Shuffle Tech International LLC v. Wolff Gaming, Inc.
Filing
104
Enter MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 6/11/2013. Mailed notice (jdh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SHUFFLE TECH INTERNATIONAL
LLC., an Illinois limited
liability company,
Plaintiff,
v.
WOLFF GAMING, INC., a
Colorado corporation,
Defendant.
____________________________
WOLFF GAMING, INC., a
Colorado corporation,
Counter-Plaintiff,
v.
SHUFFLE TECH INTERNATIONAL
LLC., an Illinois limited
liability company, and
RICHARD J. SCHULTZ, an
Illinois resident,
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No. 11 C 7358
Counter-Defendants.
MEMORANDUM OPINION AND ORDER
In March of 2010, Richard Schultz began negotiating on
behalf of his company, plaintiff Shuffle Tech, towards a
development and distribution agreement with defendant Wolff
1
Gaming.1
Shuffle Tech, an Illinois limited liability company,
manufactures and sells consumer-grade automatic card shuffling
machines, and Wolff Gaming, a Colorado corporation, manufactures
and sells gaming equipment to casinos and other establishments.
The parties envisaged an agreement under which Shuffle Tech, with
financial support from Wolff Gaming, would develop casino-grade
card shufflers, of which Wolff Gaming would then be the exclusive
distributor in the Americas.
Two documents, both drafted on June 3, 2010, memorialize the
parties’ negotiations.
The first is a letter of intent, which
expresses the parties’ “mutual commitment to proceed with the
draft Development and Distribution Agreement” (the “Letter of
Intent”), and the second is the Draft Development and
Distribution Agreement referenced in that letter (the “Draft
Agreement”).
Although the parties began working toward the
objectives set forth in these documents, their relationship
soured before the development of a casino-grade shuffler was
complete, and on August 1, 2011, Schultz wrote to Wolff
suggesting the parties “settle all outstanding business…and go
[their] separate ways.”
Just over a year later, Shuffle Tech
licensed its shuffler technology to another company.
For ease of reference, I refer to Schultz and Shuffle Tech
collectively as “plaintiffs,” though I recognize that
technically, only Shuffle Tech is the plaintiff, while Schultz is
a counter-defendant.
1
2
In the meantime, plaintiffs brought this action in October
of 2011, seeking a declaration that the Draft Agreement is not an
enforceable contract, and that plaintiffs owe no duties to
defendant pursuant to that agreement.
Plaintiff also asserted a
claim for breach of contract based on the Letter of Intent.
Defendant has counter-sued plaintiffs for a declaration that the
Draft Agreement is, in fact, an enforceable agreement and further
asserts claims for breach of contract, fraud, breach of fiduciary
duty, and unjust enrichment.
Now before me is plaintiffs’ motion for summary judgment,
which seeks judgment in its favor on its own declaratory claim
and on all of defendants’ counterclaims.2
For the reasons that
follow, I grant plaintiffs’ motion.
I.
Summary
judgment
is
appropriate
where
“the
pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to judgment as a matter of law.”
Fed. R. Civ. P. 56(c).
The
moving party bears the burden of demonstrating an absence of
genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
Neither plaintiffs’ motion nor the accompanying memorandum
makes any reference to plaintiffs’ claim for breach of the Letter
of Intent. Accordingly, this decision does not resolve that
claim.
2
3
317, 323 (1986).
When a summary judgment motion is supported by
evidence as provided in Rule 56(c), however, the nonmoving party
may not rest on mere allegations or denials in its pleadings but
“must set forth specific facts showing that there is a genuine
issue for trial.” Fed. R. Civ. P. 56(e).
Under Illinois law, which the parties agree governs the issues
here, “the intent of the parties controls the question whether a
contract exists.
Of course when we speak of ‘intent,’ we are
referring to a party’s outward expression as manifesting his
intention rather than to some secret and unexpressed intention.”
Conn. Gen. Life Ins. Co. v. Chicago Title and Trust Co., 714 F.2d
48, 50 (7th Cir. 1983) (citations omitted). “In measuring intent,
the court must consider all relevant circumstances surrounding
negotiation and execution of the document, as well as the language
of the document itself.”
Id.
As the party seeking to enforce the
Draft Agreement, defendant bears the burden of establishing the
existence of the agreement.
World Championship Wrestling, Inc. v.
GJS Int’l., Inc., 13 F. Supp. 2d 725, 734 (N.D. Ill. 1998).
Plaintiffs first argue that enforcement of the Draft Agreement is
barred by
Illinois’
statute
of
frauds,
740 ILCS
80/1,
which
requires contracts that cannot be performed within one year to be
in writing and signed by the party to be charged.
