Horbach v. Kaczmarek

• Decision Date: 30 April 2002
• Docket Number: No. 99-3102.,99-3102.
• Citation: 288 F.3d 969
• Parties: Eugene HORBACH, individually and as assignee of Tyrree Corporation, a dissolved Illinois corporation, and Eugene Horbach, on behalf of Tyrree Corporation, a dissolved Illinois corporation, Plaintiff-Appellant, v. Alvis KACZMAREK and One Three Six, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

288 F.3d 969

Eugene HORBACH, individually and as assignee of Tyrree Corporation, a dissolved Illinois corporation, and Eugene Horbach, on behalf of Tyrree Corporation, a dissolved Illinois corporation, Plaintiff-Appellant, v. Alvis KACZMAREK and One Three Six, Inc., Defendants-Appellees.

No. 99-3102.

United States Court of Appeals, Seventh Circuit.

Argued May 14, 2001.

Decided April 30, 2002.

William J. Harte (argued), Harte & Assoc., Chicago, IL, for Plaintiff-Appellant.

Patrick M. Loftus (argued), Addison, IL, for Defendants-Appellees.

Before BAUER, ROVNER, and DIANE P. WOOD, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

In 1989, TyrRee Corporation agreed to purchase a tire pyrolysis system (a series of machines that shred, heat, and convert old tires into commercially viable by-products) from Shred Pax Corporation. TyrRee allegedly paid Shred Pax more than $1.7 million for the assembly and storage of the machinery but ultimately did not accept delivery, concluding that it had not gotten what it had paid for. In 1995, following TyrRee's dissolution, Eugene Horbach, TyrRee's majority shareholder and assignee, filed suit against Shred Pax (which by then had changed its name to One Three Six, Inc., but for the sake of convenience we will ignore the name change), and its majority shareholder and president, Alvis Kaczmarek.¹ In pertinent part, Horbach's complaint sought relief on theories of contractual breach, fraud, rescission, constructive trust/ unjust enrichment, and conversion. The district court dismissed these claims, finding that the allegations did not support a claim for conversion and that the other claims were untimely. We affirm.

I.

Because the district court dismissed this case at the pleading stage, we accept the allegations in Horbach's complaint as true. E.g., Johnson v. Rivera, 272 F.3d 519, 520 (7th Cir.2001).

Horbach and Aaron Gellman formed TyrRee, an Illinois corporation, in August of 1989 with the goal of owning and operating tire pyrolysis plants. Horbach, a citizen of the State of Washington, subscribed to 71 percent of TyrRee's stock. Gellman later assigned to Horbach his 21 percent interest in TyrRee, making Horbach the owner of approximately 92 percent of TyrRee's outstanding shares.

On September 5, 1989, TyrRee entered into a preliminary letter agreement with Shred Pax for the purchase of a tire pyrolysis system. That agreement contemplated the subsequent execution of a formal purchase order for the equipment, which the parties completed and signed on September 26, 1989. The purchase order provided that Shred Pax would design and manufacture the equipment in accordance with specifications attached to the order and have it ready for delivery and testing on or before February 1, 1990. The order gave TyrRee the right to inspect, test, and approve the equipment before it accepted delivery. The testing envisioned by the purchase order involved "full and continuous operation" of the equipment over a period of seven days. R. 20 Ex. 4 ¶ 7.

At a meeting which took place on or about February 9, 1990, Shred Pax informed TyrRee that the equipment was ready for testing and installation. TyrRee had not yet located a suitable site at which it could engage in full-scale testing of the system, however, so the parties agreed that Shred Pax would continue to hold the equipment in exchange for a monthly storage fee until TyrRee was able to locate such a site. TyrRee also wanted Shred Pax to make certain modifications to the pyrolysis system that would take additional time to complete.

On April 6, 1990, Shred Pax sent a letter to TyrRee confirming that the pyrolysis system, as modified, was ready for testing. This letter purported to constitute the formal "Equipment Notice" contemplated by the purchase agreement, entitling Shred Pax to a specified installment payment from TyrRee. TyrRee subsequently advised Shred Pax that it would not be able to conduct acceptance testing of the equipment prior to July and suggested that Shred Pax should conduct the testing itself at a place and time of its own choosing. Apparently, however, Shred Pax opted to wait for TyrRee and continue collecting a storage fee while it did so. Further modifications to the equipment were ordered in September 1990.

TyrRee dissolved on September 9, 1990. All of the company's rights under the initial letter agreement and purchase order were assigned to Horbach.

On or about February 5, 1991, an agent for Horbach visited the facility in Portland, Oregon, where the pyrolysis equipment was being stored. Instead of a completed system, however, the agent discovered only scattered components that did not appear to have been manufactured in compliance with the purchase order. Shred Pax subsequently explained to Horbach that not all of the equipment was, in fact, located in Portland, and that it would take 60 days to assemble the pyrolysis system for acceptance testing. That testing never took place.

