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True Value Co. v. 4950 South Kipling Parkwary, LLC

United States District Court, N.D. Illinois, Eastern Division

February 1, 2017

TRUE VALUE COMPANY, f/k/a TRUSERV CORPORATION f/k/a COTTER & COMPANY Plaintiff/Counterclaim Defendant,


          REBECCA R. PALLMEYER United States District Judge.

         In 2012, Ronald Erwin owned 4950 South Kipling Parkway, LLC (“4950”), which operated a True Value hardware store in Littleton, Colorado. In spring 2012, the 4950 store ordered some $400, 000 worth of inventory from True Value, purportedly on the understanding that the goods were “free.” An agreement that Erwin signed in June 2012, however, on its face requires the store and Erwin (who guaranteed the store's obligations to True Value) to repay True Value for the inventory if the store did not stay in business for seven years. The store did not survive, and True Value has filed this lawsuit alleging claims of breach of contract (Count I), account stated (Count II), and breach of guaranty (Count III).[1] Defendants contend that True Value's claims fail on the merits and are defeated by various affirmative defenses. They also allege in a counterclaim that True Value owes the 4950 store a member dividend. Both sides have moved for summary judgment. For the reasons explained in court and summarized here, Defendants' motions are denied and Plaintiff's motion is granted in part and denied in part.


         In 2012, Ronald Erwin, a citizen of Colorado, was the owner and sole member of 4950 South Kipling Parkway, LLC, a Colorado limited liability company. (Statement of Uncontested Facts in Supp. of Def.'s Mot. for Summ. J [46] (“Def.'s SOF”) ¶¶ 1-2; Pl.'s Statement of Material Facts in Supp. of Mot. for Partial Summ. J. [42] (“Pl.'s SOF”) ¶ 3.) Erwin has been in the hardware business for forty years and has operated hardware stores under several different names. (Pl.'s SOF ¶ 11.) The relationship between 4950 and True Value began in January 2012; Erwin signed a Retail Growth Agreement with True Value at that time, and though he does not recall signing a Member Agreement at that time, it is undisputed that he did sign such an agreement in March 2012. (Def.'s Rule 56(b) Resp. to Pl.'s Statement of Material Facts [56] (“Def.'s Resp. to Pl.'s SOF”) ¶ 12.) The Member Agreement requires True Value members to pay all financial obligations to True Value when due. (Pl.'s SOF ¶¶ 6-7.) Erwin also signed a personal guaranty for all of 4950's obligations to True Value. (Ex. G to Pl.'s SOF [42-1] (“Guaranty”).)

         The Retail Growth Agreement that Erwin Dated: behalf of 4950 in January 2012 (Ex. H to Pl.'s SOF [42-1] (“First RGA”)) provided that 4950 would receive a 25% credit against the cost of the store's Opening Stock Order (“OSO”)-that is, the initial inventory of products for a new True Value store-up to $125, 000. (Pl.'s SOF ¶¶ 9, 15.) The 4950 store ordered inventory in phases (Dep. of Tarinna Hannigan, Ex. 3 to Def.'s Mot. for Summ. J. [49] (“Hannigan Dep.”) 43:3-8), beginning with approximately $50, 000 of goods in its initial OSO order soon after Erwin signed the First RGA. (Def.'s Statement of Additional Facts Requiring Denial of Pl.'s Mot. for Summ. J. [56] (“Def.'s Stmt. of Add'l Facts”) ¶ 2.)

