Whirlpool Financial Corp. v. Sevaux, 95-3934

• Citation: 96 F.3d 216
• Decision Date: 10 September 1996
• Docket Number: No. 95-3934,95-3934
• Parties: WHIRLPOOL FINANCIAL CORPORATION, a Delaware Corporation, Plaintiff-Appellee, v. Jean SEVAUX, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 216

96 F.3d 216

WHIRLPOOL FINANCIAL CORPORATION, a Delaware Corporation, Plaintiff-Appellee, v. Jean SEVAUX, Defendant-Appellant.

No. 95-3934.

United States Court of Appeals, Seventh Circuit.

Argued April 18, 1996.

Decided Sept. 10, 1996.

Richard P. Glovka (argued), David M. Simon, Wildman, Harrold, Allen & Dixon, Chicago, IL, for Plaintiff-Appellee.

William P. O'Keefe, Jr., Chicago, IL, Thomas E. Engel (argued), James G. McCarney, Engel & McCarney, New York City, for Defendant-Appellant.

Before CUDAHY, RIPPLE and KANNE, Circuit Judges.

RIPPLE, Circuit Judge.

Jean Sevaux, the owner of a Venezuelan corporation with severe corporate cash flow difficulties, approached the Whirlpool Financial Corporation ("WFC"). The parties discussed a $17.5 million investment in the corporation by WFC, but nothing was decided definitively with respect to the form that the investment would take. Mr. Sevaux executed a $1 million note to secure WFC's initial $1 million investment. WFC made no further investment in Mr. Sevaux's corporation. Mr. Sevaux defaulted on the note, and WFC

commenced this action to secure payment. Mr. Sevaux raised a number of affirmative defenses and asserted a number of counterclaims. Each was predicated on WFC's oral promise to invest in the corporation and WFC's oral assurance that Mr. Sevaux's obligations under the note would be extinguished by WFC's investment. The district court concluded that Mr. Sevaux's affirmative defenses are barred by the Illinois Credit Agreements Act and entered summary judgment in favor of WFC. Mr. Sevaux now appeals the entry of summary judgment against him on his affirmative defenses and counterclaims. For the reasons set forth in the following opinion, we affirm the judgment of the district court.

I BACKGROUND

Jean Sevaux is the president and sole owner of Raymond de Venezuela ("Raymond"), a corporation organized under the laws of Venezuela. ¹ Raymond manufactures concrete pilings and platforms in Venezuela for the Venezuelan oil industry. In 1991, when Raymond was about to go public, Mr. Sevaux discovered that the corporation was experiencing severe cash flow difficulties. Needing a cash infusion to keep Raymond operating, Mr. Sevaux approached Richard Palmieri, WFC's president, and invited him to visit Raymond's facilities in Maracaibo, Venezuela. ²

In November 1991, Palmieri and Joel Webber, a WFC vice-president, met with Mr. Sevaux at Raymond's offices in Venezuela. At this meeting, the parties discussed not only a short-term infusion of cash, but also a long-term refinancing of Raymond's approximately $13 million in Venezuelan debt obligations. Raymond's Venezuelan counsel pointed out the advantage under Venezuelan law of structuring WFC's investment as preferred stock, rather than debt, to avoid Venezuelan tax on interest payments to foreign entities. The parties also considered which of Raymond's parent holding companies actually would be the borrowing entity. No agreement was reached, however, as to how the package would be distributed between straight debt, equity and quasi equity. Mr. Sevaux later testified that, at one point during the November 1991 meetings, Palmieri took him aside and said "for the package of $17.5 million, I want fifty percent of the company...." R. 167, Ex. A, Deposition of Jean Sevaux, at 162. Mr. Sevaux responded by saying "that's a deal" and shook hands with Palmieri. Id.

Pending completion of due diligence and selection of the proper vehicle for the $17.5 million investment, the parties agreed that Mr. Sevaux and WFC each would advance $1 million in new money to Raymond to sustain it on a short-term basis. WFC asked Mr. Sevaux to execute a $1 million promissory note to secure the $1 million to be advanced by WFC to Raymond. According to Mr. Sevaux, he was assured that this note was an "interim" measure, that he would not be required to make payment on the note, and that his liability on the note would be extinguished upon WFC's agreed-upon investment in Raymond. The note, which contained a blank for indicating the appropriate interest rate, stated that the outstanding balance of the loan would be repaid on or before July 1, 1992 and warranted that Mr. Sevaux was agreeing to the note as part of a commercial loan transaction. Mr. Sevaux inserted the interest rate specified by Palmieri and executed the note. Per Mr. Sevaux's instructions, WFC transferred the proceeds of the note to Raymond. Mr. Sevaux also transferred $1 million of his own money to Raymond.

