Opinion
CIVIL ACTION NO: 02-3059 SECTION: "R"
January 27, 2004
ORDER AND REASONS
Before the Court is the motion of plaintiff Guzzler Manufacturing, Inc. for summary judgment. For the following reasons, the Court grants in part and denies in part plaintiff's motion. The Court grants summary judgment to plaintiff as to the liability of Global Remediation, Inc. and Nicholas Popich and denies plaintiff's motion for summary judgment on defendants' counterclaims as moot.
I. BACKGROUND
Global purchased industrial equipment from plaintiff Guzzler Manufacturing, Inc. and plaintiff's sister company, Vactor Manufacturing, Inc. over the period from February 1996 to January 1998. Global executed eleven promissory notes in connection with the purchases. The notes totaled approximately $1.9 million. Popich, Global's president, director and 49% owner, personally guaranteed the amounts due under the notes. After it executed the notes, Global experienced financial difficulties and frequently made late payments, missed payments and incurred late fees. Global was seriously in arrears on its note payments by January 2001.
Of the eleven notes, two were payable to Vactor, and nine were payable to Guzzler. Vactor assigned its two notes to Guzzler, and thus Guzzler now holds all eleven notes.
The notes grant Guzzler a security interest in the purchased equipment. Global agreed to not "sell transfer lease or otherwise dispose of any of the Collateral" unless it obtained Guzzler's written consent beforehand. Global had the right to retain possession of the collateral until it defaulted under the notes. As defined in the notes, events of default included, inter alia, nonpayment of any liabilities under the notes, failure to perform any obligation required by the notes or the bankruptcy of Global or a guarantor. If Global defaulted, Guzzler could declare all amounts under the notes immediately due and payable and was entitled to immediate possession of the collateral. In a guarantee attached to each promissory note, Popich guaranteed the "full and prompt payment" of all liabilities under the note.
Pla.'s Mot. for Summ. J., Exs. 3(A)-3(K), Installment Notes.
In September 2001, Guzzler consented to the sale by Global of some of the equipment, and the proceeds of the sale were applied to the notes. Around this time, Global found another buyer, Hydrovac Services, Inc., that was interested in purchasing Global's assets in Alabama, which included the remainder of the equipment that secured the promissory notes. Popich and a Hydrovac representative negotiated the sale and agreed on a total purchase price of $1.6 million. The parties attributed $1.04 million of the price to the equipment that secured the notes. Popich notified Guzzler's parent corporation, Federal Signal Corporation, that he had found a potential buyer for the remaining equipment and confirmed with Federal Signal the amounts outstanding on the promissory notes.
Federal Signal handles the administrative aspects of Guzzler's financing programs. Pla.'s Mot for Summ. J., Ex. 4, Affidavit of Mark Zaslavsky.
Popich contacted Federal Signal on October 29, 2001 to propose a forbearance agreement, under which Global and Popich would use their best efforts to negotiate the sale of Global's assets to a third party and Federal Signal would release all of its mortgages and security agreements or rights related to Global's debt, including the personal guarantees by Popich.' The proposal indicated that the expected purchase price for the Guzzler equipment was substantially below the remaining amounts due under the promissory notes. At the time, approximately $1.6 million remained outstanding on the notes, and the negotiated price attributed only $1.04 million to the Guzzler equipment. In addition, the proposed sale required Federal Signal to finance a portion of the purchase price for the buyer. In response to Popich's suggested forbearance agreement, Federal Signal returned an unsigned copy of the agreement to Popich later that day with proposed changes handwritten on it. The proposed changes included the elimination of the release of Popich's personal guarantees. The parties do not dispute that they did not execute this or any other written forbearance agreement.
On November 1, 2001, Federal Signal offered in writing to settle the approximately $1.6 million outstanding on the notes. Federal Signal indicated that it would accept in settlement cash and other assets with a total value of $1.4 million, which included $1.04 million that Federal expected to receive through the sale of Global's assets, certain property owned by Popich worth approximately $185,000 and a $175,000 note executed by Global and guaranteed by Popich. The letter indicated that Popich would remain liable under his original guarantees until the restructured obligation was paid in full. By letter sent later that day, Popich rejected the settlement offer and made a counteroffer that reduced, but did not eliminate, the amount of Popich's guarantee. Federal Signal responded to the counteroffer the next day, on November 2, 2001. It stated that its initial settlement offer required Popich to remain liable until the restructured obligations were paid in full and stressed that u[t]hat condition cannot be amended." Popich attests that he then spoke with Federal Signal's representative, Robert Racic, around November 2 or 3, 2001 and told Racic that he would go forward with the proposed sale of Global's assets only if Federal Signal released him from the guarantees. Popich attests that he told Racic that Federal Signal's arrangement of the necessary financing with Hydrovac would constitute Federal Signal's acceptance of his settlement offer that included the release of his personal guarantees. Popich does not assert that Racic responded to his offer or verbally assented to Popich's terms. Indeed, Popich provides no indication of how Federal Signal reacted to his statements. Popich attests that he and Racic never spoke about the settlement again. Popich never attempted to memorialize these settlement terms in writing.