Agreement,
plaintiffs
assert,
does
not
meet
this
The Draft
requirement
because it contemplates “an initial term of two (2) years from date
4
of execution,” and was not signed on the signature page.
Pl.’s L.R. 56.1 Stmt., Exh. 1 [DN 71-3 at 23, 30].
Exh. A to
Plaintiffs
further argue that even assuming the Draft Agreement satisfied the
statute of frauds, it is plain from the face of the document, as
well as from the contemporaneous Letter of Intent and the parties’
subsequent communications, that the parties did not intend the
Draft Agreement to be a binding contract.
As evidence of the parties’ intent, plaintiffs point first to
the heading at the top of the first page of the Draft Agreement,
which reads, “Discussion Draft Only, Revised 6/3/10.” (Original
emphasis) Id. at 21.
Next to this heading, Wolff affixed his
signature and Schultz his initials.
Meanwhile, neither party
executed the signature page at the end of the Draft Agreement.
Id.
at 30. Plaintiffs argue that Wolff’s and Schultz’s markings next to
the “Draft Only” header, together with their failure to execute the
signature page, can only reasonably be read to reflect their mutual
understanding that the Draft Agreement was neither final nor
binding.
Plaintiffs next point to the Letter of Intent as evidence that
the parties did not intend to be bound by the Draft Agreement.
The
Letter of Intent states that the parties’ “mutual commitment to
proceed is contingent upon attorney review and gaming authority
review,” and that “language of the [D]raft Agreement is subject to
modification to conform to applicable gaming law and regulation.”
5
In addition, the Letter of Agreement sets forth the terms of
defendant’s agreement to pay plaintiffs “earnest money” in the
amount of $100,000.
Earnest money, plaintiffs argue, is a “deposit,” which is
ordinarily paid before a final agreement is consummated for the
purpose
of
showing
transaction.”
Super
“a
good-faith
Stop
intention
Petroleum,
Inc.
to
v.
complete
Clark
the
Retail
Enterprises, Inc., 308 B.R. 869, 891 (Bankr. N.D. Ill. 2004). This
is indeed how the term was used in the Letter of Intent, plaintiffs
submit, as evidenced by the provision granting defendant the right
to request a refund of the earnest money “in the event that a final
Agreement cannot be signed within 90 days.”
Exh. A to Pl.’s Rule
56.1 Stmt., Exh. 5 [DN 71-3 at 36].
Plaintiffs argue that the language relating to attorney and
gaming authority review further evidences the parties’ mutual
understanding that additional conditions would have to be met
before the Draft Agreement became enforceable.
Plaintiffs further
assert that the “earnest money” provisions in the Letter of Intent,
which explicitly contemplate the possibility that the parties will
not reach a final distribution agreement, reinforce the conclusion
that the parties did not intend the contemporaneously drafted Draft
Agreement to represent an enforceable agreement.
Finally, plaintiffs contend that the parties’ communications
in the period following the creation of the Draft Agreement support
6
the conclusion that the Draft Agreement did not represent the
parties’ ultimate meeting of the minds.
Plaintiffs cite, among
other evidence, emails Schultz and Wolff exchanged in late June of
2010, which they argue reflect the parties’ mutual understanding
that the distribution agreement had yet to be finalized. Defendant
does not dispute that on June 28, 2010, Schultz sent Wolff an email
regarding the status of their agreement, saying he “[j]ust wanted
to check in on the contract,” and specifically asking Wolff “where
you’re (sic) contract and gaming attorneys are on that.” Pl.’s L.R.
56.1 Stmt., Exh. C (Schultz Aff.), Exh. 1 [DN 71-6 at 8].
Schultz
explained that he was “waiting for them and any comments so we can
get that locked down.”
Id.
The next day, Wolff responded, “I will
follow back up as quickly as I can.”
Id.
On July 12, 2010,
Schultz again prompted Wolff by email to proceed with attorney
review, stating, “[j]ust wanted to follow up on this so we can get
it locked down.
Any word from your lawyer(s)?”
Id. at 9.
Then,
in mid-August of 2010, Schultz sent Wolff another email expressing
his
concern
that
the
parties
did
not
have
“the
entire
deal
formalized,” explaining, “[w]e need to know that everything is in
place.” Id. at 10.
These missives, plaintiffs submit, reinforce
what is explicit on the face of both the Draft Agreement and the
Letter of Intent: that the Draft Agreement does not represent the
parties’ final meeting of the minds, and that they did not intend
to be bound by its terms.
7
I need not resolve the disputed statute of frauds issue
because I am amply persuaded that the foregoing evidence allows for
but one reasonable conclusion: the parties did not intend be bound
by the Draft Agreement.
