IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

GRAPHIC PALLET AND TRANSPORT, INC.,

JOHN KRAWISZ, CHRISTY KRAWISZ,

Plaintiffs,

v.

BALBOA CAPITAL CORP.,

Defendant.

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MEMORANDUM OPINION AND ORDER

Plaintiffs Graphic Pallet and Transport, Inc., John Krawisz,

and Christy Krawisz filed this lawsuit against defendant Balboa

Capital Corp. in the Circuit Court of Will County, Illinois

alleging that Balboa had misrepresented the terms of three leases

executed by Graphic and guaranteed by the Krawiszes. The complaint

consists of four counts, all pleaded in the alternative: rescission

of contract (Count I), common law fraud (Count II), mistake (Count

III), and violation of Califorina’s Unfair Competition Law (“UCL”),

Business and Professions Code Section 17200 (Count IV). The case

was removed to this court. Defendant has moved to dismiss the

complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

I.

According to the complaint, in March 2008, Balboa, a

California corporation, entered into discussions with Graphic, an

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Illinois corporation, about leasing a nailing machine and a semitruck. Plaintiffs allege that Balboa’s representative, Kenny

Segin, indicated that Balboa would agree to finance the purchase of

the equipment in exchange for thirty-six monthly payments. 

Plaintiffs also allege that Segin represented that at the end of

the lease terms, plaintiffs would have an opportunity to purchase

the equipment for one dollar. Based on these representations,

Graphic entered into two lease agreements, one for the nailing

machine (the “first lease agreement”) and one for the semi-truck

(the “second lease agreement”), and the Krawiszes signed personal

guarantees. 

Despite Segin’s representations or the Krawiszes’

understanding, the lease agreements tell a different story. Under

the terms of the lease agreements, which are two pages long each,

there are two possible end of term options.1 Paragraph 16 of the

lease terms describes the two end of term options: “$1.00 or $1.01

buyout” and “Fair Market Value Purchase Option.” (Pls.’ Complaint,

Ex. A) (DN 2-1); (Def.’s Mot. to Dismiss, Ex. 1) (DN 10-1). If the

1

 Plaintiffs attached the first lease agreement to their

complaint but not the second. Defendant submitted the second

lease agreement with its motion to dismiss. Both lease

agreements contain the same terms. Because plaintiffs refer to

the second lease agreement in their complaint and the agreement

is central to their claims, defendant’s exhibit will be

considered part of the pleadings. Venture Associates Corp. v.

Zenith Data Systems Corp., 987 F.2d 429, 431 (7th Cir. 1993)

(“Documents that a defendant attaches to a motion to dismiss are

considered part of the pleadings if they are referred to in the

plaintiff’s complaint and are central to her claim.”). 

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former is indicated in the end of term section on the front of the

lease, then the lessee “shall purchase the equipment for that

amount” at the end of the lease term. Id. By contrast, if the

latter option is indicated, then the lessee has the opportunity to

purchase the equipment “for its fair market value” as determined by

Balboa in its “reasonable judgment,” after giving notice prior to

the end of the lease term. Id. According to the end of term

section on page one of the first and second lease agreements, the

fair market value purchase option governs both contracts.

In February 2010, Segin contacted Graphic again to discuss the

possibility of Balboa leasing a saw to Graphic. During the

discussions, Segin allegedly represented once more that Graphic

would have the opportunity to purchase the saw for one dollar at

the end of the lease term. As with the first two lease agreements,

plaintiffs allege that they entered into the lease agreement for

the saw (the “third lease agreement”) based on Segin’s

representations. The third lease agreement differs from the first

and second agreements in that page one of the third lease does not

refer to an end of term “option.” Instead, paragraph 16 on the

second page of the lease describes only a fair market value

purchase term.2

2

 While the third lease agreement differs from the first

two leases, plaintiffs’ complaint does not distinguish between

the first two leases and the third, nor does it set forth any

claims based on the difference between the contracts. Plaintiffs

also fail to raise any argument based on the difference between

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According to plaintiffs, Graphic made monthly payments

pursuant to the three agreements through April 2011, when the first

and second lease agreements were set to terminate. Plaintiffs do

not allege that Graphic notified Balboa of an intent to exercise

the fair market value option described in the lease agreements. 

