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Essendant Co. v. American Product Distributors, Inc.

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

September 27, 2019

ESSENDANT CO., an Illinois Corporation, Plaintiff,
v.
AMERICAN PRODUCT DISTRIBUTORS, INC., a North Carolina Corporation, C. RAY KENNEDY, an individual, and CYNTHIA KENNEDY, an individual, Defendants.

          MEMORANDUM OPINION AND ORDER

          ELAINE E. BUCKLO UNITED STATES DISTRICT JUDGE.

         Plaintiff Essendant Co. (“Essendant”) brings this suit for breach of contract against defendants American Product Distributors, Inc. (“APD”); APD’s owner, C. Ray Kennedy (“Ray”); and Ray’s spouse, Cynthia Kennedy (“Cynthia”) (Ray and Cynthia together, “the Kennedys”). The complaint alleges that APD failed to pay for roughly $2 million worth of items that it ordered from Essendant. In addition, Essendant alleges that the Kennedys, who guaranteed payment of APD’s debt, have likewise failed to pay any of the outstanding amount. Before me is Essendant’s motion for summary judgment. For the reasons discussed below, the motion is granted.

         The relevant facts of the case are simple and undisputed. Essendant is a national wholesale distributor of office products. APD is a reseller. In March 2016, after many years of doing business with APD, Essendant asked the Kennedys to execute a Guaranty according to which they agreed to pay any debts incurred by APD at that time or in the future. In exchange, Essendant agreed to continue selling products to APD. Both Ray and Cynthia signed the Guaranty.

         APD continued to submit electronic purchase orders through Essendant’s online ordering system until April 2018, at which time APD went out of business. However, APD had stopped making payments in December 2017. At that time, Essendant wrote the Kennedys seeking payment of the past due amount in accordance with the Guaranty. According to Essendant, APD currently owes a total of $1, 980, 912.36. To date, the Kennedys have made no payments.

         In May 2018, Essendant filed a two-count complaint alleging separate claims for breach of contract against APD and the Kennedys. Essendant’s motion for summary judgment seeks entry of a judgment against both APD and the Kennedys in the amount of $1, 980, 912.36, plus prejudgment interest. The defendants oppose the motion on three grounds: (1) Cynthia Kennedy argues that the court lacks personal jurisdiction over her; (2) APD contends that Essendant has failed to prove the existence of a contract between the parties; and (3) the Kennedys claim that the Guaranty is invalid.

         II.

         Summary judgment is proper where there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). “[W]hen the basic facts are not in dispute, the existence of a contract is a question of law. Issues of contract formation are therefore particularly well-suited for disposition on summary judgment.” Echo, Inc. v. Whitson Co., 121 F.3d 1099, 1102 (7th Cir. 1997) (citations omitted).

         I apply Illinois law in deciding the substantive issues raised in Essendant’s motion. The Guaranty contains a choice-of-law clause which provides that it “will be construed in accordance with the internal laws of the State of Illinois.” Guaranty ¶ 10. Of course, relying on the choice-of-law clause might seem problematic in this case because that clause may not be applicable if the Guaranty itself is unenforceable, and the Guaranty’s enforceability is one of the matters in dispute. See, e.g., Life Plans, Inc. v. Sec. Life of Denver Ins. Co., 800 F.3d 343, 357 (7th Cir. 2015) (“A contract’s choice-of-law provision may not apply if the contract’s legality is fairly in doubt, for example, if the contract is unconscionable, or if there is some other issue as to the validity of the very formation of the contract.”). However, since neither party has raised a choice-of-law issue, and since both parties assume that Illinois law supplies the rule of decision, I apply Illinois law without the need for a choice-of-law analysis. See, e.g., Wood v. Mid-Valley Inc., 942 F.2d 425, 426–27 (7th Cir. 1991) (“Courts do not worry about conflict of laws unless the parties disagree on which state’s law applies. We are busy enough without creating issues that are unlikely to affect the outcome of the case (if they were likely to affect the outcome the parties would be likely to contest them).”); see also RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 390 (7th Cir. 2008) (“When neither party raises a conflict of law issue in a diversity case, the applicable law is that of the state in which the federal court sits.”).[1]

