Mizer v Nexstar

Filing 15

OPINION: The Motion to Dismiss is GRANTED IN PART and DENIED IN PART. The Court STRIKES the request for punitive damages in Count I. Defendant is DIRECTED to answer Counts I and II on or before February 17, 2015. (SEE WRITTEN OPINION) Entered by Judge Sue E. Myerscough on 2/3/2015. (GL, ilcd)

E-FILED

Tuesday, 03 February, 2015 10:04:34 AM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
DAVID MIZER ENTERPRISES,
INC.,
Plaintiff,
v.
NEXSTAR BROADCASTING,
INC.,
Defendant.

)
)
)
)
)
)
)
)
)
)
)

No. 14-CV-2192

OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court on Defendant Nexstar
Broadcasting, Inc.’s Motion to Dismiss Counts I and II (d/e 6). The
Motion is GRANTED IN PART and DENIED IN PART. The Court
strikes the request for punitive damages in Count I but otherwise
finds Plaintiff has stated a claim in Counts I and II.
I. BACKGROUND
In August 2014, Plaintiff, David Mizer Enterprises, Inc., filed
a four-count Complaint against Defendant alleging claims of

breach of contract (Count I), conversion (Count II), quantum
meruit (Count III), and copyright infringement (Count IV).
The Complaint alleges that Plaintiff is a corporation that
provides technology services. Compl. ¶ 3. Plaintiff created a
business model and supporting technology for providing services to
automobile dealers. Id. ¶ 5. The services included a system to
manage inventory and facilitate web-based automobile shopping.
Id.
Defendant operates television stations throughout the
country. Id. ¶ 6. Defendant wanted to use Plaintiff’s product with
its current and prospective automotive dealership advertising
customers. Id.
In August 2008, Plaintiff and Defendant agreed to a written
Licensing Agreement with a term of January 1, 2008 through
December 31, 2010. Id. ¶ 8. Pursuant to the Licensing Agreement,
Defendant was granted use of Plaintiff’s proprietary software and
business model for three years in exchange for certain fees as
outlined in the Agreement. Id. ¶ 9. The Licensing Agreement
prohibited Defendant from using, making available, selling,

Page 2 of 17

disclosing, or otherwise communicating to any third party any
confidential information:
LICENSEE will not, directly or indirectly, use, make
available, sell, disclose, or otherwise communicate to
any third party other than in his assigned duties and for
the benefit of the COMPANY, and of the COMPANY’s
Confidential Information, either during or after his
relationship with the COMPANY, without the prior
written approval of the President of the COMPANY.
LICENSEE acknowledges that he is aware that the
unauthorized disclosure of Confidential Information of
the COMPANY may be highly prejudicial to its interests,
an invasion of privacy, and an improper disclosure of
trade secrets, and may subject the LICENSEE to legal
liability for damages or to injunctive relief.
Compl. ¶27; Licensing Agreement ¶ 7w. The Licensing Agreement
required that, upon request or termination of the agreement,
Defendant return all materials and writings received from, created
for, or belonging to Plaintiff. Licensing Agreement ¶ 7y.
During the contract period, Defendant used Plaintiff’s
software, support, and business model. Compl. ¶ 10. Pursuant to
the Licensing Agreement and the protections therein, Plaintiff
allowed Defendant to “host proprietary and copyrighted pages
(code) owned by [Plaintiff] on [Defendant] servers.” Id. ¶ 11. This
gave Defendant the ability to add and remove software from its

Page 3 of 17

station websites. Id. Defendant also had the ability to review the
participating dealerships for each of its station websites. Id.
Defendant’s Springfield, Missouri market (the Missouri
market) was the most successful organization that used Plaintiff’s
software and business model during the contract term. However,
the Missouri market allegedly misappropriated Plaintiff’s
proprietary business model for its own use and began to develop
its own comparable software with the assistance of at least two
outside vendors, Blue Host and Red Crow Marketing, as well as
potential and future shareholders in Performance Team, LLC. Id. ¶
16. The Missouri market intended to own and market its own
automotive solution once the contract with Plaintiff expired. Id. In
June 2012, the Missouri market, along with shareholders of
Performance Team, LLC, copied Plaintiff’s actual software code
without authorization of Plaintiff. Id. ¶ 17.
Defendant continued to use Plaintiff’s product after the
contract term expired (January 1, 2011 until early February 2013).
Compl. ¶ 19. Defendant failed to pay Plaintiff for its use of the
software and business model during the contract term and after
the contract had expired. Id. ¶¶ 20, 21. Defendant also failed to
Page 4 of 17

