American Guardian Warranty Services, Inc. et al v. JCR-Wesley Chapel, LLC et al
Filing
124
MEMORANDUM OPINION AND ORDER: For the reasons stated herein, because the contract is clearly not unconscionable and is supported by adequate consideration, Defendants' Motion for Judgment on the Pleadings on Counts I and V (ECF No. 79) is denied. Status hearing set for 7/19/18 at 9:00 a.m. Signed by the Honorable Harry D. Leinenweber on 6/5/18:Mailed notice(maf)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
AMERICAN GUARDIAN WARRANTY
SERVICES, INC., and AMERICAN
GUARDIAN FUNDING CORPORATION,
Plaintiffs,
Case No. 16 C 11407
v.
Judge Harry D. Leinenweber
JCR-WESLEY CHAPEL, LLC;
JESUS ROSARIO; and CYNTHIA
ROSARIO,
Defendants.
MEMORANDUM OPINION AND ORDER
I.
BACKGROUND
The Defendant JCR-Wesley Chapel (“Wesley Chapel”) is a car
dealership
owned
by
Defendants
Jesus
and
Cynthia
Rosario.
American Guardian Warranty Services, Inc., is an administrator
and
obligor
of
vehicle
service
contracts,
warranties,
and
related undertakings, and American Guardian Funding Corporation
(together
with
American
Guardian
Warranty
Services,
the
“Plaintiffs”) lends money to automobile dealerships which sell
American Guardian products.
On November 7, 2013, Wesley Chapel entered into a Dealer
Agreement whereby Plaintiffs authorized Wesley Chapel to market,
offer,
and
sell
Plaintiffs’
warranties,
extended
service
contracts, and other similar programs to prospective automobile
purchasers at the Wesley Chapel dealership for both new and used
vehicles.
The
materials,
development
contracts,
forms,
of
and
trade
names,
procedures
were provided by Plaintiffs to Wesley Chapel.
for
promotional
the
programs
Wesley Chapel was
permitted to retain as income any amounts paid by its customers
over and above the amount charged by Plaintiffs.
Shortly after they signed the Dealer Agreement, Defendants
also decided to enter into a loan program with Plaintiffs.
On
December 1, 2013, an Addendum Agreement was executed whereby
Plaintiffs agreed to loan Defendants $300,000.00 for five years,
and in return
Defendants agreed not to terminate the Dealer
Agreement for five years and further that during this five-year
period
service
they
would
programs
market,
to
its
offer,
and
customers.
sell
On
only
Plaintiffs’
April 21,
2014,
Defendants requested and received another loan from Plaintiffs,
this time in the amount of $500,000.00.
were similar:
The terms of the loan
the loan was for five years and Defendants agreed
not to terminate the Dealer Agreement and to market Plaintiffs’
products exclusively for those five years (or until April 2019).
On November 14, 2014, Defendants requested and received a third
loan from Plaintiffs, this time in the amount of $1,030,601.15,
under the same terms (extending the restriction on termination
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to
November
14,
2019).
Finally,
on
December
15,
2015,
Defendants requested a fourth loan from Plaintiffs in the amount
of $716,357.52 under similar terms that finally extended the
termination restriction to December 15, 2020.
The Dealer Agreement contained a termination clause that
gave either party the right to terminate with or without cause
upon thirty (30) days’ prior notice.
However, the four Loan
Agreements styled as “Dealer Addendum Agreement[s]” removed the
dealers’, i.e., the Defendants, right to cancel under the Dealer
Agreement’s termination clause.
In
2016,
less
than
one
year
after
executing
the
4th
Addendum Agreement and without notifying Plaintiffs, Defendants
entered
negotiations
EasyCare/APO.
a
funding
with
one
of
Plaintiffs’
competitors,
Those negotiations concluded with a contract and
deal.
In
September
2016,
Defendants
stopped
performing under the Dealer Agreement and sought to pay off the
loans
early.
As
a
result,
Plaintiffs
filed
suit.
Now,
Defendants move for partial judgment on the pleadings, seeking a
declaration
that
the
agreements
are
unconscionable.
Specifically, Defendants move for judgment on the pleadings on
Counts I and V of the Amended Complaint, both of which allege
claims for breach of contract.
- 3 -
II.
POSITIONS OF THE PARTIES
Defendants claim that they are entitled to judgment on the
pleadings on Counts I and V because the contractual provisions
in the addenda to the Dealer Contract prohibiting Defendants
from canceling are substantively unconscionable.
According to
Defendants, the standard in a commercial setting is whether the
terms
are
commercially
unreasonable.
ChampionsWorld,
LLC
v.
U.S. Soccer Federation, 726 F. Supp. 2d 961, 973-74 (N.D. Ill.
2010).
are
A contract is commercially unreasonable when the terms
“totally
one-sided
or
harsh.”
Gleike
Taxi
Inc.
v.
Challenger CAB, LLC, No. 13 CV 6715, 2016 WL 1450048, at *5
(N.D.
Ill.
Apr.
13,
2016).
Defendants
termination provision shields
terms,”
the
that
the
non-
Plaintiffs from liability while
barring the Defendants from terminating.
“practical
argue
complained-of
They explain that in
provision
requires
Defendants to perform their obligations by selling exclusively
Plaintiffs’
years,
even
warranties
while
and
remitting
Plaintiffs
may
payments
choose
to
for
five
perform
or
full
not
perform under the Dealer Agreement without repercussion.
