Mayster v. Santacruz

2020 IL App (2d) 190840

163 N.E.3d 246

444 Ill.Dec. 121

Judith MAYSTER and Scaramouche Enterprises, LLC, Plaintiffs,

v.J. Steve SANTACRUZ and Schoolhouse 4 Math, LLC, Defendants

(Scaramouche Enterprises, LLC, Plaintiff-Appellant and Cross-Appellee;

Schoolhouse 4 Math, LLC, Defendant-Appellee and Cross-Appellant.)

No. 2-19-0840

Appellate Court of Illinois, Second District.

Opinion filed September 29, 2020

Diana C. Taylor, of DeSanto Morgan & Taylor, of Libertyville, for appellant.

Aharon S. Kaye, Kara Allen, and Valerie C. Lengerich, of Gutnicki LLP, of Skokie, for appellee.

JUSTICE ZENOFF delivered the judgment of the court, with opinion.

¶ 1 This breach-of-contract action involves the purchase and sale of a Mathnasium math tutoring franchise. After a bench trial, the trial court found that defendant, Schoolhouse 4 Math, LLC (Math), wrongfully terminated the purchase contract but that plaintiff, Scaramouche Enterprises, LLC (Scaramouche), was precluded from collecting damages, because of its complete failure to mitigate its losses. Scaramouche appeals. Though Math prevailed below, Math cross-appealed, challenging one of the trial court's findings. As we discuss below, Math withdrew the cross-appeal at oral argument. For the following reasons, we affirm.

¶ 2 I. BACKGROUND

¶ 3 Before trial, the court dismissed the individuals, plaintiff Judith Mayster and defendant J. Steve Santacruz, from the litigation. At trial, the evidence showed the following. Mayster formed Scaramouche to purchase and operate two Mathnasium franchises, Mathnasium of Grayslake (Grayslake) and Mathnasium of Barrington (Barrington). In December 2015, Mayster decided to sell the businesses. She listed Grayslake for $90,000, but she sold it back to the franchisor for approximately $15,000. Pursuant to the buy-back agreement, Grayslake's financial status remained confidential. Mayster listed Barrington for $150,000. She later reduced the price to $130,000.

¶ 4 Santacruz manages Math, which owns seven Mathnasium franchises. In September 2016, Santacruz and Mayster began discussions for Math to purchase Barrington. They agreed upon a purchase price of $100,000. Math would also assume Barrington's property and copier leases. Math terminated the contract after the Illinois Department of Revenue (Department) issued a bulk-sales stop order requiring Math to withhold almost $13,000 in taxes from the purchase price at closing.¹ Math then offered to reinstate the contract and purchase Barrington at the same price. When Mayster, as Scaramouche's manager, demanded 100% of the purchase price in cash at closing as a condition of reinstatement, Math's attempt to reinstate the contract was aborted. This litigation began when Mayster sued Santacruz individually over allegedly defamatory letters that Santacruz wrote, voicing his perception that Mayster had failed to pay taxes. The defamation counts of the lawsuit were dismissed with prejudice and are not at issue in this appeal.

¶ 5 Before the dismissal of the defamation counts, Scaramouche and Math were added to the lawsuit. Scaramouche claimed $100,000 in damages for breach of contract plus consequential damages of approximately $11,000 for the lease payments that Math failed to assume. Math raised the affirmative defense that Scaramouche failed to mitigate its damages.

¶ 6 At trial, which occurred on June 4 to June 7, 2019, Mayster testified as follows. In June 2017, the parties entered into a letter of intent (LOI), which outlined the terms of the proposed transaction. Pursuant to the LOI, Math had 30 days to complete a due diligence review of Barrington's financial, accounting, and business records. Mayster provided certain documents in response to Santacruz's due diligence request. However, that response did not include balance sheets. Mayster testified that the balance sheets contained combined financial information for Barrington and Grayslake. When Santacruz did not object to the nondisclosure of the balance sheets, Mayster assumed that he agreed not to pursue the matter.

¶ 7 On June 29, 2017, the parties signed an asset purchase agreement (APA). The APA contained a representation that Mayster had provided the balance sheets. She knew that the representation was not accurate, but she assumed that "everything was done that had to be done." In July 2017, Santacruz met Mayster at Barrington, where she gave him additional documentation pertaining to the business. Santacruz did not mention the balance sheets.