         In February 2012, Erwin attended the True Value Spring Market (also referred to as the “Market Show”), a meeting of thousands of True Value members in Orlando, Florida. (Def.'s SOF ¶ 7; Decl. of Dayton Herbranson, Ex. Q to Pl.'s SOF [42-1] (“Herbranson Decl.”) ¶ 10; Dep. of Dayton Herbranson, Ex. 2 to Def.'s Mot. for Summ. J. [49] (“Herbranson Dep.”) 61:20-62:6.) Erwin contends that at that meeting, True Value representatives described a new retail program in which members could receive “free goods” of up to $450, 000 in value from True Value. (Def.'s SOF ¶ 8; Pl.'s SOF ¶ 17.) True Value acknowledges that the new program being developed in 2012 provided for a $450, 000 credit for OSO goods, but contends that the credit was available only under certain terms and conditions. (Pl.'s Resp. to Statement of Uncontested Facts in Supp. of Def.'s Mot. for Summ. J. [58] (“Pl.'s Resp. to Def.'s SOF”) ¶¶ 8, 10.) Significantly, the precise terms of this new program were not conveyed at the Market Show; brochures and other materials distributed at the meeting present few specifics about the nature of the conditions imposed on members in return for the credit. (Pl.'s Resp. to Def.'s SOF ¶¶ 8, 10; Ex. 1 to Def.'s Reply Mem. in Supp. of Mot. for Summ. J. (“Def.'s Reply”) [59-1]; Ex. 2 to Def.'s Reply [59-2]; Ex. 3 to Def.'s Reply [59-3].)

         Erwin discussed the new RGA program with Dayton Herbranson and Tarinna Hannigan, two True Value employees who had been assigned to help Erwin develop his store. (Pl.'s SOF ¶ 18.) Erwin claims that Herbranson and Hannigan urged him to switch from the OSO program in the First RGA to the one advertised at the Spring Market. (Pl.'s SOF ¶ 19; Def.'s SOF ¶ 10.) Herbranson and Hannigan themselves did not know all the terms and conditions of the new program (Herbranson Dep. 65:22-66:23, 107:19-22; Hannigan Dep. 59:10-60:19), though Hannigan recalled hearing Herbranson tell Erwin that one provision of the new agreement could be “a deeper clawback” of the OSO. (Hannigan Dep. 60:11-61:11.) The parties do agree that one condition Defendants would be required to meet was bringing the store into compliance with certain store appearance (“décor”) standards. (Def.'s SOF ¶ 11.) Herbranson presented the décor requirements to Erwin in e-mail messages dated February 23 and 24, 2012, assuring Erwin that the information in the e-mail “pretty much outlines the Retail Growth Incentive and DTV décor element requirements[.]” (Group Ex. 1 to Def.'s SOF [46-1].)

         On March 6, 2012, Erwin signed the Member Agreement and the Guaranty. That same day, Erwin received a “New Store Data” document, which set forth a number of financial projections and other information about the 4950 store. (Def.'s SOF ¶ 12; Ex. B to Resp. Aff. of Ronald C. Erwin to Pl.'s Mot. for Summ. J. (“Erwin Resp. Aff.”) [55-2]). Various terms were listed in that document: an “Opening Stock Order Discount, ” a cryptic reference to “Free $36 per Sq Ft, ” a merchandising credit of $29, 910, and a $400, 000 equity loan. (Pl.'s Resp. to Def.'s SOF ¶ 12; Ex. B to Erwin Resp. Aff. [55-2].) With Hannigan's active assistance, Erwin placed orders for inventory, allegedly with the understanding the goods would be “free.” (Pl.'s Resp. to Def.'s SOF ¶ 17; Pl.'s SOF ¶ 19.) When Erwin later received member statements from True Value listing amounts owed for the goods, he claims he was assured (he does not say by whom, or when), that he would receive a credit in due course. (Def.'s SOF ¶ 20; Def.'s Stmt. of Add'l Facts ¶ 11.)

         In June 2012, True Value sent a new RGA to Erwin. (Ex. J to Pl.'s SOF [42-1] (“Second RGA”).) True Value claims that the Second RGA memorialized the terms of the new RGA program, which had not been determined at the Spring Market. (Pl.'s SOF ¶ 20; Pl.'s Statement of Additional Facts [58] (“Pl.'s Stmt. of Add'l Facts”) ¶ 4.) The Second RGA requires True Value to provide:

(a) a $400, 000 loan,
(b) an “opening stock order (OSO) inventory credit of $36 per square foot[, ]”
(c) “ninety (90) days dating on fixtures, lighting, exterior signage, and décor, ”
(d) “performance credit of $1.50 per square foot of True Value retail square footage, not to exceed $24, 000” and
(e) the services of a project manager, at a cost not to exceed $15, 000.

