Chicago Marine Towing v. Boat/U.S., Inc. et al
Filing
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ENTER MEMORANDUM OPINION AND ORDER: the Court denies Defendant Boat/U.S. Inc.'s motion to dismiss 12 and denies the Great Lake Defendants' motion to dismiss 15 . This case is set for further status hearing on 5/6/2014 at 9:00 a.m.; the parties are directed to meet and confer and to file a joint status report with a proposed discovery plan no later than 5/2/2014. Signed by the Honorable Robert M. Dow, Jr on 4/23/2014. Mailed notice(tbk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOHN J. MANLEY d/b/a CHICAGO MARINE
TOWING,
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)
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)
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Plaintiff,
v.
BOAT/U.S. INC., ET AL.,
Defendants.
CASE NO.: 13-CV-5551
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on two motions to dismiss [12 and 15] filed by
Defendants Boat/U.S., Inc., Great Lake Repair, Inc. d/b/a Great Lakes Towing & Repair, and
Richard N. Lenardson. For the reasons set forth below, the Court denies Defendant Boat/U.S.
Inc.’s motion to dismiss [12] and denies the Great Lake Defendants’ motion to dismiss [15].1
This case is set for further status hearing on 5/6/2014 at 9:00 a.m.; the parties are directed to
meet and confer and to file a joint status report with a proposed discovery plan no later than
5/2/2014.
I.
Background2
Plaintiff John J. Manley d/b/a Chicago Marine Towing (“Chicago Marine”) is an Illinois
corporation located in Chicago, Illinois, which provides marine towing and salvage services on
Lake Michigan and its tributary waters. Boat/U.S., Inc. (“Boat U.S.”) is a Virginia corporation
1
In their motion to dismiss, the Great Lakes Defendants do not offer any original arguments but merely
“join and herein incorporate by reference all arguments and positions as to Counts III and IV” from Boat
U.S.’s motion to dismiss.
2
For purposes of Defendant’s motion to dismiss, the Court assumes as true all well-pleaded allegations
set forth in the complaints. See, e.g., Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th
Cir. 2007). Unless otherwise specified, all citations in this section correspond to Plaintiff’s complaint [1].
1
that provides water towing services, 24-hour dispatch service, and insurance coverage for
recreational boaters. Defendant Richard Lenardson is the owner of Defendant Great Lakes
Towing; both are citizens of Michigan. Because there is complete diversity of citizenship
between the parties and the amount in controversy exceeds $75,000, the Court has jurisdiction
over this action pursuant to 28 U.S.C. § 1332(a).
On or about February 5, 2009, Chicago Marine entered into a service agreement with
Boat U.S. Pursuant to the agreement, Chicago Marine was a Boat U.S.-authorized marine
towing company, with a protected area of exclusive operation in and around certain specified
ports on Lake Michigan. The agreement provided that it would remain in effect until November
30, 2013, and that it could only be terminated by Boat U.S. prior to November 30, 2013, by
written notice of proposed termination in the event that Chicago Marine breached Section I,
Items 3, 4, 9, 10, or 11 of the agreement.
On July 1, 2012, Boat U.S.’s Towing Dispatch Service called Chicago Marine and
dispatched Chicago Marine to assist a non-member boater, Nathan Locher (“Locher”), whose
powerboat had run aground on shore in a navigable waterway located at or near Wells Beach,
Indiana. Albert Bartkus (“Bartkus”), one of Chicago Marine’s employees at that time, was
dispatched to assist Locher. When Bartkus arrived, Locher and a woman were still on board the
grounded vessel. Bartkus advised Locher that this was a salvage operation and that for safety
reasons he and his girlfriend would have to disembark from the boat before it was pulled off the
shore. Locher signed the salvage contract and went ashore. Chicago Marine towed the Locher
vessel to a boatyard.
Shortly thereafter John Manley arrived at the site to transport Locher and the woman
either to the boatyard or their home. According to the complaint, Locher and the woman were
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belligerent, impaired by drugs and alcohol, and refused to comply with his directives.
Eventually Manley drew a handgun and ordered the couple to sit on the transom of the boat and
to stay sitting there until the vessel reached shore. He advised the couple that he would not take
them to the boatyard, but instead would do so the following morning after they “came down”
from the drugs and alcohol, and that they could make arrangements at that time to remove any
personal belongings from the boat. Manley dropped the couple off at Locher’s home port
without further incident.
