American Guardian Warranty Services, Inc. et al v. JCR-Wesley Chapel, LLC et al
Filing
55
ENTER MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 5/22/2017:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
AMERICAN GUARDIAN WARRANTY
SERVICES, INC., and AMERICAN
GUARDIAN FUNDING CORPORATION,
Plaintiffs,
Case No. 16 C 11407
v.
Judge Harry D. Leinenweber
JCR-WESLEY CHAPEL, LLC;
JESUS ROSARIO; and CYNTHIA
ROSARIO,
Defendants.
MEMORANDUM OPINION AND ORDER
Before
Defendants’
the
Court
are
Counterclaims
Plaintiffs’
[ECF
No.
Motion
34]
Preliminary Injunction [ECF No. 27].
and
to
Dismiss
Motion
for
a
For the reasons stated
herein, the Motions are denied.
I.
FACTUAL BACKGROUND
This litigation revolves around a contractual relationship
between Illinois-based providers of automobile warranty services
and
a
Florida
Warranty
car
dealership.
Services,
Inc.
Plaintiff
(“AGWS”)
provides
American
Guardian
warranty-related
services to dealerships, and Plaintiff American Guardian Funding
Corporation
(“AGFC”)
finances
warranty
arrangements
with
car
dealerships (referred to collectively as “American Guardian”).
Defendants
are
such
a
dealership,
JCR-Wesley
Chapel,
LLC
(“JCR”),
and
its
two
owners,
Jesus
Rosario
(“Rosario”)
and
Cynthia Rosario.
JCR
entered
provision
of
Agreement”).
into
a
master
warranties
to
agreement
JCR
with
AGWS
customers
to
(“the
cover
Dealer
The Dealer Agreement, inter alia, makes it AGWS’s
responsibility to investigate, administer, and approve payment
of all claims under American Guardian contracts sold by JCR.
(ECF
No.
40
(“Am.
Compl.”)
at
Ex.
A,
§
V.3(a).)
It
also
obligates AGWS to secure insurance policies indemnifying JCR or
AGWS against all sums that either may become obligated to pay
according to the terms of such a contract.
the
Dealer
reimbursement
§ V.3(c).)
Agreement,
to
In
JCR
for
addition,
AGWS
the
the
files
cost
of
Dealer
(Id. § V.1.)
for
and
valid
Under
administers
repairs.
Agreement
(Id.
contains
an
“Entire Agreement” clause and a modification clause, the latter
requiring any amendments to the contract to be “supplemented by
writing executed by all parties.” (Id. § VII.6.)
The parties
signed the Dealer Agreement on or about November 7, 2013.
The
parties
executed
subsequent
addenda
to
Agreement, referred to as Production Agreements.
a
December
15,
2015
Production
Agreement
(the
the
Dealer
Specifically,
“Production
Agreement”) required JCR to sell a minimum number of warranty
and service contracts (the “American Guardian contracts”) each
- 2 -
month for a five-year period and also mandated that 95 percent
of the warranty and service contracts it sold during that period
be
American
Guardian
contracts
(Am. Compl. at Ex. E ¶¶ 1, 7.)
(the
“exclusivity”
provision).
As part of the funding deal, the
parties also entered into promissory notes to document advances
of funds made to JCR that the latter was projected to earn
through its sale of American Guardian contracts, including a
December 15, 2015 promissory note (the “Promissory Note”).
After
no
small
degree
of
corrosion,
between the parties broke down.
the
relationship
In 2016, JCR ceased selling
American Guardian contracts, and Rosario approached Plaintiffs’
agent,
Dave
Stewart
(“Stewart”),
seeking
to
pay
outstanding loan balance under the Promissory Note.
off
JCR’s
(ECF No. 44
(“Am. Ans.”) ¶ 19, 20, 29.)
Instead, Plaintiffs sued for breach
of
state
contract
in
Illinois
court.
After
Defendants
successfully removed the case to this Court, Plaintiffs moved
for
a
preliminary
injunction.
Defendants
counterclaimed
for
fraud in the inducement and JCR counterclaimed for breach of
contract against AGWS.
Plaintiffs then moved to dismiss these
counterclaims.
- 3 -
II.
A.
Plaintiffs’ Motion to Dismiss
1.
A
motion
ANALYSIS
to
Legal Standard
dismiss
under
Federal
Rule
of
Civil
Procedure 12(b)(6) challenges a complaint for failure to state a
claim upon which relief may be granted.
In ruling on such a
motion, the Court accepts as true all well-pleaded facts in the
relevant
complaint
and
draws
all
reasonable
those facts in the non-movant’s favor.
inferences
from
Active Disposal, Inc. v.
City of Darien, 635 F.3d 883, 886 (7th Cir. 2011); Dixon v.
Page,
291
F.3d
Rule 12(b)(6)
485,
486
“the
motion,
(7th
Cir.
complaint
2002).
must
To
contain
survive
a
sufficient
factual matter, accepted as true, to state a claim to relief
that is plausible on its face.”
Independent Trust Corp. v.
Stewart Information Servs. Corp., 665 F.3d 930, 934 (7th Cir.
2012) (internal quotation marks omitted); see also, Ashcroft v.
Iqbal,
556
U.S.
662,
678
(2009).
The
allegations
in
the
complaint must “raise a right to relief above the speculative
level.”
Bell
(2007).
A
pleads
claim
factual
reasonable
Atlantic
has
misconduct alleged.
v.
facial
content
inference
Corp.
plausibility
sufficient
that
Twombly,
the
for
the
defendant
550
U.S.
when
the
court
is
555
plaintiff
to
draw
the
liable
for
the
Iqbal, 556 U.S. at 677-78.
- 4 -
544,
The issue is
not whether the claimant will ultimately prevail but whether it
is
entitled
to
offer
evidence
to
support
the
claims.
AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011)
(quotation omitted).
Allegations
heightened
of
pleading
fraud
are
standard,
subject
which
to
the
requires
Federal
a
Rules’
plaintiff
to
“state with particularity the circumstances constituting fraud
or mistake.”
FED. R. CIV. P. 9(b).
This means that the plaintiff
must plead the “who, what, when, where, and how of the fraud –
the first paragraph of any newspaper story.”
Pirelli Armstrong
Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d
436, 441-42 (7th Cir. 2011) (citations and internal quotation
marks omitted).
Rule 9(b) should be applied in view of its
underlying purposes:
“(1) to inform the defendants of claims
against them and to enable them to form an adequate defense; (2)
to eliminate the filing of a conclusory complaint as a pretext
for
using
defendants
discovery
from
to
unfounded
their reputations.”
uncover
charges
wrongs;
of
and
fraud
(3)
which
to
may
protect
injure
Fujisawa Pharm. Co., Ltd. v. Kapoor, 814
F.Supp. 720, 726 (N.D. Ill. 1993).
- 5 -
2.
a.
For
their
Discussion
The Fraud Counterclaim
fraudulent
inducement
counterclaim,
Defendants
allege that Stewart, as Plaintiffs’ agent, met with Rosario in
the
latter’s
office
sometime
between
October
November 7, 2013. (Am. Ans. at Ctrclm. ¶ 9.)
