Metro Premium Wines, Inc. v. Winebow, Inc. et al
Filing
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MEMORANDUM Opinion and Order Signed by the Honorable Virginia M. Kendall on 6/14/2011.(tsa, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
METRO PREMIUM WINES
Plaintiff,
v.
BOGLE VINEYARDS, INC and
WINEBOW, INC.
Defendant.
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Case No. 11 C 911
Judge Virginia M. Kendall
MEMORANDUM OPINION AND ORDER
Metro Premium Wines (“Metro”) distributed Bogle Vineyards, Inc.’s (“Bogle”) wine in
Chicago for 20 years before Bogle terminated Metro’s distribution rights and handed the distribution
over to Winebow, Inc. (“Winebow”). Metro alleges that Bogle and Winebow created a scheme to
improperly transfer Metro’s distributorship to Winebow, in part using Metro’s confidential
information acquired by Winebow under the guise of a potential transaction whereby Winebow
would buy Metro. Bogle now moves to dismiss Metro’s complaint for improper venue under Rule
12(b)(3) or to transfer under 28 U.S.C. § 1406, asserting that Bogle and Metro’s dispute must be
arbitrated in San Francisco under the terms of their distributor agreement. Winebow moves to
dismiss under Rule 12(b)(6), asserting that Metro’s claims fail by Metro’s own allegations or do not
meet Rule 8's pleading standard as outlined by Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) and Bell
Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). For the below reasons, the Court denies Bogle’s
motion (Doc. 20) and grants in part and denies in part Winebow’s motion (Doc. 21).
I.
BACKGROUND
A.
Metro’s Allegations and Claims
The following allegations in Metro’s complaint (Doc. 5) are accepted as true for the purposes
of Winebow’s Rule 12(b)(6) motion to dismiss. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081
(7th Cir. 2008). Bogle is a California-based vineyard, and Metro is an Illinois-based wine and spirit
distributor. Around 1990, Bogle and Metro entered into an oral distributorship agreement that gave
Metro the exclusive right to distribute Bogle wines in the Chicagoland area. Over the years sales of
Bogle’s wine in Metro’s territory increased substantially. By 2009, Bogle’s wine accounted for 59
percent of Metro’s sales.
According to Metro, Bogle was determined to replace Metro with Winebow, Bogle’s
distributor in New York and New Jersey. Because Winebow did not have the knowledge of the
Chicagoland market that Metro had, Bogle and Winebow “hatched a scheme” to replace Metro and
use Metro’s confidential business information to compete against Metro. To that end, in October
2009, Winebow approached Metro and expressed an interest in buying Metro. Winebow told Metro
that it needed Metro’s confidential sales, pricing and financial data to perform its “due diligence”
in advance of any acquisition. Metro and Winebow signed a confidentiality agreement that
Winebow would only use Metro’s confidential information in connection with making an offer to
buy Metro. Bogle, unsolicited, told Metro that it would look favorably on the transaction. Metro
alleges that Winebow had no intention of actually buying Metro, and that the proposed transaction
was simply a ruse to obtain Metro’s confidential information so that Winebow could successfully
distribute Bogle’s wine in Chicago. Bogle, according to Metro, knew that Winebow was not
interested in buying Metro.
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After the parties signed the confidentiality agreement on November 9, 2009, Metro sent its
confidential information to Winebow. Three days later, Winebow registered to do business in
Illinois and, around the same time, applied to the state liquor commission for a license to distribute
alcohol in Illinois. On February 11, 2010, the commission granted that license and Winebow
commenced its distribution operations out of a warehouse on Chicago’s north side. Two months
later, Winebow made an “absurdly” low offer to buy Metro that “was clearly intended to force a
rejection from Metro, which it did.” On September 30, 2010, Bogle sent Metro a notice of
termination of the distributorship. That notice states that it was provided in accordance with Bogle’s
“standard terms and conditions” as listed on Bogle’s invoices. It lists various reasons for the
termination, including flagging sales growth, not being able to sell to major chains like Jewel-Osco
and Trader Joe’s, and problems keeping Bogle wine in stock. Metro’s distributorship has since
ended, “devastating” its business. Metro also alleges that Winebow actively uses Metro’s
confidential information to sell all types of wine to Metro’s customers.