pay Plaintiff for its misappropriation and copyright infringement of
its software and business model. Id. ¶ 23.
In Count I of the Complaint, Plaintiff alleges that Defendant
breached the Licensing Agreement by (1) failing to pay $332,925
due under the terms of the Licensing Agreement and following the
expiration of the Licensing Agreement; and (2) disclosing Plaintiff’s
business model and confidential information to at least two third
party companies, Blue Host and Red Crow Marketing, as well as
the potential and future shareholders of Performance Team, LLC.
Compl. ¶¶ 26, 28. Plaintiff also alleges that Defendant acted in
bad faith and that Plaintiff is entitled to punitive damages.
Specifically, Plaintiff alleges that Defendant “knew of
attempts to appropriate and use [Plaintiff’s] software and business
model on company time and with company resources and failed to
direct that they cease and desist from such activity.” Compl. ¶
31(a). Plaintiff also alleges that Defendant failed to cooperate in
any way to assist in billing or resolving any payment issues. Id. ¶
31(b). Finally, Plaintiff alleges that Defendant failed to negotiate a
resolution to the contract in good faith. Id. ¶ 31(c). Plaintiff seeks
actual damages, lost profits, consequential damages, punitive
Page 5 of 17

damages, interest, costs, reasonable attorney’s fees, and any other
appropriate relief.
In Count II, Plaintiff alleges that Defendant’s unauthorized
use of Plaintiff’s proprietary software after expiration of the
licensing agreement and Defendant’s authorized copying of the
software code and technology of Plaintiff for use at Defendant and
other media organizations constitutes conversion. Compl. ¶¶ 34,
35. Plaintiff also alleges that Defendant’s use of the software code
belonging to Plaintiff to create a similar platform that had the same
look and feel of Plaintiff’s technology constitutes conversion by
Defendant. Id. ¶ 36. The conversion has caused Plaintiff to suffer
the loss of revenue for use of the proprietary software, loss of
revenue in the form of future profits that Plaintiff could have
obtained but for the conversion, and the loss of credibility due to
the existence of an inferior product being used that contains
elements of Plaintiff’s propriety software. Id. ¶ 38. Plaintiff seeks
damages, punitive damages, interest, costs, reasonable attorney’s
fees, and any other appropriate relief.
In September 2014, Defendant filed a Motion to Dismiss
Counts I and II of Plaintiff’s Complaint pursuant to Federal Rule of
Page 6 of 17

Civil Procedure 12(b)(6). Defendant has filed an Answer to Counts
III and IV. See d/e 10.
II. LEGAL STANDARD
A motion under Rule 12(b)(6) challenges the sufficiency of the
complaint. Christensen v. Cnty. of Boone, 483 F.3d 454, 458 (7th
Cir. 2007). To state a claim for relief, a plaintiff need only provide
a short and plain statement of the claim showing he is entitled to
relief and giving the defendants fair notice of the claims. Tamayo
v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
When considering a motion to dismiss under Rule 12(b)(6),
the Court construes the complaint in the light most favorable to
the plaintiff, accepting all well-pleaded allegations as true and
construing all reasonable inferences in plaintiff’s favor. Id.
However, the complaint must set forth facts that plausibly
demonstrate a claim for relief. Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 547 (2007). A plausible claim is one that alleges factual
content from which the Court can reasonably infer that the
defendant is liable for the misconduct alleged. Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). Merely reciting the elements of a cause

Page 7 of 17

of action or supporting claims with conclusory statements is
insufficient to state a cause of action. Id.
III. JURISDICTION
This Court has diversity jurisdiction pursuant to 28 U.S.C. §
1332. Plaintiff is a corporation formed and existing under the laws
of the State of Illinois and with its principal place of business in
Illinois. Defendant is a corporation formed and existing under the
laws of the State of Delaware and with its principal place of
business in the State of Texas. Plaintiff seeks money damages in
excess of $75,000.
Venue is proper because the parties agreed that any action or
proceeding arising out of the Licensing Agreement would be
“commenced and maintained only in courts located in Sangamon
County, Illinois” and consented to the jurisdiction of the state and
federal court located in Sangamon County. Licensing Agreement
¶ 11pp; see also Muzumdar v. Wellness Int’l Network, Ltd., 438
F.3d 759, 762 (7th Cir. 2006) (“where venue is specified with
mandatory or obligatory language, the clause will be enforced”),
(citing Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972
F.2d 753 (7th Cir. 1992)).
Page 8 of 17

IV. ANALYSIS
In the Motion to Dismiss, Defendant argues that Count I
should be dismissed to the extent it seeks punitive damages
because the allegations do not support a claim for punitive
damages. Defendant seeks to dismiss the conversion claim in
Count II on the ground that Plaintiff does not appear to be seeking
to return of any physical property and instead appears to seek
damages for an alleged interference with intangible rights.
A.

