Karum Holdings LLC et al v. Lowe's Companies, Inc. et al

Filing 107

MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 3/28/17. Mailed notice(ca, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
KARUM HOLDINGS LLC,
KARUM GROUP LLC, and
KARUM CARD SERVICES
S.A. DE C.V., SOFOM, E.N.R.,
Plaintiffs,
v.
LOWE’S COMPANIES, INC., and
LOWE’S COMPANIES MEXICO,
S. DE R.L. DE C.V.,
Defendants.

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15 C 380
Judge John Z. Lee

MEMORANDUM OPINION AND ORDER
Lowe’s Companies, Inc. (“Lowe’s Inc.”) is a corporation that operates home
improvement stores in North America. Around 2007, Lowe’s Inc. announced plans
to expand into Mexico. It also decided to create a Private Label Credit Program
through which consumers could obtain private label credit cards usable only at its
Mexico locations.

To that end, Lowe’s Companies Mexico, S. de R.L. de C.V.

(“Lowe’s Mexico”) entered into two agreements with Karum Holdings LLC (“Karum
Holdings”), Karum Group LLC (“Karum Group”), and Karum Card Services S.A. de
C.V., SOFOM, E.N.R. (“KCS”) for the provision of private label credit services.
In 2015, Karum Holdings, Karum Group, and KCS (“Plaintiffs”) sued Lowe’s
Inc. and Lowe’s Mexico (“Defendants”) for breaching the parties’ agreements.
Defendants have filed a motion for partial summary judgment. For the reasons
stated herein, their motion is granted in part and denied in part.

Background 1
Karum Holdings and Karum Group are Delaware limited liability companies.
Defs.’ LR 56.1(a)(3) Stmt. ¶¶ 1–2, ECF No. 87. Their principal places of business
are in California, and their members reside in California and Texas.
Compl. ¶¶ 1–5, ECF No. 50.
56.1(a)(3) Stmt. ¶ 3.

KCS is a subsidiary of Karum Group.

Id.; Am.
Defs.’ LR

It is a special-purpose bank organized under the laws of

Mexico, and it is a citizen of Mexico. Id. Lowe’s Inc. is incorporated in North
Carolina and has its principal place of business in North Carolina. Id. ¶ 4. Lowe’s
Mexico is a corporation organized under the laws of Mexico. Id. ¶ 5. It operates
stores in Mexico and is a citizen of Mexico. Id. 2
On February 10, 2010, Lowe’s Mexico entered into a Private Label Credit
Card Program Agreement (“the Program Agreement”) with Karum Holdings and
KCS for the provision of private label credit cards for Lowe’s Mexico’s customers.
Id. ¶ 9; id., Ex. 1 (“Program Agreement”), at 1. On April 4, 2014, Lowe’s Mexico also
entered into a Profit Sharing and Funding Agreement (“the Funding Agreement”)
with Karum Group, Karum Holdings, and KCS, which governed funding and profit
percentages with respect to KCS’s operations. See id. ¶ 11; id., Ex. 2 (“Funding
1

Except where otherwise noted, the following facts are not in material dispute.

The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(3)
because the amount in controversy exceeds $75,000 and because this is an action between
“citizens of different states and in which citizens or subjects of a foreign state are additional
parties.” 28 U.S.C. § 1332(a)(3). The fact that the additional parties on each side of the
litigation—that is, KCS and Lowe’s Mexico—are both citizens of Mexico does not destroy
diversity of citizenship. Tango Music, LLC v. DeadQuick Music, Inc., 348 F.3d 244, 245–46
(7th Cir. 2003) (holding that diversity jurisdiction obtains under § 1332(a)(3) even where
the foreign citizens on each side of the litigation are from the same country).