The following morning, on July 2, 2012, a Chicago Marine employee contacted Locher,
informed him again that his boat was located at Crowley’s, and made arrangements for Locher to
go and remove any personal belongings from the boat. Manley also made arrangements for two
police officers to be present at the boatyard to ensure that Locher caused no problems. By 3 p.m.
on July 2, 2012, Locher had removed his personal belongings from the boat and left the boatyard
without incident. Locher regained possession of his boat from Chicago Marine on August 2,
2012.
After the events of July 1, 2012, Boat U.S. informed Manley that it had received
complaints from both Locher and his insurer, American Family Insurance, about Chicago
Marine’s services and billings, including Manley’s pointing of a handgun at Locher. Manley
told Boat U.S. about the salvage operation and why Manley believed his actions were reasonable
and necessary under the circumstances. On July 23, 2012, Boat U.S. delivered to Chicago
Marine a letter terminating the service agreement. In the termination letter, Boat U.S. informed
Chicago Marine that it was terminating the agreement, effective July 23, 2012 at 12:00 p.m., due
to Chicago Marine’s purported breaches of Section I, Items 2, 10, 11 and Section II, Item 1 of the
service agreement.
3
The complaint alleges on information and belief that after Boat U.S. terminated the
agreement, Boat U.S. contracted with Great Lakes Towing and its president, Lenardson, to
perform towing and salvage operations for certain of the port areas that previously were Chicago
Marine’s exclusive areas under the service agreement. Subsequently, Boat U.S. was an exhibitor
at the Chicago Boat Sports & RV Show (the “Chicago Boat Show”) on January 9, 2013 to
January 13, 2013 at McCormick Place in Chicago, and it paid for and maintained a booth at
which its representatives promoted Boat U.S.’s services and products. Lenardson was one of the
Boat U.S. representatives who manned the Boat U.S. booth at the Chicago Boat Show.
According to the complaint, Lenardson wore a hat and shirt with Boat U.S.’s logo while he was
manning the booth.
On or about January 13, 2013, Keith Pearson, who works for Chicago Marine as a
subcontractor, attended the trade show. Pearson allegedly spoke to Lenardson while he was
manning the Boat U.S. booth. Pearson identified himself as a salvage diving subcontractor who
worked for Chicago Marine and told Lenardson that he was interested in working for Boat U.S.
The complaint alleges that Lenardson responded to Pearson by making false statements about
Chicago Marine, including that Manley had gone bankrupt and that Manley’s Coast Guard
license had been revoked. The complaint further alleges that Lenardson made these same types
of statements on or about May 18, 2013, to officers at the United States Coast Guard stations in
St. Joseph, Michigan and in Michigan City, Indiana.
On August 2, 2013, Plaintiff filed a five-count complaint against Defendants alleging
breach of contract for wrongful termination against Boat U.S. (Count I), breach of implied
covenant of good faith and fair dealing against Boat U.S. (Count II), intentional interference with
prospective economic advantage against Boat U.S. and the Great Lakes Defendants (Count III),
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defamation per se against Boat U.S. and the Great Lakes Defendants (Count IV), and defamation
per quod against Boat U.S. and the Great Lakes Defendants (Count V). Defendant Boat U.S.
moves to dismiss Counts II, III, and V, and the Great Lake Defendants move to dismiss Counts
III and V.
II.
Legal Standard
A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint, not the merits of
the case. Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). In reviewing a motion to
dismiss under Rule 12(b)(6), the Court takes as true all factual allegations in Plaintiff’s
complaint and draws all reasonable inferences in its favor. Killingsworth, 507 F.3d at 618. To
survive a Rule 12(b)(6) motion to dismiss, the claim first must comply with Rule 8(a) by
providing “a short and plain statement of the claim showing that the pleader is entitled to relief”
(Fed. R. Civ. P. 8(a)(2)), such that the defendant is given “fair notice of what the * * * claim is
and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Second, the factual allegations in the claim
must be sufficient to raise the possibility of relief above the “speculative level,” assuming that all
of the allegations in the complaint are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d
773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “A pleading that offers ‘labels and
conclusions’ or a ‘formulaic recitation of the elements of a cause of action will not do.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). However,
“[s]pecific 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.” Erickson v. Pardus, 551 U.S. 89, 93
(2007) (citing Twombly, 550 U.S. at 555) (ellipsis in original). The Court reads the complaint
and assesses its plausibility as a whole. See Atkins v. City of Chi., 631 F.3d 823, 832 (7th Cir.
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2011); cf. Scott v. City of Chi., 195 F.3d 950, 952 (7th Cir. 1999) (“Whether a complaint
provides notice, however, is determined by looking at the complaint as a whole.”).
III.
Analysis
A.
