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Johnson Health Tech North America, Inc. v. Grow Fitness Group, Inc.

United States District Court, W.D. Wisconsin

January 7, 2020

JOHNSON HEALTH TECH NORTH AMERICA, INC., Plaintiff,
v.
GROW FITNESS GROUP, INC. a/k/a GROW FITNESS, INC., and MATTHEW SEABERG, Defendants.

          OPINION AND ORDER

          WILLIAM M. CONLEY DISTRICT JUDGE

         In this civil action, plaintiff Johnson Health Tech North America, Inc., asserts various state law claims for failure to honor the terms of a promissory note and related personal guaranty. Before the court is plaintiff's motion for partial summary judgment, seeking judgment in its favor against individual defendant Matthew Seaberg on plaintiff's claim for breach of his personal guaranty. (Dkt. #42.)[1] Finding that plaintiff has established each of the elements of that claim beyond any reasonable dispute, and that defendant has failed to put forth sufficient evidence from which a reasonable jury could find either duress or unconscionability, the court will grant plaintiff's motion for judgment as to liability. The court will also schedule a telephonic conference to determine next steps in light of entry of partial summary judgment, including (1) plaintiff's plan to prove up damages, (2) whether plaintiff wishes to pursue other claims asserted against Seaberg, and (3) whether plaintiff wishes to renew its motion for default judgment against corporate defendant Grow Fitness Group, Inc. a/k/a Grow Fitness, Inc..

         UNDISPUTED FACTS[2]

         A. Overview of the Parties

         Plaintiff Johnson Health Tech North America, Inc. (“JHTNA”), is a Wisconsin corporation with its principal place of business in this state. JHTNA specializes in the design, production and marketing of fitness equipment and machines. Defendant Grow Fitness Group, Inc., which sometimes held itself out as Grow Fitness, Inc., was a Florida corporation with its principal place of business located in Ocoee, Florida. Plaintiff claims without contradiction that these are identical entities with no substantive difference, other than the addition of the word “Group” in one of the names. Accordingly, the court will refer to this entity or entities as “Grow Fitness, ” although neither answered the complaint or otherwise entered an appearance and default as to liability has already been entered by the Clerk of Court against the collective entity, Grow Fitness. (Dkt. #10.) Grow Fitness sold fitness equipment, fitness flooring and fitness business solutions. Defendant Matthew Seaberg was the owner and president of Grow Fitness. He is also domiciled in Florida.

         B. Seaberg's Experience in the Fitness Equipment Industry

         Defendant Seaberg worked in the fitness equipment industry for approximately five to seven years and testified at his deposition that “the gym business, selling gym equipment” is “all [he has] ever known.” (Def.'s PFOFs (dkt. #48) ¶ 9 (quoting Seaberg 7/29/19 Dep. (dkt. #45) 43).) Prior to 2014, Seaberg and a business partner formed an entity named Grow Development Group, Inc., which is not the corporate defendant in this lawsuit. Grow Development sold JHTNA machines (for example, treadmills). Indeed, Seaberg acknowledged that JHTNA's machines were Grow Development's “main bread and butter.” (Id. ¶ 12 (quoting Seaberg 7/29/19 Dep. (dkt. #45) 63).) At some point, Seaberg took over his partner's interest in that business, becoming the sole owner. However, Grow Development began to have issues paying JHTNA for the machines it resold to its customers, resulting in Grow Development incurring a significant amount of debt.

         In 2014, Seaberg formed defendant Grow Fitness.[3] The debt that Grow Development owed to JHTNA was then undertaken by Grow Fitness, which became a dealer for JHTNA. Plaintiff even submits an unsigned, commercial dealership agreement as governing this relationship. Defendant Seaberg disputes whether the terms of this agreement are controlling, but does not dispute that Grow Fitness was a dealer for JHTNA. (Pl.'s PFOFS (dkt. #48) ¶ 17 (citing Seaberg's Am. Answ. (dkt. #34) 3 at ¶ 9.) Regardless, as explained in the opinion below, plaintiff's claims do not turn on Grow Fitness's status as a dealer for JHTNA. Instead, plaintiff asserts claims for (1) breach of the promissory note by the corporate defendant Grow Fitness and (2) breach of the guaranty on that note by Seaberg, the latter of which is the subject of the present motion.

         As a dealer, Grow Fitness continued to purchase new fitness machines from JHTNA at dealer prices and on credit; in turn, Grow Fitness would offer those machines for sale to its customers. Ultimately, “Grow Fitness was supposed to sell the equipment it had purchased to customers and then use the money obtained from those sales to pay for the equipment previously purchased and to purchase additional equipment as needed.” (Id. ¶ 19 (quoting Compl. (dkt. #1) ¶ 15; Seaberg's Am. Answ. (dkt. #34) 3 (providing no answer to ¶ 15 because he does not dispute it).)

         Even though Seaberg testified that nothing restricted Grow Fitness to only selling JHTNA machines, Seaberg made the decision to sell only JHTNA machines because he believed he “could sell a ton of” them. (Id. ¶ 20 (quoting Seaberg's 7/29/19 Dep. (dkt. #45) 67-68, 73).) Seaberg also acknowledged in his deposition that this approach of only selling one type of fitness equipment was not common in the fitness equipment business, as most businesses sell equipment from more than one fitness company.