Instead, plaintiffs claim that they contacted Segin after noticing

that Balboa was still withdrawing funds in May 2011, for the first

and second lease agreements, even though those agreements ended in

April 2011. Segin allegedly confirmed that the first and second

agreements contained one-dollar buyout provisions and told

plaintiffs that he would have Balboa issue a refund to Graphic for

the post-April 2011, payments. Balboa did not issue a refund to

Graphic, however, and Segin stopped returning plaintiffs’ phone

calls. Other Balboa representatives informed Graphic that the

agreements were governed by a fair market value purchase option and

that, according to the terms of the lease agreements, because

Graphic did not return the equipment or give notice of an intent to

exercise the fair market value purchase option, plaintiffs would

have to continue making monthly payments for at least an additional

twelve months and then pay the fair market value of the nailing

machine and the semi-truck.

the lease agreements in their response to defendant’s motion to

dismiss. As such, I do not address what impact, if any, the lack

of an end of term “option” in the third lease might have on

plaintiffs’ claims. 

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Graphic sued Balboa in state court, and Balboa removed the

case to this court. Jurisdiction was properly based on the

diversity of citizenship between the parties. The parties agree

that California law applies to the lease agreements. 

II.

To survive a Rule12(b)(6) motion, a complaint generally “must

contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v.

Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)

(quoting Bell Atl. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955,

167 L.Ed.2d 929 (2007)). While a “short and plain statement of the

claim” is all that is required by Federal Rule of Civil Procedure

8, “[i]f the plaintiff chooses to provide additional facts, beyond

the short and plain statement requirement, the plaintiff cannot

prevent the defense from suggesting that those same facts

demonstrate the plaintiff is not entitled to relief.” Thompson v.

Ill. Dept. of Professional Regulation, 300 F.3d 750, 753 (7th Cir.

2002). Further, a “plaintiff may plead himself out of court by

attaching documents to the complaint that indicate that he or she

is not entitled to judgment.” Matter of Wade, 969 F.2d 241, 249

(7th Cir. 1992). In addition, where a plaintiff alleges fraud or

mistake, “a party must state with particularity the circumstances

constituting fraud or mistake.” Fed. R. Civ. P. 9(b).

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III.

The gravamen of defendant’s argument is that plaintiffs’

claims are precluded by the parol evidence rule. According to

defendant, because the parol evidence rule would exclude evidence

of oral representations that were contrary to the unambiguous

written provisions of the lease agreements, plaintiffs cannot state

a claim upon which relief can be granted. In addition, defendant

argues that plaintiffs’ assertions that they relied on Segin’s

alleged misrepresentations are facially implausible and are further

grounds for dismissal under Iqbal. I do not reach defendant’s

second argument because I find that the parol evidence rule applies

and is dispositive.

Generally, the parol evidence rule “prohibits the introduction

of any extrinsic evidence, whether oral or written, to vary, alter

or add to the terms of an integrated written instrument.” Alling

v. Universal Mfg. Corp., 5 Cal. App. 4th 1412, 7 Cal. Rptr. 2d 718

(Cal. App. Ct. 1992) (citing Tahoe Nat’l Bank v. Phillips, 4 Cal.3d

11, 23, 92 Cal.Rptr. 704 (Cal. 1971)). “An integrated agreement is

a writing or writings constituting a final expression of one or

more terms of an agreement.” Id. (citation omitted). Therefore,

“the parol evidence rule does not ‘render inadmissible proof of

contemporaneous oral agreements collateral to, and not inconsistent

with, a written contract where the latter is either incomplete or

silent on the subject, and the circumstances justify an inference

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that it was not intended to constitute a final inclusive statement

of the transaction.’” Sicor Ltd. v. Cetus Corp., 51 F.3d 848, 859

(9th Cir. 1995) (quoting Ellis v. Klaff, 96 Cal.App.2d 471, 476

(Cal. App. Ct. 1950)).

In California, the general parol evidence rule is further

defined by statute. See Cal. Code Civ. Proc. § 1856 (hereafter

“§ 1856”). For example, pursuant to § 1856 certain extrinsic

evidence is allowed where a mistake is at issue, § 1856(e), or

where fraud is alleged. § 1856(g). However, the exceptions created

by the statute are not without limits. For example, a mistake must

be a “mistake of objective existing fact” or a mistake of law, and

not simply a “subjective misinterpretation of the contract.” 

Hedging Concepts, Inc. v. First Alliance Mortgage Co., 41 Cal. App.

