Design Ideas, Ltd. v. Bed, Bath & Beyond, Inc. et al

Filing 24

OPINION entered by Judge Richard Mills on 6/10/2013. The Motion under Rule 12(b)(6) of Plaintiff Design Ideas, Ltd., to Dismiss Defendant Seville Classics' Third Counterclaim, d/e 18 is DENIED. (MAS, ilcd)

E-FILED

Monday, 10 June, 2013 11:03:58 AM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
DESIGN IDEAS, LTD., an Illinois
corporation,

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)
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Plaintiff,
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v.
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BED BATH & BEYOND, INC., a
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New Jersey corporation, and SEVILLE )
CLASSICS, INC., a California
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corporation,
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Defendants.
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NO. 12-3336

OPINION
RICHARD MILLS, U.S. District Judge:
Pending before the Court is the Motion under Rule 12(b)(6) of
Plaintiff Design Ideas, LTD., to Dismiss [d/e 18] Defendant Seville Classics
Inc.’s Third Counterclaim.
I.
Plaintiff Design Ideas, LTD. (“Design Ideas”) moves pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure for the dismissal of the
Third Counterclaim of Defendant Seville Classic, Inc. (“Seville”). The text

of the Third Counterclaim is as follows:
45.

46.

47.

48.

Seville realleges and incorporates by reference the
allegations of paragraphs 1-44 of this Answer, Affirmative
Defenses and Counterclaims.
During February and March of 2011, Seville and Design
Ideas entered into settlement discussions regarding
Seville’s alleged infringement of U.S. Patent Nos.
D501,105, D632,080 and 7,428,976.
Upon information and belief, Design Ideas was
contemplating litigation against Seville relating to the
‘841 patent during February and March of 2011 and
intentionally concealed this material fact with an intent to
deceive Seville during the parties’ settlement discussions.
Design Ideas was under a duty to disclose this material
fact to Seville.1
As a result of Design Idea’s fraudulent concealment,
Seville and Design Ideas entered into a settlement
agreement on or about March 2011, and designed,
developed and sold the allegedly infringing Generation 2
product. Seville has suffered damages as a result of
Design Idea’s fraud, including but not limited to,
litigation costs and development and manufacturing costs.

See Doc. No. 7, at 10-11. Thus, Seville’s Third Counterclaim purports to
allege a claim for fraudulent concealment.
Design Ideas is engaged in the business of designing, manufacturing,

Although Seville refers to the ‘841 patent in its pleading, the
patent at issue in this case is U.S. Patent No. D450,481, which should
properly be referred to as “the ‘481 patent.”
1

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and distributing a range of unique, esthetically pleasing office and
household goods made of metal mesh. According to the Complaint, Seville
manufactures and imports consumer products to retailers like Defendant
Bed, Bath & Beyond, Inc. (“BBB”). Seville admits that it has sold metal
mesh baskets and frame products to BBB. Design Ideas’ Complaint is
based on the alleged infringement of its U.S. Patent No. D450,481 (“the
‘481 patent”) entitled “Mesh Baskets and Frames” by Seville and BBB.
Seville’s Third Counterclaim is premised on a March 2011 Settlement
Agreement between Seville and Design Ideas. Although the Settlement
Agreement is not attached to Design Ideas’ Complaint, it is attached to the
Memorandum in support of the instant motion.2

Design Ideas states that the Settlement Agreement is central to
Seville’s Counterclaim and does not constitute a “matter outside the
pleading.” Although matters outside the pleadings are generally not
considered on a Rule 12(b) motion without treating the motion as one
for summary judgment, see Fed. R. Civ. P. 12(d), an exception exists if a
document acknowledged as authentic is referred to in a complaint and is
central to the plaintiff’s claim. See Santana v. Cook County Board of Review,
679 F.3d 614, 619 (7th Cir. 2012); Hecker v. Deere & Co., 556 F.3d 575,
582-83 (7th Cir. 2009). Because there is no dispute as to the
authenticity of the Settlement Agreement, the Court concludes it may be
considered in ruling on the motion to dismiss.
2

