Lyon Fin. Servs., Inc. v. Ill. Paper & Copier Co.
| Decision Date | 13 January 2016 |
| Docket Number | No. 10 C 7064,10 C 7064 |
| Parties | LYON FINANCIAL SERVICES, INC. d/b/a US BANCORP BUSINESS EQUIPMENT FINANCE COMPANY, Plaintiff, v. ILLINOIS PAPER AND COPIER COMPANY and THE VILLAGE OF BENSENVILLE, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
When the Village of Bensenville needed to replace its copier equipment in 2008, Village officials met with Illinois Paper and Copier Company ("Illinois Paper"), an Illinois company in the business of providing copy machines and other office equipment. To finance their deal, the parties turned to Lyon Financial Services ("Lyon Financial" or "Lyon"), which had provided the Village with financing for the copier equipment that the Village now sought to replace.1 Lyon purchased the new equipment from Illinois Paper for more than $500,000 and provided it to the Village under an agreement that called for the Village to make monthly payments of $9,500 to Lyon for six years. Two years later, however, the Village pronounced the agreement unenforceable and refused to make any further monthly payments. Lyon Financial, which had paid for the equipment and was left holding the bag when the Village stopped making payments, did not initially challenge the Village's assertion that the agreement was unenforceable.Instead, Lyon brought a lawsuit against Illinois Paper, alleging that Illinois Paper had warranted that the deal with the Village was enforceable and that Illinois Paper is liable for breach of that warranty. The enforceability of Illinois Paper's warranty was the subject of an earlier ruling from this court, a Seventh Circuit appeal, and a question certified to the Supreme Court of Minnesota.2 On remand from the Seventh Circuit, Lyon amended its complaint, naming the Village as a defendant and challenging the Village's assertion that the agreement is unenforceable. Lyon now seeks summary judgment against Illinois Paper on the claim of breach of warranty or, in the alternative, against the Village for breach of contract. Illinois Paper and the Village seek summary judgment, as well.
The court's jurisdiction here is secure under 28 U.S.C. § 1332. Plaintiff U.S. Bank, the successor in interest to Lyon Financial, is chartered in the state of Ohio and has its principal place of business in Minneapolis, Minnesota. (Am. Compl. ¶ 1.) Defendant Illinois Paper is incorporated in Delaware and has its principal place of business in Bolingbrook, Illinois, and thus is a citizen of Delaware and Illinois. (Id. ¶ 2.) The Village of Bensenville is a citizen of Illinois. The amount in controversy exceeds $500,000.
For the reasons explained below, all three motions for summary judgment are denied.
The parties have filed Local Rule 56.1 statements of undisputed material facts and statements in opposition to one another's LR 56.1 statements. To the extent the parties disagree with one another's factual contentions, these disputes are noted below.
The relationship between Lyon and the Village of Bensenville pre-dates Illinois Paper's involvement in this dispute. In June 2006, Lyon and the Village entered into an agreement with the Chicago Office Technology Group (the "COTG Lease Agreement") for the lease of certain copy equipment for use by the Village.3 (Lyon's L.R. 56.1(a)(3) Statement of Facts [146] ("Lyon SUF") ¶ 6.) To carry out that transaction, Lyon purchased copier equipment from Chicago Office Technology Group, which was named as the "supplier" under the COTG Lease, and provided that equipment to the Village. (Id.) The term of the COTG Lease was 60 months, or five years. (COTG Lease, Ex. 1 to Illinois Paper's Response to Lyon's And Bensenville's L.R. 56.1(a)(3) Statement of Facts [176] ("Ill. Paper Resp. to Lyon and Village SUF").) A few months later, in December 2006, Lyon and the Village entered into a Lease Supplement (the "COTG Lease Supplement") for a paper-folding machine, also supplied by COTG. (Lyon SUF ¶ 7.) Together, the GOTC Lease and Lease Supplement required the Village to make monthly payments to Lyon in the amount of $7,125. (Id.)
Just two years later, in 2008, the Village decided to replace the COTG copier equipment with new copier equipment from Illinois Paper. At the time, the Village still owed Lyon an outstanding balance of more than $148,200 under the COTG Lease Agreement. (Ill. Paper L.R. 56.1(a)(3) Statement of Facts [143] ("Ill. Paper SUF") ¶ 9.) Illinois Paper agreed to supply the Village with 39 pieces of new copier equipment; as before, Lyon would finance the transaction. (Lyon SUF ¶¶ 8, 11; ILPCC Lease Agreement at 5-6, Ex. 2 to Lyon SUF.) As part of the transaction, Illinois Paper agreed to pay off the Village's remaining $148,200 obligation underthe COTG Lease.4 (Certification of Edward Bowser, Network Administrator for the Village of Bensenville, Ex. 4 to Ill. Paper Resp. to Lyon and Village SUF; Ill. Paper SUF ¶ 10.)
