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Horbach v. Kaczmarek

April 30, 2002


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 5180--Elaine E. Bucklo, Judge.

Before Bauer, Rovner, and Diane P. Wood, Circuit Judges.

The opinion of the court was delivered by: Rovner, Circuit Judge

ARGUED MAY 14, 2001

In 1989, TyrRee Corporation agreed to purchase a tire pyrolysis system (a series of machines that shred, heat, and convert old tires into commercially viable by-products) from Shred Pax Corporation. TyrRee allegedly paid Shred Pax more than $1.7 million for the assembly and storage of the machinery but ultimately did not accept delivery, concluding that it had not gotten what it had paid for. In 1995, following TyrRee's dissolution, Eugene Horbach, TyrRee's majority shareholder and assignee, filed suit against Shred Pax (which by then had changed its name to One Three Six, Inc., but for the sake of convenience we will ignore the name change), and its majority shareholder and president, Alvis Kaczmarek.*fn1 In pertinent part, Horbach's complaint sought relief on theories of contractual breach, fraud, rescission, constructive trust/ unjust enrichment, and conversion. The district court dismissed these claims, finding that the allegations did not support a claim for conversion and that the other claims were untimely. We affirm.


Because the district court dismissed this case at the pleading stage, we accept the allegations in Horbach's complaint as true. E.g., Johnson v. Rivera, 272 F.3d 519, 520 (7th Cir. 2001).

Horbach and Aaron Gellman formed TyrRee, an Illinois corporation, in August of 1989 with the goal of owning and operating tire pyrolysis plants. Horbach, a citizen of the State of Washington, subscribed to 71 percent of TyrRee's stock. Gellman later assigned to Horbach his 21 percent interest in TyrRee, making Horbach the owner of approximately 92 percent of TyrRee's outstanding shares.

On September 5, 1989, TyrRee entered into a preliminary letter agreement with Shred Pax for the purchase of a tire pyrolysis system. That agreement contemplated the subsequent execution of a formal purchase order for the equipment, which the parties completed and signed on September 26, 1989. The purchase order provided that Shred Pax would design and manufacture the equipment in accordance with specifications attached to the order and have it ready for delivery and testing on or before February 1, 1990. The order gave TyrRee the right to inspect, test, and approve the equipment before it accepted delivery. The testing envisioned by the purchase order involved "full and continuous operation" of the equipment over a period of seven days. R. 20 Ex. 4 para. 7.

At a meeting which took place on or about February 9, 1990, Shred Pax informed TyrRee that the equipment was ready for testing and installation. TyrRee had not yet located a suitable site at which it could engage in full-scale testing of the system, however, so the parties agreed that Shred Pax would continue to hold the equipment in exchange for a monthly storage fee until TyrRee was able to locate such a site. TyrRee also wanted Shred Pax to make certain modifications to the pyrolysis system that would take additional time to complete.

On April 6, 1990, Shred Pax sent a letter to TyrRee confirming that the pyrolysis system, as modified, was ready for testing. This letter purported to constitute the formal "Equipment Notice" contemplated by the purchase agreement, entitling Shred Pax to a specified installment payment from TyrRee. TyrRee subsequently advised Shred Pax that it would not be able to conduct acceptance testing of the equipment prior to July and suggested that Shred Pax should conduct the testing itself at a place and time of its own choosing. Apparently, however, Shred Pax opted to wait for TyrRee and continue collecting a storage fee while it did so. Further modifications to the equipment were ordered in September 1990.

TyrRee dissolved on September 9, 1990. All of the company's rights under the initial letter agreement and purchase order were assigned to Horbach.

On or about February 5, 1991, an agent for Horbach visited the facility in Portland, Oregon, where the pyrolysis equipment was being stored. Instead of a completed system, however, the agent discovered only scattered components that did not appear to have been manufactured in compliance with the purchase order. Shred Pax subsequently explained to Horbach that not all of the equipment was, in fact, located in Portland, and that it would take 60 days to assemble the pyrolysis system for acceptance testing. That testing never took place.

On April 18, 1991, Horbach's attorney notified Shred Pax that the purchase order was cancelled because Shred Pax had failed to manufacture and deliver the equipment in accordance with the terms of the order. By this time, Horbach had already paid more than $1.76 million toward the purchase and storage of the equipment and related items. Horbach demanded the return of his money, but Shred Pax refused.

Horbach filed suit against Shred Pax and Kaczmarek in 1995. As we noted at the outset, the district court subsequently dismissed each of the claims that arose from the purchase order. Horbach v. Kaczmarek, 915 F. Supp. 18 (N.D. Ill. 1996); ...

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