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Paragraph 7 of the Settlement Agreement provides, “This agreement
shall be governed by and construed in accordance with the substantive laws
of the State of Illinois without regard to choice of law rules.”
Paragraph 47 of Seville’s Third Counterclaim alleges, on information
and belief that during the parties’ settlement discussions, Design Ideas was
contemplating litigation against Seville pertaining to the ‘481 patent, which
forms the basis of Design Ideas’ claims in this case, and intentionally
concealed this material fact with the intent to deceive. Paragraph 47
further provides that Design Ideas had a duty to disclose this material fact
to Seville. Design Ideas disputes Seville’s conclusion.
Design Ideas contends that Seville has pled no facts which create a
duty of disclosure by Design Ideas. The patent numbers in the Third
Counterclaim and in paragraph 1.2 of the Settlement Agreement are
different from the ‘481 patent, which is the subject of infringement alleged
here and described in paragraph 8 of Design Ideas’ Complaint.
Design Ideas claims that Seville has not alleged or shown the existence
of a special or fiduciary relationship, which would trigger a duty to disclose.

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Moreover, it is apparent Design Ideas had no such fiduciary or legal
relationship with Seville. No contractual relationship existed between the
parties at the time of the negotiations and either entity could have walked
away at any time. The current patent claim is completely unrelated to the
previous settlement negotiations.
Design Ideas contends that Seville should have understood from the
limited language of the Settlement Agreement that it only applied to certain
patents from which the Settlement Agreement arose, and not all patent
claims by Design Ideas under a global settlement. Seville could have during
the negotiations sought to obtain protection from all patent claims.
Design Ideas further asserts it had no duty to make the disclosure
alleged by Seville on “information and belief.” Therefore, Seville’s Third
Counterclaim should be dismissed for failure to state a claim.
Seville contends that during the settlement negotiations, Design Ideas
contributed to Seville’s misapprehension that Design Ideas had no claims
against other Seville products. Thus, Seville continued sales of the accused
Drawer Organizer products. According to Seville, almost two years passed

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during which Design Ideas did not correct Seville’s misapprehension.
Seville notes it was not until December 2012 that Design Ideas filed
the instant suit claiming infringement of the ‘481 patent. Seville claims it
suffered damages as a result of Design Ideas’ alleged extraordinary,
intentional failure to reveal the true facts for nearly two years.
Because it contends that Design Ideas contributed to the existence of
its material misapprehension, Seville asserts that Design Ideas had a duty
to correct the record so that it could avoid suffering damages.
II.
(A)
At this stage, the Court accepts as true all of the facts alleged by the
Counter-claimant and draws all reasonable inferences therefrom. See Virnich
v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011). “[A] complaint must
provide a short and plain statement of the claim showing that the pleader
is entitled to relief, which is sufficient to provide the defendant with fair
notice of the claim and its basis.” Maddox v. Love, 655 F.3d 709, 718 (7th
Cir. 2011) (internal quotation marks omitted). Courts must consider

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whether the complaint states a “plausible” claim for relief. See id. The
complaint must do more than assert a right to relief that is “speculative.”
See id. However, the claim need not be probable: “a well-pleaded complaint
may proceed even if it strikes a savvy judge that actual proof of those facts
is improbable, and that a recovery is very remote and unlikely.”

See

Independent Trust Corp. v. Stewart Information Services Corp., 665 F.3d 930,
935 (7th Cir. 2012) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
556 (2007)). “To meet this plausibility standard, the complaint must
supply ‘enough fact to raise a reasonable expectation that discovery will
reveal evidence’ supporting the plaintiff’s allegations.” Id.
Under certain circumstances, the failure to disclose a material fact
may constitute fraudulent concealment. The duty to disclose “arises only
when a fiduciary relationship is present or when the defendant’s acts
contribute to the plaintiff’s misapprehension of a material fact and the
defendant intentionally fails to correct plaintiff’s misapprehension.” See
PXRE Reinsurance Co. v. Lumbermens Mut. Cas. Co., 342 F. Supp.2d 752,
757-58 (N.D. Ill. 2004) (internal quotation marks and citation omitted).