The property identified in the proposed settlement agreement was a condo/townhome unit in Tchefuncte Harbour. Pla.'s Mot. for Summ. J., Ex. 1(E), Letter from Federal Signal to Defendants' Counsel dated Nov. 1, 2001. The Tchefuncte Harbour Townhomes were owned by Harbour Townhomes LLC, in which Popich personally owned an interest. Pla.'s Mot. for Summ. J., Ex. 1(0)., Fax Memo from Defendants' Counsel to Federal Signal dated May 15, 2002.
Pla.'s Mot. for Summ. J., Ex. 1(G), Letter from Federal Signal to Defendants' Counsel dated Nov. 2, 2001.
Global sold its assets in November 2001, and Federal Signal financed the portion of the purchase price attributed to the Guzzler equipment. Defendants now contend that plaintiff's completion of the financing arrangements signaled its acceptance of his offer, and, as a result, Guzzler released Popich's personal guarantees. After the completion of the sale, Federal Signal continued to try to collect on the outstanding balance of the notes from Global and Popich. Federal Signal sent a letter to Popich on December 13, 2001 that indicated that it applied the $1.04 million from the sale to Hydrovac to the outstanding balance on the notes, and the letter inquired as to the status of the other components of the proposed $1.4 million settlement package. On January 7, 2002, the defendants' attorney asked for confirmation that Federal Signal credited the notes for $1.04 million from the sale to Hydrovac and indicated that the bank that held the mortgage on Popich's property would not refinance the mortgage to allow him to obtain additional cash. Federal Signal confirmed the next day that it credited the outstanding balance on the notes with the $1.04 million from the sale of the equipment. Federal Signal also requested further information regarding the refinancing of Popich's property and indicated its desire to "continue to work cooperatively to resolve the remaining obligation guaranteed by Nick [Popich]." On January 15, 2002, Federal Signal sent another letter to defendants' counsel that requested specific details on a credible plan to pay the balance due. Federal Signal sent defendants' counsel a letter on January 23, 2002 that referred to the settlement that the parties had discussed of the total amounts under the notes owed by Global and guaranteed by Popich. This letter indicated that the total balance had been credited with the $1.04 million from the Hydrovac purchase, but the remaining balance still needed to be resolved. On March 14, 2002, Federal Signal contacted Popich and demanded a good faith payment against the remaining obligation, additional collateral and a secured payment plan on the balance. Federal Signal stated that if the matter was not resolved, "we will pursue collection against the note guarantor." In a facsimile memorandum dated March 21, 2002, defendants' counsel contended, for the first time, that the negotiation and sale of Global's assets had been without authority or agreement by Global, and under the applicable law, the debt was extinguished. The memo went on to state that, in the spirit of compromise, Global would acknowledge its debt but Popich "can not personally guarantee this debt." On May 9, 2002, Federal Signal's counsel responded to defendants' counsel regarding the notes and indicated that defendants' counsel's statement "that Global's assets were sold without authority or agreement by Global and Popich is incorrect. The debt and guarantee are still in full effect[.]" Defendants' counsel responded on May 15, 2002 and stated that Global and Popich continued to dispute the debt and guarantee. In addition, the letter again informed Federal Signal that Popich was still unable to refinance the mortgage on the property that he had proposed to put up as security.
Pla.'s Mot. for Summ. J., Ex. 1(H), Letter from Federal Signal to Nick Popich dated Dec. 13, 2001.
Pla.'s Mot. for Summ. J., Ex. 1(1), Letter from Defendants' Counsel to Federal Signal dated Jan. 7, 2002.
Pla.'s Mot. for Summ. J., Ex. l(J), Letter from Federal Signal to Defendants' Counsel dated Jan. 8, 2002.
Pla.'s Mot. for Summ. J., Ex. 1(K), Letter from Federal Signal to Defendants' Counsel dated Jan. 15, 2002.
Pla.'s Mot. for Summ. J., Ex. 1(L), Letter from Federal Signal to Defendants' Counsel dated Jan. 23, 2002.
Id.
Pla.'s Mot. for Summ. J., Ex. 1(M), Letter from Federal Signal to Popich dated Mar. 14, 2002.
Id.
Pla.'s Mot. for Summ. J., Ex. 1(N), Fax Memo from Defendants' Counsel to Federal Signal dated Mar. 23, 2002.
Id.
Pla.'s Mot. for Summ. J., Ex. 11, Letter from Federal Signal to Defendants' Counsel dated May 9, 2002.
Pla.'s Mot. for Summ. J., Ex. 1(0), Fax Memo from Defendants' Counsel to Federal Signal dated May 15, 2002.
Id.
