Case Style: Firestone Financial Corp. v. John R. Meyer
Case Number: 14-3075
Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)
Description: This case arises from a series of
loans made by Firestone Financial Corporation (“Firestone”)
to JHM Equipment Leasing Company (“JHM”). After JHM
defaulted on the loans, Firestone filed suit against JHM, John
R. Meyer (JHM’s owner), and two of Mr. Meyer’s other
companies to collect on the debt. The defendants filed an an‐
swer denying the allegations of breach, asserting a counter‐
claim of promissory estoppel, and raising various affirma‐
tive defenses. Relying on Federal Rule of Civil Procedure
12(b)(6), the district court dismissed the defendants’ coun‐
terclaim as implausible and later awarded summary judg‐
ment to Firestone on its claim against Mr. Meyer. Mr. Meyer
now appeals both the district court’s dismissal of his coun‐
terclaim as well as the court’s grant of summary judgment to
Firestone. For the reasons set forth in this opinion, we re‐
verse both decisions and remand this case for further pro‐
Firestone is a finance company incorporated under the
laws of Massachusetts with its principal place of business in
that state. JHM is an Illinois corporation that rents commer‐
cial laundry machines to apartment building owners in Chi‐
cago and its suburbs. Mr. Meyer owns and operates JHM
and two related companies, J H Meyer Enterprises, Inc.
(“Meyer Enterprises”) and Dolphin Laundry Services, Inc.
(“Dolphin”). Mr. Meyer is an Illinois citizen, residing in
Hinsdale, Illinois; his three companies are all incorporated in
Illinois and have their principal place of business in that
No. 14‐3075 3
Between June 2012 and June 2013, Firestone made four
separate loans to JHM, totaling $254,114.99. Each loan was
secured by JHM’s laundry equipment and guaranteed by
Meyer Enterprises, Dolphin, and Mr. Meyer.
Between June and August of 2013, JHM defaulted on
each of its four loans. Shortly afterward, Firestone filed this
diversity action in the district court against Mr. Meyer and
his three companies, alleging claims for breach of contract,
breach of guaranty, replevin, and detinue.
The defendants filed an answer, denying the allegations
of breach and asserting a counterclaim of promissory estop‐
pel. In this counterclaim, the defendants alleged that in No‐
vember 2012, after Firestone’s first two loans to JHM, Fire‐
stone vice president Dan McAllister had represented that his
company “wanted to expand [its] investment in the laundry
business,” and that it “would create a $500,000 line of credit”
to fund the defendants’ equipment purchases in 2013.1 This
promise, according to the defendants, “induced JHM into
purchasing equipment” that it would not otherwise have
purchased.2 Consequently, when Firestone later reneged on
this promise, JHM was left unable to pay for its newly pur‐
chased equipment. As a result, JHM’s equipment supplier
(Maytag) refused to sell laundry equipment to any of Mr.
Meyer’s three companies, resulting in substantial losses to
The defendants’ answer also raised four affirmative de‐
fenses, including that of promissory estoppel and prior
1 R.23 at 23.
2 Id. at 25.
4 No. 14‐3075
breach of contract. These latter two defenses were based on
the same factual allegations as the defendants’ counterclaim.
In February 2014, Firestone moved to dismiss the de‐
fendants’ counterclaim under Rule 12(b)(6). The company
submitted that the claim was implausible because it was
premised on “the unheard of position that Firestone, a cor‐
poration with nearly 50 years in business, [would make] a
handshake deal to loan half a million dollars to a start up
business to be secured after the fact.”3
Shortly thereafter, defense counsel withdrew from the
case. In the following month, the defendants did not obtain
substitute counsel. As a result, Firestone moved for an entry
of default judgment against the three corporate defendants,
submitting that they were required to have legal counsel
under Illinois law. The court granted Firestone’s motion and
entered default judgment against the three corporate de‐
fendants. The court’s judgment did not address the defend‐
The district court held a status hearing on the remaining
claims in April 2014. The court started the hearing by dis‐
cussing the defendants’ efforts to obtain substitute counsel.
Mr. Meyer informed the court that he was working to obtain
counsel and that his corporate codefendants would have
representation within approximately one week. In response,
Firestone asserted that the defendants were taking too long
to obtain counsel and that the court should rule on its pend‐
ing motion to dismiss. Having apparently forgotten about
this motion, the court replied, “Well, wait just a minute. Let
3 R.42 at 5.
No. 14‐3075 5
me get the chambers file. You are right, I have given Mr.
Meyer a lot of leeway.”4 After reviewing the motion and
hearing argument from Mr. Meyer, the court granted Fire‐
stone’s motion to dismiss, ruling that the defendants’ coun‐
terclaim was facially implausible.
