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IFC Credit Corp. v. Burton Industries

July 30, 2008

IFC CREDIT CORP., AN ILLINOIS CORPORATION, PLAINTIFF-APPELLANT,
v.
BURTON INDUSTRIES, INC., AND CLARK JOHNSON, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 04 C 5906-Ronald A. Guzmán, Judge.

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

ARGUED APRIL 10, 2008

Before FLAUM, KANNE, and EVANS, Circuit Judges.

This is the third appeal that we have addressed related to the wide-spread fraud committed by the bogus telecommunications provider, NorVergence, Inc. See IFC Credit Corp. v. United Bus. & Indus. Fed. Credit Union, 512 F.3d 989, 991 (7th Cir. 2008); IFC Credit Corp. v. Aliano Bros. Gen. Contrs., Inc., 437 F.3d 606, 607 (7th Cir. 2006). We need not address that fraud directly, however; it serves only as the backdrop for the lawsuit IFC Credit Corp. brought against Burton Industries, Inc., and its president Clark Johnson (and to whom we will collectively refer as "Burton"). IFC Credit alleged that Burton breached the equipment lease that it entered into with NorVergence, and which IFC Credit subsequently purchased. Both parties sought summary judgment; the district court granted Burton's motion, and denied IFC's motion. We affirm.

I. HISTORY

In January 2004, NorVergence approached Burton, a manufacturer of robotic-automation systems, with a deal that Burton could not refuse: NorVergence claimed that its telecommunications equipment line, which was purportedly spearheaded by the Merged Access Transport Intelligent Xchange device (or MATRIX for short),*fn1 could provide Burton with top-notch telecommunications services at rock-bottom costs. Burton was hooked by NorVergence's promises of savings, and on February 5, 2004, the two companies' representatives met to draft a lease for NorVergence's equipment. At that meeting, Burton's Vice President Jeff Johnson agreed to lease one MATRIX device for five years, and he signed two documents to consummate the deal: a Hardware Application and an Equipment Rental Agreement. However, NorVergence subsequently determined that the Equipment Rental Agreement should instead be signed by Burton's President, Jeff's father Clark Johnson. After some back-and-forth between Burton and NorVergence regarding the forms Clark needed to sign, Clark signed the Equipment Rental Agreement about one month later.

The Equipment Rental Agreement and Hardware Application together contained four provisions that are pertinent to this appeal. First, the Equipment Rental Agreement contained a "hell-or-high-water clause," stating that Burton's obligation to make its lease payments was "unconditional despite equipment failure, damage, loss or any other problem." Second, the Equipment Rental Agreement contained an assignment clause limiting the claims that Burton could bring against any company that purchased the Agreement from NorVergence; specifically, the clause provided that Burton agreed that it would not assert against the new owner "any claims, defenses or set-offs" that it might have against NorVergence. The Equipment Rental Agreement also contained a merger clause that stated that the "terms and conditions" of the Agreement were the "complete and exclusive statement" of the Agreement, and that "[t]erms or oral promises not contained" in the Agreement would "not be legally enforced." Finally, the Hardware Application stated that the Equipment Rental Agreement was not binding upon either Burton or NorVergence until (1) Burton's "application [was] approved for the MATRIX Hardware Solution"; (2) "the system [was] mounted in [Burton's] phone closet"; and (3) Burton submitted a "'Delivery and Acceptance Receipt' " to NorVergence.

On May 14, 2004, NorVergence delivered to Burton the MATRIX equipment it leased. Burton's general manager, David Yanniello, accepted the equipment and signed the Delivery and Acceptance Receipt that accompanied it. When Yanniello asked when the equipment would be installed, the delivery person informed Yanniello that he would return another day to mount the equipment in Burton's phone closet. However, the delivery person never returned, and no other individual from NorVergence ever installed the MATRIX equipment. In fact, the employees at Burton never removed the equipment from its box.

