Castellano, Roberta v. Wal-Mart Stores Inc

In the
United States Court of Appeals
For the Seventh Circuit
____________

No. 03-2953
ROBERTA CASTELLANO and MARION CASTELLANO,
Plaintiffs-Appellants,
v.

WAL-MART STORES, INCORPORATED,
a Delaware corporation,
Defendant-Appellee.

____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 98 C 4149—Philip M. Frazier, Magistrate Judge.
____________
ARGUED FEBRUARY 20, 2004—DECIDED JUNE 24, 2004
____________

Before FLAUM, Chief Judge, and BAUER and MANION,
Circuit Judges.
BAUER, Circuit Judge. Plaintiffs brought this action in
the district court, charging breach of contract, invalidity of
a lease amendment, breach of implied covenant of good
faith and fair dealing, and two counts of fraud. The district
court resolved all issues against the Plaintiffs through
summary judgment and judgment as a matter of law. We
review both summary judgment and judgment as a matter
2 No. 03-2953

of law de novo. Juarez v. Menard, Inc., 366 F.3d 479, 481
(7th Cir. 2004); Fillmore v. Page, 358 F.3d 496, 505 (7th Cir.
2002).

I. BACKGROUND
In 1977 RJLC-1 Land Trust (RJLC) entered into a
contract with Wal-Mart for the construction and lease of a
commercial property in Marion, Illinois. RJLC then gave a
mortgage to Republic Mortgage (Republic) and assigned the
lease with Wal-Mart to Republic. Wal-Mart moved into the
newly constructed retail space in 1979. Shortly thereafter,
RJLC sold the property to Lancaster Trust and took back a
second mortgage and assignment of rents.1 Sometime later,
RJLC ceased to exist and the mortgage and assignment it
held ultimately went to Roberta Castellano, Marion
Castellano’s wife. A tornado struck the building in 1982 and
caused substantial damage, particularly to the roof. Wal-
Mart undertook the necessary repairs under the emergency
provisions of the lease.
By 1985 Lancaster had sold the property to Alan Sagner,
who, in turn, sold the property to Marion Partners (no
relation to Plaintiff Marion Castellano). In 1985, Wal-Mart
added to the building by constructing an addition on
neighboring property and removing one wall of the leased
premises to join the addition to the original building. Then,
in 1987 Wal-Mart negotiated a third amended lease with
Marion Partners.
By 1990 the roof had begun to leak and continued to do so
for a number of years. On May 5, 1997, Wal-Mart sent a
letter to Marion Partners which purported to terminate the

1
Plaintiff-Appellant’s brief states that Wal-Mart sold the build-
ing to Lancaster. This appears to be a mistake. The record and
earlier federal opinions agree with the facts as recited above.
No. 03-2953 3

lease for Marion Partners’ failure, or, more to the point,
financial inability to fix the leaks. The lease was not
terminated at that time. Marion Partners, however, had
had enough and transferred the property to VistaCorp.
Roberta Castellano then declared the mortgage she held in
breach for wrongful transfer. VistaCorp ended up transfer-
ring the property to VP Land Trust—the legal beneficiary
of which was J.D. Castellano, son of Roberta and Marion
Castellano. Title was later transferred from VP Land Trust
to Marion Castellano. Wal-Mart ultimately terminated the
lease, moved out, and ceased paying rent.
When Wal-Mart moved out, the building was left in post-
addition condition, i.e. it was missing one wall where it was
attached to the adjoining property. Castellano sued for
breach of contract, alleging that Wal-Mart had breached its
duty to restore the common wall between the buildings.
In October 1998, a pair of letters were exchanged between
the attorneys for Wal-Mart and Castellano. Castellano
argued below that these letters constituted a partial
settlement agreement wherein Wal-Mart would deed the
building to Castellano in exchange for a release from the
duty to restore the common wall. Castellano, after receiving
the letter from Wal-Mart, began negotiations to sell the
property to Rural King. Wal-Mart did not deliver the deed
until April 6, 1999. This was after Castellano’s attorney
sent another letter to Wal-Mart’s attorney, dated March 8,
1999, which memorialized an oral settlement agreement.
The settlement agreement disposed of all outstanding
issues except claims for roof repairs, past and future rents,
removal of carpeting, and repair of tile. Castellano’s third
amended complaint included claims for breach of contract
and fraud. The court disposed of the suit entering summary
judgment in favor of Defendant on some of the claims and
directing a verdict against the Plaintiffs on the remaining
claims. Plaintiffs appeal.
4 No. 03-2953