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Agreement”), at 2. Plaintiffs assert that Lowe’s Inc. acted as the alter ego of Lowe’s
Mexico for purposes of both the Program Agreement and the Funding Agreement
(together, “the Agreements”). Am. Compl. ¶ 13.
On August 21, 2014, Lowe’s Inc.’s Senior Vice-President of International
Operations, Doug Robinson, spoke on the phone with Plaintiffs’ CEO, Peter
Johnson. Defs.’ LR 56.1(a)(3) Stmt. ¶ 13. The parties dispute what Robinson said
to Johnson during this phone call. According to Defendants, Robinson merely told
Johnson that Defendants “desire[d] to end [their] relationship” with Plaintiffs. Id.
But according to Plaintiffs, Robinson told Johnson more definitively that
Defendants “had determined to terminate the Agreements.”

Pls.’ LR 56.1(b)(3)

Stmt. ¶ 13.
On October 2, 2014, Plaintiffs served Defendants with a demand for
mediation, as required under both Agreements as a condition precedent to
litigation.

Defs.’ LR 56.1(a)(3) Stmt. ¶ 19.

The mediation was conducted on

December 10, 2014, but it was unsuccessful. Id. ¶ 20. Accordingly, Plaintiffs filed
this lawsuit in January 2015, alleging breach of the Agreements. In particular,
they claim that Defendants breached the Agreements by (1) terminating the
Agreements, (2) awarding contracts to third parties for services related to the
Agreements, (3) refusing to work cooperatively with Plaintiffs on day-to-day
business issues, and (4) refusing to cure deficiencies in the performance of their
duties under the Agreements. Am. Compl. ¶¶ 32–36. Defendants have moved for
partial summary judgment as to these claims.

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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.” Fed. R. Civ. P. 56(a); see also Shell v. Smith, 789 F.3d 715, 717
(7th Cir. 2015). To survive summary judgment, the nonmoving party must “do
more than simply show that there is some metaphysical doubt as to the material
facts,” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986),
and instead must “establish some genuine issue for trial such that a reasonable jury
could return a verdict in her favor.” Gordon v. FedEx Freight, Inc., 674 F.3d 769,
772–73 (7th Cir. 2012). In reviewing a motion for summary judgment, the Court
gives the nonmoving party “the benefit of conflicts in the evidence and reasonable
inferences that could be drawn from it.” Grochocinski v. Mayer Brown Rowe &
Maw, LLP, 719 F.3d 785, 794 (7th Cir. 2013). The Court must not make credibility
determinations or weigh conflicting evidence. McCann v. Iroquois Mem’l Hosp., 622
F.3d 745, 752 (7th Cir. 2010).
Analysis
I.

Anticipatory Repudiation
First, Defendants move for summary judgment on Plaintiffs’ breach of

contract claims to the extent they rest on allegations that Defendants prematurely
terminated the Agreements. According to Defendants, even assuming as true that
Robinson attempted to orally terminate the Agreements in his phone call with
Johnson on August 21, 2014, his attempted termination cannot form the basis of
Plaintiffs’ breach of contract claim as a matter of law, because the Agreements’
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express terms required any notice of termination to be in writing. Defs.’ Mem.
Supp. at 7–10, ECF No. 88. In response, Plaintiffs argue that Robinson’s statement
to Johnson gave rise to a breach because it was an anticipatory repudiation. Pls.’
Mem. Opp. at 8–9, ECF No. 99.
Under New York law, 3 an anticipatory repudiation occurs when a party
declares a positive, unequivocal intention not to fulfill a contractual duty before the
time for performance begins. DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 112 (2d
Cir. 2010); Lucente v. Int’l Bus. Machines Corp., 310 F.3d 243, 258 (2d Cir. 2002). A
party can repudiate a contract either in a statement, written or oral, or through its
conduct. See, e.g., Norcon Power Partners, L.P. v. Niagara Mohawk Power Corp.,
705 N.E.2d 656, 659 (N.Y. 1998) (holding that repudiation may occur through a
statement or conduct); Tenavision, Inc. v. Neuman, 379 N.E.2d 1166, 1168 (N.Y.
1978) (holding that oral statements along with one piece of related correspondence
were sufficient evidence of an anticipatory repudiation); see also DiFolco, 622 F.3d
at 112.

