Heller Financial, Inc. v. Midwhey Powder Co., Inc., 88-3247

Decision Date17 August 1989
Docket NumberNo. 88-3247,88-3247
Citation883 F.2d 1286
PartiesHELLER FINANCIAL, INC., a Delaware corporation, Plaintiff-Appellee, v. MIDWHEY POWDER CO., INC., Cassel Garden Farmers' Co-Operative Cheese Company, and Hillside Co-Operative Cheese Manufacturing Association, Defendants-Appellants.
CourtU.S. Court of Appeals — Seventh Circuit

Lloyd Williams, Jr., Patrick F. Klunder, Williams & Montgomery, Chicago, Ill., Nathan Dardick, Ellen Barron Feldman, Carolyn Gallagher Brocksmith, Dardick & Denlow, Chicago, for plaintiff-appellee.

J. Ric Gass, Mark D. Koss, Mark E. Larson, Kasdorf, Lewis & Swietlik, Milwaukee, Wis., for defendants-appellants.

Before WOOD, Jr., MANION, and KANNE, Circuit Judges.

MANION, Circuit Judge.

Defendants-appellants, Midwhey Powder Company, Inc. ("Midwhey Powder"), Cassel Garden Farmers Co-operative Cheese Company ("Cassel"), and Hillside Co-operative Cheese Manufacturing Association ("Hillside") (for ease of reference we refer to all defendants-appellants collectively as "Midwhey"), appeal the district court's (1) denial of their motion to dismiss or transfer venue; (2) decision to strike all of their affirmative defenses; and (3) grant of summary judgment in favor of plaintiff Heller Financial, Inc. ("Heller"). We find Midwhey's arguments on appeal unpersuasive, and affirm.


Midwhey is in the dairy business in northern Wisconsin. Midwhey Powder, Cassel, and Hillside joined together to process their milk into different grades of milk, butter and cheese. The processing produced whey, a waste by-product. Wisconsin environmental regulations required that the whey be broken down before being released into the environment. Typically this was accomplished by boiling the water component out of the whey, leaving a dried powder which could then be resold as animal food. Midwhey wanted to purchase a new co-generation system to more efficiently process the untreated whey. The seller of the new system was Edward & Lee, a Wisconsin engineering firm. Edward & Lee steered Midwhey to Heller to finance the purchase of the whey processing equipment. For its part, Edward & Lee received from Heller what amounts to a commission or finder's fee in the amount of $12,000.

There were two parts to Midwhey's transaction with Heller; a progress payment agreement ("Agreement") and an equipment lease. Until Midwhey accepted the equipment, Heller, according to the Agreement, was to advance money to Edward & Lee at Midwhey's direction and authorization. These advances or progress payments were to be made according to a schedule which provided that $400,000 be paid to Edward & Lee on March 3, 1986; $300,000 on March 13, 1986; and $200,000 on April 21, 1986. Under the Agreement, if Midwhey did not accept the equipment by July 31, 1986, Heller could demand that it repay an amount equal to the total of all progress payments made, together with any accrued interest. Other than this promise to pay, Heller apparently took no collateral or other security interest to secure the advances.

The second part of the deal was a lease. This became effective only if Midwhey accepted the equipment. Essentially Heller would own the equipment and lease it to Midwhey. There are two key lease provisions so far as this appeal is concerned. The first provided that Midwhey would "submit, at [Heller's] election to the exclusive jurisdiction and venue of any courts [ ] federal, state, or local, having a situs within [Illinois] with respect to any dispute, claim, or suit whether directly or indirectly arising out of or relating to this lease or [Midwhey's] obligations hereunder." The clause also provided that the lease would be governed by the "law of lessor's [Heller's] home office"--Illinois. The second important provision provided that Edward & Lee was not Heller's agent. (The Agreement incorporated the lease's general terms, including the forum-selection clause.)

After reaching agreement with Heller, Midwhey entered into another agreement ("interim interest expense agreement") with Edward & Lee. Heller had no part in this. That agreement required Edward & Lee to make the interest payments owed on the progress payments made by Heller until Midwhey accepted the equipment.

Midwhey, as required by the Agreement, expressly authorized Heller by letters dated February 24, March 10, and April 21, 1986, to make three progress payments. In all, Heller advanced $900,000 to Edward & Lee. Midwhey, though, ultimately did not accept the co-generation equipment; thus the lease never went into effect. Heller demanded repayment of the $900,000 it had advanced plus accrued interest. Midwhey refused, and this litigation ensued.

