Larchmont Holdings, LLC v. North Shore Services, LLC et al
OPINION and ORDER granting in part and denying in part 73 Motion for Summary Judgment. The parties' first submission deadline for the final pretrial conference is extended to November 14, 2017. Signed by Magistrate Judge Stephen L. Crocker on 11/9/17. (jat)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
LARCHMONT HOLDINGS, LLC,
OPINION and ORDER
NORTH SHORE SERVICES, LLC and
This lawsuit presents a land contract dispute that arises out of a failed frac sand mining
venture. Jurisdiction is present under 28 U.S.C. § 1332. See Jan. 13, 2017 Ord., dkt. 41
(denying motion to dismiss for lack of diversity jurisdiction). Plaintiff Larchmont Holdings, LLC
(created by David Westrate, Neil Benham, and Patricia and Richard McHugh) agreed to pay
defendant William Bethke and his LLC, North Shore Services (hereafter collectively referred to
as North Shore) $4 million on a land contract for 300 acres of wooded land in North Central
Wisconsin. Larchmont anticipated that it could quickly assemble and bring on line a frac sand
mine from which Larchmont’s members would reap millions in yearly profits and pay off the land
contract. The mining operation never got off the ground, which left Larchmont with half a square
mile of forest and past due installment payments on the land contract’s $2,275,000 balance. So,
Larchmont brought this lawsuit, asserting seven different claims for relief. See Second Amended
Complaint, dkt. 56. In its answer, North Shore filed counterclaims for strict foreclosure on its
land contract and for breach of the implied duty of good faith and fair dealing. See dkt. 58 at 57.
Before the court is North Shore’s motion for summary judgment on its strict foreclosure
counterclaim and on all seven of Larchmont’s contract-related claims. See dkt. 73. North Shore
has not moved for summary judgment on its counterclaim for breach of the implied covenant of
good faith and fair dealing. See dkt. 58. In its response, Larchmont has raised a series of
affirmative defenses to North Shore’s claim for strict foreclosure. See dkt. 91 at 17- 18.
For the reasons explained below, I am granting North Shore’s motion for summary
judgment against all seven of Larchmont’s contract claims. As for North Shore’s motion for
summary judgment on its strict foreclosure claim, I conclude that North Shore has the right of
strict foreclosure under the terms of the land contract and has satisfied the elements of such a
claim. That said, I am denying North Shore’s motion because it has not developed an argument
that some of Larchmont’s affirmative defenses–specifically laches, equitable estoppel, and unclean
hands–fail as a matter of law.
PRELIMINARY PROCEDURAL OBSERVATIONS
During the court’s review and analysis of the summary judgment submissions, I found
that, while the attorneys for both sides presented work that is well-above-average, sometimes they
said too much, other times they said too little.
As for the “too much,” both parties failed to comply consistently with the court’s summary
judgment procedures, which are provided in the preliminary pretrial conference order (dkt. 22).
The procedures state that
When a responding party disputes a proposed finding of fact, the
response must be limited to those facts necessary to raise a dispute.
The court will disregard any new facts that are not directly
responsive to the proposed fact. If a responding party believes that
more facts are necessary to tell its story, it should include them in
its own proposed facts, as discussed in II.B.
Proc. to be Followed on Mot. For Summ. Judg., § II.D.4 at 8.
Contrary to this directive, both parties included new facts—often several paragraphs of
new facts—in several of their responses to the opposing party’s proposed findings of fact.
Accordingly, I have disregarded new facts included only in a party’s response to a proposed
finding of fact. Abraham v. Wash. Grp. Int’l, Inc., 766 F.3d 735, 737 (7th Cir. 2014) (“[T]his
Circuit has routinely held that a district court may strictly enforce compliance with its local rules
regarding summary judgment motions.”); Schmidt v. Eagle Waste & Recycling, Inc., 599 F.3d 626,
630-31 (7th Cir. 2010) (holding that the district court did not err when it deemed the defendant’s
proposed findings of fact admitted and refused to consider additional facts for the plaintiff's
failure to follow the local procedures on proposed findings of fact).
North Shore also contends that Larchmont has proposed several findings of fact that are
duplicative of its responses to defendants’ proposed findings of fact, thereby ignoring the
procedural requirement that the “purpose of additional findings of fact [by the non-moving party]
is to SUPPLEMENT the moving party’s proposed findings of fact, not to dispute any facts
proposed by the moving party.” Proc., § II.B.2 at 7. Although I agree that Larchmont proposed
findings of fact that duplicate its responses to North Shore’s proposed factual findings, I did not
see Larchmont violating this procedural requirement by proposing additional facts in lieu of
providing responses to defendants’ proposed findings.
As for the “too little,” notwithstanding the length, detail, and general thoroughness of
their presentations, both sides waived arguments by failing properly to present them. As noted
below where this occurred, this court does not have the time or resources to explore or analyze
matters left unexplored or unanalyzed by the parties. So, pursuant to circuit law, the court has
enforced the waivers against the waiving party.
The following facts are undisputed except where noted.
I. The Parties
Plaintiff Larchmont Holdings, LLC is a limited liability company organized under the laws
of the State of Wisconsin on December 18, 2012, with its principal place of business in Eau
The members of Larchmont include David Westrate’s Roth IRA and
traditional IRA, Dr. Neal Benham’s Roth IRA, Patricia and Richard McHugh, and Oakdale, LLC.
Oakdale LLC’s members are David Westrate and the Westerberry Family Trust.
Defendant North Shore Services, LLC is a limited liability company organized under the
laws of the Wisconsin on October 18, 2000, with its principal place of business in Eau Claire,
Wisconsin. William Bethke, a citizen of Wisconsin, is the sole member of North Shore. For
ease of reference, I will usually refer to the defendants collectively as North Shore (primarily in
the legal analysis) but will separate them when necessary for clarity (primarily in the facts).
In 2011, North Shore LLC owned approximately 300 acres of land in Jackson County,
Wisconsin (“the Property”).
Benham and Bethke both are dentists and they have shared a dental office building in Eau
Claire, Wisconsin, for over 25 years. Benham and Westrate are friends and both were involved
in the negotiations with Bethke for the purchase of the Property on December 20, 2012.
Although McHugh was a purchaser, he did not meet Bethke until sometime in 2013.
In a September 2013 email, Westrate described the members of Larchmont as retired or
nearly retired businessmen who each has done business in Eau Claire for more than 40 years and
who have a total of more than 150 years of diverse business experience. Westrate has a masters
degree in economics and was the president of an Eau Claire company that created and marketed
legal education seminars. Westrate has served on the board of directors of Citizens Community
Federal Bank in Eau Claire since 1993. McHugh started Choice Products USA, LLC and served
as its president for almost 30 years and served as chairman of the board of directors for Citizens
Community Federal Bank for decades.
II. Benham and Westrate Search for Frac Sand Mining Sites
Around September 2011, Benham started to look for properties to buy in Eau Claire
County and Jackson County as possible sites for frac sand mining.1 On November 7, 2011,
Benham met with Mel Bollom, a professional in the sand industry.2 The two had a wide-ranging
discussion about the frac sand market, including how quickly a prospective buyer would need to
move into the market, how quickly a buyer could expect to make profits, the total initial
investment that would be required, how big a parcel of land would be required, the logistics of
transporting mined sand, and the permitting required. After this meeting, Bollom told Benham
in an email that “the sand buying companies have made most of their site selections,” that “to
be in a marketable position” Benham would need to be “in the marketplace within 30-60 days”
and that “if this land is located in a non-zoned township, it is a far more desirable situation than
a site controlled by county zoning (but, Jackson County is a better County to deal with than
Chippewa or Eau Claire).”
“‘Frac sand’ is a high-purity quartz sand with very durable and very round grains. It is a
crush-resistant material produced for use by the petroleum industry. It is used in the hydraulic
fracturing process (known as ‘fracking’) to produce petroleum fluids . . . .” geology.com/articles/fracsand, last accessed Nov. 8, 2017.
The parties agree that Bollum is a person who identifies suitable locations that contain sand
for industrial applications, acquires mineral rights by negotiating an agreement with the land owner,
and then sells the mineral rights to sand companies. Since 2007, Bollom has negotiated between 25
and 30 mineral rights agreements.
Benham approached his friend, David Westrate, about buying land together to develop
a frac sand mine. Westrate was receptive, so in 2011 and 2012, Westrate and Benham visited
potential frac sand investment properties with Bollom. By late 2011 or early 2012, Benham
approached Bethke about developing the Property–and possibly other nearby properties–as a sand
mine. In December 2011 and February 2012, Bollom visited Benham’s and Bethke’s dental
offices to provide an informal presentation about the frac sand industry. Jim Geraghty, Mark
Sontag, and Jeff Jones, who all were landowners who owned property near the Property, also were
present. (The parties dispute what these individuals understood Bollom’s intended role would
be with respect to the group.)
On March 7, 2012, Benham emailed Wisconsin’s Department of Natural Resources
(DNR), stating that he was “getting ready to open a sand mine in Jackson County and would like
to know what are the clean air regulations and any permitting that is required.” On March 9,
2012, the DNR responded that the limited information provided about the proposal made “it
difficult to tell” which DNR permits would be needed, but that “in addition to an air permit,”
the “[t]ypical permits” would include “non[-]metallic mining[,] general stormwater permits, high
capacity well permits, potential wetlands permits and endangered and threatened species and
In addition the counties administer NR 135 non[-]metallic mining
Benham also began researching the machinery needed for sand mining. After being told
on May 18, 2012 about an 80-acre plot in the Dover, Wisconsin that was “adjacent to other
tested and proven frac land” possibly coming on the market, Benham indicated that he was
“[r]eady to move ASAP.”
III. Bethke’s Actions With Respect to Using the Property for Frac Sand
In November 2011, Bethke began learning more about sand mining and began
investigating whether the Property had frac sand reserves. He provided samples of sand from the
Property to Bollom for testing, and those samples looked promising. Bollom also worked with
Bethke, Benham, and others to collect and analyze sand samples from the nearby properties
owned by Geraghty, Sontag, and Jones. On March 10, 2012, Bethke and his then-girlfriend
(now wife), Connie Brenny, joined Benham on a visit to a sand processing operation owned by
Badger Mining Corporation, in Merrillan, Wisconsin, less than ten miles from the Property.
