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H.B. Williamson Co. v. Ill-Eagle Enterprises, Ltd.

United States District Court, S.D. Illinois

February 25, 2015

H.B. WILLIAMSON CO., d/b/a Williamson-Asia, Plaintiff,
v.
ILL-EAGLE ENTERPRISES, LTD., and DARRYL SGROI, Defendant.

MEMORANDUM & ORDER

MICHAEL J. REAGAN, Chief District Judge.

The underlying allegations in this diversity contract case stem from a business dispute between two companies involved in the design and manufacture of framed art and wall decor. Ill-Eagle Enterprises ("Ill-Eagle"), a New Jersey corporation, used H.B. Williamson Co. ("Williamson") as a point-of-contact for manufacturing Ill-Eagle-designed products in China. Based on samples provided by Ill-Eagle, Williamson would mass produce home decor for sale in retail stores like Bed Bath and Beyond ("BBB").

According to the Complaint (Doc. 2-1), Ill-Eagle failed to perform its contractual obligations when it defaulted on an over $318, 000 balance due to Williamson. The Complaint also targets Ill-Eagle's President Darryl Sgroi, who signed a personal Guaranty (complete with forum selection and choice-of-law clauses) for all Ill-Eagle's obligations. Ill-Eagle denies it owes Williamson any money, and has filed a counterclaim alleging Williamson's breach (or breaches on several orders) caused Ill-Eagle to incur monetary damages.

The case comes before the Court on two motions: (1) Defendant Sgroi has moved for dismissal, arguing the Guaranty he signed was invalid (and that the Court accordingly has no personal jurisdiction over him); (2) Williamson has moved to dismiss, arguing Illinois' "New Business Rule" and the lack of certainty regarding Ill-Eagle's lost profits doom Ill-Eagle's counterclaim. The motions are ripe, and the Court takes them in turn.

THIS COURT HAS PERSONAL JURISDICTION OVER SGROI

"Personal jurisdiction" refers to a court's power over the parties. KM Enters., Inc. v. Global Traffic Techs., Inc., 725 F.3d 718, 723 (7th Cir. 2013). A court without personal jurisdiction over a defendant is "wholly without power to proceed to an adjudication binding on that defendant, regardless of the specific reason such jurisdiction is lacking." Philos Techs., Inc. v. Philos & D, Inc., 645 F.3d 851, 855 (7th Cir. 2011) (internal quotation marks and citation omitted).

The instant parties do not dispute that personal jurisdiction hinges entirely on the Guaranty signed by Sgroi. That is, all sides cede that if the Guaranty is valid, Sgroi is subject to the jurisdiction of courts in Illinois; if the Guaranty is unenforceable or invalid, he is not. The Guaranty provides in part:

I, Darryl Sgroi, for and in consideration of [Williamson's] extending credit at my request to Ill-Eagle... hereby personally and unconditionally guarantee and promise to pay [Williamson] any obligations of Ill-Eagle to [Williamson]... This Personal Guaranty guarantees all extensions of credit including, but not limited to, increases to the credit limit of... Ill-Eagle. "Obligations" include... all extensions of credit to Ill-Eagle, all transactions between Ill-Eagle and [Williamson]... and any other amounts, charges, expenses, interest, fees, costs owed by Ill-Eagle to [Williamson].

Three evidentiary submissions inform the controversy. In a sworn declaration, Defendant Sgroi tells that Ill-Eagle and Williamson had a business relationship from 2008 onward, in which Williamson would (1) ensure conformation to Ill-Eagle design requirements and (2) deliver product to a port in Ningbo, China. Ill-Eagle had 60-days to pay Williamson once the goods were shipped. A 2013 product line (the "7 Piece Art Set") bound for Bed Bath & Beyond ("BBB") suffered delays due to several quality control problems. Williamson delivered the 7 Piece Art Set to BBB's shipping company, but to comply with BBB's documentation requirements, Ill-Eagle had to obtain a Forwarder's Cargo Receipt ("FCR"). Williamson, which possessed the FCR, withheld it until July 30, 2013, when Sgroi (Ill-Eagle's president) signed the Personal Guaranty at issue here. Sgroi claims that, "[in order to obtain the FCR's to secure the release of Ill-Eagle's goods I signed the personal guaranty' even though I knew we were legally entitled to the goods because Williamson left me with no other choice.'" (Doc. 11-1, 3). Failure to deliver the goods by the next day would have led to "extraordinary penalties and losses from" BBB. (Id. ).