Whether a party’s statement or conduct constitutes an anticipatory

repudiation is generally a question for the trier of fact. DiFolco, 622 F.3d at 112
(citing Bercow v. Damus, 5 A.D.3d 711, 712 (N.Y. App. Div. 2004)).
When one party anticipatorily repudiates a contract, the non-repudiating
party must choose one of two mutually exclusive options: (1) “treat the repudiation
as an anticipatory breach and seek damages for breach of contract, thereby

The parties agree that New York law governs this dispute pursuant to choice-of-law
provisions set forth in the Agreements. See Defs.’ Mem. Supp. at 8 (citing Program
Agreement § 12.18; Funding Agreement § 13.20).
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terminating the contractual relation,” or (2) “continue to treat the contract as valid
and await the designated time for performance before bringing suit.” Lucente, 310
F.3d at 258. “The non-repudiating party may refuse, for a time, to acquiesce in the
repudiation, and, without waiving any rights, urge the repudiator to perform.”
Vision Entm’t Worldwide, LLC v. Mary Jane Prods., Inc., No. 13 CIV 4215 AT, 2014
WL 5369776, at *5 (S.D.N.Y. Oct. 17, 2014) (citing S.D. Hicks & Son Co. v. J.T.
Baker Chem. Co., 307 F.2d 750, 752 (2d Cir. 1962)). In addition, “[t]he repudiator
may retract his repudiation until the other party has elected to terminate the
contract or has materially changed his position in reliance on the repudiation.” Id.
(quoting In re Randall’s Island Family Golf Centers, Inc., 261 B.R. 96, 102 (Bankr.
S.D.N.Y. 2001)).
As a threshold matter, the Court notes that much of the parties’ briefing has
centered not on the issue of anticipatory repudiation, but instead on Defendants’
argument that Robinson’s oral statement was insufficient to terminate the
Agreements, which required written notice of termination. Defendants’ argument
misses the mark.

Although a proper termination would have indeed required

written notice, Plaintiffs’ theory is not that Defendants attempted but failed to
properly terminate the Agreements.

Instead, Plaintiffs argue that Robinson’s

statement was “an outright repudiation of the Agreements.” Pls.’ Mem. Opp. at 9.
As noted above, a repudiation can be expressed by any kind of statement, written or
oral, and can even be implied by mere conduct. See Norcon, 705 N.E.2d at 659;
Tenavision, 379 N.E.2d at 1168; DiFolco, 622 F.3d at 112. Thus, it is immaterial to

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Plaintiffs’ anticipatory repudiation theory that Robinson’s statement was not in
writing. It would be odd indeed to require a party claiming that the other party
repudiated its obligation under an agreement to prove that the same party complied
with the terms of the agreement before doing so.
Turning to the merits of Plaintiffs’ anticipatory repudiation theory, the Court
finds that several issues of fact preclude summary in Defendants’ favor. First, there
is a genuine dispute of material fact as to what Robinson actually said on August
21, 2014, during his phone call with Robinson. Defendants claim that Robinson
said they “desire[d] to end [their] relationship” with Plaintiffs, whereas Plaintiffs
claim that Robinson said Defendants “had determined to terminate the
Agreements.” Defs.’ LR 56.1(a)(3) Stmt. ¶ 13; Pls.’ LR 56.1(b)(3) Stmt. ¶ 13. What
Robinson said during the phone call is thus an issue that must be decided by the
jury. In addition, the jury must determine whether Robinson’s statement, whatever
it entailed, expressed an intent not to fulfill a contractual duty so as to constitute an
anticipatory repudiation. DiFolco, 622 F.3d at 112.
Furthermore, assuming that Robinson’s statement was an anticipatory
repudiation, the evidence in the record raises a genuine issue as to whether
Plaintiffs elected to treat the repudiation as a breach, rather than continuing to
treat the Agreements as valid as Defendants claim. In particular, the record shows
that Plaintiffs served Defendants with a demand for mediation on October 2, 2014,
and filed this lawsuit soon after the mediation proved unsuccessful.