Choice of Law
In its motion to dismiss, Boat U.S. contends that Count II fails to state a claim and must
be dismissed because a cause of action for breach of the implied covenant of good faith and fair
dealing does not exist under Illinois law. See, e.g., ABS Sports Collectibles, Inc. v. Sports Time,
Inc., 299 F.3d 624, 628 (7th Cir. 2002) (“we need not belabor this issue since the Illinois
Supreme Court has recently resolved it * * * breach of the covenant of good faith and fair
dealing is not an independent cause of action under Illinois law except in the narrow context of
cases involving an insurer’s obligation to settle with a third party who has sued the policy
holder.”) (citing Voyles v. Sandia Mortgage Corp., 751 N.E.2d 1126, 131 (Ill. 2001) (the
covenant of good faith and fair dealing is a rule of construction, not an independent source of tort
liability). In response, Plaintiff points out that its agreement with Boat U.S., which is attached to
the complaint, contains a choice-of-law provision stating that Virginia law, not Illinois law,
applies in determining the parties’ rights and obligations under the agreement.
As Plaintiff points out, Boat U.S.’s service agreement contains a choice-of-law provision
stating that “[t]his Agreement shall be governed by the laws of the Commonwealth of Virginia,
excluding the conflict principles thereof.” See Compl., Ex. A, ¶ 17(e). Because the Court has
jurisdiction based on diversity, it applies the conflict of laws principles of Illinois, the forum
state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97 (1941). Courts are to
“honor reasonable choice-of-law stipulations in contract cases.”
Auto–Owners Ins. Co. v.
Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009); see also Freeman v. Williamson,
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383 Ill. App. 3d 933, 939 (1st Dist. 2008) (as long as a choice-of-law provision does not
contravene Illinois public policy and there is some relationship between the chosen forum and
the parties to the transaction, an express choice of law provision will be given full effect). Once
alerted to the choice-of-law provision, Boat U.S. did not advance a substantive argument that
Illinois law should apply,3 and the Court sees no reason not to give the express choice-of-law
provision full effect with respect to the contract dispute. Therefore, the Court will apply Virginia
law in deciding whether Plaintiff has stated a claim for breach of contract based on the implied
duty of good faith and fair dealing. However, for the tort claims, the parties agree that Illinois
law applies, and thus the Court applies Illinois law in deciding whether to dismiss Counts III and
V. See, e.g., Westchester Fire Insurance Company v. Zurich American Insurance Co., 2014 WL
1018115, at *2 (N.D. Ill. Mar. 12, 2014) (“For tort claims, the relevant contacts include: “(a) the
place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c)
the domicile, residence, nationality, place of incorporation and place of business of the parties,
and (d) the place where the relationship, if any, between the parties is centered.”).
B.
Breach of Implied Duty of Good Faith and Fair Dealing (Count II)
Under Virginia law, a plaintiff may bring a common law claim for breach of contract
based on a violation of the implied duty of good faith and fair dealing. See Stoney Glen, LLC v.
Southern Bank and Trust Co., 2013 WL 1897111, at 4 (E.D. Va. May 2, 2013) (“The United
3
In its response brief, Plaintiff chided Defendants for their reliance on Illinois law: “Boat U.S. is
apparently unaware that its own Service Agreement contains a choice-of-law provision stating that
Virginia law, not Illinois law, applies in determining the parties’ rights and obligations under the
agreement. Boat U.S. thus relies on an inapplicable body of Illinois case law.” However, Plaintiff also
apparently failed to read the contract (which is attached to the complaint) prior to drafting its allegations.
As pointed out by Boat U.S. in its reply brief, Count II of Plaintiff’s complaint alleges that “Illinois law
provides that parties to a contract owe each other a duty of good faith and fair dealing in all relations
arising out of the contract.” Nevertheless, Plaintiff’s reliance on Illinois law in its pleading does not
constitute a waiver of the choice of law provision clearly set forth in the service agreement.