Agreement
is
not
an
Accordingly, I conclude that the Draft
enforceable
contract,
even
assuming
it
that
the
satisfies the Illinois statute of frauds.
Defendant
tacitly
concedes,
as
it
must,
enforceability of the Draft Agreement hinges on whether the parties
intended to be bound by it.
cites
no
evidence
that
See Def.’s Opp. at 8.
meaningfully
Yet defendant
controverts
the
evidence
discussed above, all of which indicates that both sides anticipated
additional review and possible modification of the Draft Agreement
before it
would
become
final.
Defendant
gamely
argues
that
Schultz’s and Wolff’s markings next to the header on the first page
of the Draft Agreement effected execution of the Draft Agreement.
I agree with plaintiffs, however, that this is not a reasonable
interpretation of the evidence.
As the Seventh Circuit has noted, “parties who make their pact
‘subject
to’
a
later
definite
agreement
(objective) intent not to be bound.”
have
manifested
an
Empro Mfg. Co., Inc. v. Ball-
Co Mfg., Inc., 870 F.2d 423, 425 (7th Cir. 1989). This is precisely
what the parties did here.
The Letter of Intent stated not only
that the Draft Agreement was “subject to modification to conform to
applicable gaming law and regulation,” but also that their “mutual
8
commitment to proceed with” the Draft Agreement was “contingent
upon attorney review and gaming authority review,” which, for all
that the record reveals, the parties neither sought nor obtained.
That the parties reached a preliminary agreement to proceed with
negotiations did not transform the Draft Agreement into a binding
contract.
See Empro, 870 F.2d at 426 (“Illinois…allows parties to
approach agreement in stages, without fear that by reaching a
preliminary understanding they have bargained away their privilege
to disagree on the specifics… So long as Illinois preserves the
availability of this device, a federal court in a diversity case
must send the disappointed party home empty-handed.”).
Nor does defendant’s argument that the parties “adopted” the
Draft Agreement through substantial performance raise a triable
issue as to whether the Draft Agreement is an enforceable contract.
Defendant argues that it substantially performed its obligations
under the Draft Agreement by making payments to Shuffle Tech.
But
the bulk of the payments defendant claims to have made (“between
$120,000 and $125,000” -- though I am unable to ascertain from
defendant’s citation to “W, p. 93” whether these payments are, in
fact, supported by the record) are consistent with the terms of the
Letter of Intent, and the remainder does not correspond to any
payments contemplated in the Draft Agreement.
L.R. 56.1 Stmt., Exh. 4 [DN 71-3 at 24].
See Exh. A to Pl.’s
Nor does evidence that
the parties took steps to further the ultimate objectives of their
9
anticipated agreement (as Schultz did when he directed potential
customers to defendant, representing to them that defendant was
Shuffle
Tech’s
“exclusive
distributor”),
Agreement into an enforceable contract.
Wrestling, 13 F. Supp. 2d at 732.
transform
the
Draft
See World Championship
Indeed, “where the clear intent
of the parties is that neither will be legally bound until the
execution and delivery of a formal agreement, then no contract
comes into existence until such execution and delivery,” regardless
of whether the parties represented to others that they had a
“deal.” Chicago Title & Trust Co. v. Ceco Corp., 415 N.E.2d 668,
677 (Ill. App. Ct. 1980).
In view of the parties’ clear intent to
take further steps before finalizing their agreement,
Schultz’s
representations to potential customers that defendant was Shuffle
Tech’s
exclusive
distributor
is
insufficient
to
persuade
a
reasonable jury that the Draft Agreement is enforceable as the
parties’ ultimate “meeting of the minds.”
See id. To the extent
defendant raises additional arguments for enforcing the Draft
Agreement, they are without merit and do not require further
examination.
I now turn briefly to defendant’s counterclaims for fraud,
breach of fiduciary duty, and unjust enrichment, which likewise
warrant little discussion.
that
plaintiffs
made
In its fraud claim, defendant asserts
intentional
misrepresentations
regarding defendant’s exclusive distribution rights.
10
to
Wolff
Defendant
cites emails Schultz sent to prospective customers in which Schultz
represented, for example, that Shuffle Tech’s product was “being
distributed exclusively through Wolff and/or Wolff distributors,”
and argues that these statements were false in view of plaintiffs’
belief at the time Schultz made the statements that the parties’
distribution agreement had not yet been finalized.
asserts
that
Schultz
either
copied
Wolff
on
such
Defendant
emails
or
otherwise informed him of their content, including the alleged
misrepresentations, to induce defendant to “try to drum up sales.”
