First Commodity Traders v. Heinold Commodities

• Decision Date: 11 April 1984
• Docket Number: No. 81 C 5757.,81 C 5757.
• Citation: 591 F. Supp. 812
• Parties: FIRST COMMODITY TRADERS, INC., Plaintiff, v. HEINOLD COMMODITIES, INC. and Vern Pherson, Defendants.
• Court: U.S. District Court — Northern District of Illinois

591 F. Supp. 812

FIRST COMMODITY TRADERS, INC., Plaintiff, v. HEINOLD COMMODITIES, INC. and Vern Pherson, Defendants.

No. 81 C 5757.

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

April 11, 1984.

COPYRIGHT MATERIAL OMITTED

Sidney L. Rosenfeld, Belle Lind Gordon, Solomon, Rosenfeld, Elliott, Stiefel & Glovka, Chicago, Ill., for plaintiff.

William J. Nissen, Sidley & Austin, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

This diversity action is before the court on defendants' motion for summary judgment on Counts I through IX of plaintiff's eleven-count First Amended Complaint. For the reasons stated below, the court grants defendants' motion.

The three principals of plaintiff First Commodity Traders, Inc. ("FCT") are Robert Gardner, Bruce Zins, and Robert Blankoph (collectively "GZB").¹ Before incorporating FCT, GZB were principals of a New York brokerage firm. GZB apparently did not have a sufficient capital base to support all the commodities trading business they were able to generate, and they proposed an arrangement with defendant Heinold Commodities, Inc. Heinold had enough capital to support the business GZB could generate in New York, and an agreement was reached under which GZB would bring customers to Heinold and service those customers for Heinold, with Heinold and GZB dividing the commissions. GZB thereafter formed FCT, which assumed GZB's role in the relationship with Heinold, pursuant to a Corporate Branch Office Agreement ("Agreement") entered into by Heinold and FCT.

In January 1981 Heinold notified FCT of its intention to terminate the Agreement, and this termination was effected in March 1981. FCT's position is that Heinold deliberately chose to terminate the Agreement at a time when more stringent capital requirements were about to be introduced, so that FCT would find it impossible to transfer customers from Heinold to some other large firms with sufficient capital. In this manner, FCT charges, Heinold was able to retain the customers brought to it by FCT, without continuing to divide commissions with FCT. FCT alleges that defendant Vern Pherson, manager of Heinold's New York office, orchestrated Heinold's termination of the Agreement.

Counts I through III relate to the termination of the Agreement. Counts IV through X relate to disputes that arose before termination. Count XI seeks attorney fees and costs under the Agreement. Pherson is named only in Count III.

Jurisdiction and Choice of Law

FCT brought this lawsuit in the Supreme Court of the State of New York. Heinold removed, on the basis of diversity, to the United States District Court for the Southern District of New York, and that court transferred the case to this court, pursuant to the parties' agreement. On December 12, 1983 this court directed Heinold to show cause why the case should not be remanded to the Supreme Court of the State of New York. Heinold, FCT, and Pherson have submitted memoranda in support of removal jurisdiction, and the court is persuaded that removal was proper. Heinold's removal petition discloses that at the time of removal FCT was a citizen of New Jersey, Heinold was a citizen of Delaware and Illinois, and Pherson was a citizen of New Jersey. Since FCT and Pherson both were citizens of New Jersey, there was not complete diversity as required by 28 U.S.C. § 1332. As Heinold and FCT argue, Count III of the original complaint, seeking an accounting from Heinold, would have been removable if sued upon alone, and was separate and independent from the counts relating to termination, one of which named Pherson.² Heinold therefore was entitled to remove the entire action under 28 U.S.C. § 1441(c). Upon removal under § 1441(c), the district court may elect to retain the entire case, or it may elect to remand the matters that otherwise could not have been removed. The court elects to retain the entire case. The court need not pass upon Heinold's allegation that Pherson was joined as a sham defendant to defeat diversity.

Because this case was transferred from the Southern District of New York, this court is bound to apply the choice of law rules applied by the courts of the State of New York. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 259 n. 8, 70 L.Ed.2d 419 (1981). The parties have argued all matters under Illinois law, and the court concurs in this choice of law. Paragraph 11 of the Agreement provides:

This Agreement shall be interpreted and construed according to the laws of the State of Illinois, which shall govern the rights, obligations and liabilities of the parties hereto.

