Balmoral Racing Club, Inc. et al v. Churchill Downs, Incorporated

Filing 60

MEMORANDUM Opinion Signed by the Honorable John F. Grady on 11/29/2011. Mailed notice(cdh, )

11-1028.112-RSK

November 29, 2011

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BALMORAL RACING CLUB, INC.,
MAYWOOD PARK TROTTING CLUB
ASSOCIATION, INC., and THE
ILLINOIS HARNESS HORSEMEN’S
ASSOCIATION, INC.,

)
)
)
)
)
)
Plaintiffs,
)
)
v.
)
)
CHURCHILL DOWNS, INC., CHURCHILL
)
DOWNS TECH. INITIATIVES CO. d/b/a )
TWINSPIRES.COM and YOUBET.COM, LLC,)
)
Defendants.
)

No. 11 C 1028

MEMORANDUM OPINION
Before the court are: (1) defendants’ motion to dismiss
certain counts of plaintiffs’ complaint; and (2) plaintiffs’ motion
to dismiss defendant Youbet.com, LLC’s (“Youbet”) counterclaim.
For the reasons explained below, we grant the defendants’ motion
and deny the plaintiffs’ motion.
BACKGROUND
We will assume that the reader is familiar with our opinion
denying plaintiffs’ motion for a preliminary injunction, which
discussed the background of the parties’ dispute.

Balmoral Racing

Club, Inc. v. Churchill Downs, Inc., No. 11 C 1028, 2011 WL
3020776, *1-3 (N.D. Ill. July 21, 2011).

For purposes of the

motions before the court, we need only add that the Illinois

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Harness Horsemen’s Association, Inc. (the “IHHA”) alleges that it
is a third-party beneficiary of the Co-Branding Agreement (the
“CBA”) between Youbet’s predecessor and plaintiffs Balmoral Racing
Club, Inc. (“Balmoral”) and Maywood Park Trotting Association, Inc.
(“Maywood”).1

(See Compl. ¶¶ 16, 43.)
DISCUSSION

A.

Defendants’ Motion to Dismiss
(1)

Legal Standard

The purpose of a 12(b)(6) motion to dismiss is to test the
sufficiency of the complaint, not to resolve the case on the
merits.

5B Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 1356, at 354 (3d ed. 2004).

To survive

such a motion, “a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on
its face.’

A claim has facial plausibility when the plaintiff

pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570, 556 (2007)).

When evaluating

a motion to dismiss a complaint, the court must accept as true all
factual allegations in the complaint.
However,

we

need

not

accept

as

Iqbal, 129 S. Ct. at 1949.

true

its

legal

conclusions;

1/
The IHHA is "an [a]ssociation comprised of owners, breeders, trainers
and drivers of standardbred horses which promotes the wellfare of harness racing
in Illinois." (Compl. ¶ 9.)

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“[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”

Id.

(citing Twombly, 550 U.S. at 555).
Defendants’ motion asks us to dismiss Count III (tortious
interference) of plaintiffs’ complaint as to all plaintiffs, and
Counts

I

(breach

of

contract)

and

II

(trade

secret

misappropriation) insofar as they are brought by the IHHA. (Defs.’
Mem. at 5, 7.)

In response to the motion, plaintiffs have

withdrawn Count III in its entirety, and clarified that the IHHA
does

not

seek

relief

in

Count

II.

(Pls.’

Resp.

at

1-2.)

Therefore, the only remaining issue is whether the IHHA has stated
a claim for relief in Count I, alleging that the defendants
breached the CBA.
(2)

The IHHA Is Not a Third Party Beneficiary of the CBA

Because the IHHA is not a party to the CBA, it can only pursue
a

breach-of-contract

claim

against

the

defendants

contracting parties intended to directly benefit it.

if

See

the
Weil,

Freiburg & Thomas, P.C. v. Sara Lee Corp., 577 N.E.2d 1344, 1352
(Ill. App. Ct. 1991) (“A third party acquires no rights under a
contract entered into by others unless the provision at issue was
intentionally

included

for

the

direct

benefit

of

the

third

party.”); see also Alaniz v. Schal Associates, 529 N.E.2d 832, 834
(Ill. App. Ct. 1988) (an incidental benefit is insufficient to
confer third-party beneficiary status).