In an email to Bollum dated March 31, 2012, Bethke stated that he was “leaning towards
selling the whole property. I enjoy treating [patients]. I know there is a lot of money to be made
in a frac sand operation. But I think I would prefer to sell the 300 plus acres and let someone else
run with it.” During the summer and fall of 2012, Bethke still was considering various potential
ways to sell the Property, including selling the Property by itself or potentially selling the Property
in a package deal involving neighboring landowners. In late July and August 2012, Bethke
considered having Robert Archibald, a frac sand industry consultant, represent him as a broker
to sell the property. On July 31, 2012, a testing company notified Bethke that the samples from
his land showed it to contain “excellent sand” and “very good frac sand.” On the same day,
Bollom told Benham in an email that Bethke was “giving thought to how he might arrange some
type of land contract sale on a portion of [his] land.”
As part of Bethke’s investigation into finding potential buyers, Connie Brenny emailed
Badger Mining Corporation on August 8, 2012 to see if that company would be interested in
seeing Bethke’s positive test results for the Property. On August 14, 2012, Benham sent a fax
to Badger Mining—on Bethke’s behalf from the fax machine of their shared office—that included
maps of the Property, the sand testing results, and the cover emails from the testing company
indicating that it was “excellent sand” and that various tests “all show this to be very good ‘frac’
sand.” Bethke sent additional sand test results to Badger Mining in September and October
Between September and November 2012, Bollum was showing the Property and some of
the nearby properties to sand company representatives who were interested in buying sand.
During these visits, Bollum did not focus on the Property because the sand companies would view
it as a viable site only in conjunction with the other properties. As late as November 2012,
Bethke told Bollum he was doing “good job” when he learned about the visits Bollum arranged
with sand companies.
Also in the fall of 2012, Bethke discussed with a few businesses— Falls River Group, Sand
Source Services, and GulfStar Group—possible transactions involving the use or sale of the
Property for frac sand mining. Bethke’s wife, Connie Brenny, had met Houston lawyer Robert
Viguet on a plane, and Viguet was involved in Bethke’s discussions with GulfStar and Sand
Source. In late October or November 2012, Bethke asked Bryan Frederickson of GulfStar for a
contract to represent both his land and that of Geraghty, and Bethke told Westrate this. On
November 5, 2012, Bethke informed Westrate and Frederickson that sand companies were
continuing to look at his property and that “lots” of groups were interested. Bethke’s discussions
with Frederickson continued through late November 2012.
IV. Pre-Contractual Efforts To Change The Property’s Zoning
Based on a suggestion from Bollum, Bethke investigated the process necessary to change
the zoning on his property from forestry to industrial. On February 14, 2012, Bethke told
Bollum that Terry Schmidt, the head of zoning for Jackson County, told him that approval for
mining should take 60 days or less. On or about February 21, 2012, Bethke submitted an
application with the Town of Cleveland to have the property’s zoning changed from forestry to
industrial extractive. However, in May 2012, the town issued a resolution opposing Bethke’s
zone change petition; Jackson County later relied on that decision in part to deny a zone change
petition that Bethke submitted in June 2012. Bethke told Benham about Cleveland’s denial of
the zoning change around the time it occurred.
In August 2012, Benham knew that one of the reasons Bethke’s zone change application
was denied was regarding concerns about the effect on the 40-acre parcel owned by the Zillmer
Family Trust that was bounded by Bethke’s property. On August 5, 2012, Benham emailed one
of the Zillmers to let them know that he was interested in the 40 acres and would entertain any
offer to purchase it. (The parties dispute whether Bethke told Benham that the other issues that
he had with the zoning petition had been resolved.) In a September 20, 2012 email, Bethke and
Brenny told Viguet that Bethke “had already applied for permits and attended some meetings,
so the permit process is in the works and should be in place soon.”
V. Larchmont’s Purchase of The Property
A. Initial Proposals
On August 15, 2012, Benham emailed Westrate: “Try this scenario. Dave and Neal buy
Bill’s land for 4M with 1.2M down.” Westrate responded stating that Benham had done a
“[n]ice job” and that it “look[ed] like Plan A so far.” In a document titled “SAND PLAN A
8.15.12,” Westrate wrote: “One problem is that the investors may balk at investing in land that
is not paid for, and has $2.8 million debt against it.” On August 18, 2012, Westrate drafted
various thoughts about a frac sand mining investment and created a spreadsheet outlining “Plan
A,” which meant buying Bethke’s land for $4 million with $1.2 million down, leaving Benham
and him with what he considered an “unrealistic” amount of $80,000 in working capital.
Westrate estimated that the various legal, accounting, consulting, permitting, and regulatory costs
required to start a mining operation on Bethke’s property would require $800,000 in working
capital. He wrote: “It will take upwards of $2.5 million working capital or more, to cover
start-up costs and paying the miner/hydrosizer while waiting to sell wet sand and actually get
paid. . . . It looks to me like the wet sand plant is more complicated than we have been led to
believe.” Westrate also wrote: “I’m beginning to see why Bill wants to sell outright. I’m beginning
to understand that there may not be an easy, or cheap, way to do this. We may have to put in
more $$, bring in more people, or borrow money, thus increasing risk to our financial futures.”
On September 15, 2012, Westrate drafted notes to himself, which he titled “LATEST
SAND MINE THOUGHTS,” and expressed an interest in buying the Property via a land
contract. On September 28, 2012, Westrate sent a “Purchase Pro-Forma” spreadsheet to
Benham outlining various possibilities for buying the Property at a sale price of either $4 or $5
million. The cover email to that spreadsheet outlined a deal in which Benham, Westrate, and
Bollom would form a three-member LLC to purchase the Property.
On October 28, 2012, Westrate sent Benham an email in which he wrote: “Neal, it is
getting close to the end of the year, and events are overtaking us. I think it is getting time for us
to buy our share of Bill [Bethke]’s property rather than waiting for the royalty deal to be made .
. . If Bill still wants to get this done by the end of the year, let’s do it.” Benham replied via email
that same day that he would talk to his investment advisors “to make sure” he had “all of the
right procedures” in place to move quickly and concluded, “I think the time is now.”
In the fall of 2012, Westrate and Benham began discussing proposals for a sand mine on
the Property. One idea proposed by Westrate was acquiring the Property through the purchase
of North Shore’s assets. (The parties dispute the exact nature of their conversations with each
other during this time period.) Bethke retained Michael Vinopal, an attorney from Eau Claire,
to prepare the title conveyances and land contracts on behalf of North Shore with respect of the
sale of the Property to Larchmont.
Although Vinopal did not represent Larchmont, and
Larchmont did not have legal counsel in its negotiations with defendants, Richard Eaton, an
attorney in Vinopal’s law office, had a role in drafting various versions of an operating agreement
that Westrate proposed initially for North Shore and then Larchmont.3
(The parties dispute whether Bethke and his wife met with Westrate and Benham about
the Property or discussed frac mining in the fall of 2012, and whether Bethke told Westrate and
Benham that he was only interested in selling the Property and not in partnering with them in
a frac sand mining operation.)
Although the parties dispute what role Vinopal himself had in the drafting of these
agreements, emails show that Eaton drafted these agreements and incorporated suggestions from
W estrate. See dkt. 71, exh. 13 at 1.
B. November 12 Draft Operating Agreement
On November 15, 2012, Vinopal’s office sent Bethke a draft North Shore operating
agreement, along with comments from Westrate. The draft provided that (1) Bethke, Westrate,
Westrate’s IRA, and Benham’s IRA would be members of the limited liability company, with
Bethke owning 25%; (2) Westrate, Westrate’s IRA, and Benham’s IRA would pay $4 million to
Bethke to purchase their shares of North Shore; (3) they would pay Bethke a down payment of
$1.4 million; (4) the remaining $1.6 million in payments to Bethke would be made over a
three-year period; and (5) “[t]he members anticipate that the payments will be made from
periodic royalty payments received for the removal of sand from the property,” but “[t]he parties
acknowledge that payment in full must be completed within three years, regardless of the source
of funds.” Dkt. 77, exh. 13 at 5-7. On December 4, 2012, Bethke faxed a version of Westrate’s
proposed draft operating agreement and a spreadsheet of property parcels to his financial advisor,
Mark Orgel, with a request to “get back to me please.” Orgel discussed the document with
Bethke from a financial planning perspective, including making recommendations relating to tax
structure. None of the parties signed this draft agreement.
C. The Badger Mining Offer
On December 3, 2012, Mathew Hess4 of Badger Mining Corporation emailed Bethke a
proposal with respect to an offer on the Property and adjoining land owned by others. Attached
to the email was a spreadsheet entitled “Parcels Offers” in which Hess listed purchase prices that
Hess is an engineering leader for Badger M ining, where he has worked since 1997; he has
been responsible for land acquisitions for over ten years.
Badger Mining would offer for each of the separately-owned parcels. The offer for the Property
was $3,449,750. However, Hess stated in his email that “[a]ll five offers would be contingent
upon one another as we would need to secure all in order to justify development in this area.”
Dkt. 77, exh. 4 at 1. Before leaving for a hunting trip in South Dakota on December 5, 2012,
Bethke showed the spreadsheet to Benham. At some point, Bethke also notified Westrate about
the offer amount with respect to the Property. (The parties dispute whether Bethke shared the
email explaining the contingency with Benham or Westrate.)
During his drive to South Dakota on December 5, 2012, Bethke spoke to Benham and
Hess several times via cell phone regarding the sale of the Property. The other passengers in the
vehicle with Bethke–including Greg Bohlig and Don Bethke–heard both sides of these
conversations because Bethke’s phone was connected by Bluetooth to the vehicle’s speaker
systems. (The parties dispute what Benham said to Bethke during the phone calls on that day
and on what date Bethke made his decision to sell the Property to Benham and Westrate instead
of selling to Badger Mining.)
D. Initial Ideas for a Land Contract
On Monday, December 10, 2012, Connie Brenny sent Vinopal her understanding of what
terms should be included in the land contract, including a purchase price of $4 million, a $2.5
million down payment, three annual payments of $500,000 to cover the remaining amount, an
interest rate of 1.9%, and a provision that the Property would be returned to Bethke in the event
of a default. (The parties dispute whether Bethke assured Westrate, Benham, or McHugh that
he would never foreclose on the land contract.)