Metro brings a series claims, some against Bogle, some against Winebow, and some against
both. Metro alleges Bogle breached the distributor agreement by not giving Metro reasonable notice
and the implied duty of good faith and fair dealing. It also asserts a fraud claim against Bogle for
aiding Winebow’s fraud by inducing Metro to pursue a possible transaction with Winebow. Metro
asserts Winebow breached the confidentiality agreement, tortiously interfered with Metro’s
relationships with Bogle and its retail customers, fraudulently induced Metro into the confidentiality
agreement to steal its information. Metro also alleges unjust enrichment against Winebow for
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expropriating Metro’s profits.1 Metro brings a conspiracy claim against Bogle and Winebow
together, and alleges that they have interfered with Metro’s relationships with its customers for nonBogle wine.
B.
Bogle’s Terms and Conditions and the Arbitration Clause
Bogle submits three declarations in support of its motion to dismiss in favor of arbitration.
The first, from Bogle’s Vice President Ryan Bogle (“Ryan”), states that there is no written
distributorship agreement between Bogle and Metro. (Doc. 20-1, Ryan Dec. ¶ 3.) Bogle has posted
“Terms and Conditions” (“Terms”) on its website in various versions since January 30, 2008. (Id.
¶ 4.) Starting on August 25, 2010, Bogle put the same Terms on the back of its invoices to its
distributors, including Metro. (Id.) Those Terms direct that California law governs Bogle’s
relationships with its distributors and include an arbitration clause with states:
In the event of any dispute related to [Bogle], [Bogle’s] Products or
Distributor’s rights to continue distributing [Bogle] products,
Distributor agrees that the same shall be resolved by arbitration in
San Francisco in accordance with the [rules] of JAMS . . . . The
decision of the arbitrator shall be final and binding on the parties.
(Doc. 20-1, Ex. A, ¶ 4.) The Terms “apply to any goods purchased from [Bogle] by Distributor ....
[A Distributor’s] submission of a purchase order for any [Bogle] product shall constitute agreement
to these [Terms], which may [sic] by modified at any time by policies found at [Bogle’s website].
(Id. ¶ 6.) It allows the arbitrator to allocate attorney’s fees and costs but forbids punitive damages.
(Id. ¶ 4.) Bogle put the arbitration clause favoring San Francisco in the Terms to reduce its litigation
burden as a “small Northern California winery.” (Ryan Dec. ¶ 5.)
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Metro also brings a claim for reformation of the confidentiality agreement with W inebow based on mutual
mistake, alleging that the parties’ names, as they appear in the contract, should be flipped to make it clear that Metro was
giving the information and W inebow receiving it.
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According to Harry Brody, Bogle’s Midwest Regional Manager, Bogle’s Terms were
available on Bogle’s website by clicking on first on one tab of the website, then a second tab, and
finally by clicking by a link at the end of a page. (Doc. 20-2, Brody Dec. ¶ 2.) Bogle’s website also
posted several items “essential to any distributor,” including marketing, advertising and sales
materials. (Id. ¶ 3.) Brody referred Metro employees, including its president, Larry Palmerson, to
Bogle’s website at least five times per year between 2008 and 2010, emphasizing that it was
important for Bogle’s distributors to be familiar with the website. (Id. ¶ 5.)
Brody discussed
Bogle’s published Terms with Palmerson “numerous” times between 2008 and 2010, usually in the
context of reminding Palmerson that Bogle extended more generous payment terms to Metro than
other distributors. (Id. ¶ 7.) He sent at least one email telling Palmerson to go to the website to
download a sales sheet. (Id. ¶ 6.)
Brian Wilkinson, Bogle’s controller, states that since Feburary 2008 (right after the Terms
went on the website), Metro has submitted 175 purchase orders to Bogle for over $3.5 million worth
of wine. (Doc. 20-3, Wilkinson Dec. ¶¶ 4-5.) In response to those purchase orders, Bogle shipped
wine to Metro and sent an invoice for payment. (Id. ¶¶ 4-6.) On August 26, 2010, Wilkinson sent
all of Bogle’s distributors, including Metro, a notice stating that Bogle’s Terms had been on its
website since 2008 and that they would, going forward, also appear on the back of Bogle’s invoices.
(Id. ¶ 6.) The Terms appeared on half a dozen invoices sent to Metro after August 26, 2010, and
Metro submitted three purchase orders to Bogle after that date. (Id. ¶ 6.)