Williamson's side of the story is, unsurprisingly, different. In a signed affidavit, Williamson's president, Terry Schaubert, claims that, as of July 30, 2013, Ill-Eagle had defaulted on several open accounts with Williamson totaling $288, 047.72. Those accounts were between 10 and 194 days in arrears, and-due to Ill-Eagle's inability to pay its debts as they became due-Williamson decided to "suspend full performance" of the 7 Piece Art Set job. (Doc. 17, 17). According to Schaubert, "Williamson demanded a personal guaranty from [Sgroi] for all extensions of credit and obligations owed, " and "Williamson provided subsequent credit extensions to Ill-Eagle in reliance on [the Guaranty], " including over $374, 000 for the Seven Piece set and over $50, 000 for a line called "Mirror Serenity." (Id. ). Schaubert further swears Williamson "chose not to immediately bring a collections suit against Ill-Eagle for its defaulted accounts, because of its reliance on" Sgroi's Guaranty. (Id. ).

Appended to Defendant's reply brief[1] is a second declaration from Sgroi. (Doc. 20-2, 2-3). Sgroi swears Ill-Eagle was not insolvent as of July 30, 2013, and hedges that "[t]o the extent we may have been beyond terms on other projects...these issues arose because of massive quality control problems on those other projects." (Doc. 20-2, 2). Notably, Sgroi does not challenge Schaubert's assertion that the Guaranty was the basis for extensions of obligations owed, for subsequent credit extensions, and for choosing not to initiate collections suits against Ill-Eagle at that time. (Id. ).

1. Standard under Rule 12(b)(2)

Federal Rule of Civil Procedure 12(b)(2) permits a defendant to challenge whether it is subject to personal jurisdiction. FED. R. CIV. P. 12(b). Once a defendant makes the challenge, the plaintiff bears the burden of establishing personal jurisdiction. Northern Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014) (citing Purdue Res. Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003)). Often personal jurisdiction is closely linked to the nature and merit of the asserted claim, but that does not mean that the judge will take the plaintiff's word about what happened. Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 676 (7th Cir. 2001). The district court must decide whether facts material to personal jurisdiction are in dispute. Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). If so, an evidentiary hearing is held, and the plaintiff must establish jurisdiction by a preponderance of the evidence. Id.; Advanced Tactical Ordnance Sys., LLC v. Real Action Paintball, Inc., 751 F.3d 796, 799 (7th Cir. 2014). If not, the Court evaluates personal jurisdiction based on written submissions from the parties, and a plaintiff must simply make out a prima facie case for personal jurisdiction. Cent. States, Se. & Sw. Areas Pension Fund. v. Phencorp Reinsurance Co., Inc., 440 F.3d 870, 877-78 (7th Cir. 2006); Nelson v. Park Indus., 717 F.2d 1120, 1123 (7th Cir. 1983).

2. Forum Selection Clauses & Illinois Contract Law

In days of yore, courts were generally hostile to forum selection clauses. IFC Credit Corp. v. Aliano Bros. Gen. Contractors, Inc., 437 F.3d 606, 609-10 (7th Cir. 2006). That "outmoded judicial hostility" has been buried, and forum selection clauses are now-generally-enforceable. Id. (citing, inter alia, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)). A potential defendant who signs a forum selection clause is deemed to have forfeited objections to personal jurisdiction or venue. Id. Courts should treat a forum selection clause "basically like any other contractual ...


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