We look to the contract

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itself, as well as the circumstances surrounding its execution, to
ascertain the parties’ intent. See Advanced Concepts Chicago, Inc.
v. CDW Corp., 938 N.E.2d 577, 581 (Ill. App. Ct. 2010).

The fact

that the CBA does not refer to the IHHA by name is not dispositive,
but the “intent to benefit [the IHHA] ‘must affirmatively appear
from the language of the instrument when properly interpreted and
construed.’”

Weil, Freiburg & Thomas, 577 N.E.2d at 1352 (quoting

Carson Pirie Scott & Co. v. Parrett, 178 N.E. 498, 501 (Ill.
1931)); see also Advanced Concepts, 938 N.E.2d at 583-84 (“Even
when the party that is to receive the benefit is not named in the
contract, it is sufficient that a class of potential third-party
beneficiaries be adequately defined.”).
Defendants argue that the CBA expressly precludes third-party
claims like the one the IHHA is asserting in this lawsuit:
11.3 No Third Party Beneficiaries
Unless otherwise expressly provided, no provisions of
this Agreement are intended or shall be construed to
confer upon or give to any person or entity other than
Company and Associates any rights, remedies or other
benefits under or by reason of this Agreement.
For
clarification, no third party, including, but not limited
to, any Illinois horseman’s group, shall have any
remedies under or by reason of this Agreement, or any
rights to enforce any provisions of this Agreement.
(CBA, attached as Ex. A to Pls.’ Compl., § 11.3.)

Plaintiffs

insist

is

that

the

exclusionary

inapplicable or ambiguous.

language

in

§

11.3

either

Pursuant to another provision of the

CBA, the “Associates” (racetrack operators including Balmoral and

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Maywood) are “solely responsible for compensating and remitting all
necessary revenues to their respective horsemen.”
CBA, dated August 2008, § 6.1.)2

(Second Am. to

According to plaintiffs, this

language gives the IHHA third-party beneficiary status and is
controlling because: (1) it “expressly” creates third-party rights
as contemplated by § 11.3's first sentence; or else (2) it is
irreconcilable with § 11.3 and the contract should be construed
against the defendants as the successors to the purported drafter.
(Pls.’ Resp. at 5-6.)

This argument is strained.

The fact that

the contracting parties knew that a portion of the fees would be
shared with “horsemen” does not necessarily mean that they intended
to directly benefit third parties like the IHHA.

See Barney v.

Unity Paving, Inc., 639 N.E.2d 592, 596 (Ill. App. Ct. 1994) (“The
fact that the contracting parties may ‘know, expect, or even intend
that others will benefit’ from their agreement is not enough to
overcome the presumption that the contract was intended solely for
the direct benefit of the parties.”) (quoting Waterford Condominium
Ass’n v. Dunbar Corp., 432 N.E.2d 1009, 1011 (Ill. App. Ct. 1982)).
But

even

2/

if

§

6.1

was

sufficient

to

overcome

the

“strong

As originally drafted, § 6.1 required Youbet to pay a portion of the
fees “to each of Associates’ respective horsemen’s purse accounts.” (CBA § 6.1.)
It is not clear from the contract who controlled the “purse accounts,” the
Associates or the “horsemen.” Plaintiffs indicate that this provision provided
for direct payment to entities like the IHHA. (Pls.’ Resp. at 3.) Regardless,
this version of § 6.1 was superceded long before the events giving rise to this
lawsuit. Indeed, as we understand the chronology, the parties amended § 6.1
before they even began to perform under the contract. (See, e.g., Stip. Stmt.
of Facts, DKT # 40, ¶ 42 (indicating that performance began in October 2008,
several months after the parties amended § 6.1).)

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presumption” against allowing third parties to sue for breach of
contract, id., contracts must be construed as a whole.

Section

11.3 explicitly forecloses the IHHA’s breach-of-contract claim: “no
third party, including, but not limited to, any Illinois horseman’s
group,

shall

Agreement,
Agreement.”

have

or

any

any

remedies

rights

to

under

enforce

or
any

by

reason

of

this

provisions

of

this

The fact that another provision of the contract could

be construed to confer a benefit on a third-party does not make §
11.3 ambiguous.

The parties clearly included § 11.3 to avoid any

ambiguity on this question.
B.

Count I is dismissed as to the IHHA.

Plaintiffs’ Motion to Dismiss Defendants’ Counterclaim
Plaintiffs argue that we should dismiss Youbet’s counterclaim

as redundant because we will necessarily adjudicate the issues it
raises when we rule on plaintiffs’ claims.

