Kap Holdings, LLC v. Mar-Cone Appliance Parts Co.

• Decision Date: 12 December 2022
• Docket Number: 22-1359
• Citation: Kap Holdings, LLC v. Mar-Cone Appliance Parts Co., 55 F.4th 517 (7th Cir. 2022)
• Parties: KAP HOLDINGS, LLC, doing business as PartScription, Plaintiff-Appellant, v. MAR-CONE APPLIANCE PARTS CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

55 F.4th 517

KAP HOLDINGS, LLC, doing business as PartScription, Plaintiff-Appellant,

v.MAR-CONE APPLIANCE PARTS CO., Defendant-Appellee.

No. 22-1359

United States Court of Appeals, Seventh Circuit.

Argued October 26, 2022

Decided December 12, 2022

Karl Regan Fink, Attorney, Fitch, Even, Tabin & Flannery, Chicago, IL, for Plaintiff-Appellant.

Aaron Benjamin Chapin, Attorney, Husch Blackwell LLP, Chicago, IL, for Defendant-Appellee.

Before Rovner, Hamilton, and Brennan, Circuit Judges.

Brennan, Circuit Judge.

This case concerns a purported multi-million-dollar contract between two companies that sell and distribute replacement parts for appliances.For years, KAP Holdings, LLC, doing business as PartScription, and Mar-Cone Appliance Parts Company("Marcone") contemplated forming a business association.But the businesses never combined, and now PartScription seeks to recover from Marcone for breach of an agreement to form a partnership.

The district court decided that PartScription failed to plausibly allege an enforceable contract and dismissed the complaint with prejudice.PartScription appeals that dismissal as error.In the alternative, PartScription argues that it should have been allowed to amend its complaint.We disagree.Because PartScription's complaint fails to plausibly allege a valid contract, and amendment would be futile, we affirm the district court's judgment.

I

PartScription's business centers around its e-commerce platform, which allows stores to place orders online for parts and other products.Tens of thousands of hardware stores are "loaded into" PartScription's platform and utilize its network of suppliers.Marcone operates in the same industry and is one of the country's largest wholesalers for replacement appliance components.

In 2006 before PartScription formally existed, Kevin Price—PartScription's eventual founder—approached Marcone and pitched using e-commerce in the appliance parts industry.Price and Marcone entered into a non-disclosure agreement while evaluating the concept, but no partnership resulted.Price then independently created PartScription.Roughly a decade later in 2017, Price restarted talks with Marcone executives about a potential business relationship, but those efforts stalled as well.

Not until late 2018 did PartScription and Marcone make discernable progress in their discussions.In November of that year, Marcone's Chief Executive Officer, Jim Souers, invited Price to Marcone's headquarters, and proposed that PartScription and Marcone form a "50-50" partnership.Price accepted, and the two men shook hands on the idea.From there, Price drafted a term sheet for the contemplated partnership and sent it to Marcone's Senior Vice President, Dave Cook, for review with a copy to Souers.The first line of the term sheet states "PartScription and Marcone (PSM) have agreed to form a partnership/joint venture to serve the independent hardware industry."Other terms address marketing, market strategy, profit sharing, and the like.

Negotiations continued and coalesced around the term sheet.In a January 22, 2019, conference call, Price, Cook, and Marcone's Chief Operating Officer, Avichal Jain, discussed the term sheet's language.During the call, according to the complaint the Marcone representatives "stated that they approved of the terms outlined in the Term Sheet," and offered only one discrete change regarding a joint bank account provision.Some days later Price sent a follow-up email to Jain and Cook saying that his meeting notes indicated "Marcone ha[d] approved the terms outlined in the draft PSM term sheet" and asking whether they needed to memorialize the agreement.No further memorialization took place, but Price delivered a slide presentation to Marcone's vice president of Information Technology in February.The presentation covered certain technical details about the integration of PartScription's platform with Marcone's platform.This was the last substantive meeting between the parties.

Price sent several emails to Marcone representatives to which they were increasingly unresponsive.For instance, Jain calendared a meeting for March 2019 but cancelled it because "Some urgent matter [had] come up."Similarly, Jain informed Price in the spring of 2019 that Marcone was busy with a "couple of very high priority initiatives" and would be preoccupied for several months.Marcone never revisited the proposed partnership with PartScription.

In 2021, PartScription filed suit for breach of contract in Illinois state court.Marcone timely removed the case to federal court pursuant to diversity jurisdiction.

28 U.S.C. §§ 1441,1332.¹The district court ultimately granted Marcone's Rule 12(b)(6) motion, dismissed the complaint with prejudice, and entered judgment.Thereafter, PartScription moved the district court under Federal Rule of Civil Procedure 59(e) for reconsideration of the dismissal order or, in the alternative, for leave to amend its complaint.The district court denied that motion, finding that any amendment would be futile.

PartScription seeks review of the dismissal of its complaint and denial of its Rule 59(e) motion.