Plaintiff Fails to State a Claim for Punitive Damages
In Count I, Plaintiff alleges Defendant breached the Licensing

Agreement and seeks punitive damages because Defendant acted
maliciously and in bad faith. In support of that claim, Plaintiff
alleges that Defendant knew of the attempts to use Plaintiff’s
software and business model and did nothing to stop such activity,
failed to cooperate with billing and payment issues, and failed to
negotiate a resolution to the contract in good faith. Compl.
¶¶ 31(a), (b), (c).
Defendant moves to dismiss Count I on the ground that the
allegations do not support a claim for punitive damages.

Page 9 of 17

The parties agree that the Licensing Agreement is governed by
Illinois law. See Licensing Agreement ¶ 11pp. Under Illinois law,
punitive damages are generally not available for breach of contract.
Morrow v. L.A. Goldschmidt Assocs., Inc., 112 Ill. 2d 87, 94 (1986).
An exception exists when the “conduct causing the breach is also a
tort for which punitive damages are recoverable”:
That is, punitive damages are recoverable “where the
breach amounts to an independent tort and there are
proper allegations of malice, wantonness or oppression.”
Id. at 95 (quoting Bank of Lincolnwood v. Comdisco, Inc., 111 Ill.
App. 3d 822, 829 (1982)).
Plaintiff argues that Defendant’s actions constitute not only
breach of contract but also the torts of conversion and copyright
infringement, which are alleged in Counts II and IV. Plaintiff
further argues that Defendant did nothing to prevent the
appropriation of Plaintiff’s software and business model and such
failure at least constituted gross negligence. Resp. p. 3 (d/e 9)
(citing Heldenbrand v. Roadmaster Corp., 277 Ill. App. 3d 664, 672
(1996) (“Punitive damages may be granted where torts are
committed with fraud, actual malice, or deliberate violence or
oppression or when the defendant acts willfully or with such gross
Page 10 of 17

negligence as to indicate a wanton disregard of the rights of
others”)).
Even assuming Plaintiff has properly alleged that the breach
of contract amounts to an independent tort, Plaintiff has not
alleged malice, wantonness, or oppression. The only allegations
Plaintiff made regarding actual malice by Defendant address the
breach itself: that Defendant failed to stop the misappropriation of
Plaintiff’s software and business model, failed to cooperate in
resolving the billing and payment issues, and failed to negotiate a
resolution of the contract in good faith. This is insufficient to
support a request for punitive damages. See Morrow, 112 Ill. 2d at
87, 98-99 (a willful and wanton breach of contract does not
support a claim for punitive damages); St. Ann’s Home for the Aged
v. Daniels, 95 Ill. App. 3d 576, 580 (1981) (holding that “[i]t is not
so much the tort committed as the motive and conduct in
committing it that is the basis of awarding punitive damages” and
concluding that while the breach caused hardship, the conduct
could not properly be characterized as wanton, malicious, or
oppressive). Therefore, the Court strikes Plaintiff’s request for
punitive damages in Count I.
Page 11 of 17

B.

Plaintiff Has Sufficiently Alleged a Conversion Claim
Defendant also moves to dismiss Count II, which alleges

conversion.
To prove conversion under Illinois law, a plaintiff must
establish that he (1) has a right to certain property; (2) has an
absolute and unconditional right to the immediate possession of
the property; (3) made a demand for possession; and (4) the
defendant wrongfully and without authorization assumed control,
dominion, or ownership over the property. Cirrincione v. Johnson,
184 Ill. 2d 109, 114 (1998). Ordinarily, “‘an action for conversion
lies only for personal property which is tangible, or at least
represented by or connected with something tangible.’” In re
Thebus, 108 Ill. 2d 255, 260 (1985) (quoting 18 Am.Jur.2d
Conversion sec. 9, at 164 (1965)).
Defendant argues that, although the Licensing Agreement
provides that Defendant is obligated to return software or any
other physical material provided by Plaintiff, Plaintiff does not seek
return of these physical objects in its claim for conversion.
Instead, Plaintiff appears to seek damages for an alleged
interference with Plaintiff’s intangible rights in the software that
Page 12 of 17