         C. Promissory Note, Security Agreement and Personal Guaranty

         In September 2014, Seaberg, on behalf of Grow Fitness, executed a secured promissory note for $501, 929.33 in favor of JHTNA (the “Note”). (Draves Decl., Ex. A (dkt. #44-1).)[4] Seaberg admitted that he signed the Note in his amended answer, though he claims that he did so “under duress, ” that he was “coerced, ” and that the terms were “unfair.” (Seaberg's Am. Answ. (dkt. #34) 3-4, ¶ 17.) The court addresses each of those defenses in the opinion below. Seaberg also challenges the Note itself, asserting that it was not dated, JHTNA did not sign it, and the original has not been produced. The court also addresses those arguments below.

         The Note provides that it is “delivered in consideration of the outstanding Accounts Receivable Invoices as of the date hereof between Maker [defined as Grow Fitness] and Holder [defined as JHTNA] and Guarantor and Holder and Holder's agreement to finance the sale by Grow Fitness . . . to Maker of certain Matrix equipment.” (Draves Decl., Ex. A (dkt. #44-1) 2.) The Note further provides that (1) payments are to be made according to the “amortization schedule attached as Exhibit A, ” and (2) “[a]ll payments hereunder shall be applied first against any accrued and unpaid interest, and then against unpaid principle.” (Id.) Exhibit A to the Note contains a payment plan describing payments from October 2014 through September 2017. Finally, the Note defines the rate of interest as “six percent (6%) per annum.” (Id.)

         On September 19, 2014, Seaberg confirmed by email to JHTNA's Corporate Controller Christine Draves that he received the Note, and “thank[ed] [her] for everything.” (Draves Decl., Ex. B (dkt. #44-2).) On October 3, 2014, Seaberg emailed Draves the executed Note. (Id., Ex. C (dkt. #44-3).)

         The Note was secured by a General Business Security Agreement, whereby Grow Fitness granted JHTNA a security interest in its assets. (Id., Ex. D (dkt. #44-4).) The Security Agreement was also executed by Seaberg, on behalf of Grow Fitness. JHTNA perfected its security interest in the assets of Grow Fitness by filing Uniform Commercial Code (“UCC”) financing statements with the Florida Secretary of State on October 3, 2014, as document No. 201402319000, and on June 1, 2017, as document 201701389604. (Id., Ex. E (dkt. #44-5).)

         Finally, Seaberg executed a personal guaranty (the “Guaranty”). (Draves Decl., Ex. F (dkt. #44-6).) In response to requests for admission, Seaberg admitted that he signed the Guaranty, although he claims to have done so under duress. (Pl.'s PFOFs (dkt. #48) ¶ 31 (citing Zielke Decl., Exs. A, B (dkt. ##43-1, 43-2)).) On October 3, 2014, Seaberg emailed Draves the executed Guaranty. (Draves Decl., Ex. C (dkt. #44-3).) The Guaranty provides in pertinent part:

For good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and as an inducement for Johnson Health Tech North America, Inc. (“Creditor”), to agree to finance the sales of Grow Fitness, Inc. (“Debtor”) of certain Matrix and Magnum equipment and to accept installment payments of a sum currently due from Debtor to Creditor in the principal sum of $501, 929.33, Matthew Seaberg (“Guarantor”) does hereby guaranty to creditor the prompt, punctual and full payment of all monies now or hereinafter due Creditor under the Secured Promissory Note between Debtor and Creditor, dated September__, 2014 in the principal sum of $501, 929.33.

(Draves Decl., Ex. F (dkt. #44-6).)

         D. Grow Fitness's Failure to Make Payments

         In October, November and December 2014, Grow Fitness made payments to JHTNA due under the Note in the amounts set forth in the payment plan attached as Exhibit A to the Note. (Draves Decl., Ex. G (dkt. #44-7) (statement of payments).) In 2015, however, Grow Fitness made no payments in January through April, then it began making monthly payments again, although not in the required amounts. The statement of payments shows what portion of the payment was applied to principal as compared to interest.

         On October 15, 2015, Draves emailed Seaberg inquiring about payments on the Note:

Matt -- Where are you with reviewing your financials to make some headway on the note payable? As of the end of Sept the balance is $460, 515.26, based on the original agreement you [are] over $100K behind on payments.

(Draves Decl., Ex. H (dkt. #44-8).) Seaberg responded that same day, “Can I call you tomorrow to discuss the progress we are making.” (Id.) On November 11, 2015, Draves emailed Seaberg again, inquiring about payments on the Note:

We still need to firm up regular payment amounts to apply toward the [Note]. There was no payment made in October[5]and we are half way through Nov. With the SBA loan please confirm the intended amount to be applied towards the [Note] so we can revise the regular payment[] amounts remaining on the [Note] so it is fully paid by Sept 2017.

(Id., Ex. I (dkt. #44-9).) Seaberg responded that he would send the information to her next week and give her a call. Ultimately, Grow Fitness made only one payment to JHTNA in October of 2016.

         Following Grow Fitness's failure to make the additional, required payments on the Note, JHTNA and Grow Fitness entered into an Independent ...


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