         As noted above, in addition to disputing the merits of Essendant’s claims, the defendants challenge the court’s exercise of personal jurisdiction over Cynthia Kennedy. As a general matter, jurisdictional issues must be addressed prior to addressing the merits of a dispute. See, e.g., Weisskopf v. Marcus, 695 Fed.App’x 977, 978 (7th Cir. 2017) (“Like subject-matter jurisdiction, personal jurisdiction must be addressed and resolved ahead of substantive issues.”). It is not entirely clear whether this rule applies in this case, since it will be necessary to address the merits of Essendant’s claims against APD and Ray Kennedy regardless of whether personal jurisdiction exists over Cynthia. Nevertheless, in the absence of any Seventh Circuit case directly on point, I follow the traditional order of deciding jurisdictional issues first. Accordingly, I begin by examining the question of whether personal jurisdiction exists over Cynthia and then turn to the substantive issues raised by Essendant’s claims against APD and the Kennedys.

         A. Personal Jurisdiction Over Cynthia Kennedy

         Typically, the issue of personal jurisdiction turns on whether a party has “minimum contacts with [the forum state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’” Int’l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945) (Milliken v. Meyer, 311 U.S. 457, 463 (1940)). Essendant, however, appears to concede that Cynthia’s contacts with Illinois are insufficient to meet this standard. Instead, Essendant asserts that personal jurisdiction over Cynthia is proper on two alternative grounds: (1) that Cynthia has waived any objection vis-à-vis personal jurisdiction by virtue of her participation in the litigation thus far; and (2) that Cynthia has consented to the court’s exercise of personal jurisdiction over her by virtue of the Guaranty’s forum-selection clause. I discuss these arguments in turn.

         1. Waiver

         As Essendant acknowledges, Cynthia asserted lack of personal jurisdiction as an affirmative defense in her answer to the complaint. See Defs.’ Answer at 9. Nevertheless, Essendant claims that Cynthia has waived the defense due to her subsequent participation in the litigation. Specifically, Essendant points out that Cynthia filed a joint Rule 26(f) Initial Planning Report and two joint motions to extend the deadline for production of documents, see ECF Nos. 13, 15 & 18; and that her counsel appeared in court in January 2019, at which time an agreement was reached to extend the deadline for filing dispositive motions.

         While a party may waive a personal-jurisdiction defense by participating in a lawsuit, the Seventh Circuit has explained that waiver occurs only when the party’s participation “give[s] a plaintiff a reasonable expectation that it will defend the suit on the merits, ” or where the participation causes “the court to go to some effort that would be wasted if personal jurisdiction is later found lacking.” Mobile Anesthesiologists Chicago, LLC v. Anesthesia Assocs. of Houston Metroplex, P.A., 623 F.3d 440, 443 (7th Cir. 2010).

         Neither of these conditions is met here. The motions and court appearance cited by Essendant were of a purely preliminary nature. They did not address substantive matters and could not have led Essendant reasonably to expect that Cynthia intended to litigate the case on the merits. See, e.g., Swanson v. City of Hammond, Ind., 411 Fed.App’x 913, 915–16 (7th Cir. 2011) (“Preliminary litigation actions, such as the defendants’ request for an extension of time to file their responsive pleading, do not waive or forfeit personal-jurisdiction defenses.”). Similarly, Cynthia’s participation in the litigation has not required any unnecessary work on the court’s part. The previous motions in which Cynthia was involved were filed jointly with the other defendants in the case. As a result, it would have been necessary to decide the motions regardless of Cynthia’s participation in the suit.

         In short, Cynthia has not waived her objection to personal jurisdiction based on her participation in the suit.

         2. The Forum-Selection Clause

         Somewhat more complicated is the question of whether Cynthia is subject to personal jurisdiction in this court on account of the Guaranty’s forum-selection clause. The provision states:

ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY WILL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, OR, AT CREDITOR’S SOLE OPTION, IN ANY OTHER COURT IN WHICH CREDITOR SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.

