Lake Forest Academy v. American Language Academy

• Decision Date: 27 September 1991
• Docket Number: No. 91 C 1108.,91 C 1108.
• Citation: 777 F. Supp. 610
• Parties: LAKE FOREST ACADEMY, Plaintiff, v. AMERICAN LANGUAGE ACADEMY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

777 F. Supp. 610

LAKE FOREST ACADEMY, Plaintiff, v. AMERICAN LANGUAGE ACADEMY, Defendant.

No. 91 C 1108.

United States District Court, N.D. Illinois, E.D.

September 27, 1991.

C. William Bockelman, Jr., O'Neill & Bockelman, P.C., Lake Forest, Ill., for plaintiff.

Warwick R. Furr, II, W. Eric Pilsk, Shaw, Pittman, Potts & Trowbridge, McLean, Va., Williams & Montgomery, Chicago, Ill., of counsel, for defendant.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Lake Forest Academy ("Lake Forest" in this opinion, though the parties' agreements refer to it as "The School") filed a Complaint (the "Complaint") against American Language Academy ("American" in this opinion, though the parties' agreements and the Complaint refer to it as "ALA") in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois, seeking a declaratory judgment as to the validity of a renewal clause (the "Renewal Clause") in Paragraph 9¹ of an agreement ("Second Agreement") between the two Academies. In relevant part the Complaint alleges:

9. That LFA contends that Second Agreement ¶ 9 does not provide ALA with the unilateral right to perpetually renew the Agreement for successive terms of three (3) years upon the same terms and conditions of the Second Agreement .

10. That LFA contends that Second Agreement ¶ 9 is unconscionable and thus has no force and effect or in the alternative, the entire Agreement has no force and effect.

11. That LFA contends and ALA by its own actions admits that the Second Agreement is without definite duration and is therefore terminable at the will of either of the parties or in the alternative, will continue for a reasonable time under the circumstances which AFA contends has sic already occurred.

American properly removed this case to this Court on February 21, 1991 under 28 U.S.C. §§ 1441 and 1446.²

Both Lake Forest and American now move for summary judgment under Fed. R.Civ.P. ("Rule") 56.³ For the reasons stated in this memorandum opinion and order, Lake Forest's motion for summary judgment is denied and American's is granted.⁴

Facts

Lake Forest is a college preparatory school located in Lake County, Illinois. American is engaged in the business of teaching the English language to persons who do not speak it. On June 25, 1979 Lake Forest and American entered into a written agreement ("First Agreement") allowing American to operate an English-as-a-second-language program on the Lake Forest campus. That Agreement was to be in effect from August 1, 1979 until August 31, 1984 and contained this renewal clause (First Agreement ¶ 9):

ALA shall have an option to renew this agreement for successive terms of three (3) years each, commencing with the expiration of the original agreement term. All provisions in effect under the original agreement term shall govern any such renewal terms. In the event that ALA elects to exercise its option to renew this agreement following the original or any succeeding term, ALA shall give to The School, not less than six (6) months prior to the expiration of the then-current term, written notice of its intent to exercise such option.

First Agreement ¶ 11 also contained a provision as to its potential early termination:

(a) In the event that either party is found in material breach of any provision of this agreement, the party in breach shall have thirty (30) days to correct such breach, commencing with the receipt of notice of breach from the other party. If, upon the expiration of the thirty (30) days, the breach of provision continue sic uncorrected, the party giving notice of breach may elect to give notice of termination to be effective not less than thirty (30) days from the date of such notice.

(b) Except as provided in the preceding Paragraph 11(a), this agreement shall operate as a notice of termination, and both parties waive all other notices of termination.

(c) Nothing in this paragraph shall entitle either party to notice of termination upon expiration of this agreement.

(d) For any breach other than a material breach, neither party shall have any right to terminate or cancel this agreement, but shall be limited to money damages.

Finally, Agreement ¶ 13 contained anti-oral-waiver and integration clauses:

(a) This agreement constitutes the entire agreement and understanding of the parties and no other prior oral or written communications will be of any further force and effect.

(b) The School and ALA may, by mutual agreement, amend or waive provisions in this agreement, but, except for any overriding statute or constitution, nothing other than a written amendment or waiver clearly denominated as such and duly executed by the parties hereto, their successors and permitted assigns, shall operate to amend or waive any of these provisions.