Stewart
represented
that
Plaintiffs
would
1,
2013
and
At this meeting,
set
up
for
JCR’s
benefit an “offshore reinsurance company” that would allow JCR
to
both
retain
the
warranty
payments
paid
by
customers
with
American Guardian contracts (rather than those payments going to
an unaffiliated insurance company) and earn investment income on
them.
(Id.
“Plaintiffs
¶¶
9-11.)
made
Defendants
this
statement
go
to
on
to
allege
Defendants
occasions” during the same timeframe. (Id. ¶ 12.)
on
that
other
They assert
that both Stewart and Plaintiffs knew this statement was false
and offered it to induce Defendants to enter into a business
relationship. (Id. ¶¶ 13-15.)
Stewart
repeated
this
Further, Defendants allege that
representation
to
Rosario
in
2013
and
2014. (Id. ¶ 17.)
Defendants claim reasonable reliance on the promise of an
“offshore
entered
reinsurance
into
the
company”
Dealer
and
Agreement
that
or
Agreement but for these representations.
- 6 -
they
the
would
later
not
have
Production
(Am. Ans. at Ctrclm.
¶¶ 16, 20.)
In early 2016, Defendants confronted Stewart about
the lack of progress on the promised reinsurance company, and
were
told
warranty
that
Plaintiffs
payments
with
had
no
simply
been
intention
“warehousing”
of
setting
up
reinsurance company for JCR’s benefit. (Id. ¶ 18.)
partly
because
Plaintiffs
scotched
the
the
the
At least
reinsurance
company
proposal (compare, id. ¶ 19; with, id. ¶ 29), Rosario sought to
terminate Defendants’ relationship with Plaintiffs.
As damages,
Defendants point to their “lost profits from warranty payments
that would have been retained by a reinsurance company and lost
investment earnings on those warranty payments.” (Id. ¶ 20.)
Plaintiffs exhort the Court to dismiss Defendants’ fraud
counterclaim for two reasons.
First, Plaintiffs contend that it
fatally lacks the allegations necessary to plead the substantive
elements
of
fraud.
pleading
standard,
Second,
they
invoking
cry
foul
at
Rule
9(b)’s
a
perceived
specificity in Defendants’ fraud allegations.
heightened
lack
of
For the reasons
explored below, the Court finds neither objection well-taken.
I.
Substantive Fraud Elements
As a matter of Illinois law, fraudulent inducement is a
form
of
common-law
fraud.
See,
e.g.,
Beaton
v.
SpeedyPC
Software, No. 13 C 8389, 2014 WL 4376219, at *3 (N.D. Ill.
Sept. 2, 2014) (citation omitted).
- 7 -
To state a claim for common-
law
fraud
in
Illinois,
a
complaint
must
allege
that
the
defendant “(i) made a false statement of material fact; (ii)
knew or believed the statement to be false; (iii) intended to
and, in fact, did induce the plaintiff to reasonably rely and
act on the statement; and (iv) caused injury to the plaintiff.”
Reger Dev., LLC v. National City Bank, 592 F.3d 759, 766 (7th
Cir. 2010) (citing Redarowicz v. Ohlendorf, 441 N.E.2d 324, 331
(Ill. 1982)); accord, Connick v. Suzuki Motor Co., Ltd., 675
N.E.2d
584,
591
(Ill.
1996).
Plaintiffs
contend
that
Defendants’ counterclaim fails to satisfy the first and third
elements.
i.
Plaintiffs
False Statement of Material Fact
spill
considerable
ink
protesting
that
representations of intent regarding future conduct, such as the
challenged statements here, are not actionable as fraud.
is not entirely true.
That
They are not actionable per se as fraud
in the inducement but may be actionable as promissory fraud if
Defendants adequately allege a “scheme to defraud.”
Association
Ben. Servs., Inc. v. Caremark RX, Inc., 493 F.3d 841, 853 (7th
Cir. 2009) (citations omitted); accord, Continental Bank, N.A.
v.
Meyer,
10
F.3d
1293,
1298
(7th
Cir.
1993).
element demarcates the two causes of action:
statement
determines
whether
a
court
- 8 -
views
A
temporal
the “tense” of a
the
statement
as
invoking promissory fraud (future) or fraud in the inducement
(past
or
present).
Triumph
Packaging
Grp.
v.
Ward,
877
F.Supp.2d 629, 645 (N.D. Ill. 2012); accord, Steinberg v. Chi.
Med. Sch., 371 N.E.2d 634, 641 (Ill. 1977).
Where a party
purports to bring a claim for fraud in the inducement, courts
nevertheless treat the claim as one for promissory fraud if it
is
more
Swervo
accurately
Enter.
Grp.,
characterized
LLC
v.
as
Mensch,
such
No.
16
under
C
state
4692,
law.
2017
WL
1355880, at *5 (N.D. Ill. Apr. 13, 2017) (citing Triumph, 877
F.Supp.2d at 644-46) (citations omitted).
The “scheme to defraud” necessary to sustain a promissory
fraud
action
under
Illinois
law
typically
consists
of
“‘a
pattern of fraudulent statements, or one particularly egregious
fraudulent statement.’”
Wigod v. Wells Fargo Bank, N.A., 673
F.3d 547, 570 (7th Cir. 2012) (quoting BPI Energy Holdings, Inc.
v. IEC (Montgomery), LLC, 664 F.3d 131, 136 (7th Cir. 2011)).
Defendants also must sufficiently allege that, at the time the
promise was made, Mr. Stewart (as Plaintiffs’ agent) did not
intend
to
fulfill
it,
by
pointing
to
specific,
manifestations of the promisor’s fraudulent intent.
objective
Wigod, 673
F.3d at 570 (citations omitted); Bower v. Jones, 978 F.2d 1004,
1011 (7th Cir. 1992).
- 9 -
Here, Defendants have stated a claim for promissory fraud
under Illinois law by alleging that Plaintiffs never intended to
keep the promise, delivered at least via Stewart, to set up an
offshore
support
reinsurance
this
company
claim
for
by
JCR’s
alleging
benefit.
specific,
Defendants
objective
manifestations of fraudulent intent not to keep the promise at
the time it was made.
For one, they aver that even after the
Dealer Agreement was signed, Stewart repeatedly used the same
prospect of a reinsurance company holding warranty payments and
earning
investment
income
on
leftover
premiums
to
“lull”
Defendants into continuing to sell American Guardian warranties.
Lane v. Le Brocq, No. 15 C 6177, 2016 WL 5955536, at *6-7 (N.D.
Ill. Oct. 12, 2016) (“[O]ver time Lane lulled him into working
at the firm with the understanding that he had her blessing to
leave at any time to further his own career goals, even though
this was never her intent[.]”); see also, Advanced Ambulatory
Surgical Center, Inc. v. Cigna Healthcare of Illinois, No. 13 C
7227, 2014 WL 4914299 (N.D. Ill. Sept. 30, 2014) (Leinenweber,
J.)
(permitting
alleged
that
promissory
the
fraud
claim
defendant
made
where
the
plaintiff
multiple
similar
misrepresentations about reimbursements for its services).
