Am. Guardian Warranty Servs. V. JCR-Wesley Chapel, LLC, No. 16 C 11407, 2017 US Dist. LEXIS 77100 (N.D. Ill. May 22, 2017).
A warranty services and financing company (Company) and a car dealership (Dealership) entered into a warranty claims servicing agreement. The Dealership was required to sell a minimum number of warranty and service contracts each month for a five-year period and 95% of the warranty and service contracts sold had to be the Company's contracts. The Company advanced funds to the Dealership for the projected amount of earnings through the sale of its contracts. A representative of the Company promised the Dealership it would set up an offshore reinsurance company that would allow the Dealership to retain the warranty payments paid by customers and earn investment income on them. This never happened. Three years later, the parties' relationship deteriorated and the Dealership stopped selling the contracts. The Dealership attempted to pay off its loan balance, but the Company sued for breach of contract and sought a preliminary injunction enjoining the Dealership from selling warranties of its competitors. The Dealership counterclaimed for fraud in the inducement and breach of contract.
The court held that the Dealership had successfully invoked the "fraudulent scheme" exception to the general prohibition on recovery for promises of future conduct based on the Company's numerous promises to set up an offshore reinsurance company for the Dealership's benefit without an intent to honor it in order to lull the Dealership into continuing to sell its contracts. The court did not buy the Company's argument that the "Entire Agreement" clause in the parties' agreement precluded the Dealership's alleged reasonable reliance. The court clarified that it is a "no reliance clause" and not an "integration clause" that bars a fraud suit and that the parties' agreement did not contain language that suggested the parties contracted in a vacuum without reliance on prior representations. Similarly, the court disagreed with the Company's argument that the Dealership failed to allege particulars of when the Company had made the promise of setting up an offshore reinsurance company, finding that a general timeframe is sufficient.
The court denied the Company's motion for preliminary injunction on the ground that the Company produced no evidence that it would likely succeed on the merits of its breach of contract claim. Additionally, the court found that the Company failed to show irreparable harm if the Dealership sold its competitors' warranties, as any loss could be compensated purely by money and a serious risk to goodwill, above mere speculation, is not sufficient to constitute irreparable harm.
THIS REVISED SUMMARY CORRECTS THE PRIOR TITLE, WHICH INADVERTENTLY SUGGESTED A DEFINITIVE RULING BY THE COURT.