Before the First Agreement expired, Lake Forest asked for certain modifications to provide additional revenue guaranties to Lake Forest and to provide for greater integration of American students into Lake Forest's curricular and extracurricular activities. Lake Forest and American entered into negotiations that culminated in the Second Agreement (dated November 21, 1983), which implemented those changes and repeated verbatim the same clauses already quoted from the First Agreement.⁵

Second Agreement ¶ 2(b)(1) introduced a new provision expressly linking the fees payable to Lake Forest by American to Lake Forest's tuition charges to its own full-time students from time to time:

(b) For the foregoing facilities, services, accommodations, and room and board, ALA shall pay to The School a fee per full-time ALA student enrolled per ALA academic term, according to the following schedule:

(1) During the academic year, forty-eight percent (48%) of The School tuition and room and board fees for each ALA student enrolled in the program. The number of students for which ALA will guarantee such payment will be mutually agreed upon by November 1 of the preceding academic year and will be no fewer than twenty (20) nor more than thirty-five (35) students. If no figure is mutually agreed upon, the twenty (20) student minimum will be in effect.

And like the First Agreement, Second Agreement ¶ 2(d) also contained the following allowance for price changes:

Future increases or decreases in the fees payable under this Agreement shall be effected to ensure that such fees payable continue always to bear the same proportion that fees herein specifically defined bear to the sum of The School's 1979-80 boarding student tuition and comprehensive fee.

Even though the Second Agreement was entered into in late 1983, it was to take effect on expiration of the First Agreement: It ran for a period of 60 months beginning September 1, 1984 and ending August 31, 1989.

In 1985 the Second Agreement was amended by the "Amendment," but the Amendment affected neither the term nor any of the relevant clauses quoted earlier.⁶ On February 24, 1989 American sent notice to Lake Forest that American had elected to exercise its option to renew the Second Agreement for three years after August 31, 1989. Since then the parties have been operating under the terms and conditions of the renewed Second Agreement, as amended, which will expire — unless further renewed — on August 31, 1992.

Contractual Meaning

Despite the plain language of the Renewal Clause that American has the "option to renew this agreement for successive terms of three (3) years each," Lake Forest's Mem. 2 advances two theories supporting the notion that the Clause does not mean what it says:

It is clear from the conduct of the parties that they viewed the contractual arrangement as one with a defined term, and thus required the preparation and execution of a new contract at the end of each term.

* * * * * *

Rather than giving ALA the unilateral right to perpetually renew the Second Agreement, LFA maintains that by the terms of the Agreement and Illinois law, ALA is entitled to only one renewal.

Simultaneously-filed D.Mem. 7 meets that contention head on:

The language of the Renewal Clause is plainly not ambiguous. It is clear and direct, and reasonably susceptible to only one meaning: that it provides ALA the option to renew the agreement for successive terms, providing that ALA properly exercises its option and that neither party terminates the Agreement for cause.

Both American's arguments call for an interpretation of the Second Agreement under Illinois law.⁷Lumpkin v. Envirodyne Industries, Inc., 933 F.2d 449, 456 (7th Cir.1991) (citations omitted) explains:

In construing the terms of a contract, a court is required to engage in a two-fold inquiry. First, it is necessary to look to the plain language of the provision at issue. Reviewing Illinois law, this Court has noted that "the starting point must be the contract itself. If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over." If the plain language of the contract is ambiguous, then "the court must go on to declare the contract's meaning." If the court finds that a contract is ambiguous and that extrinsic evidence is undisputed, then the interpretation of the contract remains a question of law for the court to decide.

At the outset of that "two-fold inquiry" this Court must turn to the plain language of the Second Agreement to determine whether it is ambiguous on its face. Riney v. Weiss & Neuman Shoe Co., 217 Ill. App.3d 435, 160 Ill.Dec. 375, 380, 577 N.E.2d 505, 510 (4th Dist.1991) (citations omitted) states:

A contract is ambiguous if its terms are capable of being understood in more than one sense because either an indefiniteness of expression or a double meaning is attached to them. A provision is not rendered ambiguous simply because parties do not agree on its meaning.

In this instance the Renewal Clause can fairly be understood in only one way: It explicitly states that American has the right to renew for "successive terms" — more than one. And if that...