¶ 8 Mayster next heard from Santacruz after the issuance of the bulk-sales stop order. Mayster was confused by the Department's action, as her taxes were paid. Mayster's attorney explained to Santacruz that the Department was demanding payment of future taxes, and then "everything seemed to settle." Mayster's attorney was to prepare the closing documents, Santacruz asked for wiring instructions, and Mayster assumed that the transaction would close. However, the closing did not occur, because of the "tax situation."

¶ 9 In an attempt "to resurrect the deal," Santacruz demanded that Mayster pay for an asset lien search. At first, Mayster refused to have a search conducted, because the APA did not require it. Later, Mayster agreed to an asset lien search if Santacruz paid for it. He refused. Mayster also agreed to provide Barrington's balance sheets, but Santacruz wanted the information pertaining to Grayslake as well. In the end, efforts to renegotiate the contract failed.

¶ 10 Mayster relisted Barrington for sale at $130,000. She obtained the names of an interested couple through the franchisor, and her attorney contacted three current franchise owners who expressed interest. However, the "opportunity" to sell Barrington did not arise. In January 2018, Mayster decided to close the business rather than lower the asking price. Mayster testified that the business was not profitable, she was unable to keep up with both her full-time job and Barrington, and she "just didn't want to put any more money into it." She voluntarily closed Barrington in February 2018.

¶ 11 On cross-examination, Mayster agreed that, after Santacruz terminated the contract, he "almost immediately" reached out to "get the deal back on track." Mayster also agreed that she would close on the transaction only if Santacruz paid the full purchase price at closing, instead of adhering to the APA's pricing structure. Mayster did not sign Santacruz's proposed reinstatement agreement, but instead she filed suit against Santacruz for defamation.

¶ 12 Mayster testified that she listed Barrington on BizBuySell, which was a public listing not targeted to potential franchise buyers. When the franchisor suggested that Mayster advertise the sale of Barrington in an internal publication called "Mathnasium Matters," which targeted Mathnasium owners, Mayster declined. She informed the franchisor that she intended to close the business. Mayster testified that she was also concerned that the tutors would find other jobs if they found out that she was trying to sell or close the business, which would leave her students stranded. Mayster agreed that she did not consider reducing the asking price from $130,000, even though she had no offers to purchase Barrington. She also denied that the franchisor suggested that the purchase price be linked to the number of students.

¶ 13 Attorney Lauren LoMonaco, who represented Mayster in the sale of Barrington, testified next on behalf of Scaramouche. LoMonaco testified that the APA was the entire agreement of the parties. LoMonaco had conversations with Santacruz in which he "didn't really care so much about updated balance sheets" as he cared about incoming student contracts and revenue from student enrollment. LoMonaco testified that, after she explained the meaning of the bulk-sales stop order to Santacruz, he asked LoMonaco for the closing documents. He also asked Mayster for wiring instructions, which led LoMonaco to believe that he was ready to close the transaction. However, Santacruz then demanded an asset lien search, in the absence of which he threatened to terminate the contract. Next, LoMonaco received a termination letter. LoMonaco testified that Santacruz was "unhappy" about the bulk-sales stop order. He did not mention the balance sheets in his termination letter.

¶ 14 On cross-examination, LoMonaco testified that she and Mayster would have cooperated with an asset lien search if Santacruz had agreed to pay for it. LoMonaco agreed that she received e-mails in June 2017 in which Santacruz was asking for the balance sheets. LoMonaco testified that the Grayslake information was confidential but that she learned from Mayster's accountant that the Grayslake information could be separated from the Barrington information.

¶ 15 LoMonaco testified that two days after Santacruz terminated the contract, he was willing to reinstate it. His terms were that Mayster produce the balance sheets, conduct an asset lien search, and extend the closing date. Mayster responded that Santacruz would have to pay for the lien search, she would not extend the closing date, and Santacruz would have to pay the full purchase price in cash at closing. Santacruz rejected that proposal.

¶ 16 On redirect examination, LoMonaco testified that the APA did not require Mayster to produce documents and that the due diligence period under the LOI ended before the APA was signed. Because LoMonaco received Santacruz's termination letter, which convinced her that the "deal was dead," she did not follow up with the accountant's suggestion to separate the Grayslake and Barrington balance sheets. With that testimony, Scaramouche rested.

¶ 17 After the court denied Math's motion for a directed finding, Santacruz testified on behalf of Math. Santacruz testified that he wanted to close on August 31, 2017, but Mayster insisted on closing on July 31, 2017, because she was going to retire. Rather than conduct due diligence in a short amount of time, Santacruz concentrated on...