832 F.2d 417 (7th Cir. 1987), 87-1195, Newman-Green, Inc. v. Alfonzo-Larrain

Docket Nº:87-1195.
Citation:832 F.2d 417
Party Name:NEWMAN-GREEN, INC., Plaintiff-Appellant, v. Alejandro ALFONZO-LARRAIN R., et al., Defendants-Appellees.
Case Date:October 28, 1987
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 417

832 F.2d 417 (7th Cir. 1987)

NEWMAN-GREEN, INC., Plaintiff-Appellant,


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

No. 87-1195.

United States Court of Appeals, Seventh Circuit

October 28, 1987

Argued Sept. 14, 1987.

Page 418

Rowe W. Snider, Lord, Bissel & Brook, Chicago, Ill., for plaintiff-appellant.

Charles G. Albert, Bell, Boyd & Lloyd, Chicago, Ill., for defendants-appellees.

Before FLAUM, EASTERBROOK, and KANNE, Circuit Judges.

EASTERBROOK, Circuit Judge.

Newman-Green, Inc., a manufacturer of aerosol valves, licensed Newman-Green de Venezuela (NGV) to use its trademarks and trade secrets in Venezuela in exchange for a 5% royalty on net sales. Newman-Green (NGI) owns 25% of NGV's stock; four Venezuelans and one U.S. citizen living in Caracas own the rest. Several of these are the principal managers of NGV. The five signed a guaranty, the core of which provides:

In consideration for the execution of the license agreement dated June 13, 1974 from [NGI] to [NGV], the undersigned personally, individually and/or collectively agree that they guarantee the payment to [NGI] of an amount of money up to the 5% royalty set forth in the license agreement and for the period of time specified in the license agreement.

NGV made and sold valves using NGI's technology between 1975 and 1980 but has not paid NGI a penny. One reason was a decision by an agency of the Venezuelan government that 5% was excessive. The license allowed NGI to call off the deal in such an event, and the guaranty was a hedge against the possibility that Venezuela might not approve the license.

When NGI gave notice of termination in light of the decree, NGV made and sold the valves for more than eight months beyond the time allowed by the contract. When NGV stopped, a new firm, Venvalvex, started making valves. NGI believes (with some evidentiary support) that the guarantors organized Venvalvex and transferred NGI's technology to it; we must assume that NGI could prove this at a trial.

NGI is an Illinois corporation, and the guarantors consented to suit in Illinois (and under its law). NGI filed this action against NGV and the five guarantors, relying on the mixed alien-diversity jurisdiction established by 28 U.S.C. Sec. 1332(a)(3). The suit has many separate claims for relief, some of which are before us on a separate judgment under Fed.R.Civ.P. 54(b). The district court wrapped up all segments of the litigation involving the guarantors and

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properly entered the judgment under the "separate party" provision of Rule 54(b).

NGI received summary judgment against the guarantors for the more than $200,000 in royalties NGV owed through November 1, 1979, the final termination date NGI fixed. 1 The guarantors won summary judgment on two other claims: for royalties on sales NGV made until July 1980, when it became quiescent, and for royalties on Venvalvex's sales since then. The district court held that the guarantors stand behind NGV's debts, not Venvalvex's; and of NGV's debts, the guarantors are responsible only for "royalties". The district court concluded that sums due for valves sold after November 1 are "damages" rather than "royalties" and therefore are not covered by the guaranty. The guarantors have not appealed from the judgment representing royalties through November 1, 1979, and NGI has not appealed from the dismissal of certain claims against NGV itself. (The district court concluded that it lacked personal jurisdiction over NGV with respect to tort claims.) So we need consider only the award of summary judgment against NGI's claims for compensation from the guarantors on sales of valves after November 1, 1979.


The guarantors simplified the case further by conceding at oral argument that if Venvalvex is the alter ego of NGV, a mere continuation of that firm's business after squeezing out NGI, then their liability on the Venvalvex sales stands or falls with their liability on the sales between November 1979 and July 1980. The concession was well advised in light of United States Shoe Corp. v. Hackett, 793 F.2d 161 (7th Cir.1986), which, although decided under Wisconsin law, states principles of more general applicability. If Venvalvex is a genuinely new firm, deriving its technology from an independent source, then as the district court correctly held the guarantors are not liable, even if they are its managers and principal investors. The guarantors' participation in an independent venture might be tortious, but the guaranty does not cover torts. The case was resolved on summary judgment, yet it is a question of fact whether Venvalvex...

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