E. December 12 and 18 Draft Operating Agreements
On December 12, 2012, Westrate emailed Benham and Bethke a new draft “North Shore
Services, LLC Operating Agreement,” with a cover email that stated that “I think this embodies
what it sounded like [Bethke] wants to happen, together with what we need to make it work for
us.” Dkt. 77, exh. 41. This draft agreement provided that the Property would be sold for $4
million, with a $1.5 million down payment, three installment payments of $500,000, and final
balloon payment of $1 million. The proposed members of the yet-to-be-incorporated purchasing
LLC were Westrate and his Roth IRA, Benham and his Roth IRA, and McHugh. Bethke was
identified as the seller in the document but neither he nor North Shore Services LLC was listed
in the signature block in the draft operating agreement.
On December 13, 2012, Bethke faxed a copy of the draft to Orgel with a cover sheet that
I’m quite frustrated with Dave W. He sent me a purchase contract
with a down payment of only 1.5m not 2.5. I don’t know if he’s
playing games or just a mistake. But I’m very close to calling Badger
and ending it. At 1.5 down it doesn’t make sense. I’d be getting 3.5
from Badger now. At a lower tax rate and the money is working for
me. If Dave wants to do this he has to decide today or I’ll call
Badger and be done. Please convey this to Dave.
On December 18, 2012, Westrate sent a slightly different operating agreement entitled
“Larchmont Holdings, LLC Operating Agreement” to Benham, Bethke, and Vinopal. His cover
email stated that “this is the deal that I understand will meet everyone’s approval.” Dkt. 86, exh.
2 at 1. The draft reiterated the $4 million purchase price but now referenced the fact that a land
contract would govern the deal between Larchmont and North Shore:
On or about December 21, 2012, William Bethke entered into an
Agreement of Installment Sale with Larchmont Holdings, LLC (the
Company), and by extension, the individuals named in Item 2.
below as Members of the Company, to sell all shares of North
Shore Services, LLC, upon the terms of sale described in the
attached Land Contract, incorporated herein by reference.
Id. at 3.
The drafts that Westrate sent on December 12 and December 18 both stated the
following in an introductory paragraph in bold font:
It is the stated intent of all parties to this transaction that the
Company will aggressively pursue marketing the frac sand on
the property such that the Installment Sales Agreement
payments will be made from profits generated by those efforts.
To this end, the balance due on Installment Sales Agreement
after the down payment made at closing is considered by all
parties as a nonrecourse loan, meaning that the loan is
secured by the assets of the Company, and not personally
guaranteed by the Members, to wit: in the event that the
Company is unable, in spite of its best efforts, to profitably
market the frac sand on the land and the installment sales
payments are not made, the Seller’s recourse it to foreclose on
the Company. It is agreed by all parties that in light of the
offer already received by the Seller, such an event is unlikely.
The Company, on behalf of its Members, accepts the risks
inherent in such a natural resources development project as
reasonable to the Company and its Members, given their
present circumstances, in light of the potential to profit from
exploiting the resources on the property.
Id.; dkt. 77, exh. 41.
Defendants never signed either of these documents or made any statement that North Shore
would be paid from the profits of a frac sand operation.
F. Execution of Agreements on December 20
On December 20, 2012, the members of the newly-incorporated Larchmont Holdings
LLC–namely Westrate and his Roth IRA, Benham’s Roth IRA, Patricia and Richard McHugh,
and Oakdale, LLC—executed a document titled “Operating Agreement of Larchmont Holdings
LLC.” See dkt. 80. The agreement includes an Exhibit A that discusses capital contributions and
Meanwhile, on December 20, Bethke and Brenny went to Vinopal’s office to sign four
documents drafted by Vinopal: a four-page form land contract, Exhibit A, Exhibit B, and an
Addendum. Vinopal had filled out a Wisconsin State Bar form land contract pursuant to
Bethke’s instructions: $4 million total for the land, with $1.5 million down, and five installment
payments of $500,000—beginning on May 1, 2013 and continuing on December 1 for the next
four years—at an interest rate of 0.9%. The form contract contains a provision allowing the
vendor (North Shore) the option to terminate the contract and recover the property through
strict foreclosure with a period of redemption to be conditioned upon full payment of the
outstanding balance, in the event of a default lasting for a period of 10 days after a payment’s due
date. The addendum to the land contract gave Bethke exclusive control of hunting rights on the
property until the contact was satisfied and provided him a life estate interest in the “cabin and
out buildings on the property, the pond and the surrounding property normally associated with
the use of the cabin until he is paid in full.” Dkt. 58, exh. 1 at 9.
The two exhibits attached to the form contract are titled “Legal Descriptions for Land
Contract” and “Additional Terms for Land Contract.” Bethke signed the form contract and the
addendum, both of which Westrate and McHugh countersigned later that day. Bethke never told
Vinopal to include the unsigned December 18 draft of the Larchmont operating agreement as
part of the land contract, and it was not included as an exhibit. Vinopal did not record the land
contract with the register of deeds, and neither Vinopal nor Bethke has the original signed version
of the land contract.
G. Larchmont’s December 22 Resolutions
On December 22, 2012, Larchmont adopted the following resolutions by unanimous
[O]n or about December 21, 2012, William Bethke agreed to enter
into an Agreement of Installment Sale with Larchmont Holdings,
LLC (the Company) to sell all the real estate in North Shore
Services, LLC, upon the terms of sale described in the attached
Land Contract, incorporated herein by reference, to wit: $1.5
million down payment at time of closing, a $500,000 payment paid
on May l, 2013, and four additional $500,000 annual payments
beginning on December 1, 2013,
[I]n the event that the Company is unable, in spite of its best
efforts, to make the scheduled Land Contract payments, the Seller’s
recourse is to foreclose on the real estate owned by the Company,
The Managing Member will engage such resources and
organizations as necessary to aggressively pursue marketing the frac
sand on the property such that the Land Contract payments will be
made as scheduled, from profits generated by those efforts and to
this end it is agreed by all parties that the Company, on behalf of
its Members, accepts the risks inherent in such a natural resources
development project as reasonable to the Company and its
Members . . . .
Dkt. 80 at 8.
V. The Parties’ Relationship Breaks Down
A. First Missed Installment and May 2013 Amendment
In January 2013, Benham, McHugh, and Westrate emailed each other about contacting
investors, buyers, or brokers for the Property that they had just purchased from Bethke.
However, no frac mining had begun by the time the first installment payment came due under
the land contract.
On April 21, 2013, Westrate wrote to McHugh that
It might be useful for you to ask Bill at the proper time, how he
thought we would be able to make that May 1 payment. Even if we
made a deal it was a pipe dream to expect that kind of cash so soon.
That payment schedule makes no sense since our preference was to
give him all earnings until he was paid off. If we actually had
enough earnings to pay him we would get the money either way, so
what did he expect to happen if, as is now the case, we didn’t have
enough earnings to pay him?
That same day, Westrate emailed Vinopal, stating that he “urgently” needed “a copy of the land
Vinopal’s assistant responded with an email that attached an unsigned draft
Larchmont Holdings operating agreement dated December 17, 20125 ; the State Bar form land
contract executed on December 20, 2012; Exhibits A and B; and the addendum. The assistant
wrote: “Here is a copy of what we have. As you can see, we do not have a signed copy of the
Operating Agreement pages.”
In late April 2013, McHugh contacted Bethke to tell him that Larchmont could not make
the first payment of $500,000. Bethke agreed to enter into an amendment to the land contract
whereby Larchmont would pay North Shore $100,000 on May 1 and the remaining $400,000
The parties refer to this document as the “December 18 draft” because that is the date that
W estrate sent it to Benham, Bethke, and Vinopal.
on September 1. At the request of Larchmont, Vinopal drafted the May 6, 2013 amendment to
the land contract. The May 6 amendment does not mention future payments coming from sand
mining profits and states expressly that “Vendor’s forbearance in this instance shall not be
construed as a waiver of their [sic] rights and remedies in the future.” Around the time the parties
signed this amendment, Larchmont paid North Shore $100,000 that had been loaned to
Larchmont by Westrate and Benham.
B. 2013 Zoning Denials
A March 20, 2013 frac sand assessment report commissioned by Larchmont concluded
that the quality of the frac sand on the property was “quite good,” and a June 2013 report
commissioned by Larchmont concluded that the property had a considerable volume of frac sand
resources. On June 11, Westrate emailed Benham and McHugh about contacting potential
investors, buyers, or brokers.
Around August 1, 2013, Larchmont filed the paperwork for a zoning change in the Town
of Cleveland and the Town of Garfield. The Town of Cleveland Board of Supervisors voted 2-1
to oppose the zoning petition. Supervisors Andrew Sorenson and Joe Egloff, who had both been
elected as new supervisors in April 2013, voted against the petition. On August 23, 2013,
Westrate emailed this message to Benham and McHugh:
I think we need to get together with Bill as soon as possible to
discuss the payment situation. I would like us to point out to him
the dilemma we all are in, that we can’t pay him the next two
payments, total $900,000, for reasons that are not under our
control, including the changes in the market: the drop in prices, the
increase in supply, the unwillingness of buyers to give contracts to
people who are not permitted and have a processing plant, etc. And
the changes in the permitting process: that the new member of the
Cleveland board is against fracking and everyone is telling us it is
going to be tough.
If we got a buyer tomorrow, the earliest we can reasonably expect
to begin mining sand and processing it is late summer 2014,
. . . How long that will take is completely
unknown, as it is subject to so many unpredictable influences.
Dkt. 77, exh. 47.
C. Second Missed Installment and December 2013 Amendment
When the $400,000 September 1, 2013 payment came due on the amendment to the
land contract, McHugh once again contacted Bethke with the news that Larchmont would not
make the payment. North Shore and Larchmont eventually agreed to another amendment to the
land contract on December 31, 2013: Larchmont would pay $125,000 on December 31, 2013,
then another $100,000 on July 1, 2014, and $800,000 on September 1, 2015 (and the
remaining $1,530,000 would then be paid in installments over the following three years). The
December 2013 amendment did not mention future payments coming from sand mining profits
and states that “[f]ailure to comply with any of these terms shall constitute default and all
remedies available under the original contract may be utilized by Vendor.”
Larchmont made a $125,000 payment to North Shore on December 31, 2013.