Guzzler sued Global and Popich to recover the remaining amounts due under the notes, which totaled approximately $650,000 when it filed suit. Plaintiff alleges that late fees continue to accrue. Defendants requested a jury trial and filed counterclaims for tortious interference with contract and business relations. Their counterclaims included, inter alia, a claim that Guzzler contracted directly with Hydrovac and sold Global's assets without authority or authorization from Global and forced the sale of those assets at below market value. Defendants have since stipulated to a voluntary dismissal of their counterclaims. Plaintiff now moves for summary judgment against Global and Popich for the amounts due under the promissory notes and on defendants' counterclaims. Because defendants stipulated to the dismissal of their counterclaims, the Court denies plaintiff's motion for summary judgment on these claims as moot and addresses plaintiff's motion only with respect to the liability of Global and Popich.
See stipulation at Rec. Doc. 23.
II. DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. See Fed.R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The court, must be satisfied "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The moving party bears the burden of establishing that there are no genuine issues of material fact. If the moving party meets his burden, the non-moving party may not defeat summary judgment with mere conclusory rebuttals. See Mosely v. Trinity Industries, Inc., 1998 WL 186695, at *1 (E.D.La.) (citing Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992)). As the Fifth Circuit noted in Olabisiomotosho v. City of Houston, "[c]onclusory allegations, speculation, and unsubstantiated assertions are not evidence." See Olabisiomotosho, 185 F.3d 521, 525 (5th Cir. 1999).
B. Choice of Law
It is well-settled that a federal court in a diversity case must apply the choice of law rules of the state in which the federal court sits. See Marchesani v. ellerin-Milner Corp., 269 F.3d 481, 485 (5th Cir. 2001); New England Merchants National Bank v. Rosenfield, 679 F.2d 467, 471 (5th Cir. 1982); Rousseau v. 3 Eagles Aviation, Inc., 2002 WL 31256199, at pp. *5-6 (E.D.La.). This Court's decision as to choice of law is thus governed by the Louisiana Civil Code. See id. Article 3537 of the Code supplies the choice of law principle in the absence of a contractual choice of law clause: "Except as otherwise provided in this Title, an issue of conventional obligations is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue." LA. CIV. CODE ANN. art. 3537 (West 2004). Article 3540 supplies choice of law doctrine when parties have agreed to a choice of law rule: "All other issues of conventional obligations are governed by the law expressly chosen or clearly relied upon by the parties, except: to the extent that law contravenes the public policy of the state whose law would otherwise be applicable under Article 3537." LA. CIV. CODE ANN. art. 3540 (West 2004).
Each promissory note specifies that it is to be interpreted in accordance with Illinois law. Each note also includes a provision in which the borrower agrees that Illinois is the proper venue if a lawsuit is necessary to enforce the parties' rights and obligations under the note. Further, each guarantee states that its validity and construction is governed by Illinois law. Because the parties have agreed to apply Illinois law to construe and enforce the contract, this Court will apply Illinois law unless doing so would seriously impair the public policy of the state whose law would otherwise be applicable under Article 3537. Under the following analysis, the Court concludes that, even in the absence of a choice of law provision, Illinois law would be applicable under Article 3537. Article 3537 and Article 3515 of the Louisiana Civil Code provide the following factors to consider in determining which state's laws should apply in the absence of a choice of law clause: (1) the relationship of the state to the parties and the dispute; (2) the contacts each state had with the parties and the transaction including where the contract was negotiated, formed, and performed; (3) the location of the domicile, residence, or business of the parties; (4) the nature, type, and purpose of the contract; and (5) the interest of facilitating "orderly planning of transactions, of promoting multistate commercial intercourse, and of protecting one party from undue imposition by the other." LA. CIV. CODE ANN. arts. 3537, 3515 (West 2004); Rousseau, 2002 WL 31256199, at pp. *5-6; see also Petticrew v. ABB Lummus Global, Inc., 53 F. Supp.2d 864, 866-67 (E.D.La. 1999).
Pla.'s Mot. for Summ. J., Ex. 3(A)-3(K), Installment Notes.
Id.
In Petticrew, the court held that Texas had more significant contacts with the parties than did Louisiana, because the negotiation and execution of the contract took place in Texas. See Petticrew, 53 F. Supp.2d at 868. The court in Rousseau applied Florida law because the parties executed the promissory note and guaranty in Florida in facilitation of a Florida transaction, and payments under the note were to be made and received in Florida. See Rousseau, 2002 WL 31256199, at p. *6.
Under the analysis of the Petticrew and Rousseau cases, the relevant facts in this case point toward the application of Illinois law. Plaintiff's principal place of business is in Illinois, and defendant Global's principal place of business is in Louisiana. Each promissory note specifies that it was executed in Illinois. Payments under the notes were due in Illinois. The parties executed the notes to facilitate a transaction in Alabama. Under these facts, Illinois has more significant contacts with this dispute than does Louisiana or Alabama. Under the rules set forth in Articles 3515, 3537, and 3540 of the Louisiana Civil Code, Illinois is the state the policies of which would be most seriously impaired if its laws were riot followed. Because the parties contractually agreed that Illinois law is to be applied to the promissory notes, the public policy of Illinois obviously will not be impaired by applying Illinois law. Moreover, Louisiana law recognizes and honors choice of law provisions. See Delhomme Industries, Inc. v. Houston Beechcraft, Inc., 669 F.2d 1049, 1058 (5th Cir. 1982) (quoting Assoc. Press v. Toledo Investments, Inc., 389 So.2d 752, 754 (La.App. 3d Cir. 1980)).
