Northbound Grp. Inc. v. Norvax, Inc., Case No. 11 C 6131
| Decision Date | 06 February 2012 |
| Docket Number | Case No. 11 C 6131 |
| Parties | NORTHBOUND GROUP, INC., Plaintiff, v. NORVAX, INC., LEADBOT, LLC, CLINT JONES and MICHAEL AHERN, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER1
Plaintiff Northbound Group, Inc. ("Northbound" or "plaintiff"), has filed a five-count amended complaint against Norvax, Inc. and its CEO, Clint Jones, and Leadbot, LLC, and its CEO, Michael Ahem (collectively, "defendants"), asserting claims of fraud, promissory estoppel, breach of contract, breach of fiduciary duty, and conversion (doc. # 4: Am. Compl.). Presently before the Court is defendants" motion to dismiss Northbound's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).2 For the reasons set forth below, defendants' motion to dismiss is granted in part and denied in part.
We begin with the allegations in the complaint, which we accept as true for purposes of the motion. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). Because the complaint attaches as an exhibit the asset purchase agreement ("APA") between plaintiff and defendant Leadbot, we consider the APA as part of the pleadings for purposes of the motion to dismiss. See Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009) ().
This lawsuit stems from the APA entered into between defendant Leadbot and Northbound on February 27, 2009. In 1998, Benjamin Wagner and Rob McAleer founded Leadbot, a company that sold information about potential customers for life insurance (i.e., "leads") (Compl, ¶¶ 8-10). Leadbot developed some of its own leads and acquired other leads through purchase from companies such as Norvax, a health insurance sales and online marketing technology provider (Id., ¶ 11). At some point, Messrs. Wagner and McAleer incorporated Northbound and became co-owners of that company ). The complaint does not disclose the date of the creation of Northbound, or its relationship to the Leadbot entity that Messrs. Wagner and McAleer founded in 1998.
Plaintiff alleges that under the APA, Northbound sold "substantially all" of its Leadbot assets to defendant Leadbot, a limited liability company, and Leadbot became one of Norvax's brands (Compl, ¶¶ 5,13,16). Mr. Jones signed the APA on behalf of Leadbot, LLC, as its Chief Executive Officer (APA, at 26-27). The complaint alleges that Norvax made the acquisition, and became thesole member of Leadbot, LLC (Compl, ¶¶ 13-14). Defendant Ahern is the Chief Financial Officer of Norvax (Id.., ¶ 6-7).
The stated intent of the APA was for Northbound to sell, and defendant Leadbot to purchase, "all of the assets, intellectual properties, and rights of Northbound" (APA, at 1). This included all property, rights, and other assets connected to or associated with the Northbound business which "expressly includes, but may not be limited to: all owned computers and software located therein, Intellectual Property, all electronic data contained on the servers and computers,..., all intellectual properly rights possessed by Northbound, all internet domains, websites, software applications,. . ., unless specifically excluded in this Agreement" (Id., at ¶ 1(A)). The APA defines "Intellectual Property" as "all intellectual and industrial property . . . including but not limited to": "Software, Databases and fixations thereof;" "Proprietary Information;" "uniform resource locators, web-site addresses, domain names, web-site content and all fixations thereof;" and "any other intangible property similar to any of the above" (Id., at ¶¶ 1(F)(III-VI)). Software, Databases, and Proprietary Information are likewise defined terms in the APA (Id., at ¶¶ 1(D), (Q), (T)).
In consideration of the acquisition of Northbound's assets, defendant Leadbot agreed to pay Northbound a purchase price calculated based on a formula specified in Exhibit A to the APA (APA: Ex. A). Exhibit A to the APA states that the "Purchase Price will be paid through an earn-out" based on the earnings before interest, tax, and amortization ("EBITA") achieved by defendant Leadbot during three one-year periods: (1) 40 percent of Leadbot EBITA from March 1,2009, to March 31, 2010; (2) 25 percent of Leadbot EBITA from April 1, 2010, to March 31, 2011; and (3) 20 percent of Leadbot EBITA from April 1, 2011, to March 31, 2012 (Id.). Plaintiff alleges that also attached to the APA were projections of Leadbot's earnings based on life insurance leads sold over the earn-out period (Compl, ¶ 27). Based on these projections, Northbound would earn $2 million from life insurance leads, and more than $3 million including earnings from health insurance leads (Id., ¶¶ 28-31). During the first three months after the sale, defendant Leadbot agreed to pay Northbound an advance of $10,000 per month, which was to be repaid over the six month period thereafter at a rate of $5,000 per month (APA: Ex. A).
