Maxtech Consumer Products, Ltd. et al v. Chervon North America Inc. et al
Filing
46
MEMORANDUM Opinion and Order: For the reasons stated in the accompanying Memorandum Opinion and Order, Chervon's motion to dismiss the amended complaint 21 is denied. A status hearing is set on 7/18/19 at 9:00 a.m. The parties are to confer regarding a proposed discovery schedule in advance of the hearing. Signed by the Honorable John J. Tharp, Jr on 7/1/2019. Mailed notice (cn).
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MAXTECH CONSUMER PRODUCTS,
LTD., AND INSTY-BIT LLC,
Plaintiffs,
v.
CHERVON NORTH AMERICA INC.,
TECHTRONIC INDUSTRIES CO.
LTD., MILWAUKEE ELECTRIC
TOOL CORPORATION, AND
TECHTRONIC POWER TOOLS
TECHNOLOGY LIMITED,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
No. 18-CV-1304
Judge John J. Tharp, Jr.
MEMORANDUM OPINION AND ORDER
Plaintiff Maxtech Consumer Products, Ltd. (“Maxtech”) and defendant Chervon North
America, Inc. (“Chervon”) entered into a joint venture under which Chervon agreed to sell
products using Maxtech’s intellectual property. That joint venture fell apart, however, shortly after
Chervon informed Maxtech that the purposes of the joint venture could no longer be accomplished
and that all joint venture projects would “be suspended.” Maxtech filed suit alleging that Chervon
wrongfully terminated the joint venture. Chervon now moves to dismiss Maxtech’s amended
complaint, arguing that Maxtech conflated its breach of contract and anticipatory repudiation
theories of relief and failed to state a claim under either theory. But it is Chervon, not Maxtech,
that has conflated applicable legal standards, specifically the pleading standards under state and
federal law. Federal pleading standards govern here, and under those standards Maxtech has stated
a plausible claim for relief. Chervon’s motion to dismiss the amended complaint is therefore
denied.
BACKGROUND1
Maxtech designs, manufactures, and owns intellectual property for hand tools and power
tool accessories. On January 6, 2017, Maxtech entered into a Joint Venture Agreement with
Chervon under which Maxtech granted Chervon an exclusive license to manufacture and sell
power tools and accessories using Maxtech’s intellectual property, including U.S. Patent No.
6,561,523 B1 (the “’523 patent”). First Supplement to Chervon’s Mot. to Dismiss, Ex. A, Joint
Venture Agreement, ECF No. 28-1.2 Chervon and Maxtech agreed to participate in the joint
venture for a term of ten years unless it was terminated earlier in accordance with the terms of the
Joint Venture Agreement. Chervon was required under the Joint Venture Agreement to pay
Maxtech a substantial licensing fee in two equal installments, with the first installment to be paid
immediately and the second to be paid by March 2018. Chervon was also required to provide sales
and production services for the joint venture, pay Maxtech a royalty on net sales, share a portion
of its profits with Maxtech, and keep the books of account for the joint venture. If a party breached
the Joint Venture Agreement and did not cure the breach within sixty days (or an otherwise
reasonable time) of receiving notice of the breach, then the non-breaching party could terminate
the Agreement.
Sometime after Maxtech and Chervon executed the Joint Venture Agreement, Chervon
entered into a settlement agreement in unrelated litigation involving two other companies, one of
which was Techtronic Industries Co. Ltd. (“TTI”). That settlement agreement allegedly required
Facts alleged in the amended complaint are “taken as true and considered in the light most
favorable to” Maxtech for purposes of the Court’s ruling on the motion to dismiss. See Reed v.
Palmer, 906 F.3d 540, 549 (7th Cir. 2018).
1
Although the Joint Venture Agreement was not attached to Maxtech’s amended
complaint, the parties agree that it may be considered when ruling on Chervon’s motion to dismiss.
See Pl. Maxtech’s Opp’n to Chervon’s Mot. to Dismiss (“Resp.”) 3–4, ECF No. 32.