Larchmont has not made any more payments to North Shore under the land contract. The
amount overdue is $1,415,000 plus interest. North Shore did not foreclose on Larchmont until
it filed its counterclaim for strict foreclosure in this action on February 1, 2017.
VI. Post-Contractual Uses of Property
Bethke’s use of the property after the land contract was signed—including ATV driving
and horseback riding—did not interfere with or impair Larchmont’s ability to develop a frac sand
mine or sell the Property. Larchmont has never been denied access to the Property since entering
into the land contract. Crops planted on the Property were directly in front of the cabin to which
Bethke holds a life estate. Larchmont members were aware of these uses, yet did nothing to try
to stop them. Bethke harvested timber on the Property because it was required on the state’s
managed forest crop law program. The amount paid for the timber removed from the Property
was $11,549.24. (The parties dispute whether this amount ever got credited to Larchmont.)
Westrate and Benham have identified three alleged interactions between Bethke and
nearby property owners–Bob Zillmer, Jerry Jenks, and Dave Holman–claiming that Bethke caused
problems with neighbors.
I. Legal Standard
A court must grant summary judgment when no genuine issue of a material fact exists and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp.
v. Catrett, 477 U.S. 317, 322-23 (1986). The court must view the evidence in the light most
favorable to the nonmoving party, but “the nonmoving party must come forward with specific
facts showing that there is a genuine issue for trial.” Armato v. Grounds, 766 F.3d 713, 719 (7th
Cir. 2014) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
II. A Summary of the Parties’ Disputes
Larchmont’s second amended complaint (dkt. 56) alleges seven separate claims related to
the parties’ negotiations and agreement with respect to Larchmont’s purchase of the Property
from North Shore:
I. Fraudulent Inducement
II. Frustration of Purpose
III. Unjust enrichment
V. Breach of the Implied Covenant of Good Faith and Fair Dealing.
VI. Illusory Contract
VII. Breach of Contract
In count I of its counterclaims, North Shore seeks strict foreclosure under the terms of the
land contract, based on its allegations that Larchmont has defaulted on its payment obligations.
In its answer to the counterclaim, Larchmont raised the affirmative defenses of laches, unclean
hands, fraud, and equitable estoppel.
The core dispute that drives this lawsuit is the parties’ conflicting views as to which
payment terms actually constitute the complete and final agreement purchase agreement. The
parties agree that the contract includes these documents:
State Bar of Wisconsin form contract executed on December 20, 2012
Exhibit A entitled “Legal Descriptions of Land Contract”
Exhibit B entitled “Additional Terms for Land Contract”
An “Addendum to Land Contract” dated December 20, 2012 and signed
by Bethke, Westrate and McHugh
An “Amendment to Land Contract” dated May 6, 2013 and signed by
Bethke and McHugh
An “Amendment to Land Contract” dated December 31, 2013 and signed
by Bethke, Benham, Westrate, and McHugh
Larchmont, however, contends that the land contract also includes the payment terms that
were repeated in the December 12, 2012 and December 18, 2012 versions of the draft operating
agreement that Westrate provided to Bethke and Vinopal before the land contract was signed.
Larchmont points to extrinsic evidence that it believes shows that the parties agreed that future
payments owed under the land contract would be made from profits earned from the sale of sand
mined from the property. Larchmont contends that the terms of the contract are hotly disputed
and prevent entry of summary judgment as to defendants’ foreclosure claim and many of its own
claims and affirmative defenses. Larchmont also argues that there are genuine issues of material
fact concerning whether Bethke promised Bentham and Westrate that he would never foreclose
on the property and whether he made misrepresentations about rezoning the property and Badger
Mining’s intention to buy the property.
I will first address the contours of the parties’ agreement in the context of North Shore’s
strict foreclosure counterclaim and then turn to Larchmont’s affirmative defenses and contract
claims, which essentially function as affirmative defenses to foreclosure.
III. Strict Foreclosure
The Wisconsin Supreme Court has explained that land contracts “are an important and
long-standing instrument in Wisconsin real estate transactions” because they “provide a number
of advantages,” including a smaller down payment, no mortgage transaction costs, greater
flexibility in structuring terms, installment payments for beneficial income tax advantages, and
alternative remedies in the event of default. Steiner v. Wisconsin Am. Mut. Ins. Co., 2005 WI 72,
¶ 22, 281 Wis. 2d 395, 405, 697 N.W.2d 452, 457. The land contract vendor (the seller) holds
legal title as security for the unpaid balance of the contract and the land contract vendee (the
buyer) holds equitable title, which gives it “full rights of ownership” unless the contract provides
otherwise. Id. at ¶ 23.
When a land contract vendee defaults under the terms of the contract, the vendor can
select from a number of remedies. Kallenbach v. Lake Publications, Inc., 30 Wis. 2d 647, 651-52,
142 N.W.2d 212 (1966); Republic Bank of Chicago v. Lichosyt, 2007 WI App 150, ¶ 18, 303 Wis.
2d 474, 488, 736 N.W.2d 153, 159. Strict foreclosure is a long-standing equitable remedy
available to the vendor. Steiner, 2005 WI 72 at ¶ 25. “In strict foreclosure, the land contract
vendor forgoes his or her right to collect the amount remaining on the debt and instead recovers
the property.” Id. at ¶ 26 (“In the event of a vendee’s default on a land contract, under strict
foreclosure the circuit court's judgment sets a period, called the redemption period, in which the
vendee must pay up or lose all his or her interest in the land.”).
It is undisputed in this case that Larchmont failed to make a payment after December
North Shore contends that this puts Larchmont in default of the land contract.
Larchmont contends that it did not breach any contractual obligation by failing to make the
installment payments because those payments were contingent on Larchmont’s generation of
profits from the sale of frac sand mined on the Property, and to date, no frac sand has been
mined on the property.
Larchmont argues that a jury must decide the dispute whether
Larchmont’s duty to make installment payments arose per the written schedules in the contract
regardless whether any frac sand had been sold, or whether Larchmont’s duty to pay arises only
after sand has been sold.
A. Authenticity of Contract
As an initial matter, Larchmont contends that because North Shore is unable to produce
the original signed land contract, it would be inequitable to accept the copy as a true and accurate
representation of the parties’ agreement. Under the best evidence rule, an “original writing,
recording, or photograph is required in order to prove its content unless [the rules] or a federal
statute provides otherwise.” Fed. R. Ev. 1002. However, “[a] duplicate is admissible to the same
extent as the original unless a genuine question is raised about the original’s authenticity.” Fed.
R. Ev. 1003. Because Larchmont is challenging the admission of the duplicate contract, it has
the burden to demonstrate that a “genuine issue of authenticity exists.” United States v. Chapman,
804 F.3d 895, 902 (7th Cir. 2015). Apart from a general reference to “all of the evidence
challenging North Shore’s claim that Exhibit 1 [to its answer] shows the authentic Land
Contract,” Larchmont does not develop this argument. Moreover, both sides agree that the land
contract includes all of the signed documents listed above and contained in Exhibit 1; the only
dispute is whether the unsigned draft Larchmont operating agreement also was incorporated into
the agreement. Therefore, Larchmont has failed to meet its burden of showing that a genuine
issue of authenticity exists that affects the outcome of this case. The copy is admissible.
B. Terms of Parties’ Agreement
Generally, “the interpretation and application of a contract to undisputed facts present
a question of law.” Maryland Arms Ltd. Partnership v. Connell, 2010 WI 64, ¶ 21, 326 Wis. 2d
300, 310-11, 786 N.W.2d 15, 20. The Wisconsin Supreme Court has explained that the
“primary goal in contract interpretation is to ‘give effect to the parties’ intent, as expressed in the
contractual language,’” and to “interpret the language ‘consistent with what a reasonable person
would understand the words to mean under the circumstances.’” Id. at ¶ 22 (quoting Seitzinger
v. Cmty. Health Network, 2004 WI 28, ¶ 22-23, 270 Wis. 2d 1, 676 N.W.2d 426). Courts
interpret clear and unambiguous contract terms literally, but when the contract language is
ambiguous, “two further rules are applicable: (1) evidence extrinsic to the contract itself may be
used to determine the parties’ intent and (2) ambiguous contracts are interpreted against the
drafter.” Id. at ¶ 23 (citing Seitzinger, 270 Wis.2d 1, ¶ 22 and Gorton v. Hostak, Henzl & Bichler,
S.C., 217 Wis.2d 493, 506, 577 N.W.2d 617 (1998)). In cases in which a contract is ambiguous
and must be construed by using extrinsic evidence, the contract’s interpretation presents a
question of fact for the jury. Town Bank v. City Real Estate Dev., LLC, 2010 WI 134, ¶ 32, 330
Wis. 2d 340, 355, 793 N.W.2d 476, 483.
In this case, the payment terms of the December 20, 2012 form contract and addendum
and the 2013 amendments are clear: Larchmont was to make various installment payments, and
if it did not make those payments, then North Shore had the right to foreclose. Not so fast,
argues Larchmont: it contends that there is more to the story because the contract included
payment terms that were outlined in two draft operating agreements and North Shore intended
to make these terms part of the land contract. Larchmont continues: for some reason, these
payment terms were not included in the operating agreement actually executed by the members
of Larchmont on December 20, but Larchmont later passed a resolution on December 22
indicating its intent to pay the installments on the land contract out of its frac sand proceeds.
Larchmont’s arguments implicate the parol evidence rule, which the Wisconsin Supreme
Court has summarized as follows:
When the parties to a contract embody their agreement in writing
and intend the writing to be the final expression of their agreement,
the terms of the writing may not be varied or contradicted by
evidence of any prior written or oral agreement in the absence of
fraud, duress, or mutual mistake.
Town Bank, 210 WI 134 at ¶ 36 (citing Dairyland Equip. Leasing, Inc.
v. Bohen, 94 Wis.2d 600, 607, 288 N.W.2d 852 (1980)).