For
another, Defendants allege that Stewart informed them in early
2016 that Plaintiffs had not set up the reinsurance company, had
- 10 -
instead been “warehousing” the warranty payments, and would not
set up the reinsurance company for Defendants in the future.
Whether
particularly
conceptualized
egregious
as
single
multiple
promise,
promises
reiterated
in
or
a
similar
form time after time for years and always absent intent to honor
it,
the
scheme
Defendants
allege
successfully
invokes
the
promissory fraud exception.
Thus, Defendants’ counterclaim, properly styled as one for
promissory
fraud,
adequately
invokes
the
“fraudulent
scheme”
exception to the general Illinois prohibition on recovery for
promises of future conduct.
ii.
Reasonable Reliance on the False Statement
Plaintiffs
Agreement”
argue
clause
that
the
precludes
alleging reasonable reliance.
“supersedes
any
understandings,
and
all
written
Defendants
Agreement’s
from
“Entire
successfully
Because that provision expressly
previous
or
Dealer
oral,
agreements,
between
the
negotiations
parties,”
or
they
assert that no cause of action for fraud can lie based on their
or their agent’s prior statements.
Plaintiffs appear to have
confused the legal effect of an integration clause with that of
a no-reliance clause.
The former does not bar a fraud claim
based on prior statements; the latter does.
- 11 -
Under Illinois law, “an integration clause does not bar a
claim
of
fraud
contract.”
based
on
statements
not
contained
in
the
Vigortone AG Prods., Inc. v. PM AG Prods., Inc., 316
F.3d 641, 644 (7th Cir. 2002).
contractual
parties
may
Rather, to prevent fraud suits,
“insert
a
‘no-reliance’
clause
into
their contract, stating that neither party has relied on any
representations
Rissman,
213
omitted).
made
F.3d
by
381,
the
other.”
383-84
(7th
Id.
(citing
Cir.
Rissman
2004))
v.
(citations
No-reliance clauses explicitly provide that neither
party to the agreement has relied on representations made by the
other party except for those contained within the terms of the
contract.
an
See, Vigortone, 316 F.3d at 644.
element
preclude
a
of
fraud,
fraud
an
enforceable
suit.
This
makes
Because reliance is
no-reliance
good
clause
sense:
will
whereas
integration clauses are creatures of contract law that limit the
use of parole evidence in a contract dispute, fraud is a tort.
As such, an integration clause “has nothing to do with whether
the contract was induced . . . by fraud.” Id.
The only way that the Dealer Agreement’s “Entire Agreement”
clause
could
on
reliance
grounds
bar
Defendants’
fraud
counterclaim is if in substance, if not in form, it is a noreliance clause.
But that reading of the provision is baseless,
and, perhaps as a result, Plaintiffs do not seriously push for
- 12 -
it.
The language of the brief provision reads:
“This Agreement
is the entire Agreement between the Parties, and supersedes any
and
all
previous
agreements,
negotiations
written or oral, between the parties.”
§ VII.5.)
or
understandings,
(Am. Compl. at Ex. A
Plainly, this is a garden variety integration clause
that “contains no reference to reliance.”
Vigortone, 316 F.3d
at 645; see also, Mukite v. Advocate Health and Hospitals Corp.,
No. 15 C 7604, 2016 WL 4036755, at *5-6 (N.D. Ill. July 28,
2016) (holding that a similar “Entire Agreement” provision was a
classic integration clause); Dolmage v. Combined Ins. Co. of
Am., No. 14 C 3809, 2016 WL 754731, at *5 (N.D. Ill. Feb. 23,
2016) (same); Royce v. Michael R. Needle, P.C., No. 15 C 259,
2016 WL 393147, at *4 (N.D. Ill. Feb. 2, 2016) (same).
easily
distinguishable
reliance clauses.
from
those
provisions
held
to
It is
be
no-
See, e.g., Extra Equipamentos E Exportacado
Ltda. v. Case Corp., 541 F.3d 719, 730 (7th Cir. 2008) (“No
Reliance
On
The
Other
Party:
Both
parties
represent
and
warrant . . . they are relying on their own judgment, belief and
knowledge. . . . The parties are not relying on representations
or
statements
made
herein]. . . .”);
by
the
Rissman,
other
213
party [except
F.3d
at
383
as
expressed
(“[T]he
parties
further declare that they have not relied on representation of
any
party
[and
that
this
Agreement
- 13 -
is
executed]
freely
and
voluntarily,
and
without
reliance
upon
any
statement
or
representation [except as set forth herein].”).
Even if a no-reliance clause need not expressly use the
word “reliance,” critically absent from the Dealer Agreement is
any language suggesting that the parties contracted in a vacuum,
without
regard
to
prior
representations.
See,
e.g.,
In
re
Kindra Lake Towing, L.P., No. 15 C 3174, 2016 WL 3227303, at *23 (N.D. Ill. June 13, 2016) (finding that a party subjected
itself to a no-reliance clause by agreeing that its counterparty
made no representation regarding the seaworthiness of a barge,
the
sinking
Contrary
of
to
“agree[]
which
prompted
Plaintiffs’
in
writing
representations
found
(“Pls.’
at
Reply”)
bald
that
assertion,
they
outside
5.)
misrepresentation
Put
Defendants
did
not
not
did
the
on
any
rely
agreement.”
simply,
claims).
the
(ECF
“Entire
No.
48
Agreement”
clause does not warrant, represent, declare, or acknowledge that
the
parties
disregarded
as
immaterial
any
and
all
representations outside those set forth in the Dealer Agreement.
Finally, the circumstances of the parties’ dealings do not
brook
any
Guardian’s
argument
alleged
that
Defendants’
representations
was
reliance
on
unjustifiable.
American
Unlike
the situation in One-O-One Enters., Inc. v. Caruso, 848 F.2d
1283 (D.C. Cir. 1988) (R.B. Ginsburg, J.), the parties do not
- 14 -
appear
to
have
included
the
promise
at
issue
in
preliminary
written drafts and then, in the face of an integration clause,
affirmatively excised it from the final agreement.
1287
(citing
F.Supp.
506,
Kardios
509-10
Sys.
(D.
Corp.
Md.
v.
1986)
See, id. at
Perkin-Elmer
(removal
of
Corp.,
best
645
efforts
provision from final agreement constituted affirmative excision
of this term)); see also, Rissman, 213 F.3d at 388 (Rovner, J.,
concurring)
(“[T]he
[One-O-One]
court
noted
that
the
parties
reached the written agreement after eight months of vigorous
negotiations
involving
many
[written]
offers,
promises
and
representations, and that the integration clause was included to
avoid misunderstandings as to what was agreed upon in the course
of those extensive negotiations.”).
Nor can Defendants be said
to have closed their eyes to a known or obvious risk, or ignored
a “manifest danger.”
Vigortone, 316 F.3d at 645-56 (citations
omitted);
also,
Wigod,
reliance
obtains
justifiable
reasonable
see
to
accept
the
673
under
F.3d
at
Illinois
statements
569
(noting
law
“without
an
when
it
that
was
independent
inquiry or investigation”) (internal quotation marks omitted).
The alleged promise to set up a reinsurance company does not
appear so clearly bound up with the subject matter of the Dealer
Agreement or the risks of selling warranties that its absence
should have triggered a warning light.
