Central National Gottesman Inc. v. J.S. Paluch Co., Inc.

CENTRAL NATIONAL GOTTESMAN, INC. d/b/a LINDENMEYR MUNROE, Plaintiff, v. J.S. PALUCH CO., INC., Defendant.

No. 19-cv-06997

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

July 12, 2021

MEMORANDUM OPINION AND ORDER

Andrea R. Wood United States District Judge

Plaintiff Central National Gottesman, Inc., doing business as Lindenmeyr Munroe (“LM”), is a paper supplier based in New York. For many years, LM was the principal supplier of paper to Defendant J.S. Paluch Co., Inc. (“JSP”), an Illinois corporation in the business of printing church bulletins. In June 2019, LM stopped selling paper to JSP and sought to collect on outstanding invoices. Dissatisfied with JSP's response, LM subsequently filed this action seeking payment of the outstanding balance and enforcement of a security interest in JSP's accounts receivable. JSP then filed a counterclaim alleging that LM breached the parties' agreement and therefore may not enforce the security interest. Now, LM moves for summary judgment on its Amended Complaint and JSP's Amended Counterclaim. (Dkt. No. 57.) For the reasons stated below, the Court grants LM's motion with respect to Count I of the Amended Complaint and both counts of the Amended Counterclaim.

BACKGROUND

For purposes of summary judgment, the Court views the evidence in the light most favorable to JSP as the nonmoving party and draws all reasonable inferences from the facts in JSP's favor. Weber v. Univs. Rsch. Ass'n., Inc., 621 F.3d 589, 592 (7th Cir. 2010). Except where otherwise noted the following facts are undisputed.

LM is a New York corporation with its principal place of business in Purchase, New York. (Def.'s Resp. to Pl.'s Statement of Facts (“DRPSOF”) ¶ 1, Dkt. No. 62.) JSP is an Illinois corporation with its principal place of business in Franklin Park, Illinois. (Id. ¶ 2.) For many years, LM provided JSP with the paper that it used for its bulletin business. (Pl.'s Resp. to Def.'s Statement of Add'l Facts (“PRDSOF”) ¶ 3 Dkt. No. 64.) But by 2018, JSP was experiencing financial challenges. (DRPSOF ¶ 12.) Although JSP used to pay its invoices promptly (receiving a discount for doing so), by early 2018, JSP regularly took more than 60 days to pay its invoices. (Id. ¶ 13.) The balance JSP owed to LM was at least $1.2 million by February 25, 2018. (Id. ¶ 14.)^[1]

In December 2018, LM met with JSP regarding JSP's non-payment of invoices. (Id. ¶ 15.) LM expressed that the account balance needed to be lowered significantly, that it wanted the outstanding balance paid and that it wanted JSP to start buying paper elsewhere. (Id. ¶ 16.) JSP, in turn, expressed that it wanted to keep ordering paper from LM, but that its cash flow issues would make it difficult to keep current with the invoices. (Id. ¶ 17.) LM responded that it would need security to continue doing business with JSP. (Id. ¶ 18.) In February 2019, LM communicated that it wanted a security interest of $800, 000 from JSP to secure part of the outstanding balance. (Id. ¶ 21.) In March and April 2019, LM accepted new orders from JSP only on a “dollars-for-dollars” basis, meaning that JSP had to match the dollar amount of any new order with an equivalent or greater payment on past debt. (PRDSOF ¶ 6.)

The parties negotiated and signed a Secured Revolving Note (“Note”) on May 21, 2019. (DRPSOF ¶ 23.) That day, LM filed a UCC-1 financing statement with the Illinois Secretary of State to perfect the security interest.^[2] (Id. ¶ 24.) When the parties signed the Note, JSP owed around $1.1 million in outstanding invoices. (Id. ¶ 27.) The Note granted LM a security interest of $800, 000 in JSP's accounts receivable.^[3] (Id. ¶ 25.) But the Note did not bring stability to JSP and LM's business relationship. LM continued to require dollars-for-dollars payments for each new order JSP placed. (PRDSOF ¶ 19.) LM issued eleven invoices after the Note was signed, but JSP never paid any of them because JSP could not afford to do so (DRPSOF ¶¶ 30-31.) From May 21, 2019 to June 28, 2019, JSP attempted to place nineteen orders with LM, but LM only accepted seven or eight of those orders.^[4] (PRDSOF ¶¶ 26-27.) On June 21, 2019, LM stopped accepting new orders from JSP, again communicating that it required dollars-for-dollars payments for each new order. (DRPSOF ¶ 32; PRDSOF ¶ 22.) JSP never fully paid for any goods purchased after May 21, 2019 and also did not return any of the goods it received. (DRPSOF ¶ 35.)