Therefore, the first question is whether the parties intended the written contract—in this case,
the form contract, addendum and amendments—to be the final and complete expression of their
agreement. If they did, then the contract is integrated and “the court construing the contract
may not consider evidence of any prior or contemporaneous oral or written agreement between
the parties,” absent the existence of fraud, duress, or mutual mistake. Id. at ¶¶ 37-38. “If the
contract is not integrated, then the parol evidence rule is inapplicable.” Id. at ¶ 38. However,
extrinsic evidence is always admissible with respect to the issue of integration. Id. Further, “[t]he
determination of whether a contract is integrated is a question of law for the trial judge to
decide.” Davis v. G.N. Mortg. Corp., 396 F.3d 869, 878-79 (7th Cir. 2005) (applying Illinois law
provisions similar to Wisconsin law and finding agreement was fully integrated even without a
Larchmont points out–correctly–that the December 20, 2012 land contract does not
contain a merger or integration clause, then argues that there is extrinsic evidence that the land
contract was not integrated and actually includes the provision in the December 12 and 18 draft
operating agreements stating that installments would be paid out of the frac sand profits. In the
alternative, Larchmont argues that even if the contract was integrated, there is evidence that the
parties’ agreement about how the installments were to be paid was excluded from the land
contract because of fraud on the part of North Shore, or a mutual mistake by the parties.
Larchmont does not develop any argument in its response brief concerning the “extrinsic
evidence” that it believes supports its position.
In hopes of creating a genuine issue of material fact with respect to the issue of
integration, Larchmont cites only the numbers of a few of its additional proposed findings of fact
(nos. 51, 60, and 63) and various responses to defendants’ proposed findings of fact (nos. 130,
134-35, 137, 141-46, 158-59, 163, 173-74 and 181). See Pltf.’s Br. in Resp., dkt. at 10-12. This
isn’t going to cut it. The Court of Appeals for the Seventh Circuit has made clear that
“[p]erfunctory and undeveloped arguments are waived, especially when . . . a party fails to
develop the factual basis of a claim . . . and, instead, merely draws and relies upon bare
conclusions.” Campania Management Co., Inc. v. Rooks, Pitts & Poust, 290 F.3d 843, 852 (7th Cir.
2002). Further, “[w]e often call summary judgment, the ‘put up or shut up’ moment in litigation,
. . . by which we mean that the non-moving party is required to marshal and present the court
with the evidence she contends will prove her case.” Goodman v. National Security Agency, Inc., 621
F.3d 651, 654 (7th Cir. 2010). See also D.Z. v. Buell, 796 F.3d 749, 756 (7th Cir. 2015) (court not
obligated to sift through record in search of evidence to support plaintiff’s claim).
Even if this court cuts Larchmont some slack and connects the dots on its own, Larchmont
fares no better (which might explain why Larchmont did not do more to develop this argument).
Piecing together the evidence cited by Larchmont and briefly summarized by Larchmont in the
introductory section of its brief (see Pltf.’s Resp. Br., dkt. 91 at 2), I understand Larchmont to be
relying on the following facts to support its position:
Westrate sent Bethke the draft operating agreements on
December 12 and 18, 2012 with a cover email that stated that
“this is the deal that I understand will meet everyone’s
Bethke communicated the terms in the draft operating
agreements to his financial advisor.
Vinopal testified in his deposition that he received and was
aware of the December 12 and December 18 draft documents
and believed that the terms reflected “the deal” between the
When Larchmont requested a copy of the land contract from
Vinopal in April 2013, Vinopal’s office provided it with a copy
of the unsigned, December 18 draft operating agreement.
None of these facts, either alone or in combination, creates a plausible inference that the
parties intended their land contract to include one specific payment term from the introductory
paragraph of an unsigned, draft operating agreement, especially in light of the undisputed fact
that Bethke never signed or affirmatively agreed to such a term. Even if a jury could reasonably
infer from Westrate’s email and Bethke’s discussions with his financial advisor that Bethke
considered signing on to the operating agreement at one point, he never did so. The December 2012
drafts of the operating agreement, like the signed version, did not provide Bethke with an
ownership interest in the LLC and there was no signature block for Bethke or North Shore. The
fact that Vinopal’s office included a copy of the unsigned draft operating agreement in the
documents that it forwarded as the land contract says nothing about the intent of the parties
themselves and does not mean that the unsigned draft operating agreement somehow became part
of the land contract.
In addition, Vinopal’s testimony is inconclusive and not helpful to Larchmont’s position.
Vinopal was questioned about the introductory language in the December 18, 2012 draft
operating agreement concerning payments being made from frac sand profits. In response, he
stated that he did not remember talking about that provision with Bethke specifically, but “it was
that they would hopefully be able to do that, to make that work, so they wouldn’t have to put
any of their, you know, outside money in” and “I mean, I think it was -- that was the deal.” Dkt.
65 at 55-56. When asked whether those were terms that he was going to put into the land
contract, Vinopal stated that “Well, sure. Yeah. Something that would be acceptable to them,
yeah. But I think if this—if this was the deal, it seems like that was the intent. I mean, that’s
what the cover letter says.” Id. at 56. However, Vinopal clarified that
[W]e don’t draft a document and expect that that’s the final draft. I mean,
it’s always, you know, ‘Here it is, you know, what do you think, do you
want any changes made.’ So I don’t know what happened in this case.
But, you know, we would have tried to do it to the best of everybody’s
satisfaction to get the terms in there that people felt were relevant and
certainly instruct them to look at it carefully and make sure they have what
they want or they want something or want something out.
Id. at 63-64.
I can only tell you what the final version looks like, you know. I – I don’t
know. I would assume maybe there was a draft. I mean, we haven’t seen
it, so I don't know if there was a draft that had their terms in it. But it
seems like when it came down to the point where, We’re going to sign it,
that what was in there, what everybody was available to look at, was
agreeable to them.
Id. at 83-84.
At most, Vinopal’s testimony shows that some of the parties—and it is unclear who from
the evidence adduced by Larchmont—may have contemplated including a provision concerning
payments on the land contract being made from frac sand profits at some point. In the end,
however, there was no such provision included in either the signed land contract or Larchmont’s
operating agreement, and neither of the signed agreements incorporates the unsigned, draft
operating agreements. Pointing in the other direction, Larchmont’s draft operating agreement
references and incorporates the land contract, which indicates that the land contract is a discrete
agreement that is distinct from the unsigned draft operating agreement. The members of
Larchmont later passed a resolution stating that they would make every effort to pay the land
contract installments out of frac sand profits, but that action was separate from and subsequent
to the execution of the land contract itself. In no way can it or does it bind Bethke or North
As North Shore points out, Larchmont’s argument that installment payments were
contingent on the generation of profits is undercut by other language immediately following the
discussion of profits in the introductory paragraph of the draft operating agreement: “in the
event that the Company is unable, in spite of its best efforts, to profitably market the frac sand
on the land and the installment sales payments are not made, the Seller’s recourse it to foreclose
on the Company.” Therefore, even if the members of Larchmont hoped that their frac sand
profits would cover the installment payments, they recognized that this might not happen and
their installment payments still would be due. Larchmont fails to explain its contention that the
land contract includes only the draft operating agreement’s reference to installment payments
being made from the profits of the sand mine and not the remainder of the paragraph. See First
Bank & Trust v. Firstar Info. Servs., Corp., 276 F.3d 317, 322 (7th Cir. 2001) (“Words and phrases
cannot be considered in isolation; rather, the court must consider the contract as a whole to
provide each provision with the meaning intended by the parties.”); Campion v. Montgomery
Elevator Co., 172 Wis. 2d 405, 416, 493 N.W.2d 244 (Ct. App. 1992) (a contract must be
construed as a whole). Concluding that Larchmont had no obligation to make any payments on
the land contract until it turned a profit defies reason.
In sum, the only reasonable inference from the evidence of record is that the land contract
and its exhibits, addendum and amendments governs the sale of the property and the operating
agreement governs Larchmont and its members. Larchmont’s vague references to the circulation
of draft agreements with a particular payment provision relating to frac sand profits are
insufficient by themselves to show that the provision was actually part of the land contract or
that it was excluded as a result of fraud or mistake.6
C. Larchmont’s Affirmative Defenses
Larchmont does not dispute the fact that it failed to make installment payments under
the contract, which provides the remedy of strict foreclosure. Larchmont, however, alleges the
affirmative defenses of laches, unclean hands, fraud, and equitable estoppel in its answer to
defendants’ amended counterclaim, see dkt. 59 at 17-18, and it raises these defenses in its
response to North Shore’s motion for summary judgment, see dkt. 91 at 12-18. North Shore
Apart from generally floating the notion that the provision might have been excluded as a
result of fraud or mistake, Larchmont fails to develop a meaningful argument with respect to this
exception to the parol evidence rule, and the court does not discern any mistake or fraud from the
evidence presented during motions practice. To the extent that Larchmont raises fraud in other
contexts, I address those issues elsewhere in this opinion.
discusses Larchmont’s allegations of fraud as a basis for rescission in conjunction with their
arguments concerning Larchmont’s affirmative claims of fraudulent inducement.7 North Shore,
however, did not address the issues of laches, equitable estoppel, or unclean hands in their
opening brief and North Shore only briefly mentions the weakness of these particular affirmative
defenses in a footnote in its reply brief. See dkt. 79 at 21 n. 16.
The Seventh Circuit repeatedly has held that arguments raised for the first time in a reply
brief are waived. Mendez v. Perla Dental, 646 F.3d 420, 424 (7th Cir. 2011) (“[D]efendants have
waived any challenge to the jury instructions by failing to raise it in their opening brief.”); United
States v. Dabney, 498 F.3d 455, 460 (7th Cir. 2007); United States v. Blaylock, 413 F.3d 616, 619
(7th Cir. 2005). Because North Shore did not move for summary judgment with respect to
Larchmont’s affirmative defenses, it has failed to show that it is entitled to strict foreclosure as
a matter of law and its motion for summary judgment on that counterclaim will be denied. To
hold otherwise would be to blind side Larchmont.
This might turn out to be a bootless victory for Larchmont: based on the court’s rulings
earlier in this order, Larchmont may not base any of these defenses on its contentions that the
land contract included the term that installment payments were to be made from frac sand
profits, or that North Shore had acquiesced to this payment plan in some other way. The court
has rejected these contentions, so they are out of the lawsuit.
Although Larchmont presents its arguments concerning fraud and fraudulent inducement in
separate sections of its response brief, the cases it cites in support of these arguments show that there is
little distinction between the two concepts insofar as Larchmont seeks to rescind the contract. See dkt.
91 at 17 (citing Archdiocese of M ilwaukee v. Doe, 743 F.3d 1101, 1105 and n. 3 (7 th Cir. 2014); First Nat.