4th 1410, 1421, 49 Cal. Rptr. 2d 191 (Cal. App. Ct. 1996). In

addition,

There is a line of cases ... emanating from Bank of

America etc. Assn. v. Pendergrass [(1935)] 4 Cal.2d 258

[48 P.2d 659], which stands for the proposition that

parol evidence to show fraud is inadmissible to show an

oral promise directly at variance with a term of the

contract.” (Munchow v. Kraszewski (1976) 56 Cal.App.3d

831, 836 [128 Cal.Rptr. 762], fn. omitted.) Thus, the

“fraud exception” to the parol evidence rule is not

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applicable unless the false promise is independent of, or

consistent with, the written instrument. (Continental

Airlines, Inc. v. McDonnell Douglas Corp., supra, 216

Cal.App.3d at p. 419.)

Wang v. Massey Chevrolet, 97 Cal. App. 4th 856, 868 n. 3, 118 Cal.

Rptr. 2d 770 (Cal. Ct. App. 2002). Similarly, consistent with

§ 1856, California courts have applied the parol evidence rule “if

the following two inquiries are answered affirmatively: 1) was the

writing intended to be an integration, i.e., a complete and final

expression of the parties’ agreement, precluding any evidence of

collateral agreements; and 2) is the agreement susceptible of the

meaning contended for by the party offering the evidence?” Iconix,

Inc. v. Tokuda, 457 F. Supp. 2d 969, 977 (N.D. Cal. 2006) (quoting

Wang, 97 Cal.App.4th at 873).

Before analyzing each of plaintiffs’ four counts, I must

determine if the parol evidence rule applies generally by employing

the two part test described in Iconix, 457 F. Supp. 2d at 977. 

First, the lease agreements appear on their faces to be fully

integrated. “In contract law, ‘integration’ means the extent to

which a writing constitutes the parties’ final expression of their

agreement.” Esbensen v. Userware Int’l, Inc., 11 Cal. App. 4th

631, 636, 14 Cal. Rptr. 2d 93 (Cal. Ct. App. 1992). Here, the

lease agreements each contained an integration clause declaring the

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agreement to contain the entire agreement between the parties and

stating that the agreement “may not be altered, amended, modified,

terminated or otherwise changed except in writing and signed by

both [parties].” (Compl., Exs. A, B) (DN 2-1); (Def.’s Mot. to

Dismiss, Ex. 1) (DN 10-1). Plaintiffs do not allege any facts to

support a claim that the lease agreements were not fully integrated

pursuant to the integration clauses. In fact, in their response to

the motion to dismiss plaintiffs do not even address the

integration clause or argue that it should not be considered

binding in this case. 

However, the inclusion of an integration clause is only one

factor in the analyzing whether a contract is fully integrated. 

California courts also consider three other factors in deciding

whether a written contract is integrated: (1) “the language and

completeness of the written agreement”; (2) whether the alleged

oral agreement contradicts the terms of the written agreement; and

(3) whether “the oral agreement might naturally be made as a

separate agreement.” Sicor, 51 F.3d at 859 (citation omitted). 

Turning to the first of the additional factors enumerated in Sicor,

the written lease agreement is detailed and specifies “the full

range of the parties’ obligations” in fulfilling the contract. 51

F.3d at 859. In particular, the agreement states that Balboa will

provide the equipment specified in the schedule to the lease

agreement and that Graphic will make payments as detailed in the

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agreement. (Pls.’ Compl., Exs. A, B); (Def.’s Mot. to Dismiss, Ex.

1). Other relevant details contained in the agreement include the

mechanics of payment by the lessee, which party bears the costs of

delivery, and the fact that equipment is leased “as-is.” Id.

Plaintiffs do not allege any facts to suggest that the agreements

are not complete nor have they pleaded facts to support an

inference that Segin’s statements explained the open “fair market

value” term. In fact, the written contract defines the very terms

that are at issue in this case. Plaintiffs allege that when they

were discussing the first and second lease agreements with Segin he

told them that the term “fair market value purchase” meant that

they would have the opportunity to buy the leased equipment for one

dollar at the end of the lease term. When discussing the third

lease agreement, plaintiffs allege that Segin made the same

representation. But the terms of the first two leases define and

differentiate between a one-dollar buyout option and a fair market

value option. The third lease defines the end of term provision,

though without differentiating a one-dollar buyout. To this

extent, the second Sicor factor also indicates that the parties

intended the written contract to be integrated. Finally, as for

the third factor, the parties would be expected to reduce to

writing the terms governing the end of the lease term, and they

have done so. I therefore find that the contracts are fully

integrated.