To prevail on this counterclaim, defendant must prove: 1) that
plaintiffs made a false statement of material fact; 2) plaintiffs’
knowledge that the statement was false; 3) plaintiffs’ intent that
the statement induce the defendant to act; 4) defendant’s reliance
upon the
truth
of
the statement;
and
5)
resulting from reliance on the statement.
defendant’s
damages
Davis v. G.N. Mortg.
Corp., 396 F.3d 869, 881-82 (7th Cir. 2005) (citation omitted).
To satisfy the fourth element,
defendant must establish that any
reliance on allegedly false statements was justifiable.
Id.,
citing Soules v. Gen. Motors Corp., 402 N.E. 2d 599, 601 (Ill.
1980).
Defendant’s claim fails on at least this element.
As the Seventh Circuit noted in Davis, “Illinois courts have
long recognized that ‘a party is not justified in relying on
representations made when he has ample opportunity to ascertain the
truth of the representations before he acts. When he is afforded
11
the opportunity of knowing the truth ... he cannot be heard to say
he was deceived by misrepresentations.’” 396 F.3d at 882 (citing
cases). As discussed above, the evidence in this case conclusively
shows that
the
parties
did
not
execute
a
final distribution
agreement. Moreover, there is no dispute that Schultz believed the
deal was “not entirely formalized,” and periodically reminded Wolff
that outstanding issues needed to be addressed.
Indeed, Wolff
agreed to “follow back up” on these issues but failed to do so.
Because defendant knew that the parties’ agreement had not been
finalized, and knew Schultz believed further steps were required
before it would become so, no reasonable jury could conclude that
defendant justifiably relied on the statements on which it bases
its fraud claim.
Plaintiffs are entitled to summary judgment of defendant’s
counterclaim for breach of fiduciary duty for the simple reason
that plaintiffs owed defendant no such duty.
“[P]arties to a
contract are not each other’s fiduciaries.” Original Great Am.
Chocolate Chip Cookie Co., Inc. v. River Valley Cookies, Ltd., 970
F.2d
273,
280
(7th
Cir.
1992)
(citing
cases).
In
tacit
acknowledgement of this principle, defendant premises its claim on
the parties’ purported cooperation in a joint venture.
But this
characterization of the parties’ relationship lacks any evidence in
the record.
Indeed, defendant’s only support for its claim that
the parties were engaged in a joint venture is the text of the
12
Letter of Intent and the Draft Agreement.
Defendant purports to
find the basis for a fiduciary relationship in language stating,
for example, that “the parties intend to cooperate,” and that they
“confirm their mutual commitment to proceed” with an agreement.
But these unremarkable contractual terms fall far short of the kind
of evidence required to establish the existence of a fiduciary
relationship,
which
“must
be
shown
by
proof
so
clear
and
convincing, so strong, unequivocal and unmistaken that it leads to
only one conclusion.”
Carey Elec. Contracting, Inc. v. First Nat.
Bank of Elgin, 392 N.E. 2d 759, 763 (Ill. App. Ct. 1979).
Finally,
plaintiffs
are
entitled
to
summary
defendant’s counterclaim for unjust enrichment.
judgment
on
To prevail on a
claim for unjust enrichment, defendant must prove that plaintiffs
are “retaining a benefit to the [defendant’s] detriment, and this
retention is unjust.” Cleary v. Philip Morris Inc., 656 F.3d 511,
518 (7th Cir. 2011). The benefits defendant claims plaintiffs have
unjustly retained are: 1) payments defendant made to fund the
development of a casino-grade shuffler; 2) uncompensated time Wolff
devoted to the project; and 3) unidentified “suggestions” Wolff
made to the shuffler’s design.
But the evidence is not such as
could persuade a jury to find in its favor on this claim.
To
begin, the evidence is uncontroverted that shortly after suggesting
the parties “go [their] separate ways, plaintiffs contacted the
defendant on several occasions regarding the return of the earnest
13
money, and that defendant has failed to respond.
As for the
remaining “benefits” defendant claims to have conferred, defendant
cites no authority, and articulates no reasoned analysis, to
explain why plaintiffs’ retention of these purported benefits
“violates the fundamental principles of justice, equity, and good
conscience.” Id. (quoting HPI Health Care Servs. v. Mt. Vernon
Hosp., Inc., 545 N.E.2d 672, 679 (Ill. 1989)).
On their face,
these “benefits” appear to be nothing more than the investments
parties routinely incur in the course of working towards a deal
they expect to be mutually beneficial.
II.
For the foregoing reasons, plaintiffs’ motion for summary
judgment is granted.
ENTER ORDER:
_____________________________
Elaine E. Bucklo
United States District Judge
Dated: June 11, 2013
14
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