- 15 -
Defendants’ reliance was
all the more justified if, as Plaintiffs claim, they routinely
offer
to
set
up
a
reinsurance
company
customers. (See, Pls.’ Reply at 7-8.)
for
their
dealer
At the very least, the
Court “cannot determine, at this stage in the litigation, that
‘no trier of fact could find that it was reasonable to rely on
the
alleged
drawn.’”
statements’
or
that
‘only
one
conclusion
can
be
Triumph, 877 F.Supp.2d at 647 (quoting Cozzi Iron &
Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570, 574 (7th
Cir. 2001)).
Drawing inferences in Defendants’ favor, the Court finds
that neither the Dealer Agreement’s integration clause nor the
surrounding
claimed
circumstances
reliance
on
reinsurance company.
render
Plaintiffs’
unjustifiable
alleged
promise
Defendants’
to
set
up
a
Defendants therefore adequately plead the
substantive elements of promissory fraud under Illinois law.
II.
Rule 9(b)
Plaintiffs do not dispute that Defendants adequately plead
the “who” (at least Stewart on behalf of Plaintiffs), “where”
(at
least
promise
Rosario’s
of
an
office),
“offshore
and
“what”
reinsurance
and
company”
“how”
for
(an
JCR
oral
as
an
investment vehicle for warranty premiums, thus sweetening the
Dealer Agreement) of the alleged fraud. (Although Defendants’
counterclaim
does
implicate
multiple
- 16 -
(i.e.,
two)
counter-
defendants, it “inform[]s each defendant of the nature of his
alleged
participation
particularity
the
in
the
fraud”
by
“identify[ing]
actors
who
participated”
in
the
with
scheme
–
namely, Stewart – and by alleging his status as an agent for
both
Inc.,
Plaintiffs.
20
F.3d
Vicom,
771,
Inc.
777-78
v.
(7th
internal quotation marks omitted).)
Harbridge
Cir.
Merchant
1994)
Servs.,
(citations
and
Indeed, Plaintiffs appear
to fault only the “when” allegations for lack of particularity,
arguing
that
timeframe
of
the
October
the
1,
alleged
2013
through
statements
November
is
7,
2013
insufficiently
particular.
But
a
“when”
challenge
under
Rule
9(b)
is
equally
ill-
fated, because Defendants need not state exact dates on which
Stewart allegedly made the representations.
See, e.g., Prince-
Servance v. BankUnited, FSB, No. 07 C 1259, 2007 WL 3254432, at
*6 (N.D. Ill. Nov. 1, 2007) (finding “general allegations as to
time” sufficient to comply with Rule 9(b) where the “who” and
“what” of the fraud clam were pled with “great specificity”);
U.S. ex rel. Yannacopolous v. General Dynamics, 315 F.Supp.2d
939, 945-46 (N.D. Ill. 2004) (qualifying the two asserted cases
in which courts required the pleader to allege specific dates
under Rule 9(b)); Heller Bros. Bedding, Inc. v. Leggett & Platt,
Inc., No. 01 C 3409, 2001 WL 740514, at *3 (N.D. Ill. June 28,
- 17 -
2001) (“[T]he fact that Heller Bros.’ complaint fails to cite
the
exact
dates
of
warrant dismissal.
the
alleged
misrepresentations
does
Heller Bros. identifies the general time
frame in which the alleged misrepresentations occurred.
sufficient
(citation
for
not
purposes
omitted);
of
Rule
v.
Litwin,
Pucci
9(b).”)
828
(emphasis
F.Supp.
This is
added)
1285,
1297
(N.D. Ill. 1993) (“Furthermore, plaintiffs need not precisely
identify
the
appropriate
timing
time
of
each
frame.’”)
allegation
(citation
‘but
omitted);
merely
an
Hernandez
v.
Childers, 736 F.Supp. 903, 912 (N.D. Ill. 1990) (noting that the
time requirement is not exact and requires only “an appropriate
time
frame”);
Caliber
Partners,
Ltd.
v.
Affeld,
583
F.Supp.
1308, 1310-12 (N.D. Ill. 1984) (finding “spring 1981” adequate
as a time frame under Rule 9(b)).
the
timeframe
of
just
over
one
As these cases make clear,
month
that
Defendants
allege
suffices to meet the “when” prong of Rule 9(b).
As
such,
the
Court
finds
Defendants’
counterclaim
sufficiently particular to satisfy the strictures of Rule 9(b).
*
*
*
For these reasons, Plaintiffs’ Motion to Dismiss is denied
with respect to Defendants’ fraud counterclaim.
- 18 -
b.
Breach of Contract and Breach of the Duty
of Good Faith and Fair Dealing
JCR’s counterclaim alleges that Section V.3 of the Dealer
Agreement
approve
obligates
payment
AGWS
of
all
to
“investigate,
claims
Contracts sold by the Dealer.”
under
administer,
[American
and
Guardian]
(Ctrclm. ¶ 22; Am. Compl. at
Ex. A § V.3(a)-(b) (also providing for a “claims payment and
control system”).)
Inherent in this provision, JCR avers, is
AGWS’s obligation to monitor payment of all claims to ensure
that
JCR
was
not
warranted repairs.
taking
excessive
losses
on
payments
for
JCR alleges that, between October 1, 2013
and November 7, 2013, Stewart orally explained that the lodestar
for whether JCR’s loss ratio was excessive would be “the average
loss ratio for Nissan dealerships throughout the United States.”
(Ctrclm.
¶
23.)
In
2015,
JCR
informed
AGWS
that
it
had
experienced excessive losses based on its failure to monitor the
claims of its customers. (Id. ¶ 25.)
AGWS eventually “admitted”
failure to correct the problem. (Id. ¶ 26.)
Ergo, the gravamen
of Defendant JCR’s contract counterclaim is that Plaintiff AGWS
breached the Dealer Agreement vis-à-vis the covenant of good
faith and fair dealing by failing to monitor the dealership’s
loss ratio on claims made by its customers on American Guardian
contracts.
- 19 -
To state a breach-of-contract counterclaim under Illinois
law, Defendants must allege “(1) the existence of a valid and
enforceable
contract;
(2)
substantial
performance
by
[Defendants]; (3) a breach by [Plaintiffs]; and (4) resultant
damages.”
Reger Dev., 592 F.3d at 764.
Every contract contains
an implied covenant of good faith and fair dealing between the
parties.
However, the implied covenant is not an independent
source of duties and cannot stand as a separate counterclaim.
Echo, Inc. v. Whitson Co., Inc., 121 F.3d 1099, 1105-06 (7th
Cir. 1997).
Instead, the implied covenant guides interpretation
of the contract’s express terms.
See, e.g., Beraha v. Baxter
Health Care Corp., 956 F.2d 1436, 1443 (7th Cir. 1992); accord,
Seip v. Rogers Raw Materials Fund, L.P., 948 N.E.2d 628, 637
(Ill.
App.
2011)
(citation
omitted).
Where
the
contract
at
issue vests one of the parties with discretion in performing an
obligation,
faith,
and
that
unreasonably,
party
or
in
exercises
a
manner
such
discretion
inconsistent
in
bad
with
the
reasonable expectations of the parties, it breaches the implied
covenant of good faith and fair dealing.