JSP attempted to “rescind” the Note on June 28, 2019 and demanded that LM file a termination statement regarding the financing statement. (PRDSOF ¶¶ 31, 35.) LM did not do so. (Id. ¶ 36.) As of the filing date of LM's motion for summary judgment, JSP had failed to pay LM for $1, 013, 476.19 of invoices provided between February 25, 2019 and July 1, 2019. (DRPSOF ¶¶ 8-10.) JSP has never objected to or disputed those invoices. (Id. ¶ 9.)

Other facts asserted by JSP are not material for the purposes of summary judgment. A “material” fact is one that “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Here, JSP references various facts regarding the parties' expectations and intentions with respect to the Note, but (as discussed below) that evidence is inadmissible and therefore will not be considered. (See PRDSOF ¶¶ 8-10, 14-16, 20-21.) The same is true of the number of orders that JSP placed with other vendors because LM would not accept its orders; that evidence does not affect the outcome of the case because, as discussed below and as the Court previously held, LM was not obligated to process JSP's orders under the Note.^[5] (Id. ¶ 28; see Order, Dkt. No. 55.)

JSP has also included legal conclusions and arguments in its Statement of Additional Facts, which are prohibited by Local Rule 56.1. See N.D. Ill. L.R. 56.1(d)(4); Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006). Thus, the Court disregards several paragraphs in which JSP summarizes the parties' legal arguments. (PRDSOF ¶¶ 32-33, 36-37.) Likewise, JSP attempts to characterize the legal effect of the Note as a material fact (see, e.g., id. ¶ 12), but under Illinois law the meaning of an unambiguous contract is a question of law for the Court's determination. People ex rel. Dep't of Pub. Health v. Wiley, 843 N.E.2d 259, 268 (Ill. 2006). So the Court gives no deference to the parties' allegations regarding the proper construction of the Note.

LM previously moved to strike one of JSP's two affirmative defenses and to dismiss JSP's Counterclaim, which asserts two counts against LM. The Court granted LM's motion in part, striking JSP's affirmative defense of “failure of consideration.” In doing so, the Court concluded that the Note, by its unambiguous language and as a matter of law, did not obligate LM to fulfill any quantity of paper orders from JSP. (Order at 2.) Instead, the Note granted a security interest to LM and gave JSP a 150-day payment term for each invoice. (Id.) Similarly, because the language of the Note establishes its unambiguous meaning, the Court held that extrinsic evidence-like statements made during negotiations or the parties' goals and intentions in the deal-is not relevant in construing the language of the Note. (Id. at 2-3.)

DISCUSSION

With its present motion, LM seeks summary judgment in its favor as to the two counts asserted in its Amended Complaint: Count I (breach of contract) and Count II (account stated). It also seeks summary judgment against JSP on the two counts of JSP's Counterclaim: Count I (declaratory judgment that the Note is void and unenforceable) and Count II (declaratory judgment that the financing statement is void and unenforceable). Summary judgment is warranted “if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The Court views all evidence in the light most favorable to the non-moving party and draws all reasonable inferences in its favor. Weber, 621 F.3d at 592. The Court does not “judge the credibility of the witnesses, evaluate the weight of the evidence, or determine the truth of the matter. The only question is whether there is a genuine issue of fact.” Gonzalez v. City of Elgin, 578 F.3d 526, 529 (7th Cir. 2009). A genuine issue of material fact exists only if there is “sufficient evidence favoring the nonmoving party . . . to permit a jury to return a verdict for that party.” Johnson v. Manitowoc County, 635 F.3d 331, 334 (7th Cir. 2011). Illinois law governs the parties' claims in this action. (Am. Compl Ex. A, Note ¶ 8, Dkt. No. 23.)

I. Breach of Contract

LM contends that JSP breached the parties' contract by failing to pay for paper that LM delivered. It seeks a judgment of $1, 013, 476.19, plus pre-judgment interest, and turnover of JSP's accounts receivable in an amount of $800, 000.

Most of the elements of LM's claims are not disputed. To establish that JSP has breached the parties' contract, LM must demonstrate: “(1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach by the defendant; and (4) resultant injury to the plaintiff.” Pepper Constr. Co. v. Palmolive Tower Condos., LLC, 59 N.E.3d 41, 66 (Ill.App.Ct. 2016). To enforce the Note, LM must establish that “(1) the defendant executed the security agreement and promissory note; (2) the plaintiff is the holder of the note; and (3) the defendant has no viable defense.” Riley v. Argonaut Midwest Holdings, L.L.C., No. 06C5026, 2007 WL 2461661, at *3 (N.D. Ill. Aug. 28, 2007) (citing Basu v. Stelle, 603 N.E.2d 1253, 1254-56 (Ill.App.Ct. 1992)).

The plain language of the Note requires JSP to pay LM for paper orders within 120 days of the maturity date of...