Bank & Tr. Co. of Racine v. Notte, 97 W is. 2d 207, 222-23, 293 N.W .2d 530, 538 (1980)).
IV. Fraudulent Inducement
To establish that it was fraudulently induced to enter into the land contract, Larchmont
must prove that:
1) Bethke made a representation of fact;
2) The representation of fact was false;
3) Larchmont believed and relied on the misrepresentation to its
detriment or damage;
The misrepresentation was made by Bethke with knowledge that it
was false, or recklessly without caring whether it was true or false;
5) The misrepresentation was intended to deceive Larchmont and to
induce Larchmont to act on it to its detriment or damage.
Tietsworth v. Harley-Davidson, Inc., 2004 WI 32, ¶ 13, 270 Wis.2d 146, 157, 677 N.W.2d 233
(contract fraudulently induced is void or voidable).
In its response brief, Larchmont argues that there are three categories of
misrepresentation—intentional (which it alleges in its complaint), negligent, and strict
responsibility. However, in its second amended complaint, Larchmont alleges only fraudulent
inducement, which is intentional misrepresentation:
Pursuant to the December 2012 Land Contract, North Shore sold the
Property to Larchmont, but Bethke deliberately and intentionally
concealed and/or misrepresented several material facts about the Property,
the feasibility of using the Property for the intended purpose, and the
nature of the relationship between the parties.
Dkt. 56 at ¶ 65.
Defendants deliberately concealed and/or misstated those facts with the
intention of inducing Larchmont to enter into the December 2012 Land
Id. at ¶ 70.
See United Vaccines, 409 F. Supp. 2d at 1093 (intentional misrepresentation properly
characterized as fraud in the inducement). In any event, Larchmont has not developed an
argument related to negligent or strict liability representation, so I have not considered its claims
under those standards.
In addition to the five factors identified above, Larchmont must show that the
misrepresentation occurred before contract formation, Kaloti Enterprises, Inc. v. Kellogg Sales Co.,
2005 WI 111, ¶ 30, 283 Wis.2d 555, 699 N.W.2d 205, and that its reliance on the
misrepresentation was reasonable. Kailin v. Armstrong, 2002 WI App 70 ¶ 31, 252 Wis.2d 676,
702, 643 N.W.2d 132, 146. Silence or the failure to disclose a fact is treated as equivalent to
representing the nonexistence of that fact, if the silent party was under a duty to disclose it.
Ollerman v. O’Rourke Co., 94 Wis.2d 17, 24, 288 N.W.2d 95, 99 (1980). A party to a business
transaction is under a duty to disclose facts basic to the transaction where the other party would
reasonably expect disclosure of those facts. Id.
In its second amended complaint, Larchmont alleges that it was induced to enter into the
land contract by misrepresentations that Bethke made with respect to the following:
(1) The suitability of the property as a frac sand mine and the
quality and amount of the sand on the property.
(2) The true nature of Bethke’s reputation in the town and his
relationship with neighbors and other town residents.
(3) The complexity of the permitting process as well as the extent
of, and the response to defendants’ prior attempts to permit the
property as a frac sand mine.
(4) The local opposition to mining on the property and lack of
support from neighboring property owners.
(5) The representation that North Shore would never foreclose on
the property, that foreclosure was not an option, and that any
future payments owed would come from profits from the sale of
(6) Badger Mining’s interest in purchasing both the property and
(7) The fact that other property owners in the area were already
mining, and/or intended to mine, their properties.
Second. Amended. Compl., dkt. 56 at ¶ 66.
In addition, Larchmont alleges that Bethke had a duty to disclose material facts regarding the
feasibility of developing a frac sand mine on the property because:
(1) Bethke had a business and personal relationship with at least
one or more members of Larchmont.
(2) Bethke sought out Larchmont and its members for the sole
purpose of developing a frac sand project.
(3) Bethke negotiated with the members of Larchmont to co-invest
with him in a common business venture as partners.
(4) Bethke reassured the members of Larchmont that respected
members of the local business community and his professional
advisors supported the development of the property for a frac sand
(5) Bethke encouraged Larchmont and its members to rely on his
knowledge of the local market for frac sand, his business
relationships in the area of frac sand mining, and his knowledge of
and experience with the permitting process.
(6) Bethke knew the members of Larchmont were relying on him,
particularly given his representations regarding his experience and
knowledge with respect to this property.
(7) Bethke, individually and through North Shore, made partial
representations to Larchmont and its members that he knew to be
misleading, incomplete or untrue if left uncorrected or
Id. at ¶¶ 68-69.
In addition to compensatory and punitive damages, Larchmont seeks the equitable
remedies of rescission of the land contract and restitution, dkt. 56 at 28. See Olympia Hotels Corp.
v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1371-72 (7th Cir. 1990) (noting that it would be
unreasonable to make a party choose between two forms of damages before trial and verdict).
In its motion for summary judgment, North Shore argues that: (1) Larchmont’s claim for
fraudulent inducement is barred by the economic loss doctrine; (2) Larchmont cannot seek
rescission and restitution because it affirmed the contract after discovering the fraud; and (3)
Larchmont fails to allege misrepresentations that are actionable fraud. I will address each of these
A. Economic Loss Doctrine
“The economic loss doctrine is a judicially-created remedies principle that operates
generally to preclude contracting parties from pursuing tort recovery for purely economic or
commercial losses associated with the contract relationship.” Tietsworth, 2004 WI 32, ¶ 23. The
Wisconsin Supreme Court has held that the doctrine bars a claim for fraudulent inducement
unless the alleged fraud is “extraneous to, rather than interwoven with, the contract.” Kaloti
Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶ 42, 283 Wis. 2d 555, 585, 699 N.W.2d 205, 219
(quoting Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶ 47, 662 N.W.2d 652). In other words,
for such a claim to proceed, the alleged fraud must “concern matters whose risk and
responsibility did not relate to the quality or the characteristics of the goods for which the parties
contracted or otherwise involved performance of the contract.” Id.
North Shore argues that all of the alleged misrepresentations either concern the quality
or character of the property that was sold to Larchmont, or were terms addressed in the land
contract itself. See Ritchie v. Clappier, 109 Wis.2d 399, 406, 326 N.W.2d 131 (Ct. App. 1982)
(“If the facts are undisputed, whether the party claiming fraud was justified in relying on a
misrepresentation is a question of law.”) (citing Williams v. Rank & Son Buick, Inc., 44 Wis.2d
239, 246–47, 170 N.W.2d 807, 811 (1969)). Larchmont not only disputes this argument, it
contends that the doctrine does not apply to its claim against Bethke, who was not a party to the
contract; Larchmont further contends that in any event, the economic loss doctrine does not
prevent it from seeking the remedies of rescission and restitution.
For the reasons discussed below, I find that Larchmont is correct that the doctrine does
not bar its fraudulent inducement claims to the extent that Larchmont seeks rescission or
restitution, but Larchmont’s contention that the doctrine does not apply to Bethke is unfounded.
Further, Larchmont has failed to oppose North Shore’s argument with respect to the remaining
question—whether the economic loss doctrine bars Larchmont’s tort claims against both
defendants for compensatory and punitive damages—and merely relies on its unsuccessful
argument that there is a genuine issue of material fact as to the terms and scope of the land
Therefore, I am granting North Shore’s motion for summary judgment as to
Larchmont’s fraudulent inducement claims seeking damages in tort on the ground that these
claims are barred by the economic loss doctrine. These rulings are discussed separately below:
1. The Economic Loss Doctrine Is Inapplicable to Rescission/Restitution
In its opening brief, North Shore states in a footnote that it is not aware of any court
“that has squarely addressed Kaloti’s extraneous/interwoven distinction in the context of a
fraudulent inducement claim seeking contract rather than tort remedies.” Dkt. 79 at 35 n. 22.
In response, Larchmont correctly notes that the Court of Appeals for the Seventh Circuit and
the Wisconsin Supreme Court both have held that Wisconsin’s economic loss doctrine does not
bar misrepresentation claims seeking the remedies of rescission and restitution. Harley-Davidson
Motor Co., Inc. v. PowerSports, Inc., 319 F.3d 973, 986-87 (7th Cir. 2003); Tietsworth, 2004 WI 32,
¶ 36 (citing Harley-Davidson for same); Digicorp, 2003 WI App 54, ¶ 35 n. 7 (Harley-Davidson
provides “an excellent summary of our rationale for the economic loss doctrine.”). In addition,
this court has held that “Harley-Davidson Motor Co. accurately predicts the Wisconsin Supreme
Court’s resolution of the question whether a contract action . . . alleging fraud in the inducement
would survive application of the economic loss doctrine where the plaintiff has requested
rescission of the contract.” United Vaccines, Inc. v. Diamond Animal Health, Inc., 409 F. Supp. 2d
1083, 1095 (W.D. Wis. 2006).
North Shore seems to concede this point in its reply brief, see dkt. 96 at 11 (“Wisconsin
law is clear that fraudulent inducement claims seeking rescission and restitution are not barred
by the economic loss doctrine.”), but then asserted that its argument is different: “fraudulent
inducement claims, whether brought in tort or in contract, are only viable when the alleged fraud
is extraneous to the contract,” id. I fail to see North Shore’s point. Although North Shore cites
AVL Powertrain Eng’g, Inc. v. Fairbanks Morse Engine, 178 F. Supp. 3d 765, 774 (W.D. Wis. 2016),
as “analogizing to Kaloti’s extrinsic/interwoven framework in the context of a rescission claim,”
that case does not discuss or apply the economic loss doctrine. The court in AVL cited the
extraneous/interwoven standard in Kaloti as a comparison in its discussion of whether the alleged
misrepresentations were material and whether the plaintiff reasonably relied on them. Id. To the
extent that North Shore is arguing that the alleged misrepresentations are not material or that
Larchmont did not reasonably rely on them–which are arguments North Shore raises in other
sections of its brief, I will deal with those arguments below.