2
2
Chervon to “abandon its right to exclusivity on the ‘523 patent and related technology, a
right which was a key part of the Joint Venture Agreement.” Am. Compl. ¶ 24, ECF No. 11.3
Accordingly, on January 4, 2018, Chervon’s President and CEO Bill Boltz sent an email to
Maxtech’s CEO Kailash Vesudeva stating in relevant part:
According to the recent settlement agreement between TTI and
Chervon, Chervon is required to provide a copy of Section 22 of the
agreement to Maxtech.
...
With respect to the notice that needs to be provided to Maxtech by
January 6th, regarding changes to our business agreement, Chervon
is making the following changes through this notice to modify our
current agreement.
1. All current Chervon and Maxtech projects will be suspended and
the monthly service fee will not be paid after the first 12 months
have been completed.
2. Chervon will provide consent that Maxtech may revoke the
termination of their license agreement with TTI and TTI may
continue as a non-exclusive licensee under the Intsy-Bit license
through the duration of all Intsy-Bit Patent Rights.
3. Since the original purpose of the exclusive license arrangement
between Chervon and Maxtech cannot be achieved, Chervon is
now proposing the following 2 options:
1. Option 1: Chervon will pay the second . . . installment
to Maxtech, in exchange, Maxtech will pay to Chervon
the lump sum royalties received from TTi for the future
3
The amended complaint provides some context for these communications concerning the
future of the Joint Venture Agreement. Maxtech alleges that although the TTI litigation with
Chervon had nothing to do with the ‘523 patent, TTI engineered this settlement to preserve its
access to the ‘523 patent technology, which it had previously enjoyed through a licensing
agreement it had with Maxtech’s affiliate, Insty-Bit LLC (“Intsy-Bit”). TTI’s access to the ‘523
technology was threatened by Insty-Bit’s revocation of that licensing agreement and the advent of
the Maxtech-Chervon joint venture agreement, which provided an exclusive license to use the ‘523
patent in connection with the manufacture of power tools. In short, the complaint alleges that, in
order to maintain its access to the ‘523 patent technology, TTI somehow “coerced” Chervon to
blow up the joint venture agreement. Am. Compl. ¶ 22.
3
license till the end of duration of the patents or the end
of agreement between Chervon and Maxtech, whichever
is earlier.
2. Option 2: Maxtech will keep all lump sum and royalties
received from TTi for the future license, while Chervon
will not pay the second . . . installment.
If Maxtech will agree to either option, Chervon will not claim back
the first [installment] paid last year.
Mot. to Dismiss, Ex. B, Email from Boltz to Vasudeva dated Jan. 4, 2018, ECF No. 28-2, PageID
# 142.4
On February 6, 2018, Vesudeva met with Boltz in an effort to encourage Chervon to honor
its obligations under the Joint Venture Agreement. At that meeting, Boltz allegedly “confirmed
that Chervon considered its relationship with Maxtech over and would not honor the Joint Venture
Agreement ‘based on the TTI settlement.’” Am. Compl. ¶ 26. Maxtech filed suit shortly thereafter.5
Chervon now moves to dismiss Maxtech’s amended complaint, and Maxtech responds that it has
stated a plausible claim under applicable federal pleading standards. Maxtech also alleges through
its opposition brief—and Chervon does not dispute—that after Maxtech filed its amended
complaint, Chervon failed to pay the second installment due per the Joint Venture Agreement.
Resp. 1–2, ECF No. 32.
4
Maxtech contends that the Court should not consider this email when ruling on the motion
to dismiss. Resp. 5, ECF No. 32. But “documents attached to a motion to dismiss are considered
part of the pleadings if they are referred to in the plaintiff’s complaint and are central to his claim.”
188 LLC v. Trinity Indus., Inc., 300 F.3d 730, 735 (7th Cir. 2002). Maxtech quotes from the email
in its amended complaint, see Am. Compl. ¶ 25, and alleges that the email is one of two interactions
between Chervon and Maxtech that give rise to its claim.