The APA included identical consulting agreements for Messrs. Wagner and McAleer with the newly formed Leadbot, LLC (APA, at ¶ 2(E); APA: Exs. B-C).3 The consulting agreements make all inventions, discoveries, developments, and innovations conceived by Messrs. Wagner and McAleer during the term of, and related to, the consulting agreements the exclusive property of Leadbot, LLC (APA: Ex. B, at ¶ 3; Ex. C, at ¶ 3). All inventions, discoveries, developments, and innovations they may have conceived of prior to the term of the agreement, and which they utilized in rendering their duties to Leadbot, LLC, remained the property of Messrs. Wagner and McAleer but were licensed to Leadbot, LLC, for use in its operations "for an infinite duration" (Id.).
Attached to each consulting agreement was a Schedule A, setting forth the "duties, term, and compensation" of Messrs. Wagner and McAleer (APA: Exs. B and C, Schedule A). Under the consulting agreements, they were required to "manag[ej lead generation, marketing, selling and distribution business," and to "fulfill any other duties reasonably requested by the Company [Leadbot, LLC] and agreed to by the Contractor [Messrs. Wagner and McAleer]" (Id.). Messrs.Wagner and McAleer each were to receive $5,000 per month "[a]s full compensation for the services rendered pursuant to this agreement" (Id.).
Each consulting agreement contained a termination provision, which allowed either party to terminate the consulting agreement at any time with 60 days' written notice, and which further allowed Leadbot, LLC, to terminate the agreement immediately and without prior written notice upon a material breach of the agreement (APA: Exs. B and C, at ¶ 9). The consulting agreements state that they constitute the entire agreement together with attached exhibits, and all earlier agreements, understandings, and representations were terminated (Id., at ¶ 18). Further, no modification of the agreement would be valid unless in writing and signed by the parties (Id., at ¶ 17). The body of the APA does not contain either of these provisions (Compl. ¶ 22; APA).
Under the structure of the APA and the consulting agreements, Messrs. Wagner and McAleer had significant responsibility for generating the business of defendant Leadbot, which in turn was the mechanism for plaintiff to achieve the earn-out that would result in payment of the purchase price. Plaintiff claims that soon after the APA and the attached consulting agreements were signed, defendants prevented Messrs. Wagner and McAleer from fulfilling their duties under the APA. Northbound alleges that defendants promised they would make Leadbot an integral part of Norvax, and provide leads to Leadbot customers using a "bid platform" that awarded leads to the highest bidder (Compl, ¶¶ 18-20). In particular, plaintiff alleges that Mr. Jones said Norvax could supply approximately 500 to 1000 leads each day for Leadbot customers, and further promised that Norvax would provide substantial marketing support to the Leadbot brand, would open a call center in Tempe, Arizona, and would make Leadbot the "Life Division" of Norvax (Id., ¶¶ 21, 23-25).
According to Northbound, after the parties signed the APA, the leads Norvax provided to Leadbot customers were nonexistent or of extremely low quality (Compl, ¶¶ 33-34). Northbound further alleges that in February 2010, Norvax placed low limits on the number of leads that could be awarded to Leadbot bids (Id., ¶¶ 37-38). Then, on April 7, 2010, Norvax implemented a new policy that: (1) limited Leadbot to 20 percent of the available leads if the customer submitting the bid was also a customer of Norvax's competing brand ProspectZone; and (2) limited Leadbot to a maximum of 80 percent of the available leads to customers that were Leadbot" s exclusive customers (Id. ¶¶ 12,40). That year, Northbound also discovered that in the event of two equal customer bids, the bid platform awarded the lead to the older customer, while all of Leadbot's customers were coded as new customers (Id., ¶¶ 42-45). Bids as low as $1.75 submitted by customers of Norvax's other brands were favored over bids as high as $5.51 submitted by Leadbot customers (Id., ¶ 45). Eventually, Norvax prevented the bid platform from awarding any leads to Leadbot bids (Id., ¶ 37).
Northbound alleges that these actions by Norvax caused Leadbot, LLC, to lose sales (Compl, ¶¶ 33-34). This loss of sales decreased Northbound's earnings under the APA, as the purchase price was calculated under a formula based on sales of leads to Leadbot customers (Id., ¶ 49). Furthermore, Northbound alleges that in January 2011, Norvax unilaterally doubled the cost of goods sold attributed to Leadbot's balance sheet, thus decreasing the EBITA and consequently the earn-out under the APA (Id., ¶ 51). Compounding this...
To continue reading
Request your trial