C. Global's Liability
Plaintiff moves for summary judgment against both Global and Popich for amounts due under the promissory notes. Plaintiff asserts that the balance due under the notes is $683,856.79 as of September 15, 2003, that late fees continue to accrue and that the defendants also owe attorneys' fees and costs. Global admits that it is liable under the promissory notes to plaintiff for the amounts advanced by plaintiff. The record contains no evidence to challenge Global's liability. Accordingly, the Court grants plaintiff's motion for summary judgment against Global.
D. Popich's Liability
Popich does not dispute that he personally guaranteed each of the promissory notes. He contends, however, that there exists a question of fact about whether Guzzler released Popich's liability under the guarantees, and therefore summary judgment is inappropriate. Both parties agree that Guzzler never executed a written release or waiver of its rights to enforce the guarantees. The parties dispute whether Guzzler's actions constitute an implicit release of Popich's guarantees.
Illinois has adopted the Uniform Commercial Code, and the parties dispute which article of the UCC applies to Popich's guarantees. Plaintiff argues that the promissory notes and guarantees are negotiable instruments, and therefore Article 3 of the UCC applies. Defendants argue that their alleged modification to the promissory notes and guarantees need not be in writing under an exception contained in UCC Section 2-209. The Court discusses both arguments below,
Neither party addresses whether the Illinois Credit Agreements Act applies in this case. See 815 ILCS 160/1 et seq. The Act applies to credit agreements, and a credit agreement is defined as "an agreement or commitment by a creditor to lend money or extend credit or delay or forbear repayment of money not primarily for personal, family or household purposes, and not in connection with the issuance of credit cards." Id. Under the Act, any agreement by a creditor to modify or amend an existing credit agreement must be in writing. 815 ILCS 160/3; see also Bank One, Springfield v. Roscetti, 723 N.E.2d 755, 760-61 (Ill.App. 4 Dist. 1999). The Act defines a creditor as "a person engaged in the business of lending money or extending credit." 815 ILCS 160/1. Based on the factual record before it, the Court is unable to determine if plaintiff meets the definition of a creditor under the Act.
i. UCC Article 3
Promissory notes generally qualify as negotiable instruments as defined in Article 3 of the UCC. See 810 ILCS 5/3-104. Illinois courts consider guarantees attached to negotiable instruments to be negotiable instruments also. See, e.g., Florsheim Group, Inc. v. Cruz, 2001 WL 1134856, at *2-3 (N.D.Ill.) (discussing cases in which guarantees attached to promissory notes were considered negotiable instruments); Addison State Bank v. Nat'l Maint. Mgmt., 529 N.E.2d 30, 32-33 (Ill.App. 2 Dist. 1988). In Addison, the guarantee at issue was attached to a promissory note that was issued in connection with the purchase of industrial equipment, and the court applied Article 3 to the guarantee. See id. at 32-33. The guarantees in this case are similar to the guarantee in Addison, and the Court therefore applies Article 3 here.
Plaintiff argues that it did not release Popich's guarantees under UCC Section 3-604(a), which provides:
A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument (i) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party's signature, or the addition of words to the instrument indicating discharge, or (ii) by agreeing not to sue or otherwise renouncing rights against the party by a signed writing.
Plaintiff contends that it did not discharge Popich's obligation because it did not do any of the voluntary acts listed in Section 3-604(a), nor did it renounce its rights against Popich in writing. Plaintiff fails to note, however, that Section 3-604(a) lists only ways in which an obligee may discharge the obligation of an obligor. Under Section 3-601(a),
The obligation of a party to pay the instrument is discharged as stated in this Article or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.See Finocchio v. Grandinetti, 1989 WL 1177999, at *4 (N.D.Ill.) (noting that Section 3-601 "controls the cancellation, renunciation and discharge of rights held under a promissory note.") Thus, in addition to the ways listed in Section 3-604, an obligee may discharge an obligation by an agreement governed by contract law. Under Illinois contract law, parties to a written contract may modify its terms by oral agreement. See R.T. Hepworth Co. v. Dependable Ins. Co., Inc., 997 F.2d 315, 317-18 (7th Cir. 1993); A.W. Wendell Sons, Inc. v. Qazi, 626 N.E.2d 280, 287 (Ill.App. 2 Dist. 1993); see also TIC United Corp. v. Lisowski, 1994 WL 577255, at *4-5 (N.D.Ill.) (denying summary judgment because the court found an issue of material fact with regard to the existence of an oral agreement to release defendant's obligations under a promissory note); Finocchio, 1989 WL 1177999, at *4 (N.D.Ill.) (same).