Shortly afterward, Firestone moved for summary judg‐
ment on its remaining breach of guaranty claim against
Mr. Meyer. Regarding Mr. Meyer’s promissory estoppel and
prior‐breach‐of‐contract defenses, Firestone asserted that,
because those defenses were based on the same factual alle‐
gations as Mr. Meyer’s counterclaim, they were barred by
the court’s earlier ruling dismissing his counterclaim as im‐
plausible. The court later granted Firestone’s motion for
summary judgment. In doing so, it did not specifically dis‐
cuss either of the above‐referenced affirmative defenses.
Mr. Meyer timely appealed.5
Mr. Meyer now challenges both the district court’s dis‐
missal of his counterclaim as well as the court’s order
awarding summary judgment to Firestone. We address these
issues in turn.
4 R.106 at 3.
5 The district court had jurisdiction over this case under 28 U.S.C. § 1332.
Our jurisdiction is premised on 28 U.S.C. § 1291.
6 No. 14‐3075
Mr. Meyer first submits that the district court erred in
dismissing his counterclaim under Rule 12(b)(6). “A motion
to dismiss pursuant to [Rule] 12(b)(6) challenges the viability
of a complaint by arguing that it fails to state a claim upon
which relief may be granted.” Camasta v. Jos. A. Bank Clothi‐
ers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). “We review a dis‐
trict court’s dismissal for failure to state a claim de novo.”
Bruce v. Guernsey, 777 F.3d 872, 875 (7th Cir. 2015).
As a threshold matter, Firestone contends that Mr. Meyer
waived his right to appeal this issue by failing to respond to
its motion to dismiss in the district court. We cannot accept
this view. Although a party generally forfeits an argument
or issue not raised in response to a motion to dismiss, “it is
well settled that [this] rule does not prevent a party from at‐
tacking on appeal the legal theory upon which the district
court based its decision.” Sidney Hillman Health Ctr. of Roches‐
ter v. Abbott Labs., Inc., 782 F.3d 922, 927 (7th Cir. 2015) (quot‐
ing Hedge v. Cty. of Tippecanoe, 890 F.2d 4, 8 (7th Cir. 1989)).6
6 See also Allison v. Ticor Title Ins. Co., 979 F.2d 1187, 1194 (7th Cir. 1992)
(“While it is true that an argument cannot be raised for the first time on
appeal, it is also true that a party may attack the legal theory upon which
the district court based its decision.”); United States v. City of Chicago, 869
F.2d 1033, 1036 (7th Cir. 1989) (“It is folly for [the appellee] to assert that
an appeals court on review of a district court judgment cannot consider
the merits of each and every theory the district judge relied upon in de‐
ciding the case.”); Rosser v. Chrysler Corp., 864 F.2d 1299, 1306 n.7 (7th Cir.
1988) (“Where the district court’s decision was erroneous as a matter of
No. 14‐3075 7
Although an “appellant may not … raise an issue which was
not considered by the court below,” this rule does not pre‐
vent a party “from urging that the grounds given by the dis‐
trict court for dismissing [his] complaint are wrong.” Walker
v. S. Cent. Bell Tel. Co., 904 F.2d 275, 276 n.1 (5th Cir. 1990)
Here, Mr. Meyer does not challenge the district court’s
decision based on a newly raised argument or on an issue
law, we can reverse [its] decision despite the appellant’s failure to re‐
spond to the motion to dismiss.”); Toney v. Burris, 829 F.2d 622, 626 (7th
Cir. 1987) (“[T]he waiver rule does not apply to the law on which a deci‐
sion is based.”); Charlton v. United States, 743 F.2d 557, 561 n.5 (7th Cir.
1984) (per curiam) (“The district court decision was erroneous as a mat‐
ter of law, and we can reverse the decision despite counsel’s failure to
respond to the motion to dismiss.”).
Firestone submits that our decisions in Alioto v. Town of Lisbon, 651
F.3d 715 (7th Cir. 2011), and County of McHenry v. Insurance Company of
the West, 438 F.3d 813 (7th Cir. 2006), require a finding of waiver any
time a nonmoving party fails to respond to a motion to dismiss. Neither
of those cases reject, or otherwise dispute, the well‐settled principle “that
the waiver rule does not prevent a party from attacking on appeal the
legal theory upon which the district court based its decision.” Sidney
Hillman Health Ctr. of Rochester v. Abbott Labs., Inc., 782 F.3d 922, 927 (7th
Cir. 2015). Rather, those decisions, when read in light of our existing case
law, merely stand for the proposition that a party cannot challenge a dis‐
trict court’s decision based on an argument or issue not presented to, or
considered by, the district court. See Alioto, 651 F.3d at 721 (relying on the
rule, “[l]ongstanding under our case law[,] … that a person waives an
argument by failing to make it before the district court”); Cty. of McHen‐
ry, 438 F.3d at 819–20 (precluding a plaintiff from asserting “facts and
issues that were not raised in its response to [the defendant’s] motion to
dismiss” or otherwise considered by the district court).
