Fink v. DeClassis

• Decision Date: 20 August 1990
• Docket Number: No. 90 C 401.,90 C 401.
• Citation: 745 F. Supp. 509
• Parties: Jacob J. FINK and Peterson Corp., Inc., f/k/a Brighton Products, Inc., an Illinois Corporation, Plaintiffs and Counterdefendants, v. Ronald DeCLASSIS and L.T. Laboratories, Inc., a/k/a L.T. Corporation, a Massachusetts Corporation, Defendants and Counterplaintiffs.
• Court: U.S. District Court — Northern District of Illinois

745 F. Supp. 509

Jacob J. FINK and Peterson Corp., Inc., f/k/a Brighton Products, Inc., an Illinois Corporation, Plaintiffs and Counterdefendants, v. Ronald DeCLASSIS and L.T. Laboratories, Inc., a/k/a L.T. Corporation, a Massachusetts Corporation, Defendants and Counterplaintiffs.

No. 90 C 401.

United States District Court, N.D. Illinois, E.D.

August 20, 1990.

COPYRIGHT MATERIAL OMITTED

Michael J. Rovell, Joel J. Africk, Lisa I. Fair, Jenner & Block, Chicago, Ill., for plaintiffs and counterdefendants.

Bradley C. Pinta, Michael J. Griffin, Sullivan, Sullivan & Pinta, Boston, Mass., James Ossyra, Hopkins & Sutter, Chicago, Ill., for defendants and counterplaintiffs.

MEMORANDUM ORDER

BUA, District Judge.

Plaintiffs Jacob J. Fink and Peterson Corporation have moved to dismiss several counts of defendants' counterclaim pursuant to Fed.R.Civ.P. 12(b)(6). Specifically, plaintiffs contend that Counts I, III, IV, V, IX, X, and XI should be dismissed as to both Fink and Peterson, while Counts VI and VIII should be dismissed as to Fink only. Pursuant Fed.R.Civ.P. 12(f), plaintiffs have also moved to strike Counts IV and VIII. For the reasons stated herein, plaintiffs' motion to dismiss is granted with respect to Counts I, III, IV, V, IX, X, and XI, and denied with respect to Counts VI and VIII; plaintiffs' motion to strike is denied.

FACTS

Peterson Corporation ("Peterson") is an Illinois corporation which manufactures and distributes health and beauty aid products. From the time it first introduced its products into the marketplace, Peterson enjoyed tremendous commercial success. Peterson's rapid success drew the attention of L.T. Corporation ("LT"), a Massachusetts corporation which also distributes health and beauty aid products. LT eventually became interested in acquiring the assets of Peterson. In 1989, LT approached Jacob J. Fink, the president of Peterson, to discuss the possibility of an acquisition. In particular, LT was interested in purchasing the assets associated with Peterson's two eye care product lines known as "Eyegel" and "Eyepac."

After several months of negotiations, Peterson agreed to sell the Eyegel and Eyepac product lines to LT. The parties executed an asset purchase agreement dated April 26, 1989, and the sale was closed on June 21, 1989. One month later, the Food and Drug Administration detected bacteria in large quantities of the Eyegel product. This discovery prompted a nationwide recall of Eyegel.

Due to the contamination of the Eyegel product, LT's sales decreased dramatically. Having suffered a financial loss from its newly acquired product lines, LT filed a lawsuit against Fink and Peterson in the United States District Court for the District of Massachusetts. LT's complaint asserts a variety of state law claims, including breach of contract and breach of warranty.

On January 23, 1990, plaintiffs filed the instant case against LT and its president, Ronald DeClassis. According to plaintiffs, LT and DeClassis mismanaged the Eyegel and Eyepac product lines, and failed to fully satisfy their contractual obligations. In addition, plaintiffs accuse LT and DeClassis of defamation.

Shortly after plaintiffs commenced this action, defendants filed a counterclaim. Defendants also moved to transfer the case to the District of Massachusetts. This court subsequently denied the motion to transfer. See Fink v. DeClassis, 738 F.Supp. 1195 (N.D.Ill.1990). Fink and Peterson now move to dismiss most of the counts contained in defendants' counterclaim.¹

DISCUSSION

Count I — Fraud

In Count I, LT asserts a claim for common law fraud. Peterson has moved to dismiss that claim, arguing that LT has failed to plead the necessary elements of fraud under Illinois law. In response, LT contends that Massachusetts law governs the fraud claim and that the allegations are sufficient under Massachusetts law.