An oral modification of a contract must meet the criteria for a valid contract, i.e., there must be offer, acceptance, and consideration. See Great American Ins. Co. v. Bailey, 1989 WL 153365 (N.D.Ill.). The terms of the oral agreement "`must be definite and certain and there must be a meeting of the minds.'" TIC United Corp., 1994 WL 577255, at *5 (citing Kemp v. Bridgestone/Firestone, Inc., 625 N.E.2d 905, 910 (Ill.App. 4 Dist. 1993)). Defendants contend that Popich offered to arrange the purchase of Global assets in exchange for the release of his personal guarantees, and Federal Signal indicated its acceptance when it financed Hydrovac's purchase of Global's assets. The Court concludes that there is no evidence that there was a meeting of the minds on the terms of the alleged oral agreement to release Popich from the guarantees.
To begin with, Federal Signal's actions clearly and consistently indicate that it never assented to the terms imposed by Popich. When Popich first proposed the forbearance agreement, Federal Signal indicated in writing that it would not release Popich's obligations under the personal guarantees. On November 1, 2001, Federal Signal proposed to restructure the debt to $1.4 million, represented by the sales proceeds, certain property owned by Popich and a note executed by Global and guaranteed by Popich. Federal Signal's inclusion of Popich's property and a guarantee by Popich of the note from Global in the proposed settlement, as well as its insistence that Popich remain liable on the guarantees until the full restructured balance on the notes had been paid indicted that it intended not to release Popich from his guarantees. Popich counteroffered with a proposed settlement that reduced, but did not eliminate, the total amount that he would guarantee. Popich's counteroffer limited his liability as guarantor to $1.175 million of the $1.4 million restructured balance. Thus, under his counteroffer, if the notes were credited for the $1.04 million from the sale of Global's assets, then Popich's guarantee would cover only an additional $135,000 of the $360,000 remaining debt balance. Federal Signal responded on November 2, again in writing, and stated that the requirement that the personal guarantors remain obligated until the restructured obligations were paid in full could not be amended. Popich states that he told Racic later that day or the next day that he would view Federal Signal's arrangement of financing for the purchaser of Global's assets as Federal Signal's acceptance of his offer to release his guarantees. Popich does not allege that Racic confirmed Federal Signal's acceptance of his offer at that time or responded in any way to his statements. He asserts only that the completion of the sale with financing by Federal Signal indicated its acceptance. Federal Signal's actions after Popich's alleged statements to Racic belie this assertion. Consistent with its refusal to release Popich from the guarantees before the sale of Global's assets, Federal Signal continued after the sale to attempt to collect on the remaining balance due under the notes from Popich. Federal Signal never indicated that it intended to release Popich from the personal guarantees. All of the correspondence from Federal Signal after the sale of Global's assets is evidence that it continued to view Popich as a guarantor of the amounts due under the notes. On December 13, 2001, Federal Signal sent a letter to Popich to discuss how he and Global remediation intended to pay the difference between the $1.04 million credited from the sale of Global's assets and the $1.4 million settlement amount. Federal Signal continued in January 2002 to inquire about that status of Popich's personal property that it had identified in its settlement proposal, which clearly indicated that it considered Popich liable on the guarantees. On March 14, 2002, Federal Signal sent a letter to Popich with the subject line: "`Remaining Balance Owed by Global Remediation and Guaranteed by Nick Popich." When Popich's counsel asserted that the sale of Global's assets was unauthorized and released the debt, Federal Signal responded that [t]he debt and guarantee are still in full effect" (emphasis added). Further, Racic attests in his affidavit that Guzzler never agreed to release Popich from his guarantees. Federal Signal's statements and actions consistently indicate that it never intended to release Popich from the guarantees and thus never accepted Popich's alleged oral offer.
Pla.'s Mot. for Summ. J., Ex. 11, Letter from Federal Signal to Defendants' Counsel dated May 9, 2002.
More importantly, Popich's own statements and actions flatly contradict his assertion that Federal Signal accepted his offer to release his guarantees and that, as a result, he proceeded with the sale of Global's assets. After Federal Signal inquired about the status of the remaining portion of the $1.4 million proposed settlement, defendants' counsel's response on January 7, 2002 asked Federal Signal to confirm the $1.04 million credit to the amount due under the notes and advised Federal Signal on the status of the refinancing of Popich's personal property. As Popich's agent, statements made by Popich's counsel are attributed to him. Popich would not have updated Federal Signal on the status of his property if he believed that the completion of the asset sale released him from his guarantees, and thus the January 7, 2002 letter directly contradicts Popich's assertion. Popich did not contend at that time that he was not liable under the notes because the guarantees had been released.