8 No. 14‐3075
not considered by the district court; rather, he merely sub‐
mits that the court’s reason for dismissing his counter‐
claim—because its factual allegations were implausible—
was wrong. No principle of waiver precludes Mr. Meyer
from raising this limited argument on appeal. See Sidney
Hillman Health Ctr. of Rochester, 782 F.3d at 927; Rosser v.
Chrysler Corp., 864 F.2d 1299, 1306 n.7 (7th Cir. 1989).
We now turn to the merits of Mr. Meyer’s appeal. To
survive a motion to dismiss under Rule 12(b)(6), “a com‐
plaint must allege ‘sufficient factual matter to state a claim to
relief that is plausible on its face.’” Gogos v. AMS Mech. Sys.,
Inc., 737 F.3d 1170, 1172 (7th Cir. 2013) (per curiam) (altera‐
tions omitted) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the rea‐
sonable inference that the defendant is liable for the miscon‐
duct alleged.” Iqbal, 556 U.S. at 678. Applying this standard,
we first accept all well‐pleaded facts in the complaint as true
and then ask whether those facts state a plausible claim for
relief. See id. at 679; Santana v. Cook Cty. Bd. of Review, 679
F.3d 614, 620 (7th Cir. 2012). Allegations that state “legal
conclusions” or “[t]hreadbare recitals of the elements of a
cause of action” are not entitled to the assumption of truth.
Iqbal, 556 U.S. at 678. As this analysis suggests, the plausibil‐
ity standard does not allow a court to question or otherwise
disregard nonconclusory factual allegations simply because
they seem unlikely. See id. (“The plausibility standard is not
No. 14‐3075 9
akin to a ‘probability requirement’ … .”).7 Rather, “a well‐
pleaded complaint may proceed even if it strikes a savvy
judge that actual proof of those facts is improbable, and that
a recovery is very remote and unlikely.” Alam v. Miller Brew‐
ing Co., 709 F.3d 662, 666 (7th Cir. 2013) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 556 (2007)).
Here, Mr. Meyer’s counterclaim alleged (1) that Firestone
vice president Dan McAllister had represented that Firestone
“wanted to expand [its] investment in the laundry business,”
and that it “would create a $500,000 line of credit” to fund
the defendants’ equipment purchases in 2013, and (2) that
after “establishment of the line of credit was delayed, McAl‐
lister represented to JHM that if JHM purchased the equip‐
ment necessary to expand its business, Firestone would fi‐
nance equipment packages in 2013 on the same terms and
conditions as the First and Second Loans.”8 These allegations
are neither legal assertions nor conclusory statements recit‐
ing the elements of a cause of action. As such, they are enti‐
tled to a presumption of truth. See Iqbal, 556 U.S. at 678.
7 See also Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009) (“To be clear, we do not
reject these bald allegations on the ground that they are unrealistic or
nonsensical. … It is the conclusory nature of respondent’s allegations,
rather than their extravagantly fanciful nature, that disentitles them to
the presumption of truth.”); Ocasio‐Hernández v. Fortuño‐Burset, 640 F.3d
1, 12 (1st Cir. 2011) (“Non‐conclusory factual allegations in the complaint
must then be treated as true, even if seemingly incredible.”); Bryson v.
Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (noting that well‐pleaded
“factual allegations [need not] themselves be plausible” given that “they
are assumed to be true”).
8 R.23 at 23, 26.
10 No. 14‐3075
The district court, however, did not treat these well‐
pleaded factual allegations as true. Rather, the court deter‐
mined that it was “implausible to allege that somehow Fire‐
stone committed orally to provide a half million dollars un‐
secured to what was essentially a comparative start‐up busi‐
ness.”9 This analysis constitutes an erroneous application of
Twombly and Iqbal. The relevant question under these cases
is not whether a complaint’s factual allegations are true, but
rather whether the complaint “contain[s] sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plau‐
sible on its face.’” Id. at 678 (emphasis added) (quoting
Twombly, 550 U.S. at 570).
Once Mr. Meyer’s well‐pleaded factual allegations are
accepted as true, we have no difficulty concluding that they
are sufficient to state a plausible claim of promissory estop‐
pel. “To establish [such] a claim, the plaintiff must prove
that (1) defendant made an unambiguous promise to plain‐
tiff, (2) plaintiff relied on such promise, (3) plaintiff’s reliance
was expected and foreseeable by defendants, and (4) plain‐
tiff relied on the promise to its detriment.” Newton Tractor
Sales, Inc. v. Kubota Tractor Corp., 906 N.E.2d 520, 523–24 (Ill.