Four days after NorVergence delivered the MATRIX equipment, IFC Credit purchased Burton's equipment lease from NorVergence. But seeing that the MATRIX equipment was never installed, Burton refused to make its lease payments to IFC Credit. IFC Credit subsequently sued Burton for breach of contract. Discovery ensued, and both companies eventually filed cross-motions for summary judgment. For its part, Burton argued, among other things, that the Equipment Rental Agreement was not a fully integrated contract by itself, and that the district court should turn to the Hardware Application to determine Burton's obligations. Burton further pointed out that the Hardware Application stated that it was not bound by the Equipment Rental Agreement until the MATRIX equipment was "mounted in [its] phone closet." And because the equipment never was "mounted in [its] phone closet," Burton argued, no equipment lease ever existed. IFC Credit, in turn, contended that it was due summary judgment for two reasons. First, the company asserted that because the Equipment Rental Agreement contained a merger clause, Illinois's parol evidence rule barred the district court from considering the Hardware Application and the Equipment Rental Agreement together. As such, IFC Credit continued, the Equipment Rental Agreement's "hell-or-high-water clause" obligated Burton to make the lease payments to which it agreed, even if the MATRIX equipment was never mounted in its phone closet. IFC Credit also argued that, in any event, the Equipment Rental Agreement's assignment clause precluded Burton from exercising any defense against IFC Credit for its non-payment.

The district court granted Burton's motion for summary judgment, and denied IFC Credit's motion. The court disagreed with IFC Credit that the parol evidence rule prevented it from looking to the Hardware Application to ascertain Burton's obligations under the Equipment Rental Agreement. Looking, then, at the Hardware Application, the court determined that the Equipment Rental Agreement did not bind either Burton or NorVergence to its terms until the MATRIX system was "mounted in [Burton's] phone closet." And because the MATRIX system was never "mounted in [the] phone closet," the court stated, Burton was correct to assert that no equipment lease existed. The court thus concluded that Burton had no obligation to make its lease payments, dooming IFC Credit's arguments that Burton had the duty to pay under the Equipment Rental Agreement's "hell-or-high-water" and assignment clauses. The court then granted Burton's motion for summary judgment, and denied IFC Credit's motion.

II. ANALYSIS

IFC Credit challenges both the district court's grant of summary judgment to Burton and the court's denial of its motion for summary judgment. Specifically, IFC Credit contends that the district court granted summary judgment to Burton only after violating Illinois's parol evidence rule by considering the Equipment Rental Agreement and Hardware Application together. IFC Credit also asserts that it was due summary judgment because the Equipment Rental Agreement's "hell-or-high-water clause" compelled Burton to make its lease payments. IFC Credit further argues that the district court failed to consider that the Equipment Rental Agreement's assignment clause precluded Burton from defending against its failure to make its lease payments.

We review the district court's grant of summary judgment de novo. See Cherry v. Auburn Gear, Inc., 441 F.3d 476, 481 (7th Cir. 2006). In examining the court's decision regarding Burton's and IFC Credit's cross-motions for summary judgment, we construe the facts and draw inferences "in favor of the party against whom the motion under consideration is made." In re United Air Lines, Inc., 453 F.3d 463, 468 (7th Cir. 2006) (citation omitted). And in so reviewing the record, we examine whether there is a genuine issue of material fact that precludes judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Cady v. Sheahan, 467 F.3d 1057, 1060-61 (7th Cir. 2006).

We turn first to IFC Credit's contention that the district court violated the parol evidence rule by considering the Equipment Rental Agreement and Hardware Application together. Under Illinois law-which, the parties agree, governs our review-the parol evidence rule generally excludes evidence of prior agreements or contemporaneous oral agreements if the evidence is introduced to vary or contradict the terms of a written contract. See 810 Ill. Comp. Stat. 5/2-202; Hessler v. Crystal Lake Chrysler-Plymouth, Inc., 788 N.E.2d 405, 412 (Ill. App. Ct. 2003); McDonald's Corp. v. Butler Co., 511 N.E.2d 912, 917 (Ill. App. Ct. 1987). As IFC Credit correctly states, the rule is implicated whenever the contract in question is integrated, see Hessler, 788 N.E.2d at 412-13, meaning that the parties intended the contract "to be a final ...


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