Hickman v. Wells Fargo
Bank N.A., 683 F.Supp.2d 779, 792-93 (N.D. Ill. 2010).
The
implied covenant does not alter the express terms of a contract
but,
“[w]hen
the
contract
faith . . . fill the gap.”
is
silent,
principles
of
good
Kham & Nate’s Shoes No. 2, Inc. v.
- 20 -
First
Bank
of
Whiting,
908
F.2d
1351,
1357
(7th
Cir.
1990)
(“‘Good faith’ is a compact reference to an implied undertaking
not to take opportunistic advantage in a way that could not have
been contemplated at the time of drafting, and which therefore
was not resolved explicitly by the parties.”).
AGWS’s sole challenge is a damages one – namely, that JCR
failed to plead actual damages because “[a]ny excess or improper
payment of claims would result in damage to Plaintiffs,” not
JCR, as only AGWS was responsible for payment on claims.
No. 36 (“Pls.’ Mem.”) at 10; Pls.’ Reply at 9.)
(ECF
Reprising a
persistent theme, this argument ignores relevant language in the
Dealer
Agreement.
(See,
e.g.,
Am.
Compl.
at
Ex.
A
§
5.1
(obligating AGWS to secure insurance “indemnifying the Dealer or
AGWS, according to the terms and provisions of said insurance
policy,
against
all
sums
which
Dealer
or
AGWS
shall
become
obligated to pay for repairs”) (emphasis added); id. § 5.3(c)
(“AGWS
shall
file
for,
and
administer,
reimbursement
to
the
Dealer (or the repairing facility if other than the Dealer) from
the Dealer’s or AGWS’ Insurance Company for the cost of valid
repairs or replacements, rental car expense, towing expense, and
other
covered
expense
arising
Dealer. . . .”) (emphasis added).)
under
Contracts
sold
by
Thus, the Dealer Agreement
contemplates both parties making payments for repairs and other
- 21 -
expenses incurred under warranty claims by JCR’s customers. And,
in any event, Defendants’ fraud counterclaim (incorporated into
JCR’s
breach
of
contract
counterclaim)
renders
the
argument
frivolous. To the extent AGWS was “responsible for payment on
claims,”
this
responsibility
was
nominal
whenever
JCR’s
warehoused premiums paid the cost of repairs.
So
damages.
JCR’s
counterclaim
is
not
deficient
with
respect
to
But does it otherwise state a valid claim for breach
of contract?
The answer turns on whether the express terms of
the contract, which make AGWS the clearinghouse for all claims
administration
(including
investigation,
indemnification,
and
reimbursement); support a plausible argument that it materially
breached these obligations by failing to monitor “competently”
the extent of JCR’s losses.
AGWS makes no argument relevant to
this issue in its Rule 12(b)(6) motion.
It is precisely because
of Plaintiffs’ misapprehension of many of the salient issues
that the Court feels compelled to prime this pump for later in
the litigation.
Consider
first
a
few
of
the
intricacies
at
play.
The
express terms of the Dealer Agreement do not appear to obligate
AGWS to monitor JCR’s losses to ensure a ratio that accords with
those
of
other
U.S.
Nissan
dealerships.
Rather,
the
Dealer
Agreement provides that AGWS is to “investigate, administer, and
- 22 -
approve payment of all claims”; to “file for, and administer,
reimbursement to the Dealer”; and to “establish with the Dealer
a
claims
payment
obligations
of
and
AGWS,
central
JCR
system.”
contends,
is
a
Implied
covenant
in
to
these
monitor
competently its loss ratio and inform the dealership if it was
losing excessive amounts of money in the aggregate. JCR claims
that this understanding was all the more reasonable in light of
representations
made
by
perform this service.
Stewart
to
Rosario
that
AGWS
would
However, because this is its breach-of-
contract and not Defendants’ promissory fraud counterclaim, JCR
cannot
rely
on
extrinsic
evidence
(namely,
Stewart’s
representation to this effect) in the face of the agreement’s
integration clause.
(Hence, presumably, JCR’s invocation of the
implied covenant of good faith and fair dealing in its breachof-contract counterclaim.)
The
salient
question,
then,
is
whether
any
party
would
grant its counterparty absolute discretion over the monitoring
and investigation of all claims while permitting the liberties
AGWS allegedly took with these obligations.
Drawing inferences
from the pleadings in JCR’s favor, the Court thinks not and
believes it unlikely that any dealership would enter into the
Dealer Agreement without some means of assuring that, over the
life of the five-year agreement, selling warranties would not
- 23 -
become an excessively costly lemon.
It is therefore plausible
that AGWS “took opportunistic advantage of [D]efendants, dashed
their
reasonable
contract
may
expectations,
have
afforded,”
and
abused
LSREF3
any
Sapphire
discretion
Trust
2014
the
v.
Barkston Props., LLC, No. 14 C 7968, 2016 WL 302150, at *3-4
(N.D. Ill. Jan. 25, 2016); see also, Kham & Nate’s, 908 F.2d at
1357,
thereby
agreement
forestalling
pursuant,
for
(earlier)
example,
mutual termination provision.
to
termination
the
Dealer
of
the
Agreement’s
(Am. Compl. at Ex. A § VI.)
Drawing inferences in favor of JCR (the non-movant), it is
plausible on the facts alleged that AGWS breached Section V of
the Dealer Agreement, interpreted in light of the duty of good
faith and fair dealing, to monitor competently JCR’s losses.
The standard of review here is too deferential to JCR for the
sort of sua sponte dismissal required to nix this counterclaim.
Recall that AGWS did not make such an argument, instead choosing
to attack JCR’s (adequate) damages allegations.
As such, the
Court denies AGWS’s Motion to Dismiss in relevant part.
*
*
*
For all the above reasons, the Court denies Plaintiffs’
Motion to Dismiss for failure to state a claim.
- 24 -
B.
Plaintiffs’ Motion for a Preliminary Injunction
1.
Like
injunction
granted
all
is
unless
forms
“an
Legal Standard
of
injunctive
extraordinary
the
movant,
burden of persuasion.”
by
a
relief,
remedy
clear
that
a
preliminary
should
showing,
not
carries
be
the
Mazurek v. Armstrong, 520 U.S. 968, 972
(1997) (emphasis in original); accord, Goodman v. Ill. Dept. of
Fin. & Prof. Reg., 430 F.3d 432, 437 (7th Cir. 2005).
A party
seeking a preliminary injunction must demonstrate as a threshold
matter that (1) its case has a better than negligible chance of
success on the merits; (2) no adequate remedy at law exists; and
(3) it will suffer irreparable harm in the period before final
resolution of claims.
See, Jones v. Markiewicz-Qualkinbush, 842
F.3d 1053, 1058 (7th Cir. 2016); D.U. v. Rhoades, 825 F.3d 331,
338 (7th Cir. 2016); Girl Scouts of Manitou Council, Inc. v.
Girl Scouts of U.S.A., 549 F.3d 1079, 1096 (7th Cir. 2008).