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Seville does not allege that a fiduciary duty was present. Rather, it claims
that Design Ideas’ duty to disclose its contemplated enforcement of the
‘481 patent against Seville arose pursuant to the latter scenario.
Fraudulent concealment must be pled with particularity.

See

Aeroground, Inc. v. Centerpoint Properties Trust, 2010 WL 2169493, at *4
(N.D. Ill. 2010); see also Fed. R. Civ. P. 9(b). “Because the essence of a
fraudulent concealment claim is that defendant did not disclose a material
fact at any time or in any manner, a plaintiff cannot allege the ‘who, when,
where and how’ normally required under Rule 9(b).” See Aeroground, 2010
WL 2169493, at *4. However, a plaintiff must allege facts which establish
the duty to disclose. See id. “Illinois courts have held that while silence in
a business transaction does not necessarily amount to fraud, silence
accompanied by deceptive conduct or suppression of material facts results
in active concealment, and it then becomes the duty of the person to
speak.” Lefebvre Intergraphics, Inc. v. Sanden Mach. Ltd., 946 F. Supp. 1358,
1367 (N.D. Ill. 1996) (internal citations and quotation marks omitted).
Seville relies on Coca-Cola Co. Foods Div. v. Olmarc Packaging Co., 620

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F. Supp. 966 (N.D. Ill. 1985), in alleging that Design Ideas’ acts
constituted fraudulent concealment.

In Coca-Cola, Coca-Cola Foods

(“Foods”) and Olmarc entered into a “Packing Agreement,” whereby
Olmarc agreed to mix, package, store and ship dry powdered drink bases
received from Foods in return for payment. See id. at 968. Olmarc alleged
Foods had represented that it would receive all of Foods’ packaging business
with respect to two drink bases. See id. at 972. Relying on the promise,
Olmarc purchased equipment to fulfill Food’s needs.

See id.

Olmarc

brought claims based on a fraud theory, alleging that Foods had failed to
inform it of certain material facts, including: (1) that Foods was building its
own packing plant which would compete with Olmarc; and (2) that Foods
negotiated and agreed to have its bases mixed and packed by companies
other than Olmarc. See id. at 972-73. Foods moved to dismiss the fraud
claim, contending that there was neither a contractual nor a fiduciary duty
between the parties at the time of the omission. See id. at 973.
In considering the motion to dismiss, the court noted at this stage
that in order to impose a duty on Foods to speak and correct

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misapprehensions, Olmarc need only plead that “1) Foods’ acts contributed
to Olmarc’s misapprehension 2) of a material fact 3) which Foods
intentionally failed to correct.”

See id. at 974.

Olmarc alleged a

representation by Foods that Olmarc would receive all of Foods’ packaging
business for two drink bases and claimed that this fact was material to the
terms of the Packing Agreement or to Olmarc’s subsequent purchase of
machinery. See id. The court found as follows:
Taking Olmarc’s allegations as true for the purposes of this
motion, such facts, if proved, could contribute to a
misapprehension by Olmarc of which Foods was aware and
which it intentionally failed to correct. If Olmarc can prove
what it alleges, then Foods had a duty to speak and correct any
misapprehension it helped create.
Id.
Relying on Coca-Cola, Seville asserts it has sufficiently alleged facts
that if proved, could contribute to a misapprehension by Seville that Design
Ideas was under a duty to correct. In its Counterclaim, Seville claims that
Design Ideas was contemplating enforcing the ‘481 patent against Seville
at the time the parties were negotiating a settlement agreement related to
other Design Ideas’ patents. Based on this alleged non-disclosure, Seville
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was under the misapprehension that Design Ideas was not contemplating
enforcing the ‘481 patent against Seville and entered into the settlement
agreement.