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Defs.’ LR

56.1(a)(3) Stmt. ¶¶ 19–21. A jury could find from these facts that Plaintiffs indeed
treated the repudiation as a breach and timely sued for damages.
In their reply brief, Defendants deny that Plaintiffs treated the repudiation
as a breach, asserting instead that Plaintiffs “continued to operate as if the
Agreements remained valid.” Reply at 6, ECF No. 104. But they support this
assertion only by citing a portion of the original complaint, which sought a
declaration excusing Plaintiffs “from further performance of [their] own obligation
under the Agreements.”

Id. (citing Compl. ¶ 30, ECF No. 1).

According to

Defendants, this passage from the complaint “clearly indicate[s] [Plaintiffs’] view
that the Agreements remained valid and effective as of the January 2015 filing
date.” Id. The Court disagrees that such an indication is clear from the complaint.
Plaintiffs may have sought a declaratory judgment simply because they wanted to
put to rest any uncertainty between the parties about whether any contractual
obligations remained.

As such, contrary to Defendants’ assertion, Plaintiffs’

complaint does not foreclose the possibility that Plaintiffs believed the Agreements
were no longer valid at the time of filing.
Defendants also argue in their reply that, even if Robinson’s statement on
August 21 was an anticipatory repudiation, Defendants retracted the repudiation
by notifying Plaintiffs on September 26, 2014, that they “would continue under the
current agreements.” Id. (citing Defs.’ LR 56.1(a)(3) Stmt. ¶ 17). But the record
does not show whether Plaintiffs elected to terminate the contract or materially

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changed their position in reliance on the alleged repudiation prior to that date. 4 If
Plaintiffs did so, then Defendants’ attempt to retract the repudiation was
ineffective.

See Vision Entm’t, 2014 WL 5369776, at *5 (citing In re Randall’s

Island, 261 B.R. at 102).

Thus, whether Defendants’ actions on September 26,

2014, were an effective retraction of a prior repudiation is a question involving
factual issues that the Court cannot resolve on the current record.
In sum, several disputed issues of material fact remain with regard to
Plaintiffs’ anticipatory repudiation theory in connection with Robinson’s statement
during the August 21 phone call. As such, to the extent that Plaintiffs’ breach of
contract claim is based on this statement, Defendants are not entitled to summary
judgment in their favor.
II.

Damages
Next, Defendants have moved for summary judgment on what they term the

“services component” of Plaintiffs’ damages model.

In particular, Defendants

contend that Plaintiffs’ computation of damages impermissibly “seek[s] to recover
services fees and profit sharing contributions paid by KCS to Karum LA and Karum

Presumably, Plaintiffs plan to offer evidence at trial indicating that they either
elected to terminate the contract or materially changed their position before this date.
They cannot be faulted for failing to point to such evidence at the summary judgment stage,
given that Defendants’ argument that they had retracted any prior repudiation surfaced for
the first time in their reply.
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Capital LLC”—neither of which is a party to the Program Agreement or Funding
Agreement (or to this litigation). Defs.’ LR 56.1(a)(3) Stmt. ¶¶ 25–26; id., Ex. 14. 5
Under New York law, “[d]amages for breach of contract include general (or
direct) damages, which compensate for the value of the promised performance, and
consequential damages, which are indirect and compensate for additional losses
incurred as a result of the breach.” Latham Land I, LLC v. TGI Friday’s, Inc., 96
A.D.3d 1327, 1330–31 (N.Y. App. 2012); accord Versatile Housewares & Gardening
Sys., Inc. v. Thill Logistics, Inc., 819 F. Supp. 2d 230, 239 (S.D.N.Y. 2011). “These
two classes of damages are awarded in the amount necessary to put the aggrieved
party in as good a position as it would have been had the contract been fully
performed.”