Guaranty ¶ 11.[2]

         Cynthia does not dispute that the clause’s plain language indicates that she and her husband have consented to the jurisdiction of Illinois courts. Nor does Cynthia dispute that, even in the absence of sufficient minimum contacts, a forum-selection clause alone is sufficient to confer personal jurisdiction over a party. See, e.g., TruServ Corp. v. Flegles, Inc., 419 F.3d 584, 589 (7th Cir. 2005) (“‘Obviously, a valid forum-selection clause, even standing alone, can confer personal jurisdiction.’”) (alteration omitted) (quoting Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1292 n. 4 (7th Cir. 1989)). Cynthia instead advances several arguments in an attempt to show that the forum-selection clause is unenforceable against her. None of these arguments carries the day.

         (a) The Reasonableness of the Forum-Selection Clause

         Cynthia first argues that under Illinois law, enforcing the forum-selection clause against her would be unreasonable.[3] “In Illinois ... a forum-selection clause in a contract is prima facie valid, and should be enforced unless the opposing party shows that enforcement would be unreasonable under the circumstances such that the selected forum will be so gravely difficult and inconvenient that [the opposing party] will for all practical purposes be deprived of [its] day in court.” Patrick v. Allstate Ins. Co., 2018 IL App. (1st) 17-1301-U, ¶ 24 (quotation marks omitted). In particular, Illinois courts have enumerated six factors to be taken into account in determining whether enforcement of a forum-selection clause is unreasonable: “(1) the law that governs the formation and construction of the contract; (2) the residency of the parties; (3) the place of execution and/or performance of the contract; (4) the location of the parties and their witnesses; (5) the inconvenience to the parties of any particular location; and (6) whether the clause was equally bargained for.” GPS USA, Inc. v. Performance Powdercoating, 26 N.E.3d 574, 583 (Ill.App.Ct. 2015) (quoting IFC Credit Corp. v. Rieker Shoe Corp., 881 N.E.2d 382, 389-90 (Ill.App.Ct. 2007)).

         Notably, since the burden is on the party challenging the forum-selection clause, factors that are merely neutral in this calculus ultimately weigh in favor of a clause’s enforcement. See, e.g., Exhibit Sys., Inc. v. Pico Art Int’l Pte., Ltd., No. 15 C 2930, 2015 WL 3930265, at *2 (N.D. Ill. June 25, 2015) (“Because the defendant has the burden of showing that the choice of forum is unreasonable, ‘any factor that is even neutral on the forum question essentially weighs in favor of the forum choice.’”) (quoting GPS USA, 26 N.E.3d at 584); see also Navman Wireless N. Am., Ltd. v. Texas Oilfield Servs., LLC, No. 16 C 11356, 2017 WL 1199751, at *2 (N.D. Ill. Mar. 30, 2017) (parties’ residence favored enforcement of forum-selection clause where not enforcing the clause would merely shift inconvenience from one party to the other). Moreover, courts have held enforcement of forum-selection clauses to be reasonable even when a majority of the relevant factors weigh in favor of the challenger. See, e.g., Macey & Aleman v. Simmons, No. 10-CV-06646, 2011 WL 1456762, at *3 (N.D. Ill. Apr. 14, 2011) (“Even if a majority of the factors favor litigation in another forum, this court may still conclude that the clause is reasonable.”); Dace Int’l, Inc. v. Apple Computer, Inc., 655 N.E.2d 974, 977–78 (Ill.App.Ct. 1995) (forum-selection clause was reasonable even though four of the six factors favored the opposing party). Having examined and weighed all of the factors, I conclude that enforcement of the Guaranty’s forum-selection clause against Cynthia is not unreasonable.

         The first four factors are relatively straightforward. The first factor (governing law) favors Essendant because the Guaranty’s choice-of-law provision requires the application of Illinois to disputes arising in connection with the agreement. The second factor (residency) is neutral: Essendant is located in Illinois and Cynthia resides in North Carolina. The third factor (the place of the contract’s execution/performance) is ambiguous: the place of the Guaranty’s execution is presumably North Carolina, where Cynthia and Ray signed the document; but the place of the Guaranty’s performance is unclear. There is very little case authority addressing the question of how to determine the place of a Guaranty’s performance, and the authorities that do exist are not uniform.[4] Given that Cynthia has not addressed this factor at all, it arguably weighs in Essendant’s favor; but at all events, given the ambiguity in the applicable law, this factor does not favor Cynthia. The same is true of the fourth factor (the location of the parties and witnesses): Essendant states that it would call multiple witnesses, all of whom are located in Illinois. Cynthia, however, does not address this factor, so it is unclear how many witnesses she might call and where they reside. In light of Cynthia’s failure to address the issue, the fourth factor again arguably weighs positively in Essendant’s favor; at the very least, it does not weigh in Cynthia’s favor. In sum, of the first four factors, none weighs against enforcement of the forum-selection clause, and at least one weighs strongly in favor of enforcement.

