McIntosh v. Magna Systems, Inc.

• Decision Date: 03 June 1982
• Docket Number: No. 81 C 7231.,81 C 7231.
• Citation: 539 F. Supp. 1185
• Parties: William A. McINTOSH, Plaintiff, v. MAGNA SYSTEMS, INC., an Illinois Corporation, Wilbur S. Edwards, James F. Griffin, and Zed R. Daniels, Sr., Defendants.
• Court: U.S. District Court — Northern District of Illinois

539 F. Supp. 1185

William A. McINTOSH, Plaintiff, v. MAGNA SYSTEMS, INC., an Illinois Corporation, Wilbur S. Edwards, James F. Griffin, and Zed R. Daniels, Sr., Defendants.

No. 81 C 7231.

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

June 3, 1982.

COPYRIGHT MATERIAL OMITTED

Daniel C. Sullivan, Vytas P. Ambutas, Thomas M. O'Brien, Sullivan & Associates, Ltd., Chicago, Ill., for plaintiff.

Francis X. Grossi, Jr., Howard J. Stein, (Daniels), Katten, Muchin, Zavis, Pearl & Galler, Chicago, Ill., Terrence Leonard, (Magna) Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Plaintiff William A. McIntosh, a citizen of North Carolina, brought this twelve-count complaint against Illinois defendants, Magna Systems, Inc. ("Magna"), Wilbur S. Edwards ("Edwards"), James F. Griffin ("Griffin"), and Zed R. Daniels, Sr. ("Daniels"), alleging breach of contract, quantum meruit, fraudulent misrepresentation, intentional interference with prospective business opportunities and intentional interference with a contractual relationship. Diversity jurisdiction is alleged pursuant to 28 U.S.C. § 1332 (1976). Presently before the Court are the defendants' various motions to dismiss all twelve counts of this complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). For the following reasons, defendants' motions are granted in part and denied in part.

The plaintiff and Magna entered into an agreement on or about May 4, 1978, which is the subject matter of this litigation. The agreement purportedly provided that in return for plaintiff's assistance in the development, acquisition, marketing, production and distribution of Magna educational materials to colleges and universities, Magna would reserve an annual fee of $35,000 for three years on plaintiff's behalf. Magna also promised to provide plaintiff the option of purchasing 25 percent of Magna's authorized stock in lieu of payment of the accumulated annual fee at the end of the three-year period. Although plaintiff has allegedly performed his obligations under the terms and conditions of the agreement, Magna, through its defendant directors, Edwards, Griffin and Daniels, has refused to pay plaintiff his accumulated annual fee and has amended its articles of incorporation so as to defeat plaintiff's right to purchase 25 percent of Magna's authorized stock. The specific factual and legal arguments arising from these incidents will be discussed seriatim. However, the Court initially must determine, however, whether Illinois or North Carolina law applies in this case.

1. Choice of Law

In a diversity action, the choice of law rules of the state in which the district court is located apply. Klaxon Co. v. Stenton Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Pittway Corp. v. Lockheed Aircraft Corp., 641 F.2d 524, 526 (7th Cir. 1981). In the present case, therefore, plaintiff's allegations require the Court to look to Illinois contract and tort choice of law principles. In contract cases, the general Illinois rule is that if the contract was to be performed in more than one state, as here,¹ the law of the place of execution governs. P. S. & E., Inc. v. Selastomer Detroit, Inc., 470 F.2d 125, 127 (7th Cir. 1972). When the place of contract execution implicates more than one jurisdiction, as here,² Illinois courts will adhere to the "most significant contacts" test to determine which law applies. Adams Laboratories, Inc. v. Jacobs Engineering Co., 486 F.Supp. 383, 389 (N.D.Ill.1980); Ehrman v. Cook Electric Co., 468 F.Supp. 98, 100 (N.D.Ill.1979). Similarly, in tort cases, Illinois will adhere to the "most significant relationship" test to determine which law applies. Evra Corp. v. Swiss Bank Corp., 522 F.Supp. 820, 827 (N.D.Ill. 1981); Ingersoll v. Klein, 46 Ill.2d 42, 45, 262 N.E.2d 593 (1970).

The "most significant contacts" test applicable to actions sounding in contract requires examination of the following five factors: (1) the place of "contracting" (i.e. the place where the last act necessary to make the contract binding occurred); (2) the place of negotiation; (3) the place of performance; (4) the situs of the subject matter of the contract; and (5) the domicile, residence, place of incorporation, and place of business of the parties. Restatement (Second) of Conflicts § 188 (1969). Although Illinois and North Carolina both have substantial contact with plaintiff's contract claims, on balance the Court finds that Illinois law should govern resolution of those claims.