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States Court of Appeals for the Fourth Circuit has consistently held that Virginia does recognize
an implied duty of good faith and fair dealing in common law contracts.”). However, a claim for
breach of the implied duty of good faith and fair dealing must be raised in a claim for a breach of
contract, not a tort action. Id. (citing Charles E. Brauer Co., Inc. v. NationasBank of Va., N. A.,
251 Va. 28, 33 (1996)). Virginia law recognizes a distinction between breach of contract claims
where (1) a party has an express contractual right, but is alleged to have improperly exercised
that express contractual right, and (2) a party is granted contractual discretion, but is alleged to
have exercised that contractual discretion arbitrarily or in bad faith. See Enomoto v. Space
Adventures, LTD., 624 F. Supp. 2d 443, 450-51 (E.D. Va. 2009) (applying Virginia law). A party
may bring breach of contract actions in either or both of these situations. Id. (denying motion to
dismiss Count I (breach of contract) in its entirety, and also denying motion to dismiss as to
Count II (breach on implied duty of good faith and fair dealing)). As the Fourth Circuit explained
in Virginia Vermiculite, Ltd. v. W.R. Grace & Co., “although the duty of good faith does not
prevent a party from exercising its explicit contractual rights, a party may not exercise
contractual discretion in bad faith, even when such discretion is vested solely in that party.” 156
F.3d 535, 542 (4th Cir. 1998).
Here, Boat U.S. allegedly terminated the service agreement based upon its claim that
Chicago Marine violated a number of provisions in the service agreement. Some of these
provisions granted Boat U.S. an express contractual right, which Chicago Marine alleges that
Boat U.S. improperly exercised. See Compl., ¶ 64(a) (Chicago Marine did not violate Section I,
Item 10 of the agreement, which grants Boat U.S. a right to terminated the agreement in certain
circumstances for failure to comply with the law). Plaintiff further alleges that Boat U.S.
exercised its contractual discretion in an arbitrary, capricious, and unreasonable manner. Thus, at
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this stage, Chicago Marine has properly stated an additional breach of contract claim based upon
Boat U.S.’s breach of the implied duty of good faith and fair dealing (Count II). See, e.g.,
Enomoto, 624 F. Supp. 2d at 450 (elements of claim of breach of implied duty of good faith and
fair dealing include “(1) a contractual relationship between the parties, and (2) a breach of the
implied covenant”).
C.
Intentional Interference with Prospective Economic Advantage (Count III)
To establish a tortious interference with economic advantage claim pursuant to Illinois
law,4 a plaintiff must show: (1) “a reasonable expectancy of entering into a valid business
relationship;” (2) “the defendant’s knowledge of the expectancy;” (3) “an intentional and
unjustified interference by the defendant that induced or caused a breach or termination of the
expectancy;”
and
(4)
“damage
to
the
plaintiff
resulting
from
the
defendant’s
interference.” Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 508 (7th Cir.
2007) (quoting Voyles v. Sandia Mortgage Corp., 751 N.E.2d 1126, 1133–34 (Ill. 2001) (internal
quotations omitted)).
Plaintiff alleges that when certain United States Coast Guard stations receive a call from
a boater in need of towing or salvage services, they provide to the boater the name and number
of a boat towing company in the area that can perform the necessary services. The Coast Guard
stations allegedly provide this information on a rotating basis so that they do not favor one
company over another. Plaintiff further alleges that Lenardson, Great Lakes Towing, and Boat
U.S. intentionally interfered with Chicago Marine’s prospective business relationships with
customers in need of towing or salvage services by falsely telling United States Coast Guard
stations in St. Joseph, Michigan and in Michigan City, Indiana that Chicago Marine was out of
4
Related torts are commonly referred to as interference with prospective contractual relations or
tortious interference with contract or business expectancy. See Delloma v. Consolidation Coal Co., 966
F.2d 168, 170-71 (7th Cir. 1993).
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business, that Manley had gone bankrupt, and that Manley’s Coast Guard license had been
revoked. According to Plaintiff, after Lenardson, Great Lakes Towing, and Boat U.S. made
these statements, the Coast Guard stations in St. Joseph, Michigan and in Michigan City, Indiana
stopped providing Chicago Marine’s name and number to a boater in distress.
Plaintiff has identified a class of prospective customers—i.e., boaters in need of towing
or salvage services who contacted the Coast Guard stations—that might have used its services
but for Defendants’ alleged statements that Plaintiff was out of business, had gone bankrupt, and
had lost its license. The Court can further infer from the allegations in the complaint that
following the termination of the service agreement, Defendants were Plaintiff’s competitors and
were among the companies to whom the Coast Guard referred business. Finally, Plaintiff has
allegedly that the Coast Guard operates in a certain manner—by rotating referrals among the
various competitors—and it is a fair inference that those in the boat industry (such as Boat U.S.
and Great Lakes) know that the Coast Guard operates in this manner. Accepting as true these
allegations, as the Court must, Plaintiff has alleged that Defendants interfered with business that
it may have acquired but for Defendants’ conduct. This is all that is required to state a claim at
this juncture.
D.
