Ray Dancer, Inc. v. DMC Corp.

• Citation: 171 Ill.Dec. 824,230 Ill.App.3d 40,594 N.E.2d 1344
• Decision Date: 05 June 1992
• Docket Number: No. 2-91-0552,2-91-0552
• Parties: , 171 Ill.Dec. 824, 1992-2 Trade Cases P 69,908 RAY DANCER, INC., Plaintiff-Appellant and Counterdefendant, v. The DMC CORPORATION, Defendant-Appellee (Leisure Arts, Inc., Defendant and Counterplaintiff).
• Court: United States Appellate Court of Illinois

Page 1344

594 N.E.2d 1344 230 Ill.App.3d 40, 171 Ill.Dec. 824,
1992-2 Trade Cases P 69,908 RAY DANCER, INC., Plaintiff-Appellant and Counterdefendant,
v.
The DMC CORPORATION, Defendant-Appellee (Leisure Arts, Inc.,
Defendant and Counterplaintiff). No. 2-91-0552. Appellate Court of Illinois,
Second District. June 5, 1992.

Page 1346

[230 Ill.App.3d 43] [171 Ill.Dec. 826] Stanley A. Walton, III, Bart A. Lazar, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Randall J. Yorke, Naperville, for Ray Dancer, Inc.

Blake L. Harrop, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Helene D. Jaffe, Weil, Gotshal & Manges, New York City, for The D.M.C. Corp.

Justice UNVERZAGT delivered the opinion of the court:

This is an appeal by the plaintiff, Ray Dancer, Inc. (Dancer), from the circuit court of Du Page County's denial of leave to file a second amended complaint as to counts I, II, III and IV after dismissal with prejudice of those counts against the defendant, The DMC Corporation[230 Ill.App.3d 44] (DMC), alleging tortious interference with Dancer's business and contractual relationships with Leisure Arts, Inc. (Leisure), and from summary judgment entered on counts V, VI and VII of its second amended complaint alleging antitrust violations against DMC (Ill.Rev.Stat.1989, ch. 110, par. 2-1005). The tort counts were dismissed in 1987 but were not final and appealable until the recent disposition of the antitrust counts.

Page 1347

[171 Ill.Dec. 827] Dancer voluntarily dismissed counts VIII and IX of its second amended complaint concerning packaging of its embroidery floss alleging estoppel due to detrimental reliance and waiver. Dancer previously unsuccessfully appealed in this court the dismissal of counts X, XI and XII of its complaint alleging breach of contract, misrepresentation and misrepresentation with malice. (Ray Dancer, Inc. v. DMC Corp. (1988), 175 Ill.App.3d 997, 125 Ill.Dec. 447, 530 N.E.2d 605.) A counterclaim filed against DMC by Leisure was also voluntarily dismissed by Leisure. Accordingly, jurisdiction in this court is evident.

The primary issues are whether the court erred in denying amendment of the tort counts and granting summary judgment as to the antitrust counts.

Dancer, an importer of various home sewing and handicraft products, was seeking a national distributor to handle a line of embroidery floss (thread) for its West German manufacturer, Madeira Garn Fabrik K.G. (Madeira). To that end, Dancer contracted with Leisure to be the exclusive distributor of the Madeira line of embroidery floss.

At that time, Leisure was a principal distributor of another line of embroidery floss imported by DMC and manufactured by DMC's French parent corporation. DMC is an acknowledged giant in the embroidery floss market in the United States. Leisure's stated motivation in taking on the Madeira line of floss was to provide an alternative line of high-quality embroidery floss at a lower cost to its home-craft shop customers which could then compete more effectively with the chain discount and retail stores. Leisure planned to market the Madeira floss in a full color range using DMC's numerical color identification code system with the addition of an "LA" prefix on its own labels. Leisure believed the DMC color code numbering system to be the standard in the market; DMC color numbers were widely referenced in craft pattern chart books.

Upon learning of Leisure's plan with regard to the Madeira floss, DMC registered its objection with Leisure concerning Leisure's intention to market the Madeira floss, to use DMC's color numbers and trade dress (referring to the two black-and-gold paper bands wrapped around each end of the skein of embroidery floss) on the Madeira floss, and to permit display in some instances of the Madeira floss in [230 Ill.App.3d 45] DMC's own retail display cabinets. DMC charged that Leisure's marketing plan would be unfair competition. DMC indicated to Leisure that if it proceeded with such plans, DMC would terminate its business relationship with Leisure. Leisure responded that it would proceed and that if DMC ceased its business relationship with it, Leisure would sue DMC.