Plaintiffs argue in response that a court should sparingly
exercise the power to render a private contract between two
sophisticated entities void as illegal or against public policy,
Phoenix Ins. Co. v. Rosen, 949 N.E.2d 639, 644-45 (Ill. 2011),
- 4 -
and here there is no dispute that Plaintiffs and Defendants are
sophisticated
businesses.
Indications
of
substantive
unconscionability exist where the contract terms are so onesided as “to oppress or unfairly surprise an innocent party, [to
create]
an
overall
imbalance
in
the
obligations
and
rights
imposed by the bargain, [or to impose] significant cost-price
disparity,” id. at 656, none of which is present here.
disparity
of
bargaining
power
is
vitiate contractual obligations.”
Richmond,
457
N.E.2d
therefore
contend
1226,
that
the
not
sufficient
“Mere
grounds
to
Streams Sports Club, Ltd v.
1232
(Ill.
Addenda
are
1983).
fully
Plaintiffs
supported
by
consideration and are not unconscionable.
III.
DISCUSSION
Whether a contract is unconscionable is a question of law
for the court, and unconscionability exists only where the terms
of a contract are “totally one-sided or harsh.”
Hanover Ins.
Co. v. N. Building Co., 751 F.3d 788, 794 (7th Cir. 2014).
Here, the sole claim of unconscionability is based on the lack
of ability of Defendants to terminate the contract prior to the
conclusion of the five year loan term.
As Plaintiffs point out,
courts are reluctant to use unconscionability to re-write the
terms of contracts into which sophisticated businessmen enter.
Defendants’
citation
to
Gleike
falls
- 5 -
short
of
the
mark
of
showing unconscionability under the facts of this case.
In
Gleike, the defendants were taxi owners primarily of Eritrean
origin
and
were
not
1450048, at *2, 5.
commercially
sophisticated.
2016
WL
Due to a regulatory scheme, those defendants
were faced with a licensing deadline that would have put them
out of business if they did not deal with the plaintiff, Gleike.
Id.
at
*2-3.
circumstances,
The
the
district
defendants
court
were
held
denied
that
any
under
the
“meaningful
choice” other than to deal with the plaintiff and, as a result,
received a one-sided agreement that effectively shielded Gleike
from liability for any breach of contract.
Id. at *5.
The
Court also found the termination provisions to be grossly onesided.
The Court also found the termination provisions to be
grossly one-sided.
However in this case we have two sophisticated businesses
dealing with one another.
They entered into a Dealers Agreement
that Defendants do not find unconscionable.
provisions
entering
are
into
the
this
same
for
agreement,
both
parties.
Defendants
wished to borrow money from Plaintiffs.
loan
Defendants
substantial
sums,
Defendants’ termination rights.
The termination
but
Shortly
decided
that
after
they
Plaintiffs agreed to
required
a
change
in
The new agreements say that
Defendants may not terminate the Dealer Agreement until the due
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date of the loans, which turns out to be in 2020, five years
from the date of the final loan.
After the first modification,
Defendants requested that Plaintiffs loan them substantial sums
on three additional occasions, which under each new addendum
extended both the due date of the new loan and the termination
date for five years from the date of each new loan.
Plaintiffs
agreed to loan the money to Defendants, and Defendants agreed to
pay it back and to sell Plaintiffs’ products exclusively.
not
unreasonable,
and
certainly
not
unconscionable,
It is
for
Plaintiffs to require, as consideration for a loan not due to be
repaid
for
five
years
that
Defendants
continue
Plaintiffs’ products for that period of time.
to
sell
In negotiating
these loans, Defendants could have demanded either that they be
allowed
to
retain
their
original
termination
rights
upon
repayment or some other less onerous provision for termination,
but they did not.
Defendants do not allege that they had no
recourse but to borrow from Plaintiffs (which might amount to a
claim of procedural unconscionability), which distinguishes this
case from
Gleike,
where the
defendants were up
against
time
constraints which effectively prevented them from dealing with
anyone
but
the
plaintiff.
2016
WL
1450048,
at
*2-3.
If
Defendants wanted to retain their mutual termination right they
could have gone to a bank or other lender to borrow the money
- 7 -
and refrain from dealing with the Plaintiffs.
They certainly
have not shown that they were deprived of any meaningful choice
in giving up their termination rights.
Defendants also argue that their inability to terminate the
contract
contract.
insulates
Plaintiffs
from
liability
for
breach
of
The Court does not see how this is the case, as the
provisions of the Dealer Agreement, other than the termination
clause,
are
retained.
Under
paragraph
V
of
the
Dealer
Agreement, Plaintiffs have five obligations due Defendants, all
of which are breachable and could result in legal actions.
example,
if
Plaintiffs
unilaterally
refused
or
else
For
became
unable to supply Defendants with insurance policies issued by a
state-approved insurance company indemnifying the Defendants, as
required by paragraph V.I of the Dealer Agreement, such a breach
could lead to a lawsuit and contract termination like any other
contractual breach.
A contract may be rescinded under Illinois
law where one party has materially breached the contract, such
as failing to perform an element of the agreement without which
the contract would not have been made.
Stowe v. Balsier, No. 88
C 4929, 1989 WL 32932, at *3 (N.D. Ill. Apr. 4, 1989).
The
agreement to loan money is clearly a separate undertaking, and
constitutes substantial consideration to support the change in
Defendants’ termination rights.
- 8 -
IV.
For
clearly
the
reasons
stated
not
unconscionable
CONCLUSION
herein,
and
because
is
the
supported
contract
by
is
adequate
consideration, Defendants’ Motion for Judgment on the Pleadings
on Counts I and V (ECF No. 79) is denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Dated: 6/5/2018
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