On April 18, 1991, Horbach's attorney notified Shred Pax that the purchase order was cancelled because Shred Pax had failed to manufacture and deliver the equipment in accordance with the terms of the order. By this time, Horbach had already paid more than $1.76 million toward the purchase and storage of the equipment and related items. Horbach demanded the return of his money, but Shred Pax refused.

Horbach filed suit against Shred Pax and Kaczmarek in 1995. As we noted at the outset, the district court subsequently dismissed each of the claims that arose from the purchase order. Horbach v. Kaczmarek, 915 F.Supp. 18 (N.D.Ill.1996); Horbach v. Kaczmarek, 934 F.Supp. 981 (N.D.Ill.1996).²

The court found the breach of contract claim untimely. 915 F.Supp. at 22-23. The court noted at the outset that the Illinois Commercial Code specifies a four-year limitations period for such a claim. See 810 ILCS 5/2-725(1). The defendants argued that the limitations had begun to run on February 1, 1990, the date that the purchase order had specified for delivery of the equipment. At the latest, the period began to run on February 5, 1991, when Horbach's agent inspected the equipment and realized that it had not been completed in conformance with the terms of the purchase order. Horbach, however, had waited until September 11, 1995, to bring suit—too long under even the most generous calculation of the four-year limitations period. Horbach asserted that Shred Pax had fraudulently concealed its breach of the purchase order and that he should therefore have the benefit of the longer, five-year limitations period applicable to cases of fraudulent concealment. See 735 ILCS 5/13-215. But, as the district court pointed out, the Illinois Supreme Court has held that this limitations period governs only when the defendant's concealment has left the plaintiff with less than a reasonable time to sue under the otherwise-applicable statute of limitations. See Anderson v. Wagner, 79 Ill.2d 295, 37 Ill. Dec. 558, 402 N.E.2d 560, 573 (1979), appeal dismissed sub nom. Woodward v. Burnham City Hosp., 449 U.S. 807, 101 S.Ct. 54, 66 L.Ed.2d 11 (1980); see also, e.g., Morris v. Margulis, 197 Ill.2d 28, 257 Ill.Dec. 656, 754 N.E.2d 314, 319-20 (2001); Barratt v. Goldberg, 296 Ill.App.3d 252 230 Ill.Dec. 635, 694 N.E.2d 604, 609 (1998). Here, Horbach had at least three years left in which to bring suit as of February 1991, when the inspection of the equipment revealed that it was not ready for delivery. The district court found three years to constitute a reasonable period of time in which to bring suit and for that reason found the limitations period for claims of fraudulent concealment not to apply. 915 F.Supp. at 22. Horbach suggested that Anderson and its progeny were inconsistent with the express language of the fraudulent concealment statute, but the district court observed that it was "not at liberty to ignore clear state law authority." Id.

The court dismissed the equitable claims for rescission and constructive trust pursuant to the doctrine of laches. Id. at 23. That doctrine applies when the plaintiff has waited for an unreasonable length of time to assert his claim and the defendant has been prejudiced by the delay. People v. Wells, 182 Ill.2d 471, 231 Ill.Dec. 311, 696 N.E.2d 303, 312 (1998); Van Milligan v. Board of Fire & Police Commissioners of Village of Glenview, 158 Ill.2d 85, 196 Ill.Dec. 665, 630 N.E.2d 830, 833 (1994). "The doctrine is grounded in the equitable notion that courts are reluctant to come to the aid of a party who has knowingly slept on his rights to the detriment of the opposing party." Tully v. State, 143 Ill.2d 425, 158 Ill.Dec. 546, 574 N.E.2d 659, 662 (1991). Illinois courts follow the general rule that where the limitations period governing claims at law has expired, laches will bar the equitable claims, even if the defendant has not shown prejudice. See Meyers v. Kissner, 149 Ill.2d 1, 171 Ill.Dec. 484, 594 N.E.2d 336, 340-41 (1992); see also, e.g., Golden v. McDermott, Will & Emery, 299 Ill.App.3d 982, 234 Ill.Dec. 241, 702 N.E.2d 581, 589 (1998). Thus, because Horbach had waited to file suit until the statute of limitations on his breach of contract claim had already run, laches demanded the dismissal of the accompanying equitable claims. 915 F.Supp. at 23.

Although the fraud claim was subject to a longer, five-year period of limitations, see 735 ILCS 5/13-205, the court found that claim to be untimely as well. Pursuant to the discovery rule, commencement of the pertinent limitations period may be delayed until such time as the plaintiff knew or should have known that he was wrongfully injured. See generally Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72, 209 Ill.Dec. 684, 651 N.E.2d 1132, 1135 (1995). Illinois courts have applied this rule to torts arising out of contractual relationships. See id. at 1136 (collecting cases). Horbach argued that the limitations period began to run no sooner than ...