Heller Financial, Inc., a Delaware Corporation v. Midwhey Powder Co., Inc., Cassel Garden Farmers' Co-Operative Cheese Company, and Hillside Co-Operative Cheese Manufacturing Association
Docket: 88-3247
Court: Court of Appeals for the Seventh Circuit; August 17, 1989; Federal Appellate Court
Defendants-appellants, collectively referred to as "Midwhey," consisting of Midwhey Powder Company, Cassel Garden Farmers' Co-operative Cheese Company, and Hillside Co-operative Cheese Manufacturing Association, appeal the district court's decisions, which include (1) denial of their motion to dismiss or transfer venue, (2) striking of all affirmative defenses, and (3) granting summary judgment to plaintiff Heller Financial, Inc. The court, led by Circuit Judge Manion, finds the defendants' arguments unpersuasive and affirms the lower court's rulings.
Midwhey operates in the dairy sector in northern Wisconsin, processing milk into various products and generating whey as a by-product, which must be treated according to state environmental regulations. To enhance their processing capabilities, Midwhey sought to purchase a co-generation system from Edward Lee, an engineering firm, which then connected them with Heller for financing. Heller paid Edward Lee a commission of $12,000 for facilitating the deal.
The transaction with Heller consisted of two main components: a progress payment agreement and an equipment lease. The progress payment agreement stipulated that Heller would advance funds to Edward Lee at Midwhey's request, with specific payment dates totaling $900,000. If Midwhey failed to accept the equipment by July 31, 1986, they were obligated to repay all advanced amounts plus interest. Notably, Heller did not secure these advances with collateral.
The lease, effective only upon Midwhey's acceptance of the equipment, specified that Heller would retain ownership and lease the equipment to Midwhey. It included a forum-selection clause designating Illinois courts for disputes related to the lease and stipulated that Illinois law governs the lease. Importantly, the lease clarified that Edward Lee was not Heller's agent. Additionally, Midwhey entered a separate interim interest expense agreement with Edward Lee, obligating him to cover interest payments on the advances until the equipment was accepted.
Midwhey authorized Heller to make three progress payments totaling $900,000 for co-generation equipment, which Midwhey ultimately did not accept, preventing the lease from taking effect. Heller demanded repayment, but Midwhey refused, leading to litigation. Heller filed a three-count complaint in the Federal District Court for the Northern District of Illinois, with Count I seeking relief under the Agreement and Counts II and III based on the lease. After the court granted summary judgment on Count I, Heller voluntarily dropped Counts II and III. Midwhey responded with an answer and eleven affirmative defenses, all of which were later struck down by the court except those related to personal jurisdiction and venue, deemed frivolous. Midwhey’s attempt to dismiss for lack of jurisdiction or transfer venue was denied based on a valid forum-selection clause in the lease, and their claims of misrepresentation were insufficient to contest this validity.
Following the denial of its motion, the court set discovery and trial dates. Midwhey, despite not initiating any discovery, sought an extension which was denied due to lack of diligence. Just before trial, Midwhey filed for Chapter 11 bankruptcy, temporarily staying Heller's suit, but the stay was lifted to allow Heller's claims to be liquidated. Midwhey later indicated it was no longer in Chapter 11, rendering moot the issues concerning interest and attorney's fees incurred post-filing.
Heller then moved for summary judgment on Count I, including a statement of undisputed material facts. Midwhey failed to submit a timely responsive statement as required and later submitted it without court permission. The court refused to accept this late filing, noting it would have imposed sanctions for denying the authenticity of letters that Midwhey previously admitted were accurate. Ultimately, the court granted summary judgment in favor of Heller, confirming Midwhey's obligation to repay the $900,000 with interest. The upcoming review will focus on Midwhey's procedural challenges regarding its affirmative defenses and its motion to dismiss or transfer venue.
Midwhey is contesting the trial court's personal jurisdiction and venue regarding a lease's forum-selection clause, which designates Illinois for exclusive jurisdiction. Midwhey argues this clause is unenforceable as it is "unreasonable" and was obtained through misrepresentation, claiming it cannot independently establish personal jurisdiction or venue. However, the court counters that personal jurisdiction challenges can be waived by consent and that forum-selection clauses typically control unless there is a strong reason to invalidate them. Courts generally enforce these clauses unless a party shows that trying the case in the specified forum would severely impede their ability to present their case.
