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Graphic Pallet and Transport, Inc., John Krawisz, Christy Krawisz v. Balboa Capital Corp

May 30, 2012

GRAPHIC PALLET AND TRANSPORT, INC., JOHN KRAWISZ, CHRISTY KRAWISZ, PLAINTIFFS,
v.
BALBOA CAPITAL CORP.,
DEFENDANT.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

Plaintiffs Graphic Pallet and Transport, Inc., John Krawisz, and Christy Krawisz filed this lawsuit against defendant Balboa Capital Corp. in the Circuit Court of Will County, Illinois alleging that Balboa had misrepresented the terms of three leases executed by Graphic and guaranteed by the Krawiszes. The complaint consists of four counts, all pleaded in the alternative: rescission of contract (Count I), common law fraud (Count II), mistake (Count III), and violation of Califorina's Unfair Competition Law ("UCL"), Business and Professions Code Section 17200 (Count IV). The case was removed to this court. Defendant has moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

MEMORANDUM OPINION AND ORDER

I.

According to the complaint, in March 2008, Balboa, a California corporation, entered into discussions with Graphic, an Illinois corporation, about leasing a nailing machine and a semi-truck. Plaintiffs allege that Balboa's representative, Kenny Segin, indicated that Balboa would agree to finance the purchase of the equipment in exchange for thirty-six monthly payments. Plaintiffs also allege that Segin represented that at the end of the lease terms, plaintiffs would have an opportunity to purchase the equipment for one dollar. Based on these representations, Graphic entered into two lease agreements, one for the nailing machine (the "first lease agreement") and one for the semi-truck (the "second lease agreement"), and the Krawiszes signed personal guarantees.

Despite Segin's representations or the Krawiszes' understanding, the lease agreements tell a different story. Under the terms of the lease agreements, which are two pages long each, there are two possible end of term options.*fn1 Paragraph 16 of the lease terms describes the two end of term options: "$1.00 or $1.01 buyout" and "Fair Market Value Purchase Option." (Pls.' Complaint, Ex. A) (DN 2-1); (Def.'s Mot. to Dismiss, Ex. 1) (DN 10-1). If the former is indicated in the end of term section on the front of the lease, then the lessee "shall purchase the equipment for that amount" at the end of the lease term. Id. By contrast, if the latter option is indicated, then the lessee has the opportunity to purchase the equipment "for its fair market value" as determined by Balboa in its "reasonable judgment," after giving notice prior to the end of the lease term. Id. According to the end of term section on page one of the first and second lease agreements, the fair market value purchase option governs both contracts.

In February 2010, Segin contacted Graphic again to discuss the possibility of Balboa leasing a saw to Graphic. During the discussions, Segin allegedly represented once more that Graphic would have the opportunity to purchase the saw for one dollar at the end of the lease term. As with the first two lease agreements, plaintiffs allege that they entered into the lease agreement for the saw (the "third lease agreement") based on Segin's representations. The third lease agreement differs from the first and second agreements in that page one of the third lease does not refer to an end of term "option." Instead, paragraph 16 on the second page of the lease describes only a fair market value purchase term.*fn2

According to plaintiffs, Graphic made monthly payments pursuant to the three agreements through April 2011, when the first and second lease agreements were set to terminate. Plaintiffs do not allege that Graphic notified Balboa of an intent to exercise the fair market value option described in the lease agreements. Instead, plaintiffs claim that they contacted Segin after noticing that Balboa was still withdrawing funds in May 2011, for the first and second lease agreements, even though those agreements ended in April 2011. Segin allegedly confirmed that the first and second agreements contained one-dollar buyout provisions and told plaintiffs that he would have Balboa issue a refund to Graphic for the post-April 2011, payments. Balboa did not issue a refund to Graphic, however, and Segin stopped returning plaintiffs' phone calls. Other Balboa representatives informed Graphic that the agreements were governed by a fair market value purchase option and that, according to the terms of the lease agreements, because Graphic did not return the equipment or give notice of an intent to exercise the fair market value purchase option, plaintiffs would have to continue making monthly payments for at least an additional twelve months and then pay the fair market value of the nailing machine and the semi-truck.

Graphic sued Balboa in state court, and Balboa removed the case to this court. Jurisdiction was properly based on the diversity of citizenship between the parties. The parties agree that California law applies to the lease agreements.

II.

To survive a Rule12(b)(6) motion, a complaint generally "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). While a "short and plain statement of the claim" is all that is required by Federal Rule of Civil Procedure 8, "[i]f the plaintiff chooses to provide additional facts, beyond the short and plain statement requirement, the plaintiff cannot prevent the defense from suggesting that those same facts demonstrate the plaintiff is not entitled to relief." Thompson v. Ill. Dept. of Professional Regulation, 300 F.3d 750, 753 (7th Cir. 2002). Further, a "plaintiff may plead himself out of court by attaching documents to the complaint that indicate that he or she is not entitled to judgment." Matter of Wade, 969 F.2d 241, 249 (7th Cir. 1992). In addition, where a plaintiff alleges fraud or mistake, "a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b).

III.

The gravamen of defendant's argument is that plaintiffs' claims are precluded by the parol evidence rule. According to defendant, because the parol evidence rule would exclude evidence of oral representations that were contrary to the unambiguous written provisions of the lease agreements, plaintiffs cannot state a claim upon which relief can be granted. In addition, defendant argues that plaintiffs' assertions that they relied on Segin's alleged misrepresentations are facially implausible and are further grounds for dismissal under Iqbal. I do not reach defendant's second argument because I find that the parol evidence rule applies and is dispositive.

Generally, the parol evidence rule "prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument." Alling v. Universal Mfg. Corp., 5 Cal. App. 4th 1412, 7 Cal. Rptr. 2d 718 (Cal. App. Ct. 1992) (citing Tahoe Nat'l Bank v. Phillips, 4 Cal.3d 11, 23, 92 Cal.Rptr. 704 (Cal. 1971)). "An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement." Id. (citation omitted). Therefore, "the parol evidence rule does not 'render inadmissible proof of contemporaneous oral agreements collateral to, and not inconsistent with, a written contract where the latter is either incomplete or silent on the subject, and the circumstances justify an inference that it was not intended to constitute a final inclusive statement of the transaction.'" Sicor Ltd. v. Cetus Corp., 51 F.3d 848, 859 (9th Cir. 1995) (quoting Ellis v. Klaff, 96 Cal.App.2d 471, 476 (Cal. App. Ct. 1950)).

In California, the general parol evidence rule is further defined by statute. See Cal. Code Civ. Proc. § 1856 (hereafter "§ 1856"). For example, pursuant to § 1856 certain extrinsic evidence is allowed where a mistake is at issue, § 1856(e), or where fraud is alleged. § 1856(g). However, the exceptions created by the statute are not without limits. For example, a mistake must be a "mistake of objective existing fact" or a mistake of law, and not simply a "subjective misinterpretation of the contract." ...


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