5
Insty-Bit was originally a plaintiff as well, but its claims were directed to TTI, Milwaukee
Electric Tool Corp., and Techtronic Power Tools Technology Ltd. All of the claims against those
defendants were voluntarily dismissed. ECF No. 36. Maxtech’s claim against Chervon is the only
remaining claim in the case.
4
DISCUSSION
I.
Complaints plead claims not legal theories.
To survive a motion to dismiss, a plaintiff’s complaint “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim
is facially plausible if the plaintiff has pled “factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678 (quoting Twombly, 550 U.S. at 556). The complaint must be viewed in the light most favorable
to the plaintiff, and all possible inferences must be drawn in the plaintiff’s favor. AnchorBank,
FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011).
A plaintiff need not set forth any legal theory in its complaint. Beaton v. SpeedyPC
Software, 907 F.3d 1018, 1023 (7th Cir. 2018). It follows that “specifying an incorrect theory is
not a fatal error,” Rabe v. United Air Lines, Inc., 636 F.3d 866, 872 (7th Cir. 2011), and neither is
“using the wrong name to identify a theory,” Volling, 999 F. Supp. 2d 991, 1006 (N.D. Ill. 2013).
In reviewing a motion to dismiss, “the critical question is whether the plaintiffs have stated a
plausible claim for relief under some recognized legal theory, not whether they have properly
labeled that theory.” Volling, 999 F. Supp. 2d at 997. A plaintiff “cannot plead herself out of court
by citing to the wrong legal theory or failing to cite any theory at all.” Ryan v. Ill. Dep’t of Children
& Family Servs., 185 F.3d 751, 764 (7th Cir. 1999). “Ever since their adoption in 1938, the Federal
Rules of Civil Procedure have required plaintiffs to plead claims rather than facts corresponding
to the elements of a legal theory.” Chapman v. Yellow Cab Cooperative, 875 F.3d 846, 848 (7th
Cir. 2017) (emphasis in original); N.A.A.C.P. v. Am. Family Mut. Ins. Co., 978 F.2d 287, 292 (7th
Cir. 1992) (“Identifying legal theories may assist defendants and the court in seeing how the
5
plaintiff hopes to prevail, but this organization does not track the idea of ‘claim for relief’ in the
federal rules.”).
Chervon is therefore off-base in asserting that Maxtech’s claim fails because it does not
plead facts supporting each element of either a breach of contract or anticipatory repudiation cause
of action. See Johnson v. City of Shelby, Miss., 574 U.S. 10 (2014) (“Federal pleading rules . . . do
not countenance dismissal of a complaint for imperfect statement of the legal theory supporting
the claim asserted.”); see also Chapman v. Yellow Cab Cooperative, 875 F.3d 846, 848 (7th Cir.
2017) (“Because complaints need not identify the applicable law, it is manifestly inappropriate for
a district court to demand that complaints contain all legal elements (or factors) plus facts
corresponding to each.”) (internal citations omitted). Complaints in federal court “do not need to
match facts to ‘elements’ of a legal theory.” Hefferman v. Bass, 467 F.3d 596, 599 (7th Cir. 2006)
(citing Bartholet v. Reishauer A.G. (Zürich), 953 F.2d 1073, 1078 (7th Cir. 1992)). “Matching
facts against legal elements comes later,” after the motion to dismiss stage. Sanjuan v. American
Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994). Chervon’s reliance on the
more strenuous fact pleading requirements of Illinois state courts is therefore misplaced. See
Hefferman, 467 F.3d at 599 (“The Federal Rules of Civil Procedure apply to all cases filed in
federal court, no matter what the basis of subject matter jurisdiction.”); see also United States v.
All Meat and Poultry Products Stored at Lagrou Cold Storage, 470 F. Supp. 2d 823, 827 (N.D.