In contrast to the "agreement" that Popich now asserts that he had with Federal Signal to release him when he agreed to the asset sale, Popich earlier asserted that he never agreed to the sale, and Federal Signal unilaterally sold the equipment out from under him. Thus, on March 21, 2002, Popich, through counsel, sent a letter to Federal Signal that asserted that the sale of Global's assets was without authority or assent by Global or Popich, and it therefore resulted in the extinguishment of the debt. Global also asserted in a counterclaim filed in this case that Guzzler "without authority or authorization," interfered in defendants' negotiation with Hydrovac and contracted directly with Hydrovac. Further, defendants denied that Popich knew of and approved Global's sale of the equipment to Hydrovac. These statements contradict Popich's current self-serving assertion that he chose to proceed with the sale of Global's assets because he believed Federal Signal had agreed to release his guarantees. In contradiction to Popich's earlier assertion that plaintiff's actions extinguished the debt and his current assertion that plaintiff agreed to release his guarantees, defendants' counsel updated Federal Signal on the status of Popich's property again on May 15, 2002. As before, if Popich believed that Federal Signal's actions had extinguished the debt or released him from his guarantees in November 2001, then he would not have viewed the status of his personal property as relevant.
Rec. Doc. 3, Global's Answer.
Pla.'s Mot. for Summ. J., Ex. 13, Global's Response to Request for Admissions, at p. 3, Ex. 16, Popich's Response to Request for Admissions, at p. 2.
Pla.'s Mot. for Summ. J., Ex 1(0), Letter from Defedants' Counsel to Federal Signal's Counsel dated May 15, 2002.
Popich also asserts that he would not have sold Global's assets if Federal Signal were not going to release his guarantees. Defendants' counteroffer to Federal Signal's proposed $1.4 million settlement and Popich's negotiations with Jeff Noe, Hydrovac's president, both contradict this assertion. Popich's counteroffer contemplated the sale of Global's assets with only a partial release of the personal guarantees, which is directly at odds with Popich's current, unsubstantiated contention that he would not have sold the assets without a full release from his guarantees. Moreover, the sale of Global's assets was in Popich's best interest even without a release of the guarantees because the sale eliminated over $1 million of the total debt that he had personally guaranteed. Further, Noe attests in his affidavit that he negotiated directly with Popich for the purchase of Global's assets. He states that the parties agreed on the total purchase price in September 2001. Noe never indicates that the agreement that the parties reached was contingent on Popich's release from the guarantees. The parties executed a letter agreement on November 2, 2001, and the agreement contains no indication that the sale is contingent on the release of Popich's guarantees. Federal Signal's arrangement of the financing for the sale, the action that allegedly released Popich from his guarantees, did not occur until after Popich and Noe executed this letter agreement. Popich's agreement to sell Global's assets before Federal Signal allegedly indicated its acceptance of his oral offer contradicts his assertion that he would not have sold the assets without a release of his guarantees. Further, Global's board resolution that approved the sale to Hydrovac and the final sale agreement were not conditioned on the release of Popich's guarantees. Moreover, the sale agreement states that it is the complete agreement and supercedes any other agreements, oral or written, between the parties.
Indeed, there is no evidence that defendants sold the assets at less than market value.
Pla.'s Mot. for Summ. J., Ex. 5, Affidavit of Jeff Noe.
Pla.'s Mot. for Summ. J., Ex. 7, Confidential Asset Purchase Agreement dated Nov. 2, 2001.
Furthermore, the Court notes that both Federal Signal's vice president and Popich are sophisticated and experienced businessmen. Popich initiated the settlement discussions with a written, proposed forbearance agreement. Federal Signal responded with written modifications of the agreement. When Federal Signal offered to settle the total balance due for $1.4 million, it did so in writing. Popich responded with a written counteroffer. These numerous items of written correspondence between Federal Signal and defendants about the resolution of the amounts owed under the notes indicate that the parties clearly contemplated a written workout agreement. Popich's assertion that, in spite of his sophistication, he never obtained a written confirmation of the agreement to release his personal guarantee of almost $600,000, and instead relied on the implicit agreement by Federal Signal goes against the grain of the parties' entire course of dealing.
Moreover, a conclusion that Federal Signal agreed to Popich's terms is economically implausible. Federal Signal proposed a settlement agreement under which Popich would guarantee $1.4 million of the debt. Popich counteroffered that same day, and under his counteroffer he would guarantee $1.175 million of the debt. Federal Signal rejected Popich's offer the next day and told him that the condition that he guarantee the full amount of the debt could not be amended. Popich's asserts that Federal Signal, promptly after it explicitly rejected his partial guarantee, then accepted an oral offer with no guarantee by Popich, when there was no material change in Federal Signal's economic position. Popich's contention that Federal Signal agreed to his offer makes little economic sense and contradicts all of the other facts in the record. Cf. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (concluding in context the summary judgment that if the factual context renders a plaintiff's claim implausible, i.e. "the claim is one that simply makes no economic sense," then the plaintiff "must come forward with more persuasive evidence to support [its] claim that would otherwise be necessary"); Brooke Group Ltd. v. Brown Williamson Tobacco Corp., 509 U.S. 209, 242 (noting that an expert opinion cannot support a jury verdict when "indisputable record facts contradict or otherwise render the opinion unreasonable").