Defamation Per Quod
In Counts IV and V, Plaintiff alleges that Defendants defamed Chicago Marine on at least
two occasions when it told the Coast Guard and boat show attendees that Chicago Marine had
gone bankrupt and lost its operating license. “A statement is defamatory if it tends to harm a
person’s reputation to the extent that it lowers that person in the eyes of the community or deters
others from associating with that person.” Muzikowski v. Paramount Pictures Corp., 477 F.3d
899, 904 (7th Cir. 2007). To state a claim for defamation under Illinois law, the plaintiffs must
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allege that: “a defendant made a false statement concerning the plaintiff, that there was an
unprivileged publication of the defamatory statement to a third party by the defendant, and that
the plaintiff suffered damages as a result.” Giant Screen Sports v. Can. Imperial Bank of
Commerce, 553 F.3d 527, 532 (7th Cir. 2009) (citations omitted).
Defamatory statements may either be defamation per se or defamation per quod. “A
statement is defamatory per se if its defamatory character is obvious and apparent on its face and
injury to the plaintiff’s reputation may be presumed.” Muzikowski, 477 F.3d at 904 (citation
omitted). For a statement to be defamation per se, it must fall into one of five categories:
(1) statements imputing the commission of a crime; (2) statements imputing
infection with a loathsome communicable disease; (3) statements imputing an
inability to perform or want of integrity in performing employment duties; (4)
statements imputing a lack of ability or that otherwise prejudice a person in his or
her profession or business; and (5) statements imputing adultery or fornication.
Id. (citation omitted). A statement is not per se defamatory if “it is reasonably capable of an
innocent construction.” Tuite v. Corbitt, 866 N.E.2d 114, 121 (Ill. 2006). However, “the
innocent construction rule does not require courts to strain to find an unnatural innocent meaning
for a statement when a defamatory meaning is far more reasonable.” Id.
A plaintiff may bring a defamation per quod claim when “the defamatory character of a
statement is not apparent on its face and extrinsic evidence is necessary to demonstrate its
injurious meaning or where a statement is defamatory on its face but does not fall under one of
the categories of statements which are actionable per se.” Maag v. Ill. Coalition for Jobs,
Growth & Prosperity, 858 N.E.2d 967, 975 (Ill. App. Ct. 2006). “A plaintiff bringing a per quod
claim must also plead and prove special damages to recover.” Id.; Muzikowski, 322 F.3d at
927 (stating that an itemization of losses or an allegation of “specific damages of actual financial
injury” is a “required element” of a claim for defamation per quod); Robinson v. Morgan
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Stanley, 2008 WL 4874459, at *5 (N.D. Ill. June 18, 2008) (“To allege an action
for defamation per quod in federal court, Robinson must plead special damages in accordance
with Illinois law and Federal Rule of Civil Procedure 9(g).”).
Here, Defendants challenge only Plaintiff’s claim of defamation per quod (Count V).
Plaintiff has sufficiently alleged that Defendant Lenardson, on behalf of the corporate
Defendants, was telling others that Chicago Marine had lost its license and had gone bankrupt.
Plaintiff further alleged that Chicago Marine lost business and its reputation was injured as a
result of Lenardson’s statements. Defendants assert that Chicago Marine fails to allege extrinsic
facts to explain the defamatory meaning of an alleged per quod statement. But Chicago Marine
expressly alleges that Defendants’ statements are defamatory on their face.
Specifically,
Chicago Marine alleges in Count V that Defendants “published false and defamatory statements
regarding Chicago Marine” and that Defendants knew that the statements were false and
defamatory. Chicago Marine does not need to plead extrinsic facts to show the defamatory
nature of the statements because it is alleging the second type of per quod action—namely that if
Defendants’ statements do not fall into one of the actionable per se categories, Defendants’
statements constitute defamation per quod. Although Plaintiff is pleading defamation per quod
as an alternative to Count IV, such a tactic is permitted. See Fed. R. Civ. P. 8(d)(2); Mihailovic
v. Soldato, 2004 WL 528010, at *6 (N.D. Ill. Mar. 17, 2004) (noting that “federal pleading rules
specifically permit a party to plead in the alternative”).
dismiss Count V is denied.
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Therefore, Defendants’ request to
IV.
Conclusion
For these reasons, the Court denies Defendant Boat/U.S. Inc.’s motion to dismiss [12]
and denies the Great Lake Defendants’ motion to dismiss [15]. This case is set for further status
hearing on 5/6/2014 at 9:00 a.m.; the parties are directed to meet and confer and to file a joint
status report with a proposed discovery plan no later than 5/2/2014.
Dated: April 23, 2014
____________________________________
Robert M. Dow, Jr.
United States District Judge
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