As a preliminary matter, the court must determine whether Illinois law or Massachusetts law applies to LT's fraud claim. Pursuant to Klaxon Corp. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), this question must be resolved according to Illinois choice-of-law principles. When addressing choice-of-law issues in tort actions, Illinois courts apply the "most significant contacts" test. Palmer v. Beverly Enters., 823 F.2d 1105, 1112 (7th Cir.1987); Ingersoll v. Klein, 46 Ill.2d 42, 48, 262 N.E.2d 593, 596 (1970). Under the most significant contacts test, the court should apply the law of the state that has the most significant relationship with the occurrence and with the parties. Ingersoll, 46 Ill.2d at 47, 262 N.E.2d at 596. Several factors are relevant to this determination, including: (1) the place where the injury occurred; (2) the place where the conduct occurred; (3) the domicile, nationality, place of incorporation, and place of business of the parties; and (4) the place where the relationship of the parties is centered. Id. at 47-48, 262 N.E.2d at 596.

After weighing the factors articulated in Ingersoll, supra, this court finds that Illinois has the most significant relationship to the cause of action. LT's fraud claim is predicated on several misrepresentations allegedly made by Peterson during the course of the contract negotiations. All of the negotiations regarding the asset purchase agreement were conducted at Peterson's offices in Chicago, Illinois. Thus, any alleged fraudulent misrepresentations made by Fink (or any other representative of Peterson) necessarily occurred in Illinois. Illinois is also the place where the injury occurred. LT took possession of Peterson's assets in Illinois and continued to manufacture, package, and ship Eyegel from that location. Moreover, the relationship between the parties was centered in Illinois, the place where the asset purchase agreement was negotiated, executed, closed, and performed. None of Peterson's representatives went to Massachusetts in connection with the negotiation or performance of the asset purchase agreement. Although the remaining factor — i.e., the domicile, place of incorporation, and place of business of the parties — does not appear to conclusively favor one state over the other, the weight of the contacts dictates that Illinois law is to govern LT's fraud claim.²

Under Illinois law, a party cannot maintain a fraud claim without alleging the following five elements:

(1) a false statement of material fact (2) known or believed to be false by the party making it; (3) intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance.

Derson Group, Ltd. v. Right Management Consultants, Inc., 683 F.Supp. 1224, 1228 (N.D.Ill.1988) (quoting Soules v. General

Motors Corp., 79 Ill.2d 282, 286, 37 Ill.Dec. 597, 599, 402 N.E.2d 599, 601 (1980)). LT alleges in Count I that Peterson made knowing misrepresentations concerning the quality of the Eyegel product. But LT's counterclaim contains no allegations that the misrepresentations were made with the intent to induce LT to take some affirmative action — such as entering into the asset purchase agreement. This deficiency is fatal to LT's fraud claim. See id. at 1231. LT urges the court to infer from the allegations that the misrepresentations were made to induce LT to enter into the asset purchase agreement. This court, however, is not willing to infer a necessary element of fraud from LT's skeletal allegations — especially since fraud must be pled with particularity. See Fed.R.Civ.P. 9(b). Because LT has failed to allege that the misrepresentations were made with the intent to induce LT to act, Count I is dismissed.

Count III — Negligent Misrepresentation

In Count III, LT claims that it sustained a loss of profits and goodwill due to Peterson's alleged negligent misrepresentations. In order to recover for purely economic loss under a theory of negligent misrepresentation, LT must demonstrate that Peterson supplied the information in the course of its business "for the guidance of others in their business relations with third parties." Black, Jackson and Simmons Ins. Brokerage, Inc. v. IBM Corp., 109 Ill.App.3d 132, 135, 64 Ill.Dec. 730, 732, 440 N.E.2d 282, 284 (1982) (emphasis in original); see also Moorman Mfg. Co. v. National Tank Co., 91 Ill.2d 69, 89, 61 Ill.Dec. 746, 755, 435 N.E.2d 443, 452 (1982).

LT argues that "nonprofessional sellers are in the business of providing information for the purpose of a sale of their property," and that Peterson was in the business of providing information about its products when it sold the company to LT. LT's Memorandum in Response to Plaintiffs' Motion to Dismiss, at 5. This argument is indefensible. To a certain extent, information will always be exchanged during the course of a business transaction. Nevertheless, a manufacturer such as Peterson is not "in the business of supplying information" merely because it provides information regarding its products. See Knox College v. Celotex Corp., 117 Ill. App.3d 304, 308, 72 Ill.Dec. 703, 453 N.E.2d 8, 11 (1983) (manufacturer of roofing materials was not in the business of supplying information); Black, Jackson and Simmons, 109 Ill.App.3d at 136, 64 Ill.Dec. at 732, 440 N.E.2d at 284 (sellers of computer and software were not in the business of supplying information); cf. Zimmerman v. Northfield Real Estate, Inc., 156 Ill. App.3d 154, 164, 109 Ill.Dec. 541, 547, 510 N.E.2d 409, 415 (1987) (sellers of real estate, unlike real estate brokers, are not in the business of supplying information). The information must be provided to guide others in their business transactions with third parties — a crucial factor which LT has overlooked.

The information furnished by Peterson in connection with the sale of its assets only facilitated business between Peterson and LT. Such information related strictly to the acquisition of Peterson and was not provided to LT for...