If
the movant shows all of the requisite factors, then the court
will weigh the factors against one another, assessing whether
the balance of harms favors the movant or whether the harm to
other parties or the public is too severe to support issuance of
the injunction.
Jones, 842 F.3d at 1058 (citing ACLU of Ill. v.
Alvarez, 679 F.3d 583, 589 (7th Cir. 2012)); accord, Storck USA,
L.P. v. Farley Candy Co., 14 F.3d 311, 314 (7th Cir. 1994).
- 25 -
2.
Plaintiffs
move
for
Discussion
a
preliminary
injunction
restraining
Defendants from offering for sale or selling vehicle service
contracts and related warranty products of American Guardian’s
competitors (although JCR appears to be the only entity selling
warranties;
the
Rosarios
are
merely
members
of
the
LLC).
Certain facts are uncontested.
In
May
2016,
after
significant
wear-and-tear
on
the
parties’ relationship (see above), Stewart informed Defendants
that
Plaintiffs
obligations
if
would
it
excuse
satisfied
JCR’s
its
under the Production Agreement.
remaining
total
contractual
production
requirement
(See, e.g., ECF No. 46 (“Defs.’
Br.”) at Ex. B ¶ 6; Am. Ans., Third Affirmative Defense.)
early
October
contracts;
by
2016,
late
JCR
October
ceased
2016,
selling
it
was
American
exclusively
In
Guardian
selling
warranty and service contracts provided by American Protection
Corporation (“APCO”).
(ECF No. 27 (“Pls.’ Mot.”) at Ex. 4 ¶¶ 5-
7.)
Plaintiffs brought this lawsuit in Illinois state court on
November 17, 2016, seeking an exact amount of money damages $207,888.00 plus interest and fees for amounts allegedly owing
under the Dealer Agreement, $489,508.92 plus interest and fees
for breach of the Promissory Note, and $9,939,212.00 for breach
- 26 -
of the Production Agreement.
(ECF No. 1 (“Not. of Removal”) at
Ex. A.)
Plaintiffs made no claim for injunctive relief in their
original
Complaint.
Defendants
removed
the
case
to
federal
court on December 16, 2016, and on January 23, 2017, Rosario
initiated a payment of $489,508.92 to Plaintiffs in satisfaction
of Defendants’ obligations under the Promissory Note.
Mot. at Ex. A ¶ 10.)
2017,
this
Court
Nos. 23-24.)
originally
(Defs.’
About two weeks later, on February 8,
denied
Plaintiffs’
Motion
to
Remand.
(ECF
On February 17, 2017 – three months after they
sued
Defendants
in
state
court,
and
approximately
four months after JCR began selling APCO warranties – Plaintiffs
moved
to
amend
their
Complaint
to
add
a
count
requesting
a
preliminary injunction based on JCR’s sales of a competitor’s
warranty products. (ECF No. 25.)
Plaintiffs excuse this delay
by claiming that they did not learn of JCR’s sales of APCO
warranties until February 2017. (Pls.’ Reply at 7.)
a.
Likelihood of Success on the Merits
With respect to success on the merits, Plaintiffs seek to
undermine two of Defendants’ defenses to contract enforceability
and excuses for breach.
(Recall that the Production Agreement
was an addendum incorporated into the Dealer Agreement.)
they
claim
that
Rosario
knew
how
to
set
up
a
First,
reinsurance
company, as evidenced by JCR’s eventual creation in 2016 of such
- 27 -
a company, and effectively prevented its earlier formation by
failing to file the relevant documents.
directed
to
incorporated
whether
the
Production
Dealer
This argument appears
Agreement
Agreement)
is
(and
voidable
thus
for
the
fraud.
Second, Plaintiffs apparently argue that, because the majority
of
claims
submitted
on
their
products
during
the
relevant
timeframe came from JCR and because Defendants were properly
reimbursed, Plaintiffs have shown a likelihood of overcoming the
defense
that
they
materially
breached
by
failing
to
monitor
competently JCR’s loss ratio.
The
Court
need
arguments
because
justified
or
not
the
engage
second
excusable
–
breach
the
first
directed
–
does
concerns
Defendants
have
Carlson
Inc.
Davenport,
No.
v.
the
nothing
enforceability
Group,
to
of
to
raised.
16
C
Plaintiffs’
defense
rebut
See,
10520,
of
the
e.g.,
2016
WL
7212522, at *4 (N.D. Ill. Dec. 13, 2016) (“[T]he Court agrees
with
Defendants
contractual
that
enforceability
provisions
sued . . . preclude
under
[Plaintiffs]
concerns
related
to
the
which
[Plaintiffs
have]
from
demonstrating
‘some
likelihood of success’ on [their] contract claim.”) (quotation
omitted).
In any event, Plaintiffs have said nothing about a
likelihood of prevailing on Defendants’ further defenses that
- 28 -
find
support
in
the
undisputed
facts,
such
as
estoppel
and
accord and satisfaction.
Regardless of whether JCR could lose on the merits of its
argument that AGWS breached the Dealer Agreement by failing to
monitor JCR’s loss ratio on the warranty contracts, the evidence
Plaintiffs
have
submitted
on
their
motion
for
a
preliminary
injunction does not speak to that eventuality at all.
Instead,
assembled for the Court are only JCR’s unrebutted allegations
juxtaposed with Plaintiffs’ argument for success on the merits
that AGWS properly reimbursed – with, the reader will recall,
warehoused funds of JCR - for repair costs incurred in servicing
customers
with
American
Guardian
warranties.
That
has
no
bearing on whether, in the aggregate, AGWS failed to monitor
competently JCR’s aggregate loss ratio.
breach
is
Instead,
not
they
that
argue
AGWS
that
failed
AGWS
to
-
Defendants’ defense to
pay
as
claims
for
clearinghouse
repairs.
for
all
payments, investigation, and claims administration – materially
breached the Dealer Agreement by failing to monitor whether JCR
was suffering excessive losses in the aggregate over the life of
its deal(s) to peddle American Guardian warranties.
And all this says nothing of Defendants’ other factually
supported affirmative defenses, such as estoppel and accord and
satisfaction.
For
example,
Defendants
- 29 -
proffer
unrebutted
affidavit
evidence
that
at
least
Stewart,
on
behalf
of
Plaintiffs, represented that JCR would be excused from further
contractual
obligations
requirement
in
the
if
it
production
“met
the
agreement
total
between
production
the
parties
sooner than the sixty months provided for in the agreement.”
(Defs.’ Br. at Ex. B ¶ 6.)
By affidavit, Rosario similarly
avers that he paid off this outstanding obligation by remitting
to Plaintiffs the amount claimed for breach of the Production
Agreement;
Plaintiffs
themselves
characterize
the
minimum
warranty sales requirement as the only “production requirement”
in the Production Agreement.
Reply
at
“minimum
6
(noting
requirement”).)
there
are
“two
requirement”
production
that
(Defs.’ Br. at Ex. A ¶ 10; Pls.’
and
a
requirements”:
“separate
a
exclusivity
Plaintiffs do not argue that they never made
this representation or that it was somehow dependent on other
conditions.
issue.
Nor have they introduced affidavits relevant to the
As such, Plaintiffs have not created a genuine issue of
material fact sufficient for an evidentiary hearing.