(Second RGA ¶ 1.) Critically for this litigation, the Second RGA also contained a provision requiring that the Second RGA remain in effect and that 4950 remain a member of True Value for a seven-year term. (Second RGA ¶¶ 2, 6.) If 4950 were to terminate the agreement early, Paragraph 6 of the Second RGA provided that 4950 would be responsible for “the full repayment of the actual value it received for the OSO discount, the Performance Credit, and the project manager[, ]” as well as repayment of the loan. (Second RGA ¶ 6.)

         Until late May or early June, neither Herbranson nor Hannigan themselves were aware that the Second RGA would contain the seven-year term or the repayment provision. (Pl.'s Resp. to Def.'s SOF ¶¶ 22, 23.) All of the goods 4950 had ordered for its OSO were delivered by June or July 2012 (Pl.'s Resp. to Def.'s SOF ¶ 2), and the 4950 store opened in July 2012. (Dep. of Ronald C. Erwin, Ex. W to Pl.'s Stmt. of Add'l Facts (“Erwin Dep.”) [58-1] 89:7-13.) Erwin did not execute the Second RGA on 4950's behalf until September 25, 2012, after the store opened. (Pl.'s SOF ¶ 22.) The store did not do well, however, and in November 2014, 4950 terminated its membership in True Value. (Pl.'s SOF ¶ 25.) True Value then issued an invoice in the amount of $413, 219.10 for the OSO credit, and $24, 000 for the performance credit. (Pl.'s SOF ¶ 25.) Defendants have repaid the $400, 000 loan, but not the invoices. (Pl.'s SOF ¶ 25; Def.'s Resp. to Pl.'s SOF ¶ 25.)

         In this lawsuit, True Value seeks damages for breach of contract in the amount of $458, 136.64, plus costs, interest, and attorneys' fees, as well as an account of the final balance True Value claims it is owed. (Pl.'s SOF ¶ 26; see Compl. [2-1] ¶¶ 16-21.) In response, Defendants assert that the repayment terms are not enforceable. Erwin was not told he would be required to sign any other agreements in order to switch from the First RGA to this alternative RGA program, Defendants contend, nor did True Value advise Erwin there would be any new terms or repayment requirements. (Def.'s Stmt. of Add'l Facts ¶¶ 7, 8.) Instead, as Defendants see things, the 4950 store entered into a new oral agreement with True Value as early as March 2012, one in which the store received free merchandise in return for a commitment to adhere to the True Value décor requirements. (Def.'s Am. Rule 56(b) Resp. to True Value's Statement of Add'l Facts [67] ¶ 6.) There was no additional consideration for the Second RGA, Defendants contend, and the additional terms of the Second RGA are not enforceable. (Id.) Both sides seek summary judgment on this issue.


         Summary judgment is appropriate when “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); J.S. Sweet Co. v. Sika Chem. Corp., 400 F.3d 1028, 1032 (7th Cir. 2005). Where both sides seek summary judgment, the court evaluates each motion by viewing all evidence and drawing all reasonable inferences in favor of the party opposing the motion. Employers Mut. Cas. Co. v. Skoutaris, 453 F.3d 915, 923 (7th Cir. 2006) (citing Huntzinger v. Hastings Mut. Ins. Co., 143 F.3d 302, 307 (7th Cir. 1998).)

         I. True Value's Breach of Contract Claim

         Defendants contend the Second RGA is invalid overall and that the repayment provision True Value seeks to enforce is an unlawful penalty. True Value seeks summary judgment on certain of Defendants' affirmative defenses. The court addresses their arguments below.

         A. Lack of Consideration

         1. The ...

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