calculating the purchase price [was] not sufficiently ‘material’ to warrant the
rescission of all terms of the contract[ ] [as] [t]he alleged mistake did not go to the purpose of the
contract but merely to one particular term.”). Instead, the alleged mutual mistake goes to the
value of the deal from D’Orazio’s perspective, which is not enough to support a rescission claim.
See Diedrich, 39 Ill. App. 3d at 859 (dismissing rescission claim because “plaintiff received the
property for which it contracted,” and explaining that the fact “that it may be of less value than
the purchaser expected at the time of the transaction is not a sufficient basis for the granting of
equitable relief[.]”). For all of these reasons, Count IV is dismissed.
V.
Conclusion
For the reasons set forth above, the Court grants in part and denies in part the parties’
motions to dismiss. As to D’Orazio’s motion to dismiss the amended complaint [15], the Court
grants the motion with respect to Counts I through V and X; the Court denies the motion with
respect to Count IX (the common law fraud claim). As to Boyd’s motion to dismiss D’Orazio’s
amended counterclaim [53], the Court dismisses all of the claims at issue, with the exception of
subsection (a) of Count III, which alleges that Boyd breached the PSA by failing to deliver its
29
WIP Adjustment in a timely manner. The foregoing claims are dismissed without prejudice. If
the parties believe that they are able to amend their pleadings to state valid claims, they may do
so within 28 days of the date of this order.
Dated: May 29, 2015
____________________________
Robert M. Dow, Jr.
United States District Judge
30
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?