See, e.g.,
Dexia Credit Local v. Rogan, 602 F.3d 879, 884 (7th Cir. 2010)
(“[T]he court need not conduct an evidentiary hearing unless one
is
called
for
as
a
result
of
a
fact
issue
created
by
the
response to a motion for a preliminary injunction.”); Ty, Inc.,
132 F.3d at 1171 (holding that the party seeking the evidentiary
- 30 -
hearing must demonstrate that it has “and intends to introduce
evidence that if believed will so weaken [the other’s] case as
to
affect
the
injunction”).
judge’s
decision
on
whether
to
issue
the
This means that the evidence before the Court
speaks with only one voice on these affirmative defenses, and
that voice at this stanza of the case drowns out any prospect of
Plaintiffs prevailing on the merits of their breach-of-contract
claim.
Thus,
by
introducing
inapposite
affidavits
or,
alternatively, no evidence at all, Plaintiffs fail to show a
likelihood
that
they
will
overcome
Defendants’
defenses
to
breach and excuses for non-performance, and thus prevail on the
merits of their breach-of-contract claim.
As such, their Motion
for a preliminary injunction is denied.
b.
No Adequate Remedy/Irreparable Harm
Even if Plaintiffs had shown some likelihood of prevailing
on the merits, their Motion has other coverage gaps.
Arguing
for an inadequate legal remedy and the existence of irreparable
harm, Plaintiffs contend that damages flowing from Defendants’
alleged
that
breach
their
of
sales
the
of
Production
competing
Agreement
warranty
are
products
incalculable;
is
injuring
American Guardian’s goodwill, advertising, and name recognition;
and that irreparable harm is the clear result.
- 31 -
To minimize the
crater
left
by
their
exact
plea
for
damages
in
the
legal
requisites for a preliminary injunction, Plaintiffs claim that
damages
from
obligation
Defendants’
are
not
violation
factored
into
of
their
those
exclusivity
calculations,
which
instead reflect only the minimum contract sales required under
the Production Agreement.
These arguments are unavailing either
conceptually or for lack of factual support.
As an initial matter, preventing Defendants from selling
APCO warranties does nothing to redress Plaintiffs’ lost sales
over
and
above
Defendants
are
competitors’)
the
minimum
enjoined
warranties,
production
from
then
selling
requirements.
APCO
Plaintiffs’
alleged
(or
If
other
injury
–
denial of incremental profits on JCR’s warranty sales – would
still continue unabated.
(One might also understand Plaintiffs’
plea for relief as flunking the balancing-of-hardships factor,
because prohibiting JCR’s sales of competing warranty products
merely denies Defendants a necessary source of funding without
redressing
incalculable
a
substantial
injury.)
To
portion
the
of
Plaintiffs’
contrary,
these
allegedly
losses
can
be
compensated purely by money damages later at trial, perhaps with
the help of an expert.
See, e.g., Sampson v. Murray, 415 U.S.
61, 90 (1974) (“Mere injuries, however substantial, in terms of
money,
time
and
energy
necessarily
- 32 -
expended . . . are
not
enough.
The possibility that adequate compensatory or other
corrective relief will be available at a later date, in the
ordinary course of litigation, weighs heavily against a claim of
irreparable
harm.”).
That
some
uncertainty
may
inhere
in
determining Plaintiffs’ lost profits does not move the needle,
because
calculating
certainty.
Sales,
lost
profits
often
abjures
outright
See, e.g., Belleville Toyota, Inc. v. Toyota Motor
U.S.A.,
Inc.,
770
N.E.2d
177,
199
(Ill.
2002)
(“Lost
profits, by their very nature, will always be uncertain to some
extent
and
incapable
of
calculation
with
mathematical
precision.”) (citation omitted); Royal’s Reconditioning Corp.,
Inc. v. Royal, 689 N.E.2d 237, 240 (Ill. App. 1997) (“Being
merely
prospective,
uncertain
and
precision.”)
lost
incapable
(citation
profits
of
will
to
calculation
omitted).
And
some
with
extent
be
mathematical
Plaintiffs
have
not
adduced any evidence tending to show that waiting until final
judgment
to
award
such
injury in the interim.
lost
profits
fails
to
redress
their
See, Roland Machinery Co. v. Dresser
Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984) (“Only if he
will suffer irreparable harm in the interim – that is, harm that
cannot be prevented or fully rectified by the final judgment
after trial – can he get a preliminary injunction. Where the
only remedy sought . . . is damages . . . [t]he question is then
- 33 -
whether the plaintiff will be made whole if he prevails on the
merits and is awarded damages.”).
Perhaps as a consequence, Plaintiffs claim that JCR’s sales
of
APCO
warranties
inflict
irreparable
damage
to
Guardian’s goodwill and marketplace recognition.
Mot. at 7-8.)
virtually
American
(See, Pls.’
The Seventh Circuit has indeed held that “it is
impossible
to
ascertain
the
precise
economic
consequences of intangible harms, such as damage to reputation,
and loss of goodwill.”
Ty, Inc., 237 F.3d at 902; see also,
Hess Newmark Owens Wolf, Inc. v. Owens, 415 F.3d 630, 632-33
(7th Cir. 2005) (“[I]t is precisely the difficulty of pinning
down what business has been or will be lost that makes an injury
‘irreparable.’”) (citation omitted).
However, the movant must
nonetheless make a threshold “showing [of] injury to goodwill”
by submitting some evidence that raises its claim to loss of
goodwill above mere speculation.
Gateway E. Ry. Co. v. Terminal
R.R. Ass’n of St. Louis, 35 F.3d 1134, 1140 (7th Cir. 1994); see
also, E. St. Louis Laborers’ Local 100 v. Bellon Wrecking &
Salvage Co., 414 F.3d 700, 705-06 (7th Cir. 2005) (holding that
a
plaintiff
may
not
“obtain
a
preliminary
injunction
by
speculating about hypothetical future injuries”); Carlson, 2016
WL
7212522
submitted
at
any
*7
(“In
addition,
[the
evidence . . . concerning
- 34 -
plaintiff]
loss
of
has
not
goodwill.”).
Alleged violation of an exclusivity arrangement, without more,
is insufficient to establish irreparable harm to goodwill.
e.g.,
Dominion
Video
Satellite,
Inc.
v.
Echostar
See,
Satellite
Corp., 356 F.3d 1256, 1263-64 (10th Cir. 2004) (noting that the
grant of a permanent injunction in Walgreen Co. v. Sara Creek
Prop. Co., 966 F.2d 273 (7th Cir. 1992), relied on evidence of
breach of an exclusivity clause, loss of goodwill, erosion of
customer base, and diminution of corporate image)).
Plaintiffs here offer only the naked assertion that selling
APCO
warranties
during
the
time
period
in
which,
absent
the
alleged breach, JCR would otherwise be subject to the Production
Agreement’s exclusivity clause, creates incalculable damages to
American Guardian’s market recognition and goodwill.
nothing
before
the
to . . . significant
irreparable harm.
Court
establishing
goodwill”
a
sufficient
There is
“serious
risk
to
constitute
Girl Scouts, 549 F.3d at 1089.