Versatile Housewares, 819 F. Supp. 2d at 239 (internal quotation

marks omitted). They thus serve the principal goal of contract damages, which is
“to place [the] plaintiff in the position [it] would have been in absent the breach, no
worse but no better.” Brushton-Moira Cent. Sch. Dist. v. Fred H. Thomas Assocs.,
P.C., 230 A.D.2d 228, 230 (N.Y. App. Div. 1997) (internal quotation marks omitted).
In challenging this component of Plaintiffs’ computation of damages, Defendants
mention in passing, with no citation to any authority, that “the Agreements provide that KCS
is the only Karum entity with the ability to enforce them.” Defs.’ Mem. Supp. at 11, 14.
Then, presumably on this basis, a sentence repeated in the brief’s introduction and conclusion
asks the Court to “grant summary judgment in [Defendants’] favor” on “all claims brought on
behalf of Karum Holdings and Karum Group.” Id. at 2, 15. Because this argument is
insufficiently developed and is unsupported by citation to authority, the Court does not
consider it further. See, e.g., United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir.1991)
(“We repeatedly have made clear that perfunctory and undeveloped arguments, and
arguments that are unsupported by pertinent authority, are waived.”); DeGeer v. Gillis, 707
F. Supp. 2d 784, 795 (N.D. Ill. 2010) (declining to consider argument presented in only a
single paragraph and unsupported by authority). Thus, to the extent Defendants seek
summary judgment on “all claims brought on behalf of Karum Holdings and Karum Group,”
see Defs.’ Mem. Supp. at 2, 15, their motion for partial summary judgment is denied.
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Plaintiffs argue that they have incurred a loss in the amount of service fees
that they were contractually obligated to pay to third parties (namely, to Karum LA
and Karum Capital LLC) but were unable to pay as a result of Defendants’ breach.
See Pls.’ Mem. Opp. at 14–15; Pls.’ LR 56.1(b)(3) Stmt. ¶ 26.

This argument,

however, is irreconcilable with the law of contract damages. To the extent Plaintiffs
were contractually obligated to pay these fees to third parties, there is no indication
that Plaintiffs would not have been obligated to pay the fees if Defendants had fully
performed their end of the Agreements. In other words, Plaintiffs’ obligation to pay
these fees is not an “additional loss[ ] incurred as a result of the breach.” Latham,
96 A.D.3d at 1331 (emphasis added). 6 Compensating Plaintiffs for the amount of
the services fees would thus put them in a better position than if the contract had
been performed, given that they would have had to pay the fees even absent the
breach.
For these reasons, the service fees may not be included in Plaintiffs’
computation of damages.

Accordingly, to the extent Defendants seek summary

judgment as to the “services component” of Plaintiffs’ damages model, their motion
is granted.

Karum summarizes its theory in this way: “Rather KCS seeks that amount, because
it is contractually obligated to pay it, but is unable to do so because Lowe’s has breached
the Funding Agreement by not providing the funding KCS needs and has breached the
Program Agreement by prematurely terminating it, and thus extinguishing the need for
Karum Capital and Karum LA’s services through the terms of KCS’s agreements with
Karum Capital and Karum LA.” Pls.’ Mem. Opp. at 14. This is a circumlocutory way of
saying that KCS no longer needs Karum Capital’s and Karum LA’s services because of
Defendants’ alleged breach. If this is so, KCS had no obligation to pay those entities for
services that are no longer needed and thus did not suffer any damages as a result.
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Conclusion
For the reasons stated herein, Defendants’ motion for partial summary
judgment [80] is granted in part and denied in part. To the extent Defendants have
moved to bar Plaintiffs from seeking damages for the “services component” of their
damages model—that is, the amount of services fees and profit sharing
contributions that Plaintiffs owed to third parties—the motion is granted. In all
other respects, the motion is denied. A status hearing is set for 9:00 a.m. on April
12, 2017, at which time the parties should be prepared to set deadlines for pretrial
filings, a date for the pretrial conference, and a date for trial.

IT IS SO ORDERED.

ENTERED

3/28/17

__________________________________
John Z. Lee
United States District Judge

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