H.C. Duke & Son, LLC v. Prism Mktg. Corp., Case No. 4:11-cv-04006-SLD-JAG
| Decision Date | 30 September 2013 |
| Docket Number | Case No. 4:11-cv-04006-SLD-JAG |
| Court | U.S. District Court — Central District of Illinois |
| Parties | H.C. DUKE & SON, LLC, Plaintiff, v. PRISM MARKETING CORPORATION, SUPERIOR QUALITY EQUIPMENT, INC., STEVEN LEVINE, and DOES 1 to 100, Defendants. |
Plaintiff H.C. Duke & Son, LLC's seeks, among other things, a declaratory judgment as to its rights and duties under a Distributor's contract it entered into with Defendant Prism Marketing Corporation. Duke claims that it properly terminated the agreement; Prism disagrees. Duke further seeks relief against Prism and Defendant Superior Quality Equipment, which Duke alleges to be Prism's alter ego, for breach of contract as well as to foreclose on security interests in collateral held by Duke and Prism. Finally, Duke seeks to enforce an alleged agreement by Defendant Steven Levine to personally guarantee payment of Prism's debts to Duke.
Defendant Prism counterclaimed, alleging breach of contract, multiple counts of fraud, tortious interference, and violation of Illinois and California franchise statutes. Now before the Court is Duke's Motion to Dismiss several of Prism's counterclaims. Duke's Motion for Leave to File Replies, ECF No. 75, Ex. 1, is GRANTED; ECF No. 75, Ex. 2, is moot in light of Order of July 25, 2013, ECF No. 104. For the reasons set forth below, the Court GRANTS in part and DENIES in part Duke's Motion to Dismiss, ECF No. 67.
Duke produces and distributes a line of soft-serve ice cream machinery and related equipment marketed under the Electro Freeze trademark. On August 25, 2003, Duke and Prism executed an Electro Freeze Distributor's Agreement ("Agreement") under which Prism would distribute Duke's equipment. The equipment was to be shipped from Illinois to portions of California and Nevada. The agreement expressly prohibited modifications of its terms unless the modification was in writing and signed by both parties. Prism argues that Duke waived this written-modification requirement through an attempted oral modification. Duke's performance allegedly modified the Agreement whereby Duke agreed to correct and/or credit Prism for defective equipment supplied by Duke. The Agreement provides for one-, two-, and five-year limited warranties for various Duke machine parts. ECF No. 105 at 27, Ex. A. In addition to its attempted modification theory, Prism separately alleges that Duke breached this and other express warranties, a claim not at issue here. ECF No. 64 at 20-23.
Eventually, on January 18, 2011, Duke notified Prism that it was invoking the termination provision of the Agreement. Prism allegedly contested this termination. In response, Duke filed a complaint in this Court seeking a declaration of the parties' rights and duties under the Agreement regarding termination and amounts allegedly due Duke under the Agreement, as well as to foreclose security interests Duke held in Prism and Superior assets. Duke filed an amended complaint on June 23, 2011, followed by a second amended complaint on September 26, 2011. On July 30, 2012, Defendants filed their Answer, wherein Prism included a nine-count counterclaim against Duke. Prism filed an amended counterclaim on September 21, 2012, which is the operative pleading here, ECF No. 64. On October 5, 2012, Duke moved to dismiss Counts II, III, IV, V, VI, VII, VIII and IX of Prism's amendedcounterclaim for failure to state a claim. Duke's Motion to Dismiss, ECF No. 67, is now before the Court.
Rule 8(a) of the Federal Rules of Civil Procedure requires a pleading to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a). The pleading may be dismissed for failure to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss under Rule 12(b)(6), a complaint must state a claim to relief that is "plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Aschroft v. Iqbal, 556 U.S. 662, 678 (2009). The Seventh Circuit has identified the practical requirements of Twombly and Iqbal for federal pleading:
First, a plaintiff must provide notice to defendants of her claims. Second, courts must accept a plaintiff's factual allegations as true, but some factual allegations will be so sketchy or implausible that they fail to provide sufficient notice to defendants of the plaintiff's claim. Third, in considering the plaintiff's factual allegations, courts should not accept as adequate abstract recitations of the elements of a cause of action or conclusory legal statements.
