United States District Court, N.D. Illinois, Eastern Division
KARUM HOLDINGS LLC, KARUM GROUP LLC, and KARUM CARD SERVICES S.A. DE C.V., SOFOM, E.N.R., Plaintiffs,
LOWE'S COMPANIES, INC., and LOWE'S COMPANIES MEXICO, S. DE R.L. DE C.V., Defendants.
MEMORANDUM OPINION AND ORDER
Z. LEE, UNITED STATES DISTRICT JUDGE.
Companies, Inc. (“Lowe's Inc.”) is a
corporation that operates home improvement stores in North
America. Around 2007, Lowe's Inc. decided to create a
program to provide private label credit cards to customers of
Lowe's Mexico. To that end, Lowe's Companies Mexico,
S. de R.L. de C.V. (“Lowe's Mexico”) entered
into two agreements with Karum Holdings LLC (“Karum
Holdings”), Karum Group LLC (“Karum
Group”), and Karum Card Services S.A. de C.V., SOFOM,
E.N.R. (“KCS”) to implement the private label
credit card program. In 2015, Karum Holdings, Karum Group,
and KCS (collectively “Karum”) commenced this
lawsuit against Lowe's Inc. and Lowe's Mexico
(collectively “Lowe's”) for purportedly
breaching the parties' agreements.
anticipation of trial scheduled for December 11, 2017, Karum
filed a motion in limine  to exclude Lowe's
affirmative defense of setoff that Lowe's had asserted
with its answer and to preclude the introduction of evidence
supporting that defense at trial. Among other things,
Lowe's contends that Karum has defaulted recently on
several promissory notes related to the agreements at issue
here and that Lowe's is entitled to receive damages as a
result. And so, in October 2017, Lowe's filed a motion
 requesting leave under Fed.R.Civ.P. 8(c)(2) to convert
to a counterclaim the portion of its setoff affirmative
defense related to these alleged defaults. In the
alternative, Lowe's seeks leave to bring this claim as a
new counterclaim under Rule 13(e).
reasons stated below, the Court finds that Lowe's claims
and purported affirmative defense of setoff are not
appropriately brought in this action, and therefore
Karum's motion  is granted, while Lowe's motion
 is denied.
February 2010, Lowe's Mexico entered into a Private Label
Credit Card Program Agreement (“Program
Agreement”) with Karum Holdings and KCS for the
provision of private label credit cards for Lowe's
Mexico's customers. Am. Compl. ¶ 9, ECF No. 50;
id., Ex. 1, Program Agreement at 1. In April 2014,
Lowe's Mexico then entered into a Profit Sharing and
Funding Agreement (“Funding Agreement”) with
Karum Group, Karum Holdings, and KCS, which governed funding
and profit percentages with respect to KCS's operations.
See Id. ¶ 11; id., Ex. 2, Funding
Agreement at 2. Karum asserts that Lowe's Inc. acted as
the alter ego of Lowe's Mexico for purposes of both the
Program Agreement and the Funding Agreement (together,
“the Agreements”). Am. Compl. ¶ 13.
August 2014, Lowe's Inc.'s Senior Vice-President of
International Operations, Doug Robinson, spoke on the phone
with Karum's Chairman and CEO, Peter Johnson. Defs.'
LR 56.1(a)(3) Stmt. ¶ 13, ECF No. 87. The
parties dispute what Robinson said to Johnson during this
phone call. According to Lowe's, Robinson merely told
Johnson that Defendants “desire[d] to end [their]
relationship” with Plaintiffs. Id. But
according to Karum, Robinson told Johnson more definitively
that Lowe's “had determined to terminate the
Agreements.” Pls.' LR 56.1(b)(3) Stmt.
¶ 13, ECF No. 100.
filed this lawsuit in January 2015, alleging breach of the
Agreements. In particular, Karum claims that Lowe's
breached the Agreements by (1) terminating the Agreements,
(2) awarding contracts to third parties for services related
to the Agreements, (3) refusing to work cooperatively with
Plaintiffs on day-to-day business issues, and (4) refusing to
cure deficiencies in the performance of their duties under
the Agreements. Am. Compl. ¶¶ 32-36.
filed its answer to Lowe's amended complaint in August
2015. As relevant here, Lowe's asserted in its answer an
affirmative defense that Lowe's denominated
“Setoff.” Am. Answer at 19, ECF No. 54.
Lowe's is entitled to a setoff against any relief sought
by Karum based upon monies Lowe's provided to Karum
and/or monies that Karum owes Lowe's. Lowe's provided
the funding to KCS to provide the various credit services
under the Program Agreement and Funding Agreement. Lowe's
provided that funding in the form of debt, including
promissory notes executed by KCS and Karum Group. There
remains an outstanding balance owed to Lowe's (the exact
amount to be proven at trial), and these payments and loans
made to Karum should be set off from any damages that Karum
discovery, Karum served an interrogatory requesting,
inter alia, a description of any damages Lowe's
sought from Karum as part of its setoff affirmative defense.
In June 2016, Lowe's disclosed that it would seek the
following “monies loaned or otherwise paid to Karum
during the course of the parties' relationship.”
Defs.' Objections & Supplemental Resp. Pls.'
Interrogatory Nos. 2 & 4 (“Second Response
Interrogatory No. 2”) at 9, ECF No. 158-5; Defs.'
Objections & Third Supplemental Resp. Pls.'
Interrogatory No. 2 (“Third Response Interrogatory No.
2”) at 9, ECF No. 158-6.
• MXN $96, 492, 760.97, plus interest, in debt
funding and promissory notes provided to Karum by Lowe's
under the Funding Agreements;
• USD $280, 000, plus interest, in two promissory notes
provided to Karum by Lowe's in 2010 and 2013,
• MXN $8, 982, 048, plus interest, in RAY true-up monies
provided to Karum by Lowe's after May 28, 2015, which
cannot be attributed to the use of Lowe's requested
promotional programs pursuant to Section 5.2 of the Funding
• MXN $17, 970, 921, plus interest, in RAY true-up
monies provided to Karum by Lowe's for alleged bad debt
reserves, which cannot be attributed to the use of Lowe's
requested promotional programs ...