(First Amended Complaint, Ex. A.) New York courts honor such governing law provisions, so long as the transaction bears some reasonable relation to the state whose law is designated. Gambar Enterprises, Inc. v. Kelly Services, Inc., 69 A.D.2d 297, 418 N.Y.S.2d 818 (1979); see also Gruson, Governing Law Clauses in Commercial Agreements—New York's Approach, 18 Colum.J. Transnat'l L. 323 (1980). The Agreement in this case bears a reasonable relation to Illinois, and the court will honor Paragraph 11. It should be noted that Count I (unjust enrichment) and Count III (tortious interference or other business tort) are not contract actions. The court believes it appropriate to apply Paragraph 11 to these counts, since they are closely related to the parties' contractual relationship.³

Count II — Breach of Contract

In Count II FCT alleges that Heinold's termination of the Agreement constituted a breach of contract. Heinold argues that the Agreement was terminable at will; if it was not terminable at will, Heinold also argues, termination was justified because FCT had breached the Agreement. The court accepts Heinold's arguments.

Under Illinois law, a contract with no cognizable duration term is a contract terminable at will, by operation of law. E.g., Mann v. Ben Tire Distributors, Ltd., 89 Ill.App.3d 695, 697, 44 Ill.Dec. 869, 870, 411 N.E.2d 1235, 1236 (4th Dist.1980).⁴ A duration term need not specify a date or a period of time; it can identify some event which will signal termination, even if it is not clear, ex ante, when that event will take place. Peters v. Health and Hospitals Governing Commission, 91 Ill.App.3d 1104, 47 Ill.Dec. 648, 415 N.E.2d 653 (1st Dist.1980), rev'd on other grounds, 88 Ill.2d 316, 58 Ill.Dec. 877, 430 N.E.2d 1128 (1981), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982). Heinold's position is that the Agreement specifies no duration. FCT "contends that the agreement between the parties does contain a term. The parties agreed that the relationship would continue so long as it remained profitable ... and otherwise could be terminated only for cause." (FCT memo filed 9/26/83, p. 5.)

The language of the Agreement itself certainly is insufficient to support FCT's contention. FCT relies on two passages from the Agreement. The opening sentence of Paragraph 6 states:

Heinold shall pay compensation to FCT dependent upon the profitable operation of the branch office and the total cash and open trade equity of the branch.

Paragraph 17 states:

Either party may unilaterally terminate this Agreement for a breach of any of the paragraphs of this Agreement.

Paragraph 6 obviously is directed at defining FCT's compensation, and it does not suggest that profitability shall determine the duration of the Agreement. FCT argues that Paragraph 17 supports its position, because that paragraph would be superfluous in a contract terminable at will. The court agrees that Paragraph 17 arguably may indicate that the parties did not intend to create a contract terminable at will. In the absence of a cognizable duration term, however, a contract will be terminable at will by operation of law, whether or not that was the parties' specific intent.⁵

Heinold has argued persuasively that the court should not consider parol evidence in construing the Agreement, citing Union Special Sewing Machine Co. v. Lockwood, 110 Ill.App. 387 (1st Dist.1903). Even if parol evidence is considered, however, the court holds that FCT has not raised a genuine issue of material fact in support of its construction of the Agreement.

FCT relies on the following items of parol evidence. GZB's initial overture to Heinold was Gardner's July 1977 telephone call to Ralph Klopfenstein, president of Heinold. In the course of making his proposal, Gardner stated to Klopfenstein that GZB were seeking to find a permanent relationship with a major commodities firm to whom GZB could transfer all their business, and he said also that a permanent relationship with Heinold would be mutually beneficial. (Gardner aff. ¶ 2.) Gardner's affidavit also discusses some of the accounting disputes between FCT and Heinold. In this connection Gardner states:

We wished no quarrel with Heinold because we were delighted with the business arrangement and at no time considered that it was anything but permanent, so long as it remained profitable to Heinold. As a result we acquiesced in decisions made by Heinold from time to time which we considered unfair.

(Gardner aff. ¶ 6.)

After Gardner's phone conversation with Klopfenstein, Zins met with Klopfenstein and Robert Fivian, a Heinold employee, at Heinold's Chicago offices. Zins projected gross annual commissions in excess of $500,000 and net annual commissions in excess of $250,000. Zins states:

I told Klopfenstein and Fivian that we desired a permanent relationship with Heinold in as much as we would be closing up our present corporation. Fivian stated ... the relationship would last so long as we were able to deliver net and gross commissions in quantities not less than our projections.... After the meeting and prior to September 1, 1977 I engaged in one or two telephone conversations with Fivian in the course of which Fivian stated that Heinold had decided to proceed on the basis of our discussions.

(Zins aff. ¶ 1.)

GZB began work as employees of...