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Turning to the second prong of the Iconix test, I must

determine whether the oral agreement contradicts the terms agreed

to in the writing. Looking at the plain language of the terms, the

alleged oral representations of Segin are directly contradicted by

the written terms of the lease agreements. The plain language of

two of the leases indicates that the fair market value was not

equal to one dollar but would be determined by Balboa in its

“reasonable judgment.” The third lease agreement describes an end

of term provision in which plaintiffs can purchase the equipment

for the fair market value, and further defines “fair market value”

as an amount to be determined by defendant in its “reasonable

judgment.” That the third lease does not also describe a onedollar buyout option does not alter my conclusion. As alleged in

the complaint, Segin’s statement that plaintiffs could purchase the

saw for one dollar at the end of the lease term contradicts the

plain language of the contract, which indicates that the value of

the equipment would be determined by defendant at the end of the

lease term. Therefore, Segin’s alleged representations contradict

the written agreement, and the parol evidence rule applies.

That the parol evidence rule applies, thus generally barring

evidence of Segin’s alleged representations, does not end my

analysis because plaintiffs argue that they have sufficiently

pleaded circumstances that would fall within the exceptions to the

parol evidence rule under §§ 1856(e) and (g). Accordingly, I will

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consider whether an exception applies to any of the counts in

plaintiffs’ complaint.

In count I, plaintiffs seek rescission of the lease agreements

due to fraud. Relatedly, count II is a claim for common law fraud. 

Because both counts involve alleged fraud, I will consider them

together. As discussed above, § 1856 creates an exception to the

parol evidence rule where a plaintiff alleges fraud. However,

California courts have interpreted this exception narrowly, and the

exception only applies where the alleged fraud is independent of or

consistent with the written agreement. See Wang, 97 Cal. App. 4th

at 868 n. 3. Plaintiffs have alleged that defendant made

fraudulent representations to induce them to enter into the lease

agreements. As previously discussed, the statements Segin

allegedly made to plaintiffs, as pleaded in the complaint, are

inconsistent with the written agreement. Similarly, because the

end of term provisions are defined by each of the three lease

agreements, the alleged fraud is not independent of the integrated,

written agreements. Therefore, the fraud exception cannot be

applied in this case.

Plaintiffs alternatively seek to void the lease agreements on

the basis that the parties, along with Segin, mistakenly believed

that the agreements were subject to a one-dollar buyout option. 

While § 1856 allows parol evidence where mistake is at issue, the

exception does not apply here. Under California law, a “mere

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subjective misinterpretation” is not considered a mistake for

purposes of contract law. Hedging Concepts, 41 Cal. App. 4th at

1421 (“[I]n the interest of preserving some reasonable stability in

commercial transactions, the courts will not set aside contractual

obligations, particularly where they are embodied in written

contracts, merely because one of the parties claims to have been

ignorant of, or to have misunderstood, the provisions of the

contract.”) (quoting 14 California Jurisprudence Third, Contracts,

section 72, page 271). The complaint here indicates that

plaintiffs questioned Segin about the end of term provision, which

was designated as the “fair market value” option on the front of

the lease agreement (Compl., at ¶ 9) but the complaint and

plaintiffs’ briefing ignores the fact that the fair market value

option is clearly distinguished from a one-dollar buyout option in

paragraph 16 of the first two contracts and defined in all three

contracts. At most, this is a case of “subjective

misinterpretation.” As such, plaintiffs have not shown that any

exception to the parol evidence rule under §§ 1856(e) and (g)

applies.

Plaintiffs next argue that the California Commercial Code,

which governs the parties’ contract, also permits extrinsic

evidence of the subsequent conduct of the parties to demonstrate

the contracts’ intended meaning. The California Commercial Code

bars evidence of prior or contemporaneous oral agreements to

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contradict an integrated, written contract, but allows that such an

agreement “may be explained or supplemented” by “course of dealing,

course of performance, or usage of trade” and by certain “evidence

of consistent additional terms.” Cal. Comm. Code § 2202. Relying

on Sicor, 51 F.3d at 857, plaintiffs maintain that Segin’s

statements created an “ambiguity” in the terms of the lease

agreements and that consideration of defendant’s “subsequent

conduct” would be appropriate in this case. There are two problems

with plaintiffs’ reliance on Sicor. First, the Sicor court found

a term in the written contract itself was ambiguous. Id. at 856. 