Here, Mr. Meyer alleges that Firestone, through McAllis‐
ter, told him that it would fund JHM’s equipment purchases
in 2013 under the same terms as its previous two loans. He
asserts that JHM purchased equipment based on this repre‐
sentation and that Firestone knew that JHM would do so
based on their earlier course of dealing. Finally, he alleges
9 R.106 at 4.
No. 14‐3075 11
that Firestone later reneged on this commitment and that, as
a result, JHM defaulted on its equipment purchases from
Maytag, causing Maytag to blacklist Mr. Meyer’s companies.
These allegations are enough to state a plausible claim of
promissory estoppel. See Wigod v. Wells Fargo Bank, N.A., 673
F.3d 547, 566 (7th Cir. 2012) (concluding that a complaint,
which “alleged a sufficiently clear promise, evidence of [the
plaintiff’s] own reliance [on that promise], and an explana‐
tion of the injury that resulted[,] … was enough to present a
facially plausible claim of promissory estoppel”). The district
court, therefore, erred in dismissing Mr. Meyer’s counter‐
Mr. Meyer also challenges the district court’s award of
summary judgment to Firestone. Specifically, he submits
that the “court erred in disregarding [two of his] affirmative
defenses because they were based on the same facts as [his]
counterclaim, which the district court concluded was im‐
plausible.”10 We review a district court’s grant of summary
judgment de novo. Carman v. Tinkes, 762 F.3d 565, 566 (7th
As we noted earlier, Mr. Meyer raised several affirmative
defenses in his answer, two of which—a promissory estop‐
pel defense and prior‐breach‐of‐contract defense—were
based on the same factual allegations as his counterclaim. In
moving for summary judgment, Firestone submitted that
10 Appellant’s Br. 15.
12 No. 14‐3075
these two defenses were barred by the district court’s earlier
ruling dismissing Mr. Meyer’s counterclaim as implausible.
Firestone offered no other ground for rejecting these defens‐
In awarding summary judgment, the district court did
not specifically discuss either of these defenses. Rather, at
the hearing on Firestone’s motion, the court simply stated
that none of the arguments “advanced by Mr. Meyer really
undercut the entitlement of Firestone to summary judg‐
ment” and that the court did not “see any need … to expend
time and effort for purposes of knocking out the arguments
advanced by Mr. Meyer.”11 Likewise, the court’s subsequent
judgment order simply stated that the court had “reviewed
all memoranda and related documents filed by the parties
and [had] orally expressed its conclusion that Meyer [had]
not met his burden of proving his affirmative defenses.”12
These conclusory remarks do not explain clearly why the
district court thought that Mr. Meyer’s promissory estoppel
and prior‐breach‐of‐contract defenses were insufficient to
preclude summary judgment. Although both parties appear
to agree that the court rejected these defenses for the same
reason that it dismissed Mr. Meyer’s counterclaim (i.e., be‐
cause they were premised on implausible factual allega‐
tions), nowhere does the court expressly adopt this rationale.
Ordinarily, when faced with an ambiguity such as this,
we would remand the case to the district court for clarifica‐
11 R.108 at 2–3.
12 R.90 at 1.
No. 14‐3075 13
tion of its reasoning pursuant to Circuit Rule 50.13 See W.
States Ins. Co. v. Wis. Wholesale Tire, Inc., 148 F.3d 756, 759–60
(7th Cir. 1998) (per curiam). Here, however, another course
is more economical in terms of judicial resources. Firestone’s
only argument for rejecting these defenses was that they
were barred by the court’s earlier decision dismissing
Mr. Meyer’s counterclaim as implausible, and “[w]e have
often explained that district courts may not grant summary
judgment on grounds not argued by the moving party, at
least not without giving notice so that the non‐moving party
has a full opportunity to present relevant evidence and ar‐
gument.” Williams v. City of Chicago, 733 F.3d 749, 755 (7th
Cir. 2013). Here, the district court did not give Mr. Meyer
any such advance notice. Consequently, the only possible
basis for the district court’s decision was Firestone’s conten‐
tion that the defenses at issue were barred by the court’s ear‐
lier dismissal of Mr. Meyer’s counterclaim. See id. Because, as
we have explained earlier, the district court erred in dismiss‐
ing Mr. Meyer’s counterclaim, we must conclude that the
court also erred in rejecting Mr. Meyer’s promissory estop‐
pel and prior‐breach‐of‐contract defenses on summary
13 Circuit Rule 50 reads, in relevant part, as follows:
Whenever a district court resolves any claim or
counterclaim on the merits, terminates the litigation in
its court (as by remanding or transferring the case, or
denying leave to proceed in forma pauperis with or
without prejudice), or enters an interlocutory order that
may be appealed to the court of appeals, the judge shall
give his or her reasons, either orally on the record or by
Outcome: For the foregoing reasons, the judgment of the district
court is reversed, and the case is remanded to the district
court for proceedings consistent with this opinion.
REVERSED AND REMANDED