Accordingly, I conclude that the economic loss doctrine does not bar Larchmont’s
fraudulent inducement claims to the extent that the remedies sought are limited to rescission and
2. The Economic Loss Doctrine Applies to Claims Against Bethke
Larchmont argues that its fraudulent inducement claims seeking damages against Bethke
as an individual are not subject to the economic loss doctrine because Bethke was not a “party”
to the land contract. Larchmont cites no authority for this attempted end-run around the
economic loss doctrine; that’s because there is none. Lack of contractual privity between the
plaintiff and defendant does not provide a basis for avoiding the economic loss doctrine. Daanen
& Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 400, 573 N.W.2d 842, 844 (1998) (“[E]ven
in the absence of privity, the economic loss doctrine bars a remote commercial purchaser from
recovering economic losses from a manufacturer under tort theories of strict liability and
negligence.”). See also Digicorp, 2003 WI 54, ¶ 65 (barring subdistributor of telephone calling
services from recovering economic losses in tort from telecommunications provider:
answered the question in Daanen [ ], and unequivocally held there that even in the absence of
privity, the economic loss doctrine bars one party in the distributive chain from recovering
economic losses in tort from another party in that chain.”).
Relying in part on Digicorp and Daanen, the U.S. District Court for the Eastern District
of Wisconsin rejected an argument similar to that made by Larchmont in this case. Schreiber
Foods, Inc. v. Lei Wang, No. 08-C-962, 2010 WL 4683726, at *6 (E.D. Wis. Nov. 10, 2010), aff’d,
651 F.3d 678 (7th Cir. 2011).
Schreiber Foods sought to recover tort damages for
misrepresentations allegedly made by the agent of a trading company who was acting as gobetween but was not a party to the contract between Schreiber Foods and the trading company.
The district court held that even though the agent was independently and personally liable for
any torts she may have committed, “the economic loss doctrine, where applicable, is not limited
to the actual parties to the contract.” Id. The same is true in this case.
Accordingly, to the
extent that the economic loss doctrine applies in this case, it applies equally to the claims against
Bethke and North Shore.
3. Alleged Misrepresentations Interwoven with the Land Contract
The Wisconsin Supreme Court has explained that “misrepresentations that concern ‘the
quality or character of the goods sold’ are either: (1) expressly dealt with in the contract’s terms,
or (2) . . . go to reasonable expectations of the parties to the risk of loss in the event the goods
purchased did not meet the purchaser’s expectations.” Kaloti, 205 WI 111, ¶ 43 (citing Digicorp,
262 Wis.2d 32, ¶ 47 and Huron Tool and Engineering Co. v. Precision Consulting Services, Inc., 209
Mich. App. 365, 372-73, 532 N.W.2d 541, 545 (1995)). For example, in Kaloti, the court found
that the economic loss doctrine did not apply because Kellogg’s alleged failure to disclose to
Kaloti that it had begun selling directly to Kaloti’s customers was not a matter that one would
expect to be dealt with in the purchase agreement. Id. at ¶ 45. The representation must relate
to something that is a fact at the time it is made. Harley-Davidson, 319 F.3d at 991-92 (citing
Restatement (Second) of Contracts § 159).
“Such facts include past events and present
circumstances but not future events. . . . However, a promise or prediction of future events may
by implication involve an assertion that facts exist from which the promised or predicted
consequences will follow, which may be a misrepresentation as to those facts.” Id. at 992
(quoting Restatement § 159 cmt. c).
North Shore contends that all of Larchmont’s allegations of misrepresentations can be
sorted into four categories that all present issues “interwoven” with the subject matter of the
contract: the quality of the sand and suitability of the property for frac sand mining; the ability
to obtain necessary zoning and permits; the risk of foreclosure; and the alleged agreement that
contract payments would come from frac sand profits.
Larchmont’s sole response to this argument is the court cannot make this determination
at the summary judgment stage because the parties dispute the terms and scope of the land
contract. But the court has resolved that issue in this order, finding that there is no genuine
dispute as to the facts establishing that, as a matter of law, the land contract does not include any
provision that installment payments will be made from frac sand proceeds.
Lawyers often present binary arguments in their legal briefs in order to address both
possible outcomes on a disputed point. Not here. Instead of anticipating this ruling as a possible
outcome and presenting facts and arguments substantively to refute defendants’ contention that
the misrepresentations are interwoven with the land contract, Larchmont states only that:
If the jury somehow, despite all the evidence to the contrary, finds
that the Land Contract is limited to the four corners of the Land
Contract document as defined by the Defendants, then many of the
misrepresentations made by North Shore would fall outside the
scope of the economic loss doctrine because they would not be
interwoven in the Land Contract.
Dkt. 91 at 24.
By not explaining how any of the alleged misrepresentations involve matters extraneous
to the land contract as written and supporting that explanation with evidence in the record,
Larchmont has waived the issue and forfeited the argument. Bonte v. U.S. Bank, N.A., 624 F.3d
461, 466 (7th Cir. 2010) (“Failure to respond to an argument . . . results in waiver.”); Palmer v.
Marion Cnty., 327 F.3d 588, 597-98 (7th Cir. 2003) (deeming plaintiff’s negligence claim
abandoned because he failed to delineate it in brief in opposition to summary judgment); Borcky
v. Maytag Corp., 248 F.3d 691, 695 (7th Cir. 2001) (“The mere existence of some alleged factual
dispute will not defeat an otherwise properly supported motion for summary judgment.”)
(internal citation omitted); Cent. States, Se. and Sw. Areas Pension Fund v. Midwest Motor Express,
181 F.3d 799, 808 (7th Cir. 1999) (“A party’s failure to meaningfully respond to a motion for
summary judgment . . . constitutes waiver.”)
Given the court’s ruling on the scope of the land contract, it may be that all of the alleged
misrepresentations are interwoven with that contract, but there is no need to perform a
substantive analysis of a party’s forfeited arguments. I am granting North Shore’s motion for
summary judgment as to Larchmont’s fraudulent inducement claims except to the extent that
Larchmont is seeking the remedies of rescission and restitution. This segues to North Shore’s
contention that Larchmont has waived its right to seek rescission and restitution by affirming the
B. Waiver of Rescission as Remedy
The equitable remedy of rescission is available when a party is induced to assent to a
contract by justifiably relying on a fraudulent or material misrepresentation by the other party.
First Nat. Bank & Tr. Co. of Racine v. Notte, 97 Wis. 2d 207, 222, 293 N.W.2d 530 (1980); Whipp
v. Iverson, 43 Wis.2d 166, 171, 168 N.W.2d 201 (1969). However, even where grounds might
exist to set aside a contract, a party waives his right to rescind for fraud or mistake if that party
unreasonably delays asserting that right or affirms the agreement after learning of the fraud or
mistake giving rise to the right of rescission. ERA Franchise Sys., LLC v. Hoppens Realty, Inc., No.
12-cv-594-slc, 2013 WL 3967869, at *7 (W.D. Wis. July 31, 2013); Grube v. Daun, 213 Wis.
2d 533, 551-52, 570 N.W.2d 851, 859 (1997) (plaintiffs affirmed contract by continuing to live
on property and make extensive improvements after discovering it was contaminated); Thompson
v. Vill. of Hales Corners, 115 Wis. 2d 289, 319, 340 N.W.2d 704 (1983) (although village
ordinance made plaintiff’s arcade unprofitable, plaintiff waived right to rescind lease because he
knew about ordinance when he signed lease and delayed asserting rights for six months); Notte,
97 Wis. 2d at 222 (As remedy for misrepresentation, “aggrieved party has the election of either
rescission or affirming the contract and seeking damages” for breach of contract.). Further, when
the facts regarding the parties’ conduct after the alleged fraud comes to light are “practically
undisputed,” waiver is a question of law appropriately decided at summary judgment. Weinhagen
v. Hayes, 174 Wis. 233, 178 N.W. 780, 786 (1920); Thompson, 115 Wis. 2d at 319, 340 N.W.2d
704; AVL Powertrain, 178 F. Supp. 3d at 772.
North Shore contends that Larchmont, by signing amendments to the contract in May
and December 2013 but then waiting to sue for rescission until 2016, has affirmed its obligations
under the land contract after learning of the alleged misrepresentations about the quality of the
sand, the zoning and permitting problems, the risk of foreclosure, and the alleged condition that
contract payments would come from frac sand profits. In support of this contention, North
Shore points to the following undisputed facts: Larchmont knew that the property contained
good quality sand from testing that it had commissioned in March and June of 2013;
Larchmont’s own application for rezoning the property for a frac mine was denied in August
2013, before it signed the December 2013 amendment to the land contract; and any beliefs that
Larchmont had about North Shore not foreclosing or being willing to forego payments until a
mine was operating were dispelled by the contract amendments that provided for foreclosure but
did not provide that payments would come from frac sand profits.
As it has done in its response to most of North Shore’s arguments, Larchmont states
generally that summary judgment is not appropriate because there are genuine issues of material
fact affecting the question of waiver. However, Larchmont has addressed North Shore’s argument
with respect to two of the misrepresentations it has alleged: that payments would be made from
frac sand profits and that North Shore would not foreclose on the property.
In a brief argument, Larchmont contends that even though the 2013 amendments
adjusted the payment schedule of the contract, they did not change the parties’ “basic
understanding” that payments would be made from the profits of the sale of frac sand. However,
as discussed at length above, Larchmont has failed to adduce sufficient evidence showing that
North Shore had such an understanding or that the land contract included this term.
This leaves the alleged misrepresentation that Bethke continued to promise not to
foreclose on the property even though the contract and the amendments all contained a
foreclosure provision. Larchmont correctly points out that the parties dispute whether Bethke
made such representations both before and after they signed the land contract and 2013
amendments, and that North Shore in fact did not bring a foreclosure action until 2017. Because
I agree that the facts are not clear on this one issue, I find that Larchmont has not waived its
claim for rescission with respect to the alleged misrepresentation that North Shore would never
foreclose on the property.
Because Larchmont fails to address the issues of waiver and affirmance as they relate to
any other alleged misrepresentation, including those concerning the quality of the frac sand, the
property’s suitability for a frac sand mine, and zoning and permitting, Larchmont has forfeited
all such arguments.8
C. Actionable Fraud
Larchmont’s only remaining claim for fraudulent inducement involves Bethke’s alleged
misrepresentation that North Shore would never foreclose on the property.9 North Shore argues
that even if Bethke made such statements to the members of Larchmont, any reliance on those
statements would have been unreasonable in light of clear contract language to the contrary.
Tietsworth, 270 Wis. 2d 146, ¶ 13 (plaintiff must believe the representation and justifiably rely
In any event, the undisputed facts show that North Shore’s contention that Larchmont had
reason to know about these alleged misrepresentations by the time it signed the contract amendments
in 2013 is well-founded.