Metro, in turn, offers a declaration from Palmerson. According to Palmerson, Metro had no
notice of Bogle’s Terms until August 26, 2010. (Doc. 26-1, Palmerson Dec. ¶ 6.) Specifically,
Bogle did not direct any Metro employee to review the Terms on Bogle’s website or suggested that
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anyone at Metro review the Terms on the website. (Id. ¶ 7.) The distributor agreement between
Bogle and Metro did not have an arbitration provision, and Palmerson (and Metro) never discussed
an arbitration provision with Bogle. (Id. ¶ 7.) Bogle unilaterally imposed the Terms, never giving
Metro an opportunity to negotiate any arbitration term. (Id. ¶ 8.) Bogle’s August 26, 2010 notice
did not specifically mention the arbitration provision, and Metro was not aware of it until September
30, 2010. (Id. ¶ 9.) Without Bogle’s business, Metro is not profitable. (Id. ¶ 10.)
II.
MOTION TO DISMISS STANDARDS AND CHOICE OF LAW
A.
Improper Venue, Arbitration and Choice of Law
If the parties have a valid arbitration clause, venue is not proper in this District and the Court
may dismiss the case entirely or transfer it to the Northern District of California for that court to
order the dispute into arbitration. See 28 U.S.C. § 1406(a) (directing a court to dismiss or transfer
where there is improper venue); Fed. R. Civ. P. 12(b)(3); Continental Ins. Co. V. M/V Orsula, 354
F.3d 603, 608 (7th Cir. 2003) (affirming the lower court’s decision to dismiss the case for improper
venue, rather than transferring it); Metro. Life Ins. Co. v. O'Malley, 392 F. Supp. 2d 1042, 1045
(N.D. Ill. 2005) (dismissing complaint under Rule 12(b)(3) after finding the parties had a valid
agreement to arbitrate).
Though the Federal Arbitration Act (FAA) generally favors arbitration, whether the parties
have agreed to arbitrate the dispute is a state law question. See Cont. Cas. Co. v. Am. Nat’l Ins. Co.,
417 F.3d 727, 730 (7th Cir. 2005); Tinder v. Pinkerton Security, 305 F.3d 728, 733 (7th Cir. 2002)
(same). As for which state’s law should control, the parties agree—albeit for different reasons—that
California law governs the question of whether the parties have a valid arbitration clause.
Consequently, the Court applies California law. Auto-Owners Ins. Co. v. Websolv Computing, Inc.,
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580 F.3d 543, 547 (7th Cir. 2009) (“Courts do not worry about conflict of laws unless the parties
disagree on which state’s law applies.”) (internal citation and quotation marks omitted); Roberts &
Schaefer Co. v. Merit Contracting, Inc., 99 F.3d 248, 252 (7th Cir. 1996) (interpreting a forum
selection clause using the law of the state that the parties agreed applied). Finally, as to Bogle’s
motion to dismiss for improper venue, the Court will construe all facts and draw all reasonable
inferences in favor of Metro. See Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, at *10
(7th Cir. 2011) (noting that on a Rule 12(b)(3) motion to dismiss for improper venue based on a
forum selection clause, “the judge was required to accept the plaintiffs’ version of events as true”
and citing Kochert v. Adagen Med. Int’l, Inc., 491 F.3d 674, 677 (7th Cir. 2007)).
B.
Failure to State a Claim
To state a claim upon which relief can be granted, a complaint must contain a “short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
To survive a motion to dismiss, a complaint must be “plausible on its face.” Iqbal, 129 S. Ct. at
1949 (quoting Twombly, 550 U.S. at 570); see also Swanson v. Citibank, N.A., 614 F.3d 400, 404
(7th Cir. 2010) (noting “‘plausibility’ in this context does not imply that the district court should
decide whose version to believe, or which version is more likely than not.”) A claim is facially
plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949.
Determining whether a complaint states a plausible claim for relief requires “the reviewing court to
draw on its judicial experience and common sense.” Id. at 1950. “Specific facts are not necessary
. . . the statement need only give the defendant fair notice of what the claim is and the grounds upon
which it rests.” Swanson, 614 F.3d at 404 (citing Erickson v. Pardus, 551 U.S. 89, 93 (2007)). In
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short, under Iqbal, “the plaintiff must give enough details about the subject-matter of the case to
present a story that holds together . . . the court will ask itself could these things have happened, not
did they happen.” Swanson, 614 F.3d at 404.