See, e.g., Penn Mutual

Life Insur. Co. v. GreatBanc Trust Co., No. 09 C 6129, 2010 WL
2928054, *5 (N.D. Ill. July 21, 2010) (“Courts in this circuit have
routinely

dismissed

counterclaims

that

merely

restate

the

declaration sought by the plaintiff from the opposite perspective
on the grounds that such pleadings are duplicative and merely
complicate the pleadings.”) (citing cases); but see Employer Ins.
of Wausau v. Pacer Intern., Inc., No. 04 C 4563, 2005 WL 61481, *3
(N.D. Ill. Jan. 11, 2005) (“It is common practice for an alleged
insured to file counterclaims demanding a declaration that the
insurer was obligated to make payments to or to defend the insured;

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these cases frequently assert breach of contract counterclaims
based on the insurance policy, as well.”).3

Youbet points out

that, unlike the plaintiff in Penn Mutual, the plaintiffs in this
case are not seeking a declaratory judgment.

(Defs.’ Resp. at 4.)

We do not see why the principle discussed in that case should be
limited to mirror-image claims for declaratory judgment, but the
redundancy of such claims is easier to see on the face of the
pleadings.

At this stage of the case, it seems likely that any

ruling on Count I of plaintiffs’ complaint will resolve (at least
implicitly) whether Youbet was entitled to terminate the agreement
and discontinue payments to the plaintiffs.

(See Counterclaim at

Count I (requesting a declaration that Youbet properly terminated
for cause) and Count II (requesting a declaration that, because it
terminated for cause, Youbet is “not required to pay any Fees
Associates may have been obligated to remit to the IHHA if the
Agreement had remained in effect”).)

But we will have a much

better handle on the issue closer to trial.

See, e.g., U.S. Bank

Nat. Ass’n v. Alliant Energy Resources, Inc., No. 09–cv–078–bbc,
2009 WL 1850813, *3 (W.D. Wis. June 26, 2009) (acknowledging that

3/
Youbet, citing Wausau, argues that its counterclaim should not be
dismissed because it is compulsory under Fed. R. Civ. P. 13(a). But in most if
not all cases where the principle discussed in Penn Mutual applies the
counterclaim will be compulsory — i.e., it will have arisen out of the same
transaction giving rise to the plaintiff’s claim.
If the claim is truly
redundant, then the issues its raises are already in controversy and it is
unnecessary to raise them again in a counterclaim to avoid preclusion. See
Tenneco Inc. v. Saxony Bar & Tube, Inc., 776 F.2d 1375, 1379 (7th Cir. 1985)
(“When the original complaint puts in play all of the factual and legal theories,
it makes no difference whether another party calls its pleadings counterclaims,
affirmative defenses, or anything else.”).

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defendants’ counterclaim appeared to be the “inverse” of the
plaintiff’s breach-of-contract claim, but denying the plaintiff’s
motion to strike as premature); see also 6 Charles A. Wright &
Arthur R. Miller, Federal Practice and Procedure § 1406 (3d Ed.)
(“[T]he safer course for the court to follow is to deny a request
to dismiss a counterclaim for declaratory relief unless there is no
doubt that it will be rendered moot by the adjudication of the main
action.”).

Moreover, plaintiffs will not suffer any prejudice if

the counterclaim remains pending.

See Alliant Energy, 2009 WL

1850813, *3 (“If, as plaintiff argues, the counterclaims are truly
repetitious, then plaintiff will not have to expend much time on
any additional discovery or briefing.”); see also VW Credit, Inc.
v. Friedman and Wexler, LLC, No. 09 C 2832, 2010 WL 2330364, *2
(N.D. Ill. June 7, 2010) (“In any event, even if the counterclaim
turns out to be an exact mirror image of VW Credit’s claim, which
seems doubtful, the fact that the counterclaim remained pending .
. . would not prejudice VW Credit in the slightest.”). Plaintiffs’
motion to dismiss Youbet’s counterclaim is denied.
CONCLUSION
Defendants’ motion to dismiss (16) is granted.

Plaintiffs’

motion to dismiss Youbet’s counterclaim (27) is denied. Plaintiffs
shall answer Youbet’s counterclaim by December 16, 2011.

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DATE:

November 29, 2011

ENTER:

___________________________________________
John F. Grady, United States District Judge