Seville alleges that, like Foods in Coca-Cola, Design Ideas

intentionally concealed this material fact, giving rise to a duty to correct
Seville’s misapprehension.
In its Reply Brief, Design Ideas correctly notes that in Coca-Cola,
Foods made a promise to Olmarc regarding the exclusivity of its
relationship that created a misapprehension by Olmarc regarding the
contract. See Coca-Cola, 620 F.3d at 972. Olmarc’s misapprehension
relating to the contract was not created simply by the withholding of
information by Foods. Rather, the misapprehension was based on Foods’
promise, which created an expectation in Olmarc upon which it relied.
Design Ideas contends that the law requires an act or conduct, such as the
promise made by Foods. A mere omission is not enough. Design Ideas
claims that a party must affirmatively act, as in Coca-Cola, in order to create
such a misapprehension.
Based on the foregoing, Design Ideas contends that Seville must have

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alleged that Design Ideas took some action or committed some sort of
conduct that could have created misapprehension on the part of Seville in
order for Design Ideas to have a duty to speak. For example, Design Ideas
could have done something to indicate to Seville it was not contemplating
any litigation with respect to other patents. Seville has made no such
allegations. Design Ideas asserts that Seville’s Counterclaim includes no
allegations that Seville was misled as to any other patent unrelated to the
settlement, and no misapprehension could have occurred because Seville
was entirely unaware of Design Ideas’ intentions with respect to those other
patents.
(B)
Certainly, the facts here are not analogous to those in Coca-Cola,
wherein the allegations included an actual representation regarding future
business and resulting reliance on that promise.

Here, instead of an

affirmative statement, Seville claims that Design Ideas deliberately withheld
certain information regarding potential litigation in order to deceive Seville
during the parties’ settlement discussions. Seville asserts Design Ideas had

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a duty to disclose this information. The Counterclaim alleges that the
parties entered into a Settlement Agreement. Seville went on to develop
and sell the allegedly infringing product, which it suggests it would not have
done if Design Ideas had not engaged in fraud with respect to intentionally
concealing information regarding litigation related to the ‘481 patent.
Seville clams damages on this basis.
It is questionable whether the factual scenario in this case presents a
basis for Seville’s fraudulent concealment claim. Generally, a party must
do more than assert a right to relief that is speculative. See Maddox, 655
F.3d at 718. However, the Court recognizes the difficulty of pleading a
claim with particularity when the assertion is that the other party did not
disclose a material fact.
In Paragraph 47 of the Third Counterclaim, Seville alleges that Design
Ideas “intentionally concealed” the fact that it was contemplating litigation
relating to the ‘481 patent, in an effort to deceive Seville during settlement
negotiations. A court has held that a party to a business contract may have
a duty to speak in such circumstances. See Lefebrve Intergraphics, 946 F.

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Supp. at 1367 (observing that such a duty arises when there is silence
along with deceptive conduct or suppression of material facts).
Design Ideas claims that Seville must have alleged that it took some
type of action or committed conduct that could have created
misapprehension on the part of Seville in order to create such a duty to
speak for Design Ideas.

Design Ideas further asserts that no

misapprehension could have occurred because Seville was unaware of its
intentions with respect to patents that were unrelated to the settlement.
Seville bases its assertion “[u]pon information and belief” so it appears that
it does not have any particular information about any act or conduct on the
part of Design Ideas that could have created a misapprehension.
Seville has alleged its fraudulent concealment claim in the most
general terms. The claim appears to be based on multiple speculative
inferences. Although it may be doubtful whether such a claim is viable, the
Court recognizes that it is difficult to allege facts with specificity when a
claim is premised on the withholding of information. Accordingly, despite
any deficiencies, the Court will afford Seville the benefit of the doubt at

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this stage of the litigation.
Ergo, the Motion under Rule 12(b)(6) of Plaintiff Design Ideas, Ltd.,
to Dismiss Defendant Seville Classics’ Third Counterclaim [d/e 18] is
DENIED.
ENTER: June 10, 2013
FOR THE COURT:
s/Richard Mills
s/Richard Mills
United States District Judge

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