DMC's subsequent termination in September 1985 of business relations with Leisure as to all of its products, not just its embroidery floss, was followed, in chronological order, by DMC's prefiling notice to Leisure on October 30 of its intent to seek a temporary restraining order in Federal district court in New York to prevent Leisure's use of DMC's color numbers or trade dress, Leisure's immediate filing that same day of its own suit against DMC in Federal district court in Little Rock, Arkansas, for antitrust violations, and the filing on October 31 of DMC's previously noticed complaint in New York alleging trademark infringement and unfair competition under Federal and State laws, and seeking emergency and permanent injunctive relief. The New York district court issued a temporary restraining order prohibiting Leisure from selling any embroidery floss bearing the DMC trade dress or color numbers and set a November 7 preliminary injunction hearing date.

Before that hearing date arrived, Leisure and DMC reached a settlement which was approved by the court on November 6, 1985. By the terms of the settlement agreement, Leisure and DMC each agreed to dismiss its action against the other with prejudice simultaneously upon execution of the agreement. Inter alia, Leisure agreed to refrain from distributing embroidery floss in packaging bearing trade dress which was confusingly similar to DMC's or

Page 1348

[171 Ill.Dec. 828] using the DMC color numbers. The agreement expressly provided:

"Nothing contained herein prevents Leisure Arts from selling, consigning or otherwise returning products to [Madeira], Ray Dancer or any other person or party to whom either Madeira or Ray Dancer assign their respective rights to receive such goods. It is further agreed that nothing herein prohibits Leisure Arts from distributing or selling such products as long as they do not bear the DMC trade dress and/or DMC color numbers." (Emphasis added.)

DMC agreed to reinstate Leisure as a distributor of DMC products effective January 1, 1986, on the same terms and conditions and in the same manner as existed for any DMC distributor prior to Leisure's termination in September 1985.

[230 Ill.App.3d 46] After the settlement was reached, Leisure ceased further purchases of the Madeira embroidery floss from Dancer. Leisure's stated reasons for ceasing such purchase was (1) that neither it nor Dancer, upon request, was willing to spend the money to relabel the Madeira floss already ordered; (2) the Madeira product would be more difficult to market without the use of DMC's distinctive color numbers; and (3) initial sales of the Madeira line of floss met with an unexpected degree of resistance and sales were disappointing.

In discussions subsequent to the DMC/Leisure settlement with Leisure's president, Steve Patterson, Dancer--under the impression that Leisure was ordered as a result of the New York court proceedings not to buy floss from Dancer and relying strictly on Patterson's statements and without having seen any of the court documents--did not further promote the sale of Madeira floss in the United States until it later learned that there was no court ruling prohibiting its sale of the Madeira floss as it was then banded and boxed. As alleged by Dancer, Leisure's cessation of business with Dancer caused a negative cash-flow chain reaction in Dancer's business and, ultimately, Dancer dissolved in 1986. Dancer became suspicious about what really occurred in the New York lawsuit when it began to notice that Leisure was not pursuing its previously conceived plan to develop its own private label line of floss. After reading a summary of the New York court proceedings, Dancer concluded that some "backroom" deal had been struck between Leisure and DMC since, Dancer opined, Leisure would have had nothing to lose by proceeding with the injunction hearing, that is, Leisure would either be in exactly the same position it then was due to the temporary restraining order or the court would rule that Leisure could market the Madeira floss as planned. After consulting with counsel, Dancer filed the instant cause against DMC and Leisure.

TORT COUNTS

We first consider whether the trial court erred in denying Dancer leave to file its second amended tort counts I, II, III and IV. On June 3, 1987, the trial court granted DMC's motion to dismiss with prejudice the tortious interference counts of Dancer's first amended complaint for failure to state a claim upon which relief could be granted. The court denied Dancer's motions for clarification and reconsideration and to file second amended tort counts. The trial court's order was not final and appealable until now, after final disposition of the remaining counts and Leisure's voluntary dismissal of its counterclaim against Dancer.

[230 Ill.App.3d 47] In both the first and second amended complaints, count I alleged that DMC's conduct constituted an intentional and unjustifiable interference in the pending, and future, business relationship between Dancer and Leisure. Count II alleged DMC's conduct constituted an intentional and improper interference by DMC with the performance of the contract between Dancer and Leisure by inducing, influencing, or otherwise causing Leisure not to perform the Dancer/Leisure contract. Counts III and IV charged the conduct in counts I and II, respectively, was done with malice. Dancer states the second amended complaint "additions" to the general allegations of the complaint were that (1) the settlement

Page 1349

[171 Ill.Dec. 829] agreement between DMC and Leisure included "an understanding between DMC and Leisure that Leisure not carry or use or deal in Dancer floss"; (2) that DMC's New York suit against Leisure was "a sham and in bad faith"; and (3) that the...