         Whether the final two factors weigh in Cynthia’s favor -- and if so, whether they weigh strongly enough in her favor to render the forum-selection clause’s enforcement unreasonable -- is a more difficult question. The fifth factor (inconvenience to the parties) favors Cynthia. In her affidavit, she states that having to litigate in Illinois would be particularly inconvenient for her because she is the primary caretaker for her mother, who is ninety-five years old and suffers from dementia. See Cynthia Kennedy Aff. ¶ 16. Cynthia also avers that she has her own “complicated health history, ” stating that she has undergone two knee replacements and has suffered a pulmonary embolism (though the dates of these events are not specified), and that she is under the care of a cardiologist. Id. ¶ 17.

         While these concerns certainly should not be downplayed, inconvenience alone is not sufficient to render a forum-selection clause unreasonable. See, e.g., Dace Int’l, Inc. v. Apple Computer, Inc., 655 N.E.2d 974, 977–78 (Ill.App.Ct. 1995) (“[R]elative inconvenience has been routinely rejected as a basis for voiding forum selection clauses: ‘the question is not the most convenient place for trying these suits; it is whether the defendants consented to being sued in a particular forum and by doing so waived their right to object to the jurisdiction of the courts over them.’”) (quoting Northwestern Nat’l Ins. Co. v. Donovan, 916 F.2d 372, 376 (7th Cir. 1990)); see also Macey & Aleman v. Simmons, No. 10-CV-06646, 2011 WL 1456762, at *5 (N.D. Ill. Apr. 14, 2011) (“It goes without saying that litigating a case in one’s home state is more convenient for a defendant, but ‘mere inconvenience does not provide a basis for voiding a forum selection clause.’”) (quoting IFC Credit Corp., 881 N.E.2d at 390).

         This is so even when the inconvenience stems from serious health concerns. In Rosati’s Franchising, Inc. v. Fire It Up, LLC, No. 15 C 2230, 2015 WL 3961703 (N.D. Ill. June 29, 2015), for example, the defendant claimed that having to litigate in Illinois would be inconvenient for him because he was “suffering from serious medical conditions and undergoing kidney dialysis, requiring close medical attention from his doctors in Arizona, making him unable to travel.” Id. at *5. Although the court acknowledged these difficulties, it held that having to litigate in Illinois would not “be so inconvenient that enforcement of the forum selection clause would deprive Defendants of their day in court.” Id. The same holds true here: the problems presented by Cynthia’s and her mother’s health may make litigating in Illinois inconvenient, but, without more, they are insufficient to make the forum-selection clause unreasonable.

         The sixth factor -- whether the forum-selection clause was equally bargained-for -- might initially appear to weigh strongly in Cynthia’s favor. There is a clear difference in bargaining power between the parties: Cynthia is an individual and Essendant is a corporation. Moreover, it is undisputed that Cynthia was never an employee, shareholder, or officer of APD and never participated in running the company in any way. Pl.’s Resp. to Defs.’ L.R. 56.1 Stmt. Add’l Fact ¶ 6. Thus, Cynthia cannot be regarded as a sophisticated actor in the realm of business transactions. Further, Cynthia claims that she never communicated with anyone at Essendant regarding the Guaranty’s terms and that she “did not have the opportunity to ask questions, make counter-proposals, or engage in any discussions regarding the formation of this agreement.” Cynthia Kennedy Aff. ¶ 12. In fact, Cynthia avers that she did not read the Guaranty before signing it. Id.

