LYON FINANCIAL SERVICES, INC., d/b/a U.S. Bancorp Business Equipment Finance Group v. Illinois Paper and Copier Company

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
August 29, 2014
Before
DANIEL A. MANION, Circuit Judge
DIANE S. SYKES, Circuit Judge
SARA L. DARROW, District Judge*
No. 12‐2210
LYON FINANCIAL SERVICES, INC.,
d/b/a U.S. Bancorp Business
Equipment Finance Group,
Plaintiff‐Appellant,
v.
ILLINOIS PAPER AND COPIER
COMPANY,
Defendant‐Appellee.
Appeal from the
United States District Court for the
Northern District of Illinois,
Eastern Division.
No. 10 C 7064
Rebecca R. Pallmeyer
Judge.
O R D E R
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1
* Of the Central District of Illinois, sitting by designation.

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No. 12‐2210 Page 2
This case returns to us from the Minnesota Supreme Court following our
certification of questions of Minnesota law to that court. See Lyon Fin. Servs., Inc. v. Ill.
Paper & Copier Co., 732 F.3d 755, 765–67 (7th Cir. 2013); see also 7TH C IR . R. 52. The
Minnesota Supreme Court reformulated and answered the certified questions in an
opinion issued on July 2, 2014. See Lyon Fin. Servs., Inc. v. Ill. Paper & Copier Co.,
848 N.W.2d 539 (Minn. 2014). The parties have now filed their Circuit Rule 52
statements, and the case is ready for decision. For the following reasons, we reverse and
remand for further proceedings.
Familiarity with our earlier opinion and the opinion of the Minnesota Supreme
Court is assumed. In brief, Lyon Financial Services, Inc. (“Lyon”) is a Minnesota
financial‐services firm specializing in business‐equipment financing. Illinois Paper and
Copier Company (“Illinois Paper”) is an Illinois‐based seller of copy machines and
other office equipment. Lyon sued Illinois Paper in federal court in Northern Illinois
alleging breach of a contractual warranty. See Lyon Fin. Servs., 732 F.3d at 756–57. Under
the contract in question, Lyon had the “first right of review” of all of Illinois Paper’s
transactions with customers interested in lease financing, together with an option to
provide that financing. Id. In the “Representations and Warranties” section of the
contract, Illinois Paper warranted that “all lease transactions presented [to Lyon] for
review are valid and fully enforceable agreements.” Id. The alleged breach of contract
arises from a transaction between Lyon, Illinois Paper, and the Village of Bensenville,
Illinois. There are some factual disputes about the circumstances surrounding the
transaction, but everyone agrees that Lyon purchased an expensive copier from Illinois
Paper and leased it to the Village for a term of six years. Id. at 757.
Illinois law, however, prohibits municipal equipment leases in excess of five
years. Id. (citing 65 ILL . C OMP . STAT. 5/11‐76‐6 (1961)). Less than two years into the lease,
the Village stopped making lease payments, asserting that the lease was invalid and
unenforceable. Id. Lyon looked to Illinois Paper to cover its damages—lost lease
payments totaling more than $500,000—pursuant to the contractual provision
warranting the validity and enforceability of all leases presented to Lyon for financing.
Id. at 757–58.
The district court granted judgment on the pleadings for Illinois Paper. The court
concluded that the warranty was a representation of law and as such was not actionable
under either a breach‐of‐contract or breach‐of‐warranty theory because no one may
justifiably rely on a counterparty’s representation of law. Id. at 758. Lyon appealed.
Because Minnesota law controls, we certified two questions to the Minnesota Supreme

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No. 12‐2210 Page 3
Court asking whether reliance is an element of a breach‐of‐warranty action under
Minnesota law, and if so, what kind of reliance is required, and whether a contracting
party is entitled to rely on a counterparty’s express representation of law. Id. at 767.
The Minnesota Supreme Court accepted the certification and reformulated the
certified questions into a single more general question: “Is a claim for the breach of a
contractual representation of future legal compliance actionable under Minnesota law
without proof of reliance?” Lyon Fin. Servs., 848 N.W.2d at 542. This way of restating the
question made it unnecessary for the court to expound on the distinction between
representations of law and fact. Id. at 542 & n.2.
As reformulated, the court answered the certified question in the affirmative,
holding that “a breach of contract claim based on an alleged breach of a contractual
representation of future legal compliance is actionable under Minnesota law without
proof of reliance.” Id. at 545. The court reasoned that “[a]lthough detrimental reliance
may be an element of certain tort claims,” breach‐of‐contract claims rest on a different
foundation: “Contract actions protect the interest in having promises performed where
the parties manifested their consent to be bound by the contract.” Id. at 544. And
because “Minnesota public policy favors the freedom to contract,” the parties “are
generally free to allocate rights, duties, and risks.” Id. at 545. Applying this principle to
the case at hand, the court wrote:
In this case, the parties agreed to allocate the risk of legal noncompliance to
Illinois Paper. Holding parties to their promises, without requiring separate
reliance on those promises, furthers freedom of contract principles, and there is
no reason to refuse to enforce the terms of the parties’ particular bargain here.
Id. The court thus concluded that “Lyon has stated an actionable claim for breach of
contract.” Id.
Lyon now asks us to reverse and remand for entry of judgment in its favor in the
amount of $503,500, plus prejudgment interest, attorney’s fees, and costs. Alternatively,
Lyon asks us to find Illinois Paper liable for breach of contract and remand for a
determination of damages. Illinois Paper reminds us that factual disputes about liability
and damages remain, some of which we mentioned in our earlier opinion. See Lyon Fin.
Servs., 732 F.3d at 757–58 & nn.1–3. Illinois Paper is correct.
Accordingly, and pursuant to the opinion of the Minnesota Supreme Court, Lyon

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No. 12‐2210 Page 4
has stated an actionable claim for breach of a contractual representation of future legal
compliance. The district court’s judgment on the pleadings in favor of Illinois Paper
therefore must be reversed. We remand for further proceedings consistent with the
opinion of the Minnesota Supreme Court, the earlier opinion of this court, and this
order.
R EVERSED and R EMANDED .

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