II. DISCUSSION
A. Partial Settlement
Castellano argues that the October 1998 letters con-
stituted a binding settlement agreement that Wal-Mart
fraudulently refused to honor because it knew that
Castellano was in a dire financial situation. These financial
woes led Castellano to enter into the March 1999 settle-
ment agreement—a situation he says constitutes economic
duress. Illinois law is clear that duress “does not exist
merely where consent to an agreement is secured because
of hard bargaining positions or the pressure of financial
circumstances.” Cont’l Illinois Nat’l Bank and Trust Co. v.
Stanley, 606 F. Supp. 558, 562 (N.D. Ill. 1985). Further-
more, it is clear that Castellano had options— accept the
March 1999 settlement offer or compel Wal-Mart to honor
the October 1998 “agreement” by legal action. Castellano
chose the former and accepted the benefits of the March
1999 settlement agreement. This is not duress. Moreover,
entering into an agreement and accepting the benefits of
that agreement ends the inquiry as to the validity of the
settlement agreement. Joyce v. Year Investments, Inc., 196
N.E.2d 24, 26-7 (Ill. App. 1964).
Since the March 1999 settlement agreement was binding
and enforceable, then by its own terms, the only issues left
in the case deal with “roof decking issues, roof repair issues,
removal of carpeting from the tile floor, and rents due for
the past and future, less any mitigation.” This is true
despite Plaintiffs’ protestations to the contrary.
The Castellanos argue that the settlement letter’s lan-
guage stating, “the only remaining damage issues in this
case . . .” is ambiguous. It is not. The very same letter refers
to the case by docket number. By referring to the case’s
docket number, the agreement unambiguously refers to the
entire case.
No. 03-2953 5

B. Validity of Third Amended Lease
Plaintiffs argue that the third amended lease is invalid
and unenforceable due to the fact that the lessor and lessee
of the property did not get the written consent of the
mortgagees before amending the lease, as required under
the assignments of rents. We disagree.

1.) Validity of Third Amended Lease as it Relates to
Plaintiff—Lessor Marion Castellano
The facts show that Marion Partners, who originally
executed the third amended lease, was a predecessor in
interest to Marion Castellano. Being the successor in in-
terest, Marion Castellano is bound by the terms of the third
amended lease. Sweeting v. Campbell, 119 N.E.2d 237, 240
(Ill. 1954). For the sake of fairness, we note that there is
nothing to indicate that Marion Castellano did not know of
the third amended lease when he acquired the property. In
fact, the lease was discussed in a case between J.D.
Castellano, Marion and Roberta Castellano’s son, and
Marion Partners which was decided in 1990. Castellano v.
Marion Partners, 1990 WL 357916, at *5-6 (S.D. Ill. 1990).
It should also be noted that the original complaint and the
first and second amended complaints named J.D.
Castellano, as sole beneficiary of the V.P. Land Trust, as a
Plaintiff. And, as Plaintiffs themselves note, “from an
equitable standpoint, it would have been unjust for someone
directly responsible for signing the document to now claim
that the signature was ineffective.” We agree. And since
Marion Castellano is a successor in interest, he is, legally
speaking, directly responsible for signing the third amended
lease. Sweeting, 119 N.E.2d at 496-97.
6 No. 03-2953

