Court Opinion

ID: 4493972
Source: CourtListenerOpinion
Date Created: 2020-01-22 16:00:30.061945+00
Date Added: 2024-06-11T07:59:57.331370
License: Public Domain

NONPRECEDENTIAL DISPOSITION
                To be cited only in accordance with Fed. R. App. P. 32.1

                United States Court of Appeals
                                For the Seventh Circuit
                                Chicago, Illinois 60604

                              Submitted January 21, 2020*
                               Decided January 22, 2020

                                         Before

                       FRANK H. EASTERBROOK, Circuit Judge

                       MICHAEL B. BRENNAN, Circuit Judge

                       MICHAEL Y. SCUDDER, Circuit Judge

No. 19-1575

PCA CAPITAL PARTNERS, INC.,                       Appeal from the United States District
     Plaintiff-Appellee,                          Court for the Northern District of Illinois,
                                                  Eastern Division.

      v.                                          No. 16 C 11470

G&M INTERNATIONAL, LLC,                           John Z. Lee,
     Defendant-Appellant.                         Judge.

                                       ORDER

       G&M International, LLC, defaulted on a financing agreement with PCA Capital
Partners. PCA (at the time, PCS Receivables Corporation) sued G&M and its manager
for breach of contract and sought the outstanding balance. The defendants raised
several affirmative defenses in response, but the district court rejected them and entered
summary judgment for PCA. We affirm because, regarding the two affirmative defenses

      * We granted the appellant’s motion to waive oral argument, and the appeal is
therefore submitted on the briefs and the record. FED. R. APP. P. 34(a)(2)(C).
No. 19-1575                                                                        Page 2

G&M presses on appeal, G&M has not established that PCA waived its breach of
contract claim or should be equitably estopped from suing over the breach.

        In 2009, PCA and G&M entered into a financing agreement under which PCA
loaned G&M approximately $6 million. The loan was secured by a note and was
personally guaranteed by G&M’s manager, George Matthews. The note was to be paid
in full immediately upon an event of default. Later that year, G&M defaulted on its
obligations by, among other things, obtaining cash advances over the maximum
amount allowed by the agreement. PCA sent a notice of default to G&M and Matthews
and declared the balance of the loan due immediately.

        As of 2016, neither G&M nor Matthews had paid the outstanding balance. PCA
sued both defendants in federal court for breach of contract, seeking $3.3 million in
damages, plus interest and attorney’s fees. The parties agreed that Illinois law applied.
(The district court had diversity jurisdiction under 28 U.S.C. § 1332 because the
damages exceeded the jurisdictional minimum and because PCA, a corporation, is a
citizen of Illinois, Matthews is a citizen of Georgia, and the members of G&M, a limited
liability company, are citizens of Georgia, Missouri, and North Carolina.) In its original
complaint, PCA alleged that G&M and Matthews breached the contract (1) in 2009
when they failed to pay the balance upon default; (2) in 2013 when they sold a
substantial portion of G&M’s assets without first seeking consent from PCA; and
(3) yearly between 2009 and 2016 when they failed to provide PCA with financial
statements. PCA later amended its complaint and focused only on the 2009 default.

       PCA moved for summary judgment. In response, G&M and Matthews did not
contest the fact of their default; instead, they argued that the affirmative defenses of
waiver and equitable estoppel barred PCA from recovering for the breach. As to
waiver, G&M argued that, because PCA’s original complaint alleged multiple events of
default between 2009 and 2016, but PCA did not sue until 2016, it “waived” its claim
that the 2009 default constituted a material breach. Alternatively, G&M contended that
PCA should be estopped from raising its breach of contract claim because it allegedly
lied about the existence of the agreement to G&M’s new manager in 2014. In support of
this argument, G&M provided a letter from the president of PCA that stated the note
had been foreclosed upon in 2009 and “[a]t this time there is no note.”