As described above, Popich attempts to create an issue of fact based only on a self-serving, conclusory and uncorroborated affidavit. Popich raises this assertion for the first time two years after the transaction at issue. Popich's affidavit flatly contradicts his earlier statements to Federal Signal and defendants' earlier filings with this Court. In Martinez v. Bally's Casino Lakeshore Resort, 2000 WL 23099 (E.D.La.), the court concluded that plaintiff's self-serving affidavit did not create a genuine issue of material fact to defeat summary judgment. See id. at *2 (quoting Albertson v. T.J. Stevenson Co., 749 F.2d 223, 228 (5th Cir. 1984)). The affidavit alleged physical manifestations of emotional injury for the first time after her complaint and her discovery responses failed to allege any such injuries. See id.; see also Mosely v. Trinity Industries, Inc., 1998 WL 186695, at *2 (E.D.La.) (concluding that "plaintiff's self-serving affidavit, which contradicts the allegations contained in his previous submissions to this Court, does riot create an issue of material fact"); cf. S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 495 (5th Cir. 1996) (noting that a party may not defeat a motion for summary judgment with an affidavit that impeaches, without explanation, sworn testimony). Here, Popich's self-serving affidavit contradicts his earlier statements and defendants' filings with this Court and is not substantiated by any of the record evidence. His affidavit is nothing more than a desperate attempt to unilaterally bind the plaintiff to an oral modification to which it never agreed. Accordingly, the Court finds that defendant fails to create a genuine issue of material fact to defeat summary judgment.
ii. UCC Article 2
Defendants contend that the alleged modification to the promissory notes by which Guzzler waived Popich's personal guarantees need not be in writing under the exception contained in. UCC Section 2-209(4). See 810 ILCS 5/2-209. Plaintiff disputes the applicability of UCC Article 2 to the promissory notes in this case. Article 2 applies to "transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction [.]" 810 ILCS 5/2-102. Plaintiff contends that Article 2 applies only to sales contracts, and the promissory notes are not sales contracts. Courts apply Article 2, however, to promissory notes issued in connection with sales transactions. See, e.g., Fallimento C.Op.M.A. v. Fischer Crane Co., 995 F.2d 789, 793 (7th Cir. 1993); Peoria Harbor Marina v. McGlasson, 434 N.E.2d 786, 790 (Ill.App. 3 Dist. 1982); see also Scott v. Ford Motor Credit Co., 345 Md. 251, 255-62 (Md. 1997). In Fallimento, the Seventh Circuit applied Article 2 to promissory notes issued in connection with a transaction covered by Article 2, i.e., the sale of crane supplies. See Fallimento, 995 F.3d at 793. The Court held that the key was that the promise to pay was made as a part of a contract for sale, whether the promise was "called a promissory note, a negotiable instrument or by any other name." Id. In this case, the parties executed the promissory notes in connection with Global's purchase of equipment from Guzzler. Even accepting that Article 2 may apply to the promissory notes in this case, defendants cite no authority for the proposition that Article 2 also applies to a guarantee attached to the promissory note. The Court is unable to find any definitive authority on the issue. In Regent Security Partners III, Ltd. v. Automatic Fire Burglar Systems of St. Louis, Inc., 1991 WL 182257 (N.D.Ill.), the Court could not determine if the promissory note at issue stemmed from a sale of primarily tangible or intangible goods. See id. at *2. The court noted that if the parties executed the promissory note in connection with a sale of primarily tangible goods, then Article 2 would apply to the note and the attached guarantee. See id. If, on the other hand, the parties executed the note in connection with a sale of primarily intangible goods, then Article 3 would apply to both. See id. The court concluded that it did not need to decide which article applied because its conclusion was the same under either one. See id. Contrary to the approach taken in Regent Security, however, the court in Addison applied Article 3 to a guarantee attached to promissory notes issued in connection with the sale of equipment. See Addison, 529 N.E.2d at 32-33. Because the dicta in Regent Security implies that both the promissory notes and the guarantees in this case would be governed by Article 2, the Court addresses defendants' arguments out of an abundance of caution.
Section 2-209 of the UCC provides:
Modification, Rescission and Waiver. (1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
(5)A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.810 ILCS 5/2-209. The comments to Section 2-209 indicate that
Subsection (4) is intended, despite the provisions of subsections (2) and (3), to prevent contractual provisions excluding modification except by a signed writing from limiting in other respects the legal effect of the parties' actual later conduct.
