Lyon Fin. Servs., Inc. v. Ill. Paper & Copier Co.

• Decision Date: 23 March 2017
• Docket Number: No. 10 C 7064,10 C 7064
• Parties: LYON FINANCIAL SERVICES, INC. d/b/a, US Bancorp Business Equipment Finance Group, Plaintiff, v. ILLINOIS PAPER AND COPIER COMPANY and Village of Bensenville, Defendants.
• Court: U.S. District Court — Northern District of Illinois

247 F.Supp.3d 923

LYON FINANCIAL SERVICES, INC. d/b/a, US Bancorp Business Equipment Finance Group, Plaintiff,

v.ILLINOIS PAPER AND COPIER COMPANY and Village of Bensenville, Defendants.

No. 10 C 7064

United States District Court, N.D. Illinois, Eastern Division.

Signed March 23, 2017

David Alexander Darcy, Debra Devassy Babu, Askounis & Darcy, P.C., Chicago, IL, for Plaintiff.

Andrew Theodore Staes, Staes & Scallan P.C., Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, United States District Judge

In 2008, the Village of Bensenville ("the Village") decided to replace its copier equipment. Village officials met with a supplier, Illinois Paper and Copier Company ("Illinois Paper"), but did not purchase the equipment directly from Illinois Paper. Instead, the parties arranged a transaction in which Lyon Financial Services, a subsidiary of U.S. Bank ("Lyon"), provided financing. The transaction ultimately consisted of two parts: Lyon purchased more than $500,000 worth of copier equipment from Illinois Paper pursuant to a contract called the "Partnership Agreement." Lyon then provided the copier equipment to the Village for 72 monthly payments of $9,500.00 under a "Value Lease Agreement" (the "Lease Agreement"). Critically, in the Partnership Agreement, Illinois Paper guaranteed to Lyon that the Lease Agreement was "valid and fully enforceable." But by the end of 2009, the Village declared that the Lease Agreement was unenforceable under relevant provisions of Illinois law. This declaration came after the Village had made only 19 payments on the agreement, but the copiers had lost 95% of their resale value—rendering Lyon unable to mitigate its losses. Lyon sued Illinois Paper in November 2010 for breach of contract. After four years of litigation, Lyon added a count, in the alternative, for breach of contract against the Village.

This $500,000 dispute has been thoroughly litigated and has generated rulings from the Seventh Circuit, the Supreme Court of Minnesota, and this court. The parties' final summary judgment motions are before the court. For the reasons below, the court grants the Village's motion for summary judgment, and grants in part Lyon's motion for summary judgment to recover interest from Illinois Paper which exceeded the Village's authority to agree to pay.

BACKGROUND

I. Factual background

The facts and procedural history of this matter are set forth in an earlier summary judgment opinion. See Lyon Fin. Servs., Inc. v. Illinois Paper & Copier Co. , No. 10 C 7064, 2016 WL 147654, at *1–10 (N.D. Ill. Jan. 13, 2016). As explained there, the parties dispute the nature of the agreement by which the Village of Bensenville obtained copiers and related equipment. In October 2008, the Village executed a document entitled "Value Lease Agreement" (Village of Bensenville's LR 56.1 Statement of Material Facts (hereinafter "Village SOF") [237–1], at ¶ 6), which purports to be a lease agreement in which U.S. Bancorp Equipment Finance Group leased copiers to the Village in return for 72 monthly payments of $9,500.00. (Value Lease Agreement (hereinafter "Lease Agreement"), Ex. 2 to 2d Am. Compl. [219–1], at 1.) The agreement by its terms gives the Village the option to purchase the equipment at the end of the contract term for the equipment's "fair market value."

Id. Lyon Financial Services, the plaintiff in this matter, is a subsidiary of U.S. Bank, and where the agreements refer to U.S. Bank or U.S. Bancorp, Lyon is the party in interest.¹ The Lease Agreement identifies Illinois Paper and Copier Company as the "supplier" of the equipment. (Lease Agreement at 1.)

During a Special Village Board of Trustees Meeting on October 27, 2008, the Village President and Village Board approved Resolution No. R–165–2008, entitled "A Resolution Authorizing the Execution of an Agreement with Illinois Paper and Copier, Inc. for Certain Photocopier Services." (See Resolution No. R–165–2008, Ex. 3 to Illinois Paper Statement of Undisputed Facts [233–3].) The same day, Village Manager James Johnson executed the Lease Agreement on behalf of the Village. (Lease Agreement at 1.) Lyon countersigned the Lease Agreement in December 2008. (Lyon Statement of Additional Undisputed Facts (hereinafter "Lyon SOF") [244 at p. 7],² at ¶ 2).

Just a few days earlier, on October 20, 2008, Lyon and Illinois Paper had entered into an agreement entitled "Partnership Agreement." (Ex. 1 to 2d Am. Compl. [219–1], at 1.) The Partnership Agreement does not explicitly contemplate the Lease Agreement, but does refer to one or more "lease transactions" that might be presented by Illinois Paper to Lyon (id. at 1), for which Lyon agreed to provide funding. (Id. at 2.) Central to this case, the Partnership Agreement contains the following term:

Representations and Warranties : .... You [Illinois Paper] represent and warrant that all lease transactions presented to US Bancorp for review are valid and fully enforceable agreements.... You agree to indemnify and hold U.S. Bancorp harmless from any loss or claim resulting from you[r] breach of the foregoing representations and warranties.