Here, plaintiffs try to create an ambiguity with extrinsic evidence

even though the relevant terms of the written contracts are not

ambiguous. Second, “course of dealing, course of performance, or

usage of trade” are terms of art that are defined by statute. See

Cal. Comm. Code § 1303. In Sicor, the “course of performance”

evidence deemed admissible by the court involved the plaintiff’s

attempt to perform its obligations under the contract and the

defendant’s acquiescence in the plaintiff’s efforts. 51 F.3d at

857; see also Cal. Comm. Code § 1303(a)(2). In the case before me,

plaintiffs seek to introduce evidence of Segin’s comments which,

regardless of when they were made, do not constitute course of

performance, course of dealing, or usage of trade as those terms

are defined by the statute. Plaintiffs cannot introduce extrinsic

evidence of Segin’s alleged comments under either § 1856 or § 2202,

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and therefore cannot state claims for fraud or mistake under the

facts as alleged in their complaint.

Finally, plaintiffs argue that their claim under the UCL,

§ 17200, is not barred by the parol evidence rule and also does not

require reasonable reliance. The UCL prohibits “any unlawful,

unfair or fraudulent business act or practice.” Cal. Bus. & Prof.

Code § 17200. California courts have interpreted the UCL to embody

three distinct “varieties of unfair competition—acts or practices

which are unlawful, or unfair, or fraudulent.” Berryman v. Merit

Prop. Mgmt., Inc., 152 Cal. App. 4th 1544, 1554, 62 Cal. Rptr. 3d

177 (Cal. Ct. App. 2007) (citation omitted). “An act can be

alleged to violate any or all of the three prongs of the UCL.” Id.

Plaintiffs do not clearly indicate under which prong of the UCL

they are bringing the § 17200 claim, and so I have assumed that

they are alleging that defendants have violated all three prongs of

the UCL. Addressing plaintiffs’ claim under the unlawful prong of

the UCL, this claim fails. Because the unlawful prong of the UCL

“borrows violations of other laws [. . .] a violation of another

law is a predicate for stating a cause of action under the UCL’s

unlawful prong.” Id. Plaintiffs have not stated a claim for a

violation of another law, as discussed above; therefore, plaintiffs

cannot succeed under the unlawful prong of the UCL. See Horne v.

Harley-Davidson, Inc., 660 F. Supp. 2d 1152, 1161 (C.D. Cal. 2009)

(holding that UCL claim based on deceit was barred by the parol

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evidence rule where the underlying cause of action was also barred

by the parol evidence rule).

As to whether plaintiffs have stated a claim under the other

two prongs of the UCL, defendant argues that plaintiffs have not

alleged any public harm as required under California law. To state

a claim under the fraudulent prong of § 17200, a plaintiff must

allege that members of the public are likely to be deceived. 

Horne, 660 F.Supp.2d at 1162 (citing Wang, 97 Cal. App. 4th at

871). Similarly, to state a claim under the unfair prong of the

§ 17200, a plaintiff must allege conduct negatively affecting

consumers or violating public policy. McKell v. Washington Mut.,

Inc., 142 Cal. App. 4th 1457, 1473, 49 Cal. Rptr. 3d 227 (Cal. App.

Ct. 2006) (citations omitted). In defining the limits of claims

for unfair or fraudulent business practices, California courts have

refused to allow commercial parties to use § 17200 to resolve

disputes over their economic relationships. In re ConocoPhillips

Co. Service Station Rent Contract Litigation, No. M:09-cv-02040

RMW, 2011 WL 1399783, at *3 (N.D. Cal. April 13, 2011) (Whyte, J.);

see also In re Webkinz Antitrust Litigation, 695 F.Supp.2d 987, 999

(N.D. Cal. 2010) (concluding that claim brought under § 17200 by

small retailers against a toy distributor “is invalid as it fails

to state a connection to the protection of the general public”). 

As such, plaintiffs have failed to assert a claim under the unfair

or fraudulent prongs of § 17200.

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IV.

For the foregoing reasons, defendant’s motion to dismiss is

granted.

 ENTER ORDER:

 ____________________________

 Elaine E. Bucklo

 United States District Judge

Dated: May 30, 2012

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