Plaintiff is a North Carolina citizen and resident. Magna is a citizen of Illinois and has its principle place of business in Illinois. The individual defendants are all Illinois citizens and residents. We are unable to determine from this record the place of contracting or the place of negotiation. It is clear, however, that plaintiff's place of performance involved several states in addition to North Carolina. Defendants' reciprocal performance under the contract was expected to occur in Illinois. Moreover, the subject matter of this contract, either the educational materials plaintiff was expected to promote or the compensation plaintiff expected to collect, was located in Illinois. Given that the non-performance alleged in plaintiff's complaint occurred exclusively in Illinois, the Court finds that Illinois has the most significant contact with the subject matter of this litigation as well as the most significant interest in resolving this dispute.

The "most significant relationship" test applicable to actions sounding in tort requires examination of the following four factors: (1) the place of the injury; (2) the place where the conduct causing the injury occurred; (3) the domicile, place of incorporation and place of business of the parties; and (4) the center of gravity of the parties' relationship. Restatement (Second) of Conflicts § 145 (1969). In the present case, although the place of plaintiff's injury would appear to be North Carolina, the conduct which caused the injury occurred in Illinois and the center of gravity of the parties' relationship was also in Illinois. Therefore, Illinois law should govern resolution of the tort claims raised in this case.

Within the framework of Illinois substantive law, the Court will not dismiss a complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to the relief requested. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). As the Seventh Circuit has noted:

Under the Federal Rules of Civil Procedure, it is well established that, on a motion to dismiss, a complaint must be construed in the light most favorable to the plaintiff, the allegations thereof being taken as true; and if it appears reasonably conceivable that at trial the plaintiff can establish a set of facts entitling him to some relief, the complaint should not be dismissed.

Mathers Fund, Inc. v. Colwell Co., 564 F.2d 780, 783 (7th Cir. 1977). Applying this standard to the present case, defendants' motions to dismiss will be granted as to Counts IV, V, VII, X and XI, and denied as to Counts I, II, III, VI, VIII, IX and XII.

2. Breach of Contract

Count I of the complaint seeks damages resulting from Magna's alleged breach of contract in failing to reserve plaintiff's $35,000 annual fee and its attempt to defeat his option to purchase Magna stock despite his full and complete performance of his obligations under the agreement. Count V of the complaint seeks punitive damages from Magna on the theory that this breach was wilful, unlawful, knowing and malicious. Magna moves to dismiss these counts on the theory that the complaint does not adequately allege whether the agreement in question was oral or written. If the contract was written, Magna contends that the documents attached to the complaint purportedly evidencing the contract lack sufficient specificity and mutuality of obligation. If the contract was oral, Magna contends that the terms as alleged violate the Statute of Frauds. Ill.Rev.Stat. 1979, ch. 59, § 1.

Plaintiff's complaint as well as his responsive brief make clear that the parties never entered into a formal written contract of employment. The letters exchanged between the parties in May and June, 1978, do not themselves rise to the level of an offer and acceptance.³ The fundamental issue, therefore, is whether the oral agreement manifested by those letters is barred by the Statute of Frauds.⁴

Under Illinois law, a contract is voidable only if it is impossible of performance within one year. Sinclair v. Sullivan Chevrolet Co., 45 Ill.App.2d 10, 14, 195 N.E.2d 250 (3d Dist.), aff'd., 31 Ill.2d 507, 202 N.E.2d 516 (1964). Although the agreement at issue here envisioned a three-year term, the Statute of Frauds cannot be invoked as a defense in this case because plaintiff has alleged full performance of his obligations under the agreement. It is axiomatic that complete performance on one side of an oral agreement bars application of the Illinois Statute of Frauds.⁵ Welt v. Koehring Co., 482 F.Supp. 437, 442 (N.D.Ill. 1979); Mapes v. Kalva Corp., 68 Ill.App.3d 362, 368, 24 Ill.Dec. 944, 386 N.E.2d 148 (2d Dist. 1979). Accordingly, the Court will not dismiss Count I of plaintiff's complaint.

Magna urges this Court to dismiss Count V of the complaint on the theory that punitive damages are not recoverable in an action for breach of contract. As a general rule, Illinois courts will not award punitive damages for actions grounded solely in breach of contract. Sabath v. Mansfield, 60 Ill.App.3d 1008, 1015, 18 Ill.Dec. 8, 377 N.E.2d 161 (1st Dist. 1978). Only when the breach itself constitutes an independent and wilful tort accompanied by fraud, malice, wantonness or oppression, will Illinois permit...