Duke has moved to dismiss the following of Prism's counterclaims: Count II (Breach of Agreement—Course of Performance), Count III (Fraud), Count IV (Illinois Consumer Fraud Act), Count V (Fraudulent Concealment), Count VI (Tortious Interference With Contractual Relations), Count VII (Tortious Interference With Prospective Economic Advantage), CountVIII (Violation of Illinois Franchise Disclosure Act of 1987), and Count IX (Violation of California Franchise Relations Act). The Court will address each in turn.
Count II of Prism's counterclaim alleges that Duke breached a term of the Agreement that was established through an attempted oral modification. ECF No. 64 at 23. Duke argues that this claim should be dismissed because the Agreement prohibits modifications unless they are in writing and signed by both parties. The Agreement provides: "No changes, modifications, or alterations of the terms of this Agreement, except as otherwise herein provided, shall be valid and binding unless reduced to writing and signed by both Duke and the Distributor." ECF No. 105, Ex. A at ¶ 13. In this provision, Duke argues, the parties contracted away the ability to modify the terms of the Agreement through course of performance alone. The Illinois Commercial Code generally enforces such a restriction on unwritten modifications. See 810 ILCS 5/2-209(2) ()
Prism counters that Duke waived the prohibition on unwritten modifications. The same provision of the Illinois Commercial Code that recognizes restrictions on unwritten modifications also provides that an attempted unwritten modification "can operate as a waiver." 810 ILCS 5/2-209(4). The Comment to section 209 indicates that subsection 4 is intended "to prevent contractual provisions except as through signed waiver from limiting in other respects the legal effect of the parties' actual later conduct." Id. cmt. 4. When a party alleges that an attempted modification constituted a waiver, that party must show either (1) it reasonably relied on the other party's waiver of the requirement of a writing or (2) that the waiver was clear andunequivocal. Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 297-98 (7th Cir. 2002) (citations omitted).
To defeat Duke's Motion to Dismiss, therefore, Prism must plausibly allege that Duke waived the Agreement's ban on unwritten modifications because either it reasonably relied on Duke's purported waiver, or that Duke clearly and unequivocally waived the ban on unwritten modification provision. In this case, Prism alleges that it reasonably relied on Duke's attempted modification. Prism pleaded that the parties' conduct established an unwritten understanding, "whether or not so specified" in the Agreement, that it was to be credited for its expenses to repair or replace defective equipment supplied to it by Duke. The credit line to Prism was to increase in accordance an oral agreement with Duke. ECF No. 64 at 23-24. Prism further alleged that it performed its duties under this unwritten understanding, with Duke's knowledge and acquiescence, but Duke failed to provide the agreed-upon credit. ECF No. 64 at 24. Thus, Prism has made allegations which, accepted as true at this stage, stake out a plausible claim that Duke waived the written modification requirement and Prism reasonably relied on this waiver. See Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009). Accordingly, Duke's Motion to Dismiss Count II is denied.
Defendants' counterclaims include fraud (Count III), violation of the Illinois Consumer Fraud Act (Count IV) and fraudulent concealment (Count V). These claims of, and sounding in, fraud fail to meet the heightened pleading standard required under the Federal Rules.
The Federal Rules of Civil Procedure impose a heightened pleading standard for fraud claims, requiring that a party "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). This particularity has been described as requiring that the party alleging fraudprovide the "who, what, when, where and how." DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). Specifically, this means alleging (1) the identity of the person who made the misrepresentation, (2) the time, place, and content of the misrepresentation, and (3) the method by which the misrepresentation was communicated to the plaintiff. Windy City Metal Fabricators v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 668 (7th Cir. 2008) (internal citation and quotation marks omitted). In addition to preserving a defendant's reputation against unfounded charges of fraud, Ackerman v. Northwest Mutual Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999), the fundamental concern of providing fair notice drives Rule 9(b) and necessitates this specificity, see Vicom, Inc. v. Harbridge Merch....
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