Heller filed a three-count complaint in the Federal District Court for the Northern District of Illinois. Count I sought relief under the Agreement. Counts II and III were based on the lease. (Heller voluntarily dropped Counts II and III once the district court granted summary judgment on Count I.) Midwhey filed an answer and eleven affirmative defenses. 1 On Heller's motion, the district court struck each affirmative defense, concluding that all but those relating to personal jurisdiction and venue were "frivolous ... on an objective standard." The court gave Midwhey's counsel 14 days to respond; he did not, and the court imposed sanctions on the attorney. Midwhey never sought to amend its original defenses or file any additional affirmative defenses.

Midwhey moved to dismiss the complaint for lack of personal jurisdiction or to transfer venue. The district court denied the motion, finding that Midwhey had consented both to personal jurisdiction and venue by virtue of the valid and binding forum-selection clause contained in the lease. Midwhey's conclusory allegations of misrepresentation and overreaching failed to overcome the forum-selection clause's "prima facie validity," the court decided. The court also rejected Midwhey's totally unsupported claim that they would "be deprived of their day in court" if the case proceeded to trial in the Northern District of Illinois.

Following the denial of Midwhey's motion to dismiss, the district court set a discovery cutoff date of December 31, 1987, and a trial date of January 19, 1988. After the discovery period closed, Midwhey moved to extend the discovery period, despite the fact that they had never initiated any discovery. The trial court denied the motion, explaining that it had "serious sustained problems with [Midwhey's] diligence." Two days before the scheduled trial, Midwhey filed Chapter 11 bankruptcy petitions. Under 11 U.S.C. Sec. 362, Heller's suit automatically was stayed. The stay was lifted, though, several months later by agreed order to permit the liquidation of Heller's claims. 2 (At oral argument, Midwhey informed the court that it was no longer operating under Chapter 11. This makes moot the claim challenging the award of any interest and attorney's fees incurred since the Chapter 11 filing.)

Heller then filed its summary judgment motion as to Count I. Heller included a statement of facts under then Rule 12(e) (statement of undisputed material facts) of the General Rules of the United States District Court for the Northern District of Illinois ("Local Rules"). Midwhey, in responding to Heller's motion, failed to file the responsive statement required under then Local Rule 12(f), stating genuine issues of material fact. After Heller pointed this out to the trial court, Midwhey, without leave of the court, belatedly filed a Local Rule 12(f) statement. The trial court refused to accept it, explaining that, in any event, its decision on the merits would not be changed by the belated filing. But the court noted that it would have ordered sanctions against Midwhey had it accepted their untimely 12(f) statement because the statement denied the authenticity of the three letters authorizing Heller to make progress payments, while Midwhey's earlier responses to Heller's requests for admission, Fed.R.Civ.P. 36, admitted the very same letters were "true and accurate." The district court granted summary judgment on Count I, finding Midwhey clearly obligated under the Agreement to repay Heller the $900,000 with interest.


Before reviewing the merits of the underlying claim comprising Count I, we first will address Midwhey's procedural challenges, namely, the striking of its affirmative defenses and the denial of its motion to dismiss or transfer venue.

Midwhey continues to challenge the trial court's exercise of personal jurisdiction and Heller's choice of venue. Given the lease's forum-selection clause, it faces an uphill struggle. The clause purported to vest "exclusive jurisdiction and venue" in Illinois. 3 But the clause is unenforceable, Midwhey argues, because it is "unreasonable" and "unjust"; was obtained through misrepresentations; and, in any event, cannot by itself establish personal jurisdiction or venue. We disagree.

Challenges to personal jurisdiction may be waived by either express or implied consent. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 14, 105 S.Ct. 2174, 2182 n. 14, 85 L.Ed.2d 528 (1985). In the commercial context, parties, for business or convenience reasons, frequently "stipulate in advance to submit their controversies for resolution within a particular jurisdiction." Id. See also National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 315-16, 84 S.Ct. 411, 414, 11 L.Ed.2d 354 (1964). Such a forum-selection clause should control unless there is a "strong showing that it should be set aside." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972). Cf. Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 2249-50, 101 L.Ed.2d 22 (1988) (concurring opinion) (regarding a motion to transfer under 28 U.S.C. Sec. 1404(a), forum-selection clause is given controlling weight "in all but the most exceptional cases"). Thus, absent a showing that...

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