Lyon had not previously done business with Illinois Paper, and it ordinarily requires any new vendor whose goods it finances to agree to certain terms. (Lyon SUF ¶ 9.) Consequently, Illinois Paper and Lyon entered into an Office Equipment Finance Services Partnership Agreement (the "Partnership Agreement"), giving Lyon a first right to finance all of Illinois Paper's transactions with customers interested in lease financing for 90 days beginning on October 1, 2008. (Id.) In the Partnership Agreement, Illinois Paper "represent[ed] and warrant[ed] that all lease transactions presented to [Lyon] for review are valid and fully enforceable agreements." (Lyon SUF ¶ 10; Partnership Agreement, Ex. 1 to Lyon's Amended Complaint [114-1] ("Partnership Agreement").) Lyon and Illinois Paper entered into the Partnership Agreement on or about October 20, 2008. (Lyon SUF ¶ 9.)
Lyon and the Village then proceeded to enter into their financing agreement for new copier equipment supplied by Illinois Paper, referring to the agreement as a Value Lease Agreement (the "ILPCC Lease Agreement"). Pursuant to the ILPCC Lease Agreement, the Village was required to make monthly payments of $9,500 to Lyon for 72 months, totaling$684,000. (Lyon SUF ¶ 28; ILPCC Lease Agreement, Ex. 2 to Am. Compl. [114-2].) Significantly, although the parties labelled the agreement a lease, they contemplated the possibility that their agreement might be construed as a security agreement, expressly providing for Lyon to make a UCC filing to record its interest in the copier equipment:
12. UCC FILINGS: You [the Village] grant us [Lyon] a security interest in the equipment if this Agreement is deemed a secured transaction and you authorize us to record a UCC-1 financing statement or similar instrument, and appoint us your attorney-in-fact to execute and deliver such instrument, in order to show our interest in the equipment.
(ILPCC Lease Agreement ¶ 12.) The agreement "[could not] be cancelled or terminated" by either party (id. at 1), but the parties identified a narrow set of circumstances that would excuse performance on the part of the Village:
18-C. NON APPROPRIATION: In the event that Customer [the Village] is in default under the Agreement because (1) Funds are not appropriated for a fiscal period subsequent to the one in which the Agreement was entered into which are sufficient to satisfy all of Customer's obligations under the Agreement during said fiscal period, (2) Such non-appropriation did not result from any act or failure to act of customer, (3) Customer has exhausted all funds legally available for all payment due under the Agreement; and (4) There is no other legal procedure by which payment can be made to Owner [Lyon], Then, provided (a) Customer has given Owner written notice of the occurrence of paragraph 1 above thirty (30) days prior to such occurrence; (b) Owner has received a written opinion from Customer's counsel verifying the same within ten (10) days thereafter; and (c) the Customer does not directly or indirectly purchase, lease or in any way acquire any services or equipment supplied or provided for hereunder, upon receipt of the equipment delivered to a location designated by Owner, at Customer's expense, Owner's remedies for such default shall be to terminate the Lease . . . retain the advance payment, if any; and/or sell, dispose of, hold, use or rent the equipment as Owner in its sole discretion may desire, without any duty to account to Customer.
(Id. ¶ 18-C.) The parties also executed an Addendum to the Lease Agreement, which sets forth the Village's options at the conclusion of the Lease term:
Section 1. AGREEMENT: . . . At the end of the 72 month Agreement, Customer [the Village] shall have the following options: (1) Return the equipment to [Lyon] . . . (2) Purchase the equipment for the Fair Market Value, (3) Upgrade the equipment into a new Agreement, [or] (4) Renew the Agreement on a month to month basis until equipment is returned to [Lyon].
(Addendum to ILPCC Lease Agreement at 2-3.) The Addendum also outlines remedies available to Lyon if the Village were to default under the agreement:
Section 12. DEFAULT AND REMEDIES: . . . . If Customer [the Village] is ever in default, Owner [Lyon] can terminate this Agreement and require that Customer pay the sum of (1) the unpaid balance of this Agreement (discounted at 6%); (2) and return the equipment to Owner to a location designated by Owner. Owner may also use any of the remedies available to Owner under article 2A of the Uniform Commercial Code as enacted in the State of Illinois. In the event of default, the non-defaulting party shall be entitled to all available remedies at law or in equity. The non-prevailing party in any litigation to enforce the terms of this agreement shall pay the prevailing party's attorney fees and court costs. . . .
(Id.) Lyon acknowledges that, although the agreement was characterized as a lease,...
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