590 F.Supp. 1083 (N.D.Ill. 1984), 82 C 7933, Newman-Green, Inc. v. Alfonzo-Larrain

Docket Nº:82 C 7933.
Citation:590 F.Supp. 1083
Party Name:NEWMAN-GREEN, INC., et al., Plaintiffs, v. Alejandro ALFONZO-LARRAIN R., et al., Defendants.
Case Date:August 03, 1984
Court:United States District Courts, 7th Circuit, Northern District of Illinois
 
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Page 1083

590 F.Supp. 1083 (N.D.Ill. 1984)

NEWMAN-GREEN, INC., et al., Plaintiffs,

v.

Alejandro ALFONZO-LARRAIN R., et al., Defendants.

82 C 7933.

United States District Court, N.D. Illinois, Eastern Division.

Aug. 3, 1984

Page 1084

Rowe W. Snider, Michael D. Sher, Friedman & Koven, Chicago, Ill., for plaintiffs.

Michael P. Connelly, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

On April 23, 1984 Newman-Green, Inc. ("NGI") moved, pursuant to various subparts of Fed.R.Civ.P. ("Rule") 12, against each count of the Amended Counterclaim ("Counterclaim," for convenience) brought by intervenor-defendant Newman-Green de Venezuela ("NGV"). This Court's oral bench ruling that day:

1. denied NGI's motion as to five of the Counterclaim's seven counts and

2. set for briefing NGI's Rule 12(b)(6) challenge to the remaining two counts.

For the reasons stated in this memorandum opinion and order, NGI's motion to dismiss Counterclaim Count IV is granted and its motion to dismiss Counterclaim Count VII is denied.

Facts 1

This litigation's underlying dispute concerns efforts by all parties to distribute NGI's product, aerosol valves, in Venezuela. NGV was formed by the other defendants in this action to manufacture and sell NGI aerosol valves in Venezuela.

Page 1085

NGV was formed by the other defendants in this action to manufacture and sell NGI aerosol valves in Venezuela. NGV entered into a "License Agreement" with NGI that included a promise by NGI to supply NGV with materials and expertise. For reasons as to which plaintiffs' current Amended Complaint ("Complaint") and the Counterclaim do not entirely agree, NGV's purpose was never carried out and it was forced to close its operation after various losses had been incurred. This lawsuit ensued.

Plaintiffs' Complaint comprises three counts:

1. In Count I NGI sues NGV's shareholders for breach of an alleged guaranty agreement imposing limited liability on them if NGV breaches its License Agreement.

2. In Count II NGI sues NGV itself for the price of parts and equipment ordered from NGI and delivered to NGV but never paid for.

3. In Count III NGI's affiliate Arnel, Inc. ("Arnel") sues NGV for breach of an equipment lease (which NGV claims was in substance an installment sale contract).

NGV's Counterclaim, directed exclusively against NGI, alleges NGI breached the License Agreement and warranties (Counts I and II), defrauded NGV in violation of state and federal law (Counts III-V) and interfered with NGV's business relations (Counts VI and VII). Because all the other counts survived NGI's Rule 12 attacks in this Court's April 23 oral ruling, only Counts IV and VII are now at issue:

1. Count IV alleges NGI violated Illinois' Consumer Fraud and Deceptive Business Practices Act (the "Act," Ill.Rev.Stat. ch. 121 1/2, ¶ ¶ 261-272) by fraudulently inducing NGV to enter into the License Agreement. NGV's theory is akin to promissory fraud: NGI's allegedly false statements were to the effect it would adequately perform the License Agreement.

2. Count VII alleges NGI interfered with an advantageous business relationship between NGV and Arnel by causing Arnel to declare NGV in breach of the equipment lease (sued on in Complaint Count III) after an inadvertent failure by NGV to make a payment.

Count IV

Act § 2 (Ill.Rev.Stat. ch. 121 1/2, ¶ 262) by its terms covers "[u]nfair methods of competition and unfair or deceptive acts or practices" without any express limitation. However that section goes on to say:

In construing this section consideration shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to Section 5(a) of the Federal Trade Commission Act.

Thus Illinois' Act is a "little FTC Act." Consequently, although Illinois courts are not bound by federal level decisions, they have construed the Act with reference to those decisions. See Fitzgerald v. Chicago Title & Trust Co., 46 Ill.App.3d 526, 5 Ill.Dec. 94, 361 N.E.2d 94 (1st Dist.1977).

NGI argues the Act was not intended to reach isolated breaches of contract, such as the one asserted here, between parties neither of which is a consumer. NGI suggests if the Act did reach such garden variety breaches of contract, it would effectively supplant Illinois' common law of contracts and fraud, because it permits recovery more readily than that law in at least two respects:

1. Illinois courts have applied the Act to provide "broader consumer protection than does the common law of fraud," making actionable in that area "innocent misrepresentations," including "false promises" not pertaining to "existing material facts." See Duhl v. Nash Realty Inc., 102 Ill.App.3d 483, 495, 57 Ill.Dec. 904, 914, 429 N.E.2d 1267, 1277 (1st Dist.1981).

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2. Act § 10a(c) (Ill.Rev.Stat. ch. 121 1/2, ¶ 270a(c)) permits the court to award attorneys' fees to the prevailing party.

So, NGI contends, while the Act may have been "a decisive move on the part of the Illinois legislature to enact broad protective coverage of consumers " ( Duhl, 102 Ill.App.3d at 495, 57...

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