Plaintiff created. Defendant asserts that Illinois courts do not
recognize an action for conversion of intangible rights.
Plaintiff responds that Defendant appropriated and used
Plaintiff’s software and business model after the contract period
expired. Plaintiff seeks damages and other relief appropriate,
which would include the return of any copies of proprietary
software or other property of Plaintiff that is in Defendant’s
possession. Plaintiff also asserts that conversion can apply to
intangible rights if the intangible property includes information
that Plaintiff would have to recreate. Finally, Plaintiff also
contends that if a claim for conversion does not apply, Defendant’s
actions still constitute a misappropriation of trade secrets and civil
conspiracy, and Plaintiff should be granted leave to plead these
alternative claims.
The law in Illinois is unclear whether an action for conversion
lies solely for intangible property. Compare Stathis v. Geldermann,
Inc., 295 Ill. App. 3d 844, 856 (1998) (First District) (parties may
recover for conversion of intangible assets) and Conant v. Karris,
165 Ill. App. 3d 783, 792 (1987) (First District) (finding the plaintiff
stated a claim for conversion of confidential information) with Am.
Page 13 of 17

Nat’l Ins. Co. v. Citibank, N.A., 543 F.3d 907, 910 (7th Cir. 2008)
(Illinois law “does not recognize an action for conversion of
intangible rights”). This Court need not decide that issue,
however, because the Complaint alleges the conversion of property
that is tangible “or at least represented by or connected with
something tangible.” Bilut v. Northwestern Univ., 296 Ill. App. 3d
42, 52 (1998) (finding that the plaintiff’s research was “a proper
subject for conversion because the printed copy of the research
constituted tangible property”).
Specifically, the Licensing Agreement provided that Plaintiff
would provide to Defendant a license to use Plaintiff’s proprietary
software, business models, web services, and other related
intellectual property. Licensing Agreement, ¶ 1b, 1d, 2e, 5o. The
Licensing Agreement also contemplated the return of confidential
information—including material and writings—upon termination of
the relationship. Licensing Agreement, ¶ 7y. The Complaint can
be fairly read to include a request for return of the physical items
that remain in Defendant’s possession. Therefore, Plaintiff has
alleged the conversion of property that is tangible “or at least

Page 14 of 17

represented by or connected with something tangible. See
Thebus, 108 Ill. 2d at 260.
Finally, although the parties do not specifically address the
issue, several courts have held that a plaintiff may still bring a
conversion claim even if a defendant does not exercise exclusive
control over the property. See J & J Sports Productions Inc. v.
Ward, No. 10-cv-193, 2010 WL 4781140, at *5 (N.D. Ill. Nov. 17,
2010) (finding the plaintiff sufficiently alleged conversion where,
even though the plaintiff was not denied the entire benefit of the
converted property, the defendant exercised control in a way that
was inconsistent with the plaintiff’s rights); DirectTV, Inc. v.
Adrian, No. 03 C 6366, 2004 WL 1660665, at *4 (N.D. Ill. July 22,
2004) (finding that “[b]ecause defendant’s alleged interception of
plaintiff’s signals was inconsistent with plaintiff’s ownership rights,
plaintiff’s conversion claim may stand”); but see Ho v. Taflove, 696
F.Supp.2d 950, 957 (N.D. Ill. 2010) (finding that the defendant’s
unauthorized copying and use of the plaintiffs’ published works
did not sustain a cause of action for conversion because the
plaintiffs were not deprived of the use of their property); DIRECTV,
Inc. v. Castillo, No. 03 C 3456, 2004 WL 783066, at *2 (N.D. Ill.
Page 15 of 17

Jan. 2, 2004) (finding that the interception of video and audio
signals did not constitute conversion because the plaintiff was not
deprived of its continued use of the encrypted satellite television
signal).
Here, to the extent Defendant misappropriated confidential
information, that misappropriation deprived Plaintiff of the
exclusive benefit of the information. See, e.g., Conant, 165 Ill.
App. 3d at 792 (noting that “[o]nce confidential information is
released to competitors, it hardly can be said that the data is still
confidential. Thus, the original owner would be deprived of the
benefit of the information.”). Therefore, for purposes of the motion
to dismiss, Plaintiff has alleged that Defendant wrongfully and
without authorization assumed control, dominion, or ownership
over the property. DIRECTV, Inc. v. Ostrowski, 334 F.Supp.2d
1058, 1064 (N.D. Ill. 2004)(finding the plaintiff stated a claim for
conversion even though the defendant did not deprive the plaintiff
of the ability to obtain all benefit from its satellite programming
because the unauthorized use was inconsistent with the plaintiff’s
rights).

Page 16 of 17

V. CONCLUSION
For the reasons stated above, the Motion to Dismiss is
GRANTED IN PART and DENIED IN PART. The Court STRIKES
the request for punitive damages in Count I. Defendant is
DIRECTED to answer Counts I and II on or before February 17,
2015.
ENTER: February 2, 2015
FOR THE COURT:

s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

Page 17 of 17