Midwhey claims the clause was not "freely negotiated" because Heller failed to disclose a commission paid to a broker, Edward Lee. The court finds this argument unconvincing, noting that Midwhey does not demonstrate how this alleged concealment constitutes a misrepresentation affecting the clause's validity. Additionally, Midwhey alleges that Lee made misrepresentations regarding payment timing, but the court points out that such claims pertain solely to the lease terms, which specify repayment conditions that Midwhey did not contest. Midwhey also fails to establish an agency relationship between Heller and Lee or to show that the lease's terms were unfair due to the broker's fee.
Midwhey argues that the forum-selection clause is unreasonable, claiming enforcement would prevent it from having its day in court due to essential witnesses being beyond the district court's subpoena power. However, Midwhey failed to demonstrate the necessity of these witnesses or that they would not appear voluntarily. The district court granted summary judgment on the merits, indicating these witnesses were not needed for the case's resolution.
Midwhey further contends that its representatives, described as "dairy farmers," should not be held to the same standards regarding forum-selection clauses as more sophisticated parties. However, this assertion lacks sufficient evidence, and two of the defendants are incorporated in Wisconsin, suggesting greater business acumen than Midwhey claims.
Additionally, Midwhey’s president, August Helmke, argued he did not read the forum-selection clause due to poor eyesight and a hurried negotiation process. Nonetheless, Helmke's deposition revealed that other board members were present and could have read the lease. Under basic contract law, a party has a duty to read the contract, and ignorance of its contents is not a valid defense. Courts have occasionally treated adhesion contracts differently, but no evidence suggests Heller discouraged Helmke from reading the lease. There is also no indication that the lease agreement was a take-it-or-leave-it situation. The reluctance to enforce the duty to read applies in cases of unfairness or hardship, neither of which are present here, as Midwhey had representatives available to review the document and Helmke recognized the transaction's significance yet did not seek legal counsel.
Heller's representatives were not at fault for any perceived urgency in signing the lease, as Helmke did not request additional time for review nor indicate that the lease needed to be signed that day. Midwhey's claim of time pressure lacked sufficient evidence to demonstrate it was beyond what is typical in business. The record does not support Midwhey's allegations against the forum-selection clause regarding personal jurisdiction.
Following the failure of personal jurisdiction challenges, Midwhey argued that the district court abused its discretion by refusing to transfer the case to Wisconsin under 28 U.S.C. Sec. 1404(a). While a valid forum-selection clause exists, it does not preclude transfer if the interests of justice or convenience of witnesses warrant it. The court has broad discretion in such matters and will not be reversed unless there is clear abuse of discretion. Midwhey must prove that the alternative forum is "clearly more convenient."
Midwhey presented two arguments for transfer: first, that Heller's witnesses are not necessary since the existence of the Agreement and lease is undisputed, and second, that the hardship of litigating in Chicago is significant for the defendants who reside in northern Wisconsin. However, both arguments were deemed unpersuasive. The forum-selection clause effectively waived Midwhey's right to claim inconvenience. The court determined that the inconvenience of traveling to Chicago did not necessitate a transfer, and transferring the case would favor Midwhey's convenience at the cost of Heller's witnesses. The interests of justice aspect of Sec. 1404(a) still requires consideration.
The "interests of justice" encompass concerns such as ensuring speedy trials, consolidating related cases, and employing a judge knowledgeable in the relevant law, which in this case is Illinois law. Midwhey contends that a fair trial in Illinois is unfeasible due to the unavailability of key witnesses, but fails to specify who these witnesses are or what their testimony would entail, as established in case law. The absence of supporting documents like affidavits or depositions undermines Midwhey’s claim. Transferring the case to Wisconsin based on the supposed availability of additional witnesses is deemed futile since the court has already ruled that no genuine issues of fact exist, granting Heller judgment as a matter of law.
A valid forum-selection clause designates Illinois as the venue, and Heller's choice of forum is given appropriate consideration. The Illinois court is familiar with the applicable law, and transferring the case would merely shift the inconvenience to Heller. Therefore, the district court's decision not to transfer the case is affirmed as within its discretion.
Additionally, Midwhey's complaint regarding the striking of its affirmative defenses is addressed. The court notes that no prejudice resulted from this action, as Midwhey did not seek to amend its defenses after their dismissal. Despite arguing against the disfavor of motions to strike, the court finds that such motions can expedite proceedings by removing insufficient defenses. Affirmative defenses must comply with the pleading requirements of the Federal Rules of Civil Procedure, necessitating a clear and concise statement of the defense.