       The district court entered partial summary judgment in favor of PCA. The court
noted that G&M and Matthews had not contested their default and found them to be in
breach of the financing agreement and guaranty. But the court determined that PCA
No. 19-1575                                                                           Page 3

had not sufficiently proved the amount of damages. Turning to G&M’s waiver defense,
the court reasoned that the allegations in PCA’s original complaint did not survive the
amended complaint, and thus rejected G&M’s contention that PCA had waived its
narrower breach of contract claim in the amended complaint. Regarding estoppel, the
court concluded that G&M had not established that it relied to its detriment on any
misrepresentation made by PCA. The parties later entered a consent judgment in which
they stipulated to the amount of damages, and G&M reserved the right to appeal.

      At the outset, we acknowledge PCA’s request to strike G&M’s brief for failure to
comply with Federal Rules of Appellate Procedure 28 and 30. We do not disagree with
PCA’s contention, but we can discern G&M’s arguments, so we proceed to the merits.

        On appeal, G&M challenges only the district court’s rejection of its two
affirmative defenses; it does not contest the conclusion that PCA established all the
elements of a breach of contract. (Matthews did not join the appeal.) G&M first
contends that, under Illinois law, the allegations in PCA’s original complaint should be
considered binding evidentiary admissions that PCA considered the financing
agreement in effect long after the 2009 default, thereby establishing that PCA waived
any claim that the contract was materially breached in 2009. See Knauerhaze v. Nelson,
836 N.E.2d 640, 658–59 (Ill. App. Ct. 2005). But federal courts sitting in diversity apply
federal procedural rules, not state rules. See Shady Grove Orthopedic Associates, P.A. v.
Allstate Ins. Co., 559 U.S. 393, 398 (2010); Young v. United States, 942 F.3d 349, 351
(7th Cir. 2019). Under federal rules, an unverified complaint—such as the original
complaint here—does not, as G&M suggests, constitute a binding evidentiary
admission. See Beal v. Beller, 847 F.3d 897, 901 (7th Cir. 2017). Instead, the later complaint
supersedes the earlier complaint, and the earlier allegations are abandoned, see Riley v.
Elkhart Cmty. Sch., 829 F.3d 886, 890 (7th Cir. 2016), even when the two pleadings
contain contradictory claims. See Scott v. Chuhak & Tecson, P.C., 725 F.3d 772, 783
(7th Cir. 2013). G&M submitted no other evidence in support of its waiver defense, so
summary judgment for PCA was proper.

       G&M next contends that the district court erred in rejecting its equitable estoppel
defense. According to G&M, PCA lied in a 2014 letter when it told G&M’s management
that there was “no note,” while continuing to hold G&M to its obligations. (PCA needed
to conceal the note, G&M claims, to effect a scheme to purchase all of G&M’s assets,
preventing G&M from ever being able to comply with its obligations under the
financing agreement.) We agree with the district court that G&M’s theory is “ill
defined,” particularly as a defense to this breach of contract suit for events that occurred
No. 19-1575                                                                      Page 4

five years before the allegedly false statement. See Boyer v. Buol Props., LLC, 22 N.E.2d
389, 405 (Ill. App. Ct. 2014) (“The general principle behind equitable estoppel is that,
where a person’s statements or conduct induce a party to take or forbear from action,
that person will not be allowed to deny her words or acts to the detriment of the other
party.”). Further, G&M must show not only that PCA made a false statement, but also
that G&M relied on it and was prejudiced as a result. See In re Scarlett Z.-D., 28 N.E.3d
776, 784–85 (Ill. 2015). So even if we accepted G&M’s dubious premise that PCA’s 2014
statement that there was “no note” was meant to convey (falsely) that it had forgiven
G&M’s obligations, G&M did not submit any evidence in support of the other elements.
And nothing in G&M’s brief illuminates what it did—or did not do—in response to the
2014 statement that would render it inequitable to allow PCA to pursue damages for the
2009 default. Thus, summary judgment for PCA was also appropriate on this defense.

                                                                             AFFIRMED