On July 28, 1992, WFC informed Mr. Sevaux that it would not be investing in Raymond or lending any further monies to the After the parties completed discovery, the district court denied WFC's motion to dismiss. See Whirlpool Fin. Corp. v. Sevaux, 866 F.Supp. 1097 (N.D.Ill.1994) ("Whirlpool I "). WFC then responded to Mr. Sevaux's affirmative defenses and counterclaims by denying that it had made any agreement with Mr. Sevaux other than the note. WFC moved for summary judgment on the affirmative defenses and counterclaims and, on December 28, 1994, the district court granted WFC's motion. See Whirlpool Fin. Corp. v. Sevaux, 874 F.Supp. 181 (N.D.Ill.1994) ("Whirlpool II "). The district court held that Mr. Sevaux's affirmative defenses and counterclaims are barred by the Illinois Credit Agreements Act.

company. WFC extended the note's maturity date through "Note Extension Agreements," signed both by WFC and by Sevaux, first to November 3, 1992, and then to June 30, 1993. When Mr. Sevaux failed to repay the note on the June 30 maturity date, WFC commenced this action to recover payment on the note. Mr. Sevaux pleaded six affirmative defenses: (1) fraud in the inducement; (2) fraud under 815 ILCS 105/10; (3) estoppel by breach of fiduciary duty; (4) constructive fraud; (5) failure of consideration; and (6) want of consideration under 815 ILCS 105/9. He also responded with five counterclaims against WFC: (1) fraud; (2) breach of contract; (3) promissory estoppel; (4) breach of fiduciary duty; and (5) constructive fraud. In essence, Mr. Sevaux submits that WFC falsely represented an intent to invest $17.5 million in Raymond and that, in reliance on that promise, he executed the note and invested $1 million of his own money in Raymond. Mr. Sevaux further submits that WFC falsely represented that he would never have to repay the note and that WFC's anticipated investment would extinguish his obligations thereunder. WFC filed a motion, grounded in the Illinois Credit Agreements Act, to strike Mr. Sevaux's affirmative defense and to dismiss Mr. Sevaux's counterclaims.

WFC then filed a motion for judgment on the pleadings. Mr. Sevaux responded with a cross-motion for reconsideration of the summary judgment motion, in which he asserted that the case ought to be governed instead by Venezuelan law. The district court granted WFC's motion for judgment on the pleadings, denied Mr. Sevaux's cross-motion to reconsider, and ordered WFC to prove up the sums due under the note. See Whirlpool Fin. Corp. v. Sevaux, No. 93 C 4275, 1995 WL 153313 (N.D.Ill. Apr. 5, 1995) ("Whirlpool III "). Mr. Sevaux responded to WFC's motion to award damages with a cross-motion asserting that the note violates the Illinois Interest Act, 815 ILCS 205/0.01 et seq. The motions were assigned to a magistrate judge for a report and recommendation. Addressing Mr. Sevaux's cross-motion, the magistrate judge took the view that the note falls within the "business loan" exception to the Interest Act. See 815 ILCS 205/4(1)(c). Accordingly, the magistrate judge recommended that the district court deny Mr. Sevaux's cross-motion and award WFC the $1 million principal, interest, and most of its attorneys' fees and costs, but that the court deny WFC late charges under the note. The district court overruled Mr. Sevaux's objections to the report and recommendation and entered judgment in favor of WFC in the amount of $1,542,183.71.

II ISSUES

Mr. Sevaux raises four issues on appeal: (1) whether the district court erred in applying Illinois law, rather than Venezuelan law, to the parties' agreements; (2) whether the district court erred in concluding, as a matter of law, that the parties' oral agreements are subject to the Illinois Credit Agreements Act; (3) whether the district court erred in concluding that the Illinois Credit Agreements Act precludes the maintenance of Mr. Sevaux's counterclaims and defenses; and (4) whether the district court erred in concluding that WFC's loan to Mr. Sevaux is exempt from the prohibition against usury as a "business loan" under 815 ILCS 205/4(1)(c).

III DISCUSSION

1.

Mr. Sevaux first contends that the district court erred in applying Illinois law to the parties' agreements. Instead, he submits, the district court should have applied the "most significant contacts" test and evaluated his affirmative defenses and counterclaims under Venezuelan law. In support of this position, Mr. Sevaux emphasizes that WFC negotiated and concluded the agreement to invest in Raymond in Venezuela. Moreover, he asserts, the subject matter of the contract--Raymond--is incorporated and domiciled in Venezuela and conducts its business there. Mr. Sevaux introduced an affidavit from Dr. Alfredo A. Azpurua, an expert in Venezuelan law, to prove that, under Venezuelan law, the oral agreements giving rise to his affirmative defenses and counterclaims are not required to be embodied in a writing signed by both parties.

We agree with the district court, however, that Mr. Sevaux waived any objection to the application of Illinois law by failing to address the choice-of-law issue earlier in the proceedings. See Whirlpool III, 1995 WL 153313, at * 3. Under the Federal Rules of Civil Procedure, Mr. Sevaux had the obligation to provide the district court with "reasonable notice" of his intention to raise an issue of foreign law. Fed.R.Civ.P. 44.1. Our review of the record in this case establishes that, although Mr....