Midwhey presented eleven affirmative defenses, four of which addressed issues of personal jurisdiction and venue, deemed legally insufficient as they merely reiterated a previously denied motion to dismiss or transfer. The remaining defenses included claims of unmerchantability of co-generation equipment, lack of good faith by Heller, unconscionable contract terms, unenforceable penalty clauses, usurious interest rates, and misrepresentations by Heller's agent, Edward Lee, which Midwhey argued voided the contracts. The district court found all of Midwhey's defenses, except those related to jurisdiction and venue, to be frivolous and imposed sanctions under Fed. R.Civ. P. 11. Midwhey's attorney continued to pursue these defenses on appeal, offering only perfunctory restatements without identifying any errors made by the district court. Although sanctions under Fed. R.App. P. 38 were considered appropriate in similar cases, they were deemed unnecessary here due to the plausibility of some arguments. Midwhey also contended that summary judgment was improperly granted, asserting unresolved genuine issues of material fact. However, the court stated that a factual dispute must be outcome-determinative to prevent summary judgment. The crux of Midwhey's complaint centered on dissatisfaction with the agreement, arguing it was unfair. The court concluded that the contract terms, while potentially disadvantageous to Midwhey, were within the bounds of reasonable commercial expectations and reflected the negotiated risks.
The transaction between Heller and Midwhey involved two interrelated components: a payment Agreement and a subsequent lease agreement for co-generation equipment. The Agreement specified that Heller would make progress payments to the equipment vendor, Edward Lee, totaling $900,000, only upon Midwhey's written authorization. Midwhey was also responsible for paying Heller interest on these advances. Notably, Heller did not secure this interim loan with collateral beyond Midwhey's promise to repay. An interim interest expense agreement stipulated that Edward Lee would cover Heller's interest until the equipment was accepted by Midwhey.
If the equipment was not accepted, Midwhey was obliged to repay Heller the total advanced amount plus interest upon demand. However, since Midwhey never accepted the equipment, Heller sought repayment of the $900,000 plus interest. Midwhey argued that representations from Edward Lee indicated the system would work and that Heller's agent claimed no payments were due until the lease was accepted. Midwhey also contended that the Agreement and lease were part of an integrated deal.
Despite these assertions, Midwhey failed to present any genuine issues of material fact that would necessitate a trial, effectively admitting the relevant facts by not filing a required statement with its response to Heller's summary judgment motion. Moreover, any representations made by Edward Lee were deemed irrelevant to the Agreement between Heller and Midwhey. The lease explicitly stated that Edward Lee was not Heller's agent, and Midwhey did not provide evidence of an agency relationship. The district court concluded that the Agreement and lease, while part of a larger transaction, were distinct and that the clear terms of the Agreement applied regardless of the lease's non-effectuation due to non-acceptance of the equipment.
The district court's decision is upheld, affirming that Edward Lee's obligation to pay interim interest on equipment until acceptance by Midwhey was clear and supported by evidence. Midwhey's challenges to the summary judgment have been dismissed, as there are no genuine material facts in dispute, entitling Heller to a judgment as a matter of law. Midwhey's affirmative defenses included objections to personal jurisdiction, venue, claims of unconscionability, allegations of unmerchantable equipment, lack of good faith by Heller, usurious interest rates, and material misrepresentations by Edward Lee. The court granted an order allowing Midwhey to include Edward Lee as a third-party defendant, resulting in a default judgment against him for $2 million.
Midwhey's argument regarding jurisdiction and venue, claiming Delaware as a possible location due to Heller's incorporation, is undermined by their admission that Heller's principal business is in Chicago, Illinois. The court clarifies that the forum-selection clause is valid and can confer personal jurisdiction, contrary to Midwhey's misinterpretation of a Supreme Court case concerning choice-of-law provisions. Midwhey’s defense against personal jurisdiction, citing lack of substantial contacts and improper service, is deemed meritless, as their brief lacked sufficient argumentation. Additionally, Midwhey's claim of usurious interest rates is not applicable to corporations under Illinois and Wisconsin law and is not considered since it was introduced late in the proceedings. Despite asserting they were cooperatives, Midwhey admitted in their answer that two defendants were Wisconsin corporations, rendering their defense unavailable.