II

PartScription alleges breach of contract.We evaluate that claim under Illinois substantive law because Marcone removed this case to the Northern District of Illinois under diversity jurisdiction and no party raises a conflict of law issue.Citadel Grp. Ltd. v. Wash. Reg'l Med. Ctr. , 692 F.3d 580, 587 n.1(7th Cir.2012)(" ‘[W]hen neither party raises a conflict of law issue in a diversity case, the federal court simply applies the law of the state in which the federal court sits.’ ")(quotingWood v. Mid-Valley Inc. , 942 F.2d 425, 426(7th Cir.1991) );Munoz v. Nucor Steel Kankakee, Inc. , 44 F.4th 595, 599 n.3(7th Cir.2022)(citingRLI Ins. Co. v. Conseco, Inc. , 543 F.3d 384, 390(7th Cir.2008) ).

Under Illinois law, "The elements of a breach of contract claim are: (1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach of contract by the defendant; and (4) resultant injury to the plaintiff."Henderson-Smith & Assocs., Inc. v. Nahamani Fam. Serv. Ctr. Inc. , 323 Ill.App.3d 15, 256 Ill.Dec. 488, 752 N.E.2d 33, 43(2001)(citingGallagher Corp. v. Russ , 309 Ill.App.3d 192, 242 Ill.Dec. 326, 721 N.E.2d 605, 611(1999) );Smith v. Jones , 113 Ill.2d 126, 100 Ill.Dec. 560, 497 N.E.2d 738, 740(1986).As a result, PartScription cannot plead a breach of contract claim unless it plausibly alleges the existence of a valid and enforceable contract.

The elements of a valid and enforceable contract are "offer, acceptance and consideration."Fuqua v. SVOX AG , 382 Ill.Dec. 655, 13 N.E.3d 68, 80(Ill. App. Ct.2014)(citing All Am. Roofing, Inc. v. Zurich Am. Ins. Co. , 404 Ill.App.3d 438, 343 Ill.Dec. 355, 934 N.E.2d 679, 689(2010) );Melena v. Anheuser-Busch, Inc. , 219 Ill.2d 135, 301 Ill.Dec. 440, 847 N.E.2d 99, 109(2006)("In Illinois, an offer, an acceptance and consideration are the basic ingredients of a contract.")(citation omitted).Relatedly, there can only be a binding offer and acceptance when the parties mutually assent to definite and certain terms."To be enforceable, the material terms of a contract must [ ] be definite and certain.‘The terms of a contract will be found to be definite and certain ... if a court is able to ascertain what the parties agreed to ....’ "Szafranski v. Dunston , 393 Ill.Dec. 604, 34 N.E.3d 1132, 1147(Ill. App. Ct.2015)(citation omitted)(quotingBruzas v. Richardson , 408 Ill.App.3d 98, 349 Ill.Dec. 56, 945 N.E.2d 1208, 1215(2011) ).

This framework affords certain flexibility, and "[a] contract may be enforced even though some contract terms may be missing or left to be agreed upon."Acad. Chi. Publishers v. Cheever , 144 Ill.2d 24, 161 Ill.Dec. 335, 578 N.E.2d 981, 984(1991)(citation omitted).But there can be no binding contract when "the essential terms are so uncertain that there is no basis for deciding whether the agreement has been kept or broken."Id.Hence, definite and certain terms are indispensable.

We pause here to identify PartScription's specific allegations under Illinois contract law.PartScription's complaint does not allege that Marcone breached a partnership agreement.In fact, PartScription acknowledges that it "has made no allegation that a partnership was actually formed."Instead, PartScription seeks to recover for breach of an "executory agreement to form a partnership."In essence, PartScription claims that Marcone reneged on its promise to form a partnership.

The form of contract that PartScription alleges existed may be unusual, but it can be valid under Illinois law.²In Wilson v. Campbell , the Illinois Supreme Court recognized that parties can enter a binding agreement to form a partnership separate and apart from a partnership agreement.10 Ill. 383, 402(Ill.1848).That court explained: "A mere agreement to form a partnership does not of itself create a partnership."Id.Rather, it creates obligations on the contracting parties distinct from the partnership form: "The parties must enter on the execution of the agreement before the relation of partners exists between them."Id.And failure of a party to satisfy the agreement terms "[w]hile the agreement remains executory," generates an "action at law for the violation of the agreement."Id.

More than one hundred years later, an Illinois appellate court confirmed that such an oral agreement to form a partnership can be enforceable.In Rankin v. Hojka , the court acknowledged, "An agreement to form a partnership does not of itself create a partnership, and where one party refuses to carry the executory agreement into effect, an action at law will lie for the breach."42 Ill.App.3d 440, 355 N.E.2d 768, 774(1976)(citation omitted)(citingWilson , 10 Ill. 383 ).As a result, PartScription's contract theory could be cognizable under state law, at least if the parties orally...