In response to this aspect of defendants’ argument, Larchmont claims that there also is
“ample record evidence” to demonstrate that Bethke made “actionable misrepresentations” by: 1)
stating that there was a “consortium of interested buyers ready and interested in developing their
contingent properties; and 2) failing to disclose the fact that Badger M ining’s offer to buy the property
was contingent on it buying neighboring properties. Dkt. 91 at 27-28. However, Larchmont has
waived these arguments by failing to explain or otherwise develop them in their brief.
on it); Bank of Sun Prairie v. Esser, 155 Wis. 2d 724, 732, 456 N.W.2d 585, 589 (1990)
(“Negligent reliance is not justifiable.”). North Shore points to the undisputed facts that the land
contract contains a strict foreclosure provision and acknowledges North Shore’s right to foreclose
if payments are not made, and that both of the 2013 amendments reserve North Shore’s right
to this remedy. In addition, Larchmont adopted a resolution on December 22, 2012, with similar
language recognizing North Shore’s right to foreclose for non-payment.
In support of its argument, defendants cite Amplicon, Inc. v. Marshfield Clinic, 786 F. Supp.
1469, 1478 (W.D. Wis. 1992) (internal citation omitted), for the proposition that “a party
cannot reasonably rely upon allegedly fraudulent promises which are directly contradicted by the
terms of . . . a subsequently executed contract.” In Amplicon, a lessor sued for breach of a lease
agreement and the lessee raised fraud in the inducement as a defense. Id. at 1470. The lessee
asserted that, prior to the signing of the lease agreement, the lessor told the lessee that no deposit
or interim rent was required under the agreement. Id. at 1475. The lease clearly provided that
the lessee would pay interim rent and a deposit and contained two merger clauses stating that the
lease agreement was the complete agreement between the parties and that no representation was
binding unless made part of the lease by addendum. Id. at 1479. In light of the merger clauses
and the fact the representations directly contradicted the written agreement, the court held that
reliance on the representations was not justified as a matter of law. Id. at 1478.
Larchmont distinguishes its claim in this case on the grounds that the land contract did
not contain a merger clause like the lease in Amplicon and that there is disputed evidence that
Bethke continued to make representations about not foreclosing on the property through at least
2014. See Am. Custom Surfacing, LLC v. Manitowoc Cranes, Inc., 2012 WI App 11, ¶ 33, 338 Wis.
2d 485, 808 N.W.2d 742 (unpublished decision) (“Amplicon adheres to a rule that . . . is
inconsistent with Wisconsin law. The proper inquiry under Wisconsin law is whether all the
surrounding circumstances here create a factual dispute on the reasonableness of [plaintiff’s]
reliance on the misrepresentations that . . . induced it to sign the [contract].”). However, as
North Shore points out, Amplicon did not announce a per se rule that a contractual party can
never reasonably rely on allegedly fraudulent promises which are directly contradicted by the
terms of the executed contract. The court in that case considered all of the circumstances
surrounding the alleged misrepresentation and concluded that reliance on it was not reasonable.
The same is true here.
Although the land contract in this case does not contain a merger clause, Larchmont has
not alleged or argued that it is not integrated with respect to North Shore’s right to foreclosure
in the event of default. Larchmont cites a few cases for the proposition that a plaintiff can raise
fraud claims based on misrepresentations that are inconsistent with the express terms of the
parties’ contract. See Bank of Sun Prairie v. Esser, 155 Wis. 2d 724, 731, 456 N.W.2d 585, 588
(1990) (finding question of fact as to whether bank misrepresented terms of a guaranty to induce
defendant to enter guaranty contract); Hennig v. Ahearn, 230 Wis. 2d 149, 160-61, 601 N.W.2d
14, 20 (Ct. App. 1999) (plaintiff alleged defendant agreed to make two minor changes to draft
contract and assumed defendant honored the oral agreement before contract executed); Caulfield
v. Caulfield, 183 Wis. 2d 83, 92-94, 515 N.W.2d 278, 282 (Ct. App. 1994) (concluding that
there were material factual disputes whether the signer of a note reasonably relied on
misrepresentations about the contents of a note).
However, in those cases, the alleged
misrepresentations related to whether the contracting party was misled about what terms the
contract contained. As North Shore notes, Larchmont has not alleged that North Shore LLC or
Bethke misled Larchmont about the foreclosure provision being included in the land contract,
which is an undisputed fact. In any event, the courts in the cases cited by Larchmont agree that
the dispositive question on summary judgment is whether one can conclude from “all of the
surrounding circumstances” that there is a material factual dispute as to the reasonableness of
Larchmont’s reliance on Bethke’s alleged misrepresentation that North Shore would not exercise
its foreclosure right. See Bank of Sun Prairie, 155 Wis.2d at 732-33 (all facts and circumstances,
“including the intelligence and experience of the misled individual and the relationship between
the parties,” must be considered); Am. Custom Surfacing, 2012 WI App 11, ¶ 33; Caulfield, 183
Wis. 2d at 93 (“[I]n cases where claims of misrepresentation are made, the facts of the case are
important to determine if reliance on the misrepresentation is justifiable.”).
Even assuming, arguendo, that Larchmont’s version of the facts is true—that Bethke lied
to the members of Larchmont about his intent or willingness to exercise North Shore’s foreclose
rights in the event of a default, and leveraged his relationship with Benham and Westrate to
inveigle them to sign the contract with a foreclosure provision—no jury could reasonably conclude
that it was reasonable for Larchmont’s principals to rely on those representations when the
contract and all subsequent amendments contained explicit language to the contrary.
Larchmont points to draft language circulated by the parties indicating that foreclosure
was unlikely to occur, but this does not–cannot– negate the fact that the parties agreed that
North Shore retained a right to strict foreclosure. The only logical and reasonable response to
oral representations that contradicted written provisions of the contract would have been to
insist that the written contract reflect the oral representation. Larchmont could have–should
have–demanded removal of the foreclosure provision or inclusion of an condition further
specifying and limiting the conditions under which foreclosure could take place. Larchmont did
neither. To the contrary, Larchmont passed an internal resolution after signing the land contract
recognizing the fact that North Shore had the right to foreclose. Although Larchmont chose not
to hire an attorney to review the contract before signing it, the facts show that its members are
educated, experienced businessmen. See United States v. Giles, No. 14-cv-978, 2017 WL 564012,
at *5 (E.D. Wis. Feb. 10, 2017), appeal dismissed, No. 17-1529, 2017 WL 4173485 (7th Cir. Aug.
25, 2017) (“In determining whether reliance was negligent in a given case, Wisconsin courts also
consider . . . the party’s intelligence and experience. When Giles signed the note, she was
well-educated, she had signed for and received many prior student loans, and the promissory note
was short and clear in its terms.”).
The Wisconsin Supreme Court has made clear that
Courts will refuse to act for the relief of one claiming to have been
misled by another’s statements who blindly acts in disregard of
knowledge of their falsity or with such opportunity that by the
exercise of ordinary observation, not necessarily by search, he would
have known. He may not close his eyes to what is obviously
discoverable by him.
Ritchie v. Clappier, 109 Wis. 2d 399, 326 N.W.2d 131, 134 (1982)
(quoting Jacobsen v. Whitely, 138 Wis. 434, 120 N.W. 285, 286
See also Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748, 768 (7th Cir. 2010) (citing same in
holding that “the Agreement [for the provision of electronic banking services], combined with the
circumstances of its negotiation, permitted the district court to conclude that any reliance on oral
representations in this case was unreasonable.”); Osowski v. Howard, 2011 WI App 155, ¶ 27, 337
Wis. 2d 736, 807 N.W.2d 33 (unpublished) (“A plaintiff cannot justifiably rely on a
misrepresentation while ignoring contradictory information that he or she knew or could have
discovered.”). Accordingly, I am granting North Shore’s motion for summary judgment on
Larchmont’s remaining fraudulent inducement claim.
V. Larchmont’s Affirmative Contract Claims
As alleged in their second amended complaint and articulated in their response brief,
Larchmont’s claims of frustration of purpose, unjust enrichment, reformation, and illusory
contract are all based on the premise—which I have found to be incorrect—that the land contract
provided that installment payments would be made from frac sand mining profits. As with North
Shore’s challenges to its fraudulent inducement claims, Larchmont’s sole response is that the
validity of its claims cannot be made on summary judgment because the parties dispute the terms
and scope of the land contract. Larchmont makes the same vague argument with respect to its
claims for breach of contract and breach of the implied covenant of good faith and fair dealing,
stating only that the claims “directly arise from the Land Contract. Here, what the contract
consists of is in dispute.” Dkt. 91 at 46. Larchmont has abandoned all of these claims by failing
to develop any argument about why the claims should survive in the event that the court
determines that there was no genuine issue of material fact as to the terms of the land contract.
Accordingly, North Shore’s motion for summary judgment as to Larchmont’s claims for
frustration of purpose, unjust enrichment, reformation, illusory contract, breach of contract, and
breach of the implied covenant of good faith and fair dealing must be granted.
This order speaks for itself, so there is no need for any wind-up observations by the court.
It will be up to the parties to tailor their trial presentations to fit what’s left of this lawsuit.
As a procedural matter, I will extend by one day the parties’ deadline to submit their Rule
26(a)(3) materials, motions in limine and any proposals as to the voir dire, jury instructions and
verdict forms. The new deadline is November 14, 2017, with responses still due on November
22, 2107 and replies due on November 28, 2017. The December 6, 2017 telephonic final
pretrial conference and December 11, 2017 jury selection and trial remain firm.
IT IS ORDERED that the motion for summary judgment (dkt. 73) filed by defendants
North Shore Services, LLC and William Bethke is GRANTED in part and DENIED in part:
Defendants’ motion for summary judgment is DENIED
with respect to their counterclaim for strict foreclosure, but
only to the extent that Larchmont may proceed on the
affirmative defenses of laches, equitable estoppel, and
Defendants’ motion for summary judgment is GRANTED
in all other respects, including Larchmont’s claims of
fraudulent inducement, frustration of purpose, unjust
enrichment, reformation, breach of contract, breach of the
implied duty of good faith and fair dealing, and illusory
The parties’ first submission deadline for the final pretrial
conference is extended to November 14, 2017.
Entered this 9th day of November, 2017.
BY THE COURT:
STEPHEN L. CROCKER
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