III.
DISCUSSION
A.
The Parties Have Not Agreed to Arbitrate
According to Bogle, the Court should dismiss the case because the parties have agreed to
arbitrate their dispute in San Francisco under the Terms published on Bogle’s website and then
added to the back of Bogle’s invoices. As an initial matter, it is clear that if the arbitration clause
is valid, it applies here because this dispute concerns Metro’s “rights to continue distributing [Bogle]
products.” The Court’s next job is to determine whether the parties agreed to arbitrate this dispute
according to the arbitration clause in Bogle’s Terms. See Badie v. Bank of Am., 67 Cal. App. 4th
779, 787 (Cal. App. Ct. 1998) (finding that the public policy favoring arbitration “cannot displace
the necessity for a voluntary agreement to arbitrate.”) (italics in original).
The parties agree that the California Uniform Commercial Code (“UCC”) applies to the sale
of Bogle’s wine and there can be no dispute that both Metro and Bogle are merchants for UCC
purposes. This case implicates a pair of UCC sections. The first, Section 2207, modifies the
common law “mirror image” rule that required an offer and its acceptance to have the exact same
terms to be effective. See Transwestern Pipeline Co. v. Monsanto Co., 46 Cal. App. 4th 502, 514
(Cal. App. Ct. 1996). Section 2207 states that an acceptance “operates as an acceptance even though
it states terms additional to or different from those offered or agreed upon, unless acceptance is
expressly made conditional on assent to the additional or different terms.” Cal. U. Com. Code. §
2207(1). If the acceptance has additional terms and the parties are merchants, those terms become
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part of the deal unless, among other reasons, the new terms “materially alter” the contract. Id. §
2207(2)(b). Section 2207 addresses “the exchange of printed purchase order and acceptance . . .
forms.” Id. § 2207 cmt. 1. “Because the forms are oriented to the thinking of the respective drafting
parties,” the Commentary continues, “the terms contained in them often do not correspond. Often
the seller’s form contains terms different from or additional to those set forth in the buyer’s form.
Nevertheless, the parties proceed with the transaction.” Id. In those situations, the contract consists
of the terms on which the two forms agree together with any default rules supplied by the UCC, but
not the conflicting terms. See Cal. U. Com. Code. § 2207(3). The second UCC provision at issue,
Section 1303, allows the Court to interpret the parties’ contract based on a “course of performance,”
where the parties have repeatedly performed and one party “accepts the performance or acquiesces
in it without objection” when that party has “knowledge of the nature of the performance and
opportunity for objection to it.” Id. § 1303(a), (b).
Resolving all factual disputes in favor of Metro, as the Court must, the parties had an oral
distribution agreement for Metro to distribute wine in the Chicagoland area beginning in 1990. That
oral agreement did not have an arbitration provision. To order wine from Bogle, Metro submitted
a purchase order with terms of the sale. Bogle would then respond with an invoice with different
terms, and Metro would pay for that wine sometime later. The parties operated that way for about
20 years. In early 2008, Bogle put the Terms on the website, and on August 25, 2010, put the Terms
on the back of its invoices. Metro was not aware of the Terms generally until August 26, 2010, when
it received Bogle’s notice, and not aware of the arbitration clause specifically until September 30,
2010. After August 26, 2010, Metro submitted three purchase orders to Bogle (between September
10 and September 14, 2010), and Bogle responded with invoices with the Terms on the back.
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UCC Section 2207 fits Metro and Bogle’s practice snugly. There is no doubt the parties
performed the contract: Bogle shipped wine to Metro, and Metro paid Bogle for it. This is the classic
“battle of the forms:” the Court has no reason to accept Bogle’s invoices, with an arbitration clause,
over Metro’s purchase orders, which have no such clause. See Cal. U. Com. Code § 2207;
Transwestern Pipeline, 46 Cal. App. 4th at 516 (applying § 2207 to inconsistent purchase orders and
invoices and finding the extra terms in the invoices did not become part of the deal). Here, under
§ 2207, the additional terms in Bogle’s invoices, including the arbitration clause, were
proposals—unaccepted by Metro—to be added to the parties’ contract. Because Bogle and Metro
are merchants, those extra terms from Bogle would become part of the contract unless they
materially alter it. See Cal. U. Com. Code § 2207(2)(b). California law is clear that an arbitration
clause is a material alteration to a contract under § 2207 because it deprives a party from procedural
protection to which it would otherwise be entitled. See Windsor Mills, Inc. v. Collins & Aikman
Corp., 25 Cal. App. 3d 987, 995 (Cal. App. Ct. 1972); Regency Wines, Inc. v. Champagne
Montaudon, No. B140757, 2002 WL 31788972, at *7 (Cal. App. Ct. Dec. 13, 2002) (noting “[u]nder
California law, the addition of an arbitration provision constitute[s] a material alteration as a matter
of law.”); see also Coastal Ind., Inc. v. Automatic Steam Prods. Corp., 654 F.2d 375, 379 (5th Cir.