2.) Validity of Third Amended Lease as it Relates to
Plaintiff—Mortgagee Roberta Castellano
Plaintiffs assert that because the mortgagees did not
consent to the third amended lease, it is unenforceable.
This argument fails. As discussed above, J.D. Castellano
knew of the third amended lease as far back as 1990.
At that time, he was the holder of the wrap around mort-
gage.2 Castellano, 1990 WL 357916, at *1, 3. J.D. Castellano
and his successor in interest, Roberta Castellano, continued
to accept the assigned rent payments with knowledge of the
third amended lease. By knowingly accepting the benefits
of the third amended lease for such a substantial period of
years, the mortgagee acquiesced to the terms of that lease.
See Maher & Assocs v. Quality Cabinets, 640 N.E.2d 1000,
1007 (Ill. App. 2d 1994) (“A contract is validly modified if
the party which did not propose the changes is shown to
acquiesce in the modification through a course of conduct
consistent with acceptance.”). Furthermore, it was stipu-
lated in the Final Pretrial Order that Roberta Castellano
did not have standing to assert a claim for breach of
contract against Wal-Mart.

C. Termination of the Lease—Rents and Roof Repair
Plaintiffs’ final colorable issues involve the question of
whether Wal-Mart’s termination of the lease constituted a
breach and, relatedly, whether Wal-Mart was obligated to

2
Black’s Law Dictionary defines “wrap around mortgage” as
follows: A second mortgage which wraps around or exists in
addition to a first or other mortgages. Form of secondary financing
typically used on older properties having first mortgages with low
interest rates in which a lender assumes the developer’s first
mortgage obligation and also loans additional money, taking back
from developer a junior mortgage in total amount at an intermedi-
ate interest rate.
No. 03-2953 7

return the building with a repaired roof. Since the third
amended lease was valid and enforceable, we begin our
inquiry there.
The third amended lease put the responsibility for roof
maintenance on the lessor. The facts show that the roof had
been leaking from as early as 1990 and continuing through
1997. Notice of the leaks was provided to the lessor over
twenty-five times. In one instance, the fire department was
dispatched to the store because the leaks had caused
electrical short circuits. The leaks were not repaired and
Wal-Mart terminated the lease by letter on May 5, 1997.
The lease states, “[i]n the event of . . . the breach of any of
the other agreements contained in Lease, this Lease shall
terminate and be of no further effect at the discretion of the
Lessee.” The third amended lease put the duty of roof
maintenance on the lessor. Wal-Mart was well within its
contractual rights in terminating the lease for lessor’s
failure to maintain the roof.
As for the condition of the roof, there is no dispute that
the building was almost totally destroyed by a tornado in
1982. Castellano was aware of this fact. The then-current
lessor refused to repair the building and Wal-Mart com-
pleted the repairs under the emergency provision of the
lease. These repairs benefitted the lessor as the lessee had
no duty whatsoever to make those repairs. Both the original
and the third amended lease make clear that the condition
of the roof was solely the responsibility of the lessor.
Plaintiffs attempt to put the duty to repair the roof on to
Wal-Mart by pointing to a provision of the original lease
which says “[e]xcept for the obligations of Lessor under
paragraphs 8 and 9 of this lease, Lessee agrees, to maintain
the interior of the demised premises and shall repair any
damage caused by any act of, or by negligence of, the
Lessee, its contractors, Licensees, agents, or Employees.”
They argue that this provision makes Wal-Mart responsible
8 No. 03-2953

for the condition of the roof because Wal-Mart hired the
contractors to do the repairs after the 1982 tornado.
Paragraph 9 of the original lease puts the duty to main-
tain the roof on the lessor. It was due to the lessor’s inac-
tion that Wal-Mart made the roof repairs. As the repairs
were the duty of the lessor, any repairs made by Wal-Mart
under the emergency provision of the lease were done for
the benefit of the lessor. The language of the original lease
bears this out. It expressly excepts the obligations of the
lessor from those duties assigned to the lessee; “[e]xcept for
the obligations of Lessor under paragraphs 8 and 9 of this
lease . . . .”
Finally, Plaintiffs attempt to argue that Wal-Mart
committed fraud by installing a roofing system which did
not match the original construction and/or concealing facts
regarding the nature of the repairs. The district court dis-
missed these claims as being untimely. Plaintiffs did not
address the issue of timeliness in their brief to this court.
Without argument otherwise, we find no error in the
district court’s decision.
AFFIRMED
A true Copy:
Teste:

________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—6-24-04