This is in
contrast to cases Plaintiffs cite, such as U-Haul Co. of Cent.
Illinois v. Hindahl, 413 N.E.2d 187 (Ill. App. 1980).
The court
in that case enjoined two rental car dealerships from selling
“Jartran” rentals instead of U-Haul rentals.
Its holding was
premised on three bits of evidence: first, U-Haul’s Yellow Pages
advertising “specifically identified” the defendants’ business
locations
“as
U-Haul
dealerships
- 35 -
and
listed
their
telephone
numbers as U-Haul numbers”; second, Yellow Pages advertising and
repeat business were integral to the trailer equipment rental
business; and third, a significant number of customers seeking
to
do
business
competitor.”
with
U-Haul
were
thereby
“diverted
to
a
See, id. at 192; accord, Budget Rent A Car Corp.
v. Harvey Kidd Auto, 249 F.Supp.2d 1048, 1050 (N.D. Ill. 2003).
While true that the movant need not show, for example, that
“we lost the Philadelphia advertising business of Warner Bros.
to THA as a result of Owens’s work for our rival,”
Hess, 415
F.3d at 632, it does need to offer evidence consistent with a
“clear showing” that irreparable harm to goodwill is more than
merely “a possibility.”
D.U., 825 F.3d at 339.
At the very
least, the movant must do more than conclusorily assert that it
possesses customer goodwill.
Plaintiffs have done.
customer
diversion
to
Here, by contrast, that is all
Unlike in U-Haul, there is no evidence of
JCR
based
on
a
desire
for
American
Guardian warranties; nor does anything in the record suggest
that warranty companies depend on repeat business.
Indeed, the
steep, long-term financial commitment typically associated with
an automobile purchase contrasts markedly with the conditions
prevailing in the truck and equipment rental market.
Finally,
there is no evidence that American Guardian has longstanding
relationships with customers that JCR’s sales of APCO warranties
- 36 -
interfere with.
Other courts have denied preliminary relief
under circumstances similar to those at play here.
See, e.g.,
Carlson, at *7 & n.8 (holding, despite a hearsay statement that
the alleged breacher solicited the plaintiff’s former customer,
that the competitive nature of the industry and the plaintiff’s
failure “to establish customer goodwill” made it unclear whether
future harm “eludes calculation because it is speculative” or
because “if it occurred, it could not be quantified”) (internal
quotation marks omitted); Budget Rent A Car, 249 F.Supp.2d at
1050-51; Baskin Robbins, Inc. v. Patel, 264 F.Supp.2d 607, 609611 (N.D. Ill. 2003) (refusing to conclude that Baskin Robbins
would be irreparably harmed by a franchisee’s termination of the
franchise
agreement,
establishment
of
a
which
contained
competing
ice
a
cream
non-compete,
store
at
the
and
same
location).
Grasping for some protectable interest in JCR’s sales of
American
Guardian
contracts,
Plaintiffs
contend
that
“[t]he
product Defendants were selling was and is in fact proprietary
and unique.”
(Reply at 7.)
The uniqueness of American Guardian
products aside, JCR selling an altogether different product does
not irreparably impinge on any protected interest of Plaintiffs.
Defendants
Guardian’s
are
not
trade
alleged
names,
to
be
unlawfully
promotional
- 37 -
using
materials,
American
and
other
proprietary
information.
They
are
not
alleged
to
have
misappropriated American Guardian’s trade secrets, continued to
use
its
confidential
information,
intellectual property.
establishes
marketing
that
and
or
otherwise
more,
Defendants
advertising
the
its
On the contrary, Plaintiffs’ evidence
are
now
material
offering
for
Automobile
Corporation (APCO) – Easycare Contracts.”
Without
purloined
uniqueness
of
“brochures,
Protection
(Mot. at Ex. 4 ¶ 6.)
American
Guardian
warranties
does not undermine the efficacy of Plaintiffs’ remedy at law.
Cf., e.g., Autoskill Inc. v. Nat’l Educ. Support Sys., Inc., 994
F.2d
1476,
marketplace
1498
(10th
satisfied
plaintiff
established
evaluating
damages)
Cir.
1993)
irreparable
harm
to
(emphasis
(loss
harm
goodwill
added);
of
uniqueness
factor
and
Reuters
where
difficulty
Ltd.
v.
in
the
in
United
Press Int’l, Inc., 903 F.2d 904, 907-09 (2d Cir. 1990) (loss of
unique product and goodwill supports finding of irreparable harm
when customers indicate a strong preference for the product and
threaten discontinuation of business relationship); A.L.K. Corp.
v. Columbia Pictures Indus., Inc., 440 F.2d 761, 763-64 (3d Cir.
1971) (finding in the case of a unique motion picture that the
plaintiff had an adequate remedy at law because it would only
suffer lost profits).
- 38 -
Given the dearth of evidence specific to the car warranty
business
in
general
or
American
Guardian’s
business
in
particular, Plaintiffs would have this Court as a matter of law
transmogrify any alleged breach of an exclusivity agreement into
irreparable harm to goodwill so long as the alleged breach is
accompanied by sale of a competing product within the term of
the
erstwhile
realities.
contract.
This
seems
anathema
to
business
Whenever a going concern – particularly a retailer -
(allegedly) breaches an exclusivity clause, to remain solvent it
must
make
some
attempt
to
cover
prior
to
waiting
until
expiration of the breached contract’s term or final resolution
of the ensuing litigation.
Similarly, any (alleged) breach of a
supply agreement carries with it the potential for diminution in
the supplier’s market recognition; after all, it has lost an
avenue to offer its products to end users.
harm
incalculably
recognition
must
damages
rest
on
its
But whether this
goodwill
something
more
than
or
the
marketplace
mere
loss
itself – namely, the particular factual circumstances of the
parties and their lines of business.
Reliable Fire Equip. Co.
v. Arredondo, 965 N.E.2d 393, 401-03 (Ill. 2011) (grounding the
inquiry into the protectable interest in customer relationships
in
“the
totality
of
the
facts
and
circumstances
of
the
individual case”); cf. Hendricks Music Co. v. Steinway, Inc.,
- 39 -
689 F.Supp. 1501, 1512 (N.D. Ill. 1988) (“[T]he evidence shows
that Hendricks’ entire business and reputation have been based
on the prestige of the Steinway line.
The loss of goodwill
Hendricks will suffer if it must discontinue carrying that line
is thus alone significant and impossible to quantify.”).
Therefore,
Plaintiffs
have
not
furnished
the
Court
with
evidence sufficient for it to find a “clear showing of need”
necessary
to
justify
imposition
of
a
against JCR selling APCO warranties.
preliminary
injunction
Cooper v. Salazar, 196
F.3d 809, 813 (7th Cir. 1999) (citing Mazurek, 520 U.S. at 972).
As
such,
Plaintiffs’
Motion
for
a
Preliminary
Injunction
is
denied.
IV.
For
the
reasons
CONCLUSION
stated
herein,
Plaintiffs’
Motion
to
Dismiss [ECF No. 34] and Motion for a Preliminary Injunction
[ECF No. 27] are denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Dated: May 22, 2017
- 40 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?