1981) (finding an arbitration clause materially alters a contract because a litigant from loses its
judicial forum). Consequently, the arbitration clause remained only a proposal and did not become
part of the parties’ contract.
Bogle claims that the parties past practice creates a “course of dealing” under § 1303. In
Transwestern Pipeline, the court applied § 2207, not course of dealing, to resolve a dispute factually
similar to this one. For over a decade, the pipeline company in that case bought lubricant from a
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manufacturer by sending purchase orders with no provision limiting the manufacturer’s liability. See
46 Cal. App. 4th at 513. The manufacturer responded with invoices limiting its liability to the
purchase price. Id. Those invoices, like Bogle’s, stated that if the pipeline company accepted the
lubricant, it accepted the terms on the invoice. Id. When the manufacturer sought to enforce the
liability limitation, the court found “[c]ommon sense tells us the mere exchange of form containing
inconsistent terms, for however long a period, cannot establish a common understanding between
the parties as to which set of conflicting terms is part of their contract.” Id. The court then pointed
out why course of dealing is unhelpful to resolve disputes where the parties exchange inconsistent
forms but perform the contract. “Each party,” the court reasoned, “is equally entitled to claim its
terms and conditions constituted the parties’ ‘course of dealing.’” Id.
Moreover, course of dealing under § 1303 requires that the other party knowingly acquiesce.
Accepting Metro’s version of the events as true, the earliest Metro should have known of the Terms
was August 26, 2010, when it received Bogle’s notice. Metro submitted just three purchase orders
in a five-day span in September that are “eligible” to be part of any course of dealing. Though there
are no hard and fast rules that set out when a series of transactions becomes “a course of dealing,”
three transactions in five days is plainly insufficient to establish a common understanding between
the parties and Metro’s acquiescence in this context.
B.
Transfer Under § 1406 Is Not Warranted
In the alternative, Bogle wants the Court to transfer this case to the Northern District of
California under 28 U.S.C. § 1406. Bogle makes no independent argument why the case should be
transferred beyond asserting the arbitration clause. Indeed, the request for transfer appears to be
another way to effectuate the arbitration clause if the Court does not dismiss the case under Rule
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12(b)(3). In any event, transfer is inappropriate here because venue is proper in this District and
there is no reason to transfer the case “in the interests of justice.” See 28 U.S.C. § 1406; 28 U.S.C.
§ 1391 (venue is proper in “a judicial district in which a substantial part of the events or omissions
giving rise to the claim occurred”).
C.
Metro Has Stated Claims Against Winebow
1.
Contract and Quasi-Contract Claims
Winebow asserts that Metro has not plead enough under Twombly and Iqbal to state a claim
for breach of the parties’ confidentiality agreement. Specifically, Winebow claims that Metro has
not provided Winebow the “grounds for its suspicion” that Winebow is using Metro’s confidential
information in an impermissible way.
This argument is nearly frivolous. Metro alleges that
Winebow approached Metro for a possible transaction, and registered to do business and sell alcohol
in Illinois just three days after receiving Metro’s confidential information. According to Metro, less
than a year after receiving the confidential information, Metro had been terminated as Bogle’s
distributor and Winebow—which had not previously operated in Chicago—was up and running and
selling wine to Metro’s former customers. This story “holds together” for the purposes of stating
a claim that Winebow breached the agreement for the purposes of Rule 8. See Swanson, 614 F.3d
at 404.
Counts III (reformation of the confidentiality agreement) and IV (breach of the
confidentiality agreement) stand.
Metro’s unjust enrichment claim stands as well. “When two parties’ relationship is governed
by contract, they may not bring a claim of unjust enrichment unless the claim falls outside the
contract.” Util. Audit, Inc. v. Horace Mann Serv. Corp., 383 F.3d 683, 688-689 (7th Cir. 2004).