(Partnership Agreement at 2) (emphasis in original). Pursuant to the Partnership Agreement, Lyon purchased copier equipment from Illinois Paper, with a check dated December 12, 2008, for $510,658.19. (Lyon SOF ¶ 3.) Then, pursuant to the Lease Agreement, the Village received the copier equipment (the record does not disclose, exactly, when or from whom) and began making payments shortly thereafter. Though the Partnership Agreement refers to the possibility that Lyon would present other "lease transactions" to Illinois Paper, it is undisputed that this was the only transaction Illinois Paper engaged in that involved Lyon.

In September 2009, Village authorities determined that the Village lacked the power, under Illinois law, to have executed the Lease Agreement. (Village SOF ¶ 15.) Who made this determination, or what prompted it, is not disclosed in the record. The Village Board and manager initially believed that 65 ILCS § 5/11–76–6 provided the authority for the transaction.

(See Letter from Sean Conway, Counsel for Village of Bensenville, to Troy Kepler, Law Dep't, Lyon Financial Services (Sept. 25, 2009), Ex. B. to Village SOF [237–1 at p. 13], at 1.) The statute, however, only provides authority for lease transactions "not to exceed 5 years....," 65 ILCS § 5/11–76–6. Village officials concluded that the 72–month (six-year) term of the Lease Agreement exceeded the Village's authority under Illinois law. Sean Conway, the Village's attorney, notified one of Lyon's attorneys, Troy Kepler, of this opinion in September 2009. (Village SOF ¶ 15.) The attorneys for Lyon and the Village attempted to negotiate a legally enforceable reformation of the Lease Agreement until the following summer, but ultimately, Mr. Conway notified Mr. Kepler on June 1, 2010 that the Village intended to make no further payments after the July 2010 payment. (Village SOF ¶¶ 18–19.) The Village made a total of 19 payments of $9,500.00 each, but did not make the payment due on August 27, 2010 or any payment thereafter. (Lyon SOF ¶ 6.) On August 25, 2010, Janet King, a Collateral Recovery Specialist at Lyon, notified the Village in a letter addressed to the Village's former manager, James Johnson, of Lyon's intent to recover the equipment (Village SOF ¶ 29), and shortly thereafter Lyon repossessed and resold the equipment for $18,956.25. (Lyon SOF ¶ 7.) Lyon incurred $4,296.00 in repossession fees, resulting in a net recovery of just $14,660.25. (Id. )

Though the repossession letter from Lyon stated that it would hold the Village responsible for the deficiency under the Lease Agreement (see Village SOF ¶ 29), both Lyon and the Village adopted the position that the agreement was, in fact, unenforceable. (See Village SOF ¶ 30.) Sean Conway, the Village's attorney, confirmed the parties' positions in response to the repossession letter, notifying Ms. King that he had spoken with Lyon's attorney, Mr. Kepler, who represented that Lyon would not seek payment from the Village. (Letter from Sean Conway to Janet King (Sept. 2, 2010), Ex. B to Village SOF [237–1 at p. 21], at 1; see Village SOF ¶ 30.)

Instead of contesting the Village's refusal to satisfy the obligation, Lyon turned to Illinois Paper, demanding enforcement of Illinois Paper's guarantee that the Lease Agreement with the Village was enforceable. Thus, in a letter dated July 19, 2010, another of Lyon's attorneys, Alex Darcy, demanded that Illinois Paper "repurchase" the Lease Agreement pursuant to the guarantee in the Partnership Agreement. (Letter from Alex Darcy, Counsel for Lyon, to Terry Yormark, President of Illinois Paper, Ex. F to Village SOF [237–1 at p. 40].) Ronald Panter, counsel for Illinois Paper, responded on August 5, 2010 that Illinois Paper would not repurchase the Lease Agreement for several reasons, one of which was that the demand was premature, as Lyon had neither sought nor received any judicial determination that the Lease Agreement was, in fact, unenforceable. (Letter from Ronald Panter to Alex Darcy, Ex. H to Village SOF [237–1 at p. 43], at 2.)

II. Litigation history

Lyon filed suit against Illinois Paper on November 2, 2010 for breach of contract. (Compl. [1].) Illinois Paper raised counterclaims of fraud, breach of fiduciary duty, and breach of contract, which Judge Hibbler—the judge initially assigned to this matter—dismissed. (May 4, 2011 Mem. Op. and Order [44].) Illinois Paper then moved for judgment on the pleadings, on the grounds that Illinois Paper's guarantee of the legal enforceability of the Lease Agreement could not form the basis of a breach of contract or breach of warranty claim under Illinois law because it was a representation of law, not fact. (Mot. for J. on Pleadings [45].) Judge Hibbler agreed and granted the motion. Lyon Fin. Servs., Inc. v. Illinois Paper & Copier Co. , No. 10 CV 7064, 2012 WL...