         However, the severity of the power differential between APD and Cynthia is mitigated by several facts. First, although Cynthia had no ownership interest in ADP and was not involved in running the company, she did not sign the Guaranty alone. She executed it jointly with her husband, Ray, who had been APD’s owner and CEO from its inception in 1998 to his retirement in 2014. In addition, the Guaranty was presented to Cynthia and Ray by their son, Cy Kennedy, who was APD’s president from 2011 to 2018. Ray and Cy are not unsophisticated actors. See, e.g., Rosati’s, 2015 WL 3961703, at *5 (defendants failed to establish unequal bargaining power where they “were sufficiently sophisticated to form [a family-owned business] ... and made representations on online review websites that their family had over thirty years of experience in the pizza business”); GPS USA, 26 N.E.3d at 584 (president and co-owner of small “mom and pop company” did not lack “the necessary sophistication to negotiate a more favorable forum” although she averred that she had no representation and “just signed the form contract that was provided for [her]”); IFC Credit Corp., 881 N.E.2d at 394–95 (bargaining power of defendant corporations, which included a self- employed individual, was not so inferior to power of plaintiff corporation as to make enforcement of forum-selection clause unreasonable).

         This is not to say that Ray’s or Cy’s level of business sophistication can be attributed to Cynthia; nor is it to say, even if Ray’s or Cy’s level of sophistication could be attributed to Cynthia, that this would entirely negate the disparity in bargaining power between her and Essendant. Nevertheless, in view of Cynthia’s relationship with Ray and Cy, this is not a David-and-Goliath scenario involving a lone, helpless consumer and a powerful corporation. On this point, it is relevant that Ray and Cynthia possess considerable financial resources. The Kennedys provided a joint personal financial statement to Essendant when they agreed to serve as guarantors of APD’s debts. Among the assets included on the statement are the Kennedys’ home and two daycare centers. They list a net worth of roughly $27 million. See Pl.’s Ex. 5.

         Second, the record does not support Cynthia’s claim that she had no opportunity to ask questions or to negotiate with Essendant in connection with the Guaranty. Cynthia does not explain why, or in what sense, she believes these opportunities were unavailable to her. She does not claim, for example, that anyone representing Essendant led her to believe, much less directly told her, that she was not permitted to ask questions or make counter-proposals. Indeed, as noted above, Cynthia states that she never communicated with anyone from Essendant. Nor does Cynthia identify anyone else who led her to believe that she could not ask questions or propose other terms.

         In their affidavits, Cy and Ray Kennedy likewise state that the Kennedys had no opportunity to ask questions or to make counter-proposals. See Ray Kennedy Aff. ¶ 11; Cy Kennedy Aff. ¶ 5. Yet they, too, offer no explanation or basis for these statements. With respect to the circumstances surrounding the Guaranty’s execution, the only evidence in the record is Cy’s testimony that the Guaranty was sent to him via email by Bob Kelderhouse, Essendant’s treasurer. Id. But Cy offers no details about the substance of his communications with Kelderhouse. Cy does state that he “was led to believe that the [Guaranty] needed to be signed for [APD] to continue to do business with Essendant.” Cy Kennedy Aff. ¶ 5. But he does not say that it was Kelderhouse, or anyone else representing Essendant, who led him to believe this. More importantly, even if Essendant had led Cy to believe that the Kennedys needed to execute the Guaranty in order for Essendant to continue doing business with APD, Cy does not say that Essendant led him to believe that the document had to be signed without any questions or negotiation. Nor does Cy suggest that anyone led him to believe that the Guaranty had to be executed immediately. Thus, even assuming that Essendant was not amenable to negotiation, nothing in the record suggests that Cynthia and Ray could not at least have sought legal advice before entering into the agreement.

         Absent any evidence that Essendant denied Cynthia an opportunity to ask questions or make counterproposals, her failure to do so cannot be blamed on Essendant. See, e.g., Capitol Cement Co. v. CMI Terex Corp., No. 12 C 5984, 2012 WL 13042075, at *3 (N.D. Ill. Sept. 26, 2012) (“Capitol states that it was ‘forced to agree to these terms, ’ and that it did not have the opportunity to bargain or negotiate, but Capitol has failed to provide any real facts to support its argument.... Instead, the court is provided an affidavit from Capitol’s President ... stat[ing] that Capitol was not given the opportunity to negotiate. This bald statement tells the court nothing about the circumstances surrounding the contract’s formation.”); GPS USA, 26 N.E.3d at 584 (“In her affidavit, Presley averred that no representative of ...


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