Though Metro and Winebow have a contract in place (the confidentiality agreement), Metro’s unjust
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enrichment claim is not based on that contract. Rather, Metro’s claim seeks to recover the “sales and
profits” that Winebow is receiving as a result of its alleged fraud and tortious interference. Those
sales and profits are not necessarily the same damages available to Metro under its breach of contract
theory.
2.
Tort Claims
a.
Tortious Interference
Though they are organized differently in the complaint, Metro brings two claims for tortious
interference with prospective economic relations against Winebow: one for interfering with Metro’s
relationship with Bogle, and the other for interfering with Metro’s relationship with its retail
customers for both Bogle and non-Bogle wine. To allege tortious interference, Metro must allege
that (1) it had a reasonable expectancy of entering (or continuing) into a valid business relationship;
(2) Winebow had knowledge of that expectancy; (3) Winebow intentionally and unjustifiably
interfered with the relationship and induced its termination; and (4) Metro was damaged as a result
of the interference. See Voyles v. Sandia Mort. Corp., 751 N.E.2d 1126, 1133-34 (Ill. 2001).
Though tortious interference claims may be brought for interference with at-will relationships (see
Speakers of Sport, Inc. v. ProServ, Inc., 178 F.3d 862, 865 (7th Cir. 1999)), Metro must plead that
both it and Bogle wanted to continue that relationship. See Ali v. Shaw, 481 F.3d 942, 944-45 (7th
Cir. 2007) (applying Illinois law and noting “parties to the at-will contract must be willing and
desirous of continuing it in order for the action to lie when the contract is at-will”) (internal citation
and quotation omitted).
Metro alleges in its complaint that Bogle’s sales manager “was resolved to replace Metro as
Bogle’s distributor.” Winebow cannot interfere with a relationship that Metro concedes Bogle
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wanted to end. Distributors must be allowed to compete for new business when a supplier is
unhappy with its current partner. Allowing jilted businesses to bring an interference claim in such
circumstances would chill competition. See Speakers of Sport, 178 F.3d at 865 (“competition, which
though painful, fierce, frequently ruthless, sometimes Darwinian in its pitilessness, is the cornerstone
of our highly successful economic system.”). To the extent that Winebow won that business from
Metro’s unsatisfied partner through improper means (namely, the transaction/confidentiality
agreement ruse), Metro has its fraud and breach of contract claims to seek damages from Winebow.
For the same reasons, Metro’s claim against Winebow for interfering with its relationship with
Metro’s customers with respect to Bogle wine also fails. Given Metro’s allegations, it had no
reasonable expectation that it would remain Bogle’s distributor and be able to sell Bogle wine to
those customers. However, Metro has stated a claim against Winebow for tortious interference with
Metro’s relationships with its retail customers for non-Bogle wine. Metro alleges that Winebow
used the confidential information it received by tricking Metro to sell non-Bogle wine to specific
retail customers, as well the other elements of tortious interference. That is enough for now. In sum,
Count V is dismissed and Count VIII stands.
b.
Fraud and Civil Conspiracy
Implicitly conceding that the claim has been plead with particularity, Winebow asserts that
Metro’s fraud claim fails because it has not alleged any statement of a pre-existing fact, only that
Winebow was thinking about buying Metro. Winebow calls its statements “opinions” or statements
about “future contingent events.” But Metro is not suing Winebow because the transaction did not
go through. Metro asserts that the false statement was Winebow’s statement that Winebow had an
interest in buying Metro - a pre-existing fact. According to Metro, Winebow never intended to buy
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Metro - the transaction was just a ruse to get Metro’s confidential information. Had Winebow told
the truth and said it was only after Metro’s information, Metro would not have signed the
confidentiality agreement and handed over the information. That is a straightforward fraudulent
inducement claim. See Regensburger v. China Adoption Consultants, Ltd., 138 F.3d 1201, 1207 (7th
Cir. 1998) (listing the elements of fraudulent inducement in Illinois as: (1) a false representation of
a material fact; (2) made with knowledge or belief that the representation is false; (3) made with the
purpose of inducing the plaintiff to act; and (4) with the plaintiff’s reasonable belief in and reliance
on the statement to his detriment.)