Under Section 2-209, an attempt at modification of the contract that does not meet the requirements of the statute of frauds can nevertheless operate as a waiver. See Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 297 (7th Cir. 2002); American Suzuki Motor Corp. v. Bill Kummer, Inc., 65 F.3d 1381, 1386 (7th Cir. 1995); N.J. Collins, Inc. v. Pacific Leasing, Inc., 1999 WL 7898, at *5 (E.D.La.). A waiver is a "voluntary relinquishment of a known right." TIC United Corp., 1994 WL 577255 at *6 (citing Crum Forster Managers Corp. v. Resolution Trust Corp., 620 N.E.2d 1302, 1310 (Ill. 1993)). A waiver under the UCC can be accomplished through words or conduct. See American Suzuki, 65 F.3d at 1386. Courts require that the party who asserts a modification of the contract must show either that the waiver was clear and unequivocal or that he reasonably relied on the other party's waiver. See Cloud, 314 F.3d at 297-98 (citing cases). The reliance requirement prevents one party to a contract from "using self-serving testimony to prove that the other party waived a right under the contract." Central Ill. Public Serv. Co. v. Atlas Minerals, Inc., 965 F. Supp. 1162, 1172-73 (C.D.Ill. 1997) (citing Cole Taylor Bank, 51 F.3d at 739). Furthermore, waiver is often limited to minor conditions. See N.J. Collins, 1999 WL 7898, at *5 (citing Cole Taylor Bank v. Truck Insurance Exchange, 51 F.3d 736, 739 (7th Cir. 1995)).
Popich attests that he told Federal Signal that if it financed the sale of Global's assets for the purchaser, then completion of the financing arrangements would constitute Federal Signal's release of the guarantees. Defendants contend that Popich's affidavit coupled with Federal Signal's completion of the financing arrangements indicates that there is a genuine issue of material fact about whether Federal Signal waived its rights under the guarantees. Popich also asserts that he relied upon Federal Signal's waiver of its rights under the guarantees because Global would not have sold its assets without the waiver. Plaintiff, on the other hand, asserts that it never intended to waive its rights under the guarantees. First, the Court notes that the remaining balance due under the notes was almost $600,000 at the time of Federal Signal's alleged waiver, and the Court finds that Popich's personal guarantee of this amount is more than a "minor condition" of the contract. See N.J. Collins, 1999 WL 7898, at *5.
In addition, the Court finds that defendants have presented no evidence of a clear and unequivocal waiver. Defendants assert only that Federal Signal's completion of the financing arrangement for the sale of Global's assets signaled its waiver of its rights under the guarantees. Federal Signal's actions before and after the sale, however, contradict such an assertion. Indeed, defendants do not assert that plaintiff ever said it would release the personal guarantees, and the written communications both before and after the sale of Global's assets are contrary to defendants' assertion. The Court notes that although an attempted modification of a contract can operate as a waiver, Federal Signal never attempted to modify the contract to eliminate Popich's guarantees. Also, Federal Signal explicitly rejected every written attempt by Popich to eliminate his guarantees. Before the sale, Federal Signal rejected Popich's written forbearance agreement that eliminated his obligations under the guarantees. It then proposed a written settlement agreement that included a guarantee by Popich of the full amount of the settlement. When Popich counteroffered with a proposal that reduced the amount of his guarantee, Federal Signal rejected his offer and specified that it would not release his guarantees. Thus Federal Signal indicated in writing on three different occasions before the sale that it would not release Popich's personal guarantees. Further, Federal Signal sent six letters to Popich or defendants' counsel after the sale that indicate that Federal Signal still considered Popich to be a guarantor under the notes. Nothing in Federal Signal's statements or actions could be construed as a clear and unequivocal waiver of its rights.
Furthermore, the Court there is no evidence in the record to support a contention that Popich's reliance on Federal Signal's alleged waiver of rights was reasonable. In light of plaintiff's repeated, written assertions that it would not release the personal guarantees, any reliance by defendants on an implicit waiver by the plaintiff is unreasonable. Moreover, Popich's assertion that he relied on plaintiff's implicit waiver is contradicted by evidence in the record. Popich clearly did not rely on the waiver when he decided to sell Global's assets, because he signed an agreement to sell Global's assets to Hydrovac before the alleged release of the guarantees. In his settlement counteroffer, Popich agreed to sell Global's assets with a partial reduction of his guarantees, which again contradicts his assertion that he would not have otherwise sold the equipment and relied on the release of his guarantees when he did so. In a March 2002 letter to Federal Signal, in responses to plaintiff's requests for admission and again in pleadings before this Court, defendants asserted that Federal Signal had sold the Global assets without their authorization, and now Popich contradicts himself when he claims that he relied on Federal Signal's waiver when he decided to sell Global's assets. The Court therefore concludes that there is no evidence to support Popich's self-serving assertion that he relied on Federal Signal's waiver of its rights under the guarantees. Furthermore, any reliance by Popich on an implied waiver by Federal Signal was unreasonable given Federal Signal's clear indications that it planned to enforce the guarantees.
As a result of the foregoing analysis, the Court concludes under both Articles 2 and 3 of the UCC that defendant has failed to establish the existence of a material fact about whether plaintiff released Popich's personal guarantees or waived its rights under the guarantees. Accordingly, the Court grants plaintiff's motion for summary judgment on Popich's liability.
III. CONCLUSION
For the foregoing reasons, the Court grants in part and denies in part plaintiff's motion for summary judgment. The Court grants summary judgment to plaintiff on Global's and Popich's liability and denies plaintiff's motion for summary judgment on defendants' counterclaims as moot.