However, Metro’s other fraud theory, promissory fraud, does not state a claim. Metro claims
that Winebow entered the confidentiality agreement with no intent to keep its promise to not misuse
Metro’s confidential information in the future. Promissory fraud applies where “a party makes a
promise of performance, not intending to keep the promise but intending for another party to rely on
it, and where the other party relies on it to its detriment.” Bower v. Jones, 978 F.2d 1004, 1011 (7th
Cir. 1992). Illinois is skeptical of promissory fraud claims. See Petrakopoulou v. DHR Int’l, Inc.,
660 F. Supp. 2d 935, 938 (N.D. Ill. 2009) (citing Gen. Elec. Credit Auto Lease, Inc. v. Jankuski, 532
N.E.2d 361, 363-64 (Ill. App. Ct. 1988))
“Promissory fraud is actionable only if it either is
particularly egregious or . . . it is embedded in a larger pattern of deceptions or enticements.”
Desnick v. Am. Broadcasting Cos., 44 F.3d 1345, 1354 (7th Cir. 1995) (surveying the Illinois
caselaw and identifying an “understandable ambivalence” about the scope of the scheme exception
given the “risk of turning every breach of contract suit into a fraud suit.”). Though applying the
scheme exception is difficult (see Petrakopoulou, 660 F. Supp. 2d at 938), this case is better
characterized as a fraudulent inducement case, not a promissory fraud case because Metro’s
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allegations center on a single promise in a single contract. See Speakers of Sport, 178 F.3d at 865-66
(finding that requiring a pattern tempers the “threat to the competitive process” and “reduces the
likelihood of a spurious suit, for a series of unfulfilled promises is better . . . evidence of fraud than
a single unfulfilled promise.”). In short, Metro’s promissory fraud theory is really just a dressed-up
breach of contract claim.
Because Metro’s fraud claim survives and Metro has alleged that Bogle and Metro agreed
to accomplish a lawful purpose (changing distributors) via unlawful means (fraudulent inducement),
as well as the other elements of civil conspiracy, the Court will not dismiss that claim. See Bressner
v. Ambroziak, 379 F.3d 478, 483 (7th Cir. 2004) (defining a civil conspiracy under Illinois law as
“(1) an agreement; (2) by two or more persons; (3) to perform an overt act or acts; (4) in furtherance
of the agreement/conspiracy; (5) to accomplish an unlawful purpose or a lawful purpose by unlawful
means; (6 ) that causes injury to another.”); Clarage v.Kuzma, 795 N.E.2d 348, 358 (Ill. App. Ct.
2003) (reinstating a civil conspiracy claim after reversing the dismissal of the underlying tort claims).
3.
Punitive Damages
Finally, Winebow asks the Court to strike Metro’s prayer for punitive damages. Metro has
alleged a plan by Winebow to use cover of a potential transaction to take a short-cut to successfully
distributing wine in Chicago at Metro’s expense. Given that mergers, buy-outs and other business
transactions are necessary for a well-lubricated economic system and cannot be accomplished
without confidentiality agreements, willful abuse of those agreements could be considered by the
jury to be outrageous and willful conduct. The Court will not strike Metro’s punitive damages prayer
as a matter of law at this early stage of the case. See, e.g., Republic Tobacco Co. v. N. Atl. Trading
Co., Inc. 381 F.3d 717, 735 (7th Cir. 2004) (noting that punitive damages are available for willful
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conduct in Illinois and upholding a punitive damage award where “[e]vidence was presented that in
order to gain a business advantage over its competitor, [the defedendant] made statements without
regard to their truth.”); Cohen v. Lewis, No. 03 C 5454, 2004 WL 2481015, at *7 (N.D. Ill. Nov. 3,
2004) (refusing to strike a punitive damages prayer at the motion to dismiss stage where the plaintiff
had alleged that the defendants intentionally sought to destroy the plaintiff’s business).
IV.
CONCLUSION
For the above reasons, Bogle’s motion to dismiss for improper venue or transfer (Doc. 20)
is denied. Winebow’s motion to dismiss for failure to state a claim (Doc. 21) is granted in part and
denied in part. Count V is dismissed with prejudice. Count VI is dismissed in part with prejudice
to the extent it alleges promissory fraud. The remaining counts against Winebow stand.
________________________________________
Virginia M. Kendall
United States District Court Judge
Northern District of Illinois
Date: June 14, 2011
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