Ill. 2007) (“The defendants’ reliance upon cases decided by Illinois courts is misplaced, because
those cases analyze the sufficiency of complaints subject to the more strenuous fact pleading
requirements of state court.”); City of Chicago v. Beretta U.S.A. Corp., 821 N.E.2d 1099, 1112
(Ill. 2004) (distinguishing fact pleading from notice pleading). Under the federal rules, Maxtech’s
6
obligation is simply to plead facts that establish a plausible claim for relief, not to map fact
allegations to the elements of a specific legal theory.
II.
Maxtech states a plausible claim for relief.
The gist of Maxtech’s amended complaint is that Chervon unjustifiably failed to honor
obligations it agreed to undertake in the Joint Venture Agreement. The parties agree that Illinois
substantive law applies, see Resp. 7 n.2, and Illinois provides a number of legal theories that
plausibly support a claim to relief premised, as is Maxtech’s claim, on allegations of an unjustified
refusal to honor commercial and professional commitments. Whether that claim is analyzed under
a theory of breach of contract or anticipatory repudiation does not matter to the question of whether
Maxtech has stated a plausible claim; even if a party to a contract has not failed to perform any
current contractual duties, that party’s unequivocal expression of its intent not to perform its future
contractual duties may amount to an anticipatory breach. In re County Treasurer and ex Officio
County Collector of Kane County, Ill., 118 N.E.3d 659, 670 ¶ 39 (Ill. App. Ct. 2018).6 And
Maxtech’s use of the word “repudiation” in its complaint to describe Chervon’s wrongful
withdrawal from the Joint Venture Agreement does not preclude Maxtech from arguing that the
withdrawal amounted to a current breach. See Volling, 999 F. Supp. 2d at 1006 (“[P]laintiffs are
not required to set forth any legal theories in their complaint, and there is no penalty for invoking
the wrong one(s), or using the wrong name to identify a theory.”) (emphasis in original). Maxtech
There are other potentially viable theories on which Maxtech’s claim might survive as
well. Aside from theories of breach of contract and anticipatory repudiation, Maxtech’s complaint
would likely also survive under a theory of wrongful dissociation from the joint venture
partnership. Where a partnership has been entered for a definite term, a partner is liable for
wrongful dissociation if the partner withdraws from the partnership by express will before
expiration of the term of the partnership. See 805 ILCS 206/602(b)-(c). Chervon has not disputed
that Maxtech and Chervon were engaged in a joint venture partnership under Illinois law or that
Maxtech’s amended complaint states a claim under a wrongful dissociation theory.
6
7
alleges that Chervon’s settlement with TTI made it impossible for Chervon to comply with its
obligations under the Joint Venture Agreement, and that Chervon made as much clear to Maxtech
when Chervon unequivocally renounced those obligations on January 4 and February 6, 2018.
Regardless of the theory under which Maxtech’s claim is analyzed, Chervon’s alleged actions in
refusing to carry forward with the venture, if true, contravened legal duties owed to Maxtech
arising from the Joint Venture Agreement, plausibly entitling Maxtech to relief.
Chervon focuses on the two options Boltz listed under the final bullet point of his January
4, 2018 email to argue that Boltz was merely proposing a modification of the Joint Venture
Agreement and asking if Maxtech would agree. While a mere suggestion to modify a contract may
not amount to anticipatory repudiation, see Truman L. Flatt & Sons Co. v. Schupf, 649 N.E.2d 990,
994 (Ill. App. Ct. 1995), Maxtech has plausibly alleged that Chervon was not merely proposing a
modification to the Agreement. Chervon ignores the prior paragraphs of that email, in which Boltz
wrote that “Chervon is making the following changes through this notice to modify our current
agreement,” that “[a]ll current Chervon and Maxtech projects will be suspended and the monthly
service fee will not be paid after the first 12 months have been completed,” and that “the original
purpose of the exclusive license arrangement between Chervon and Maxtech cannot be achieved.”
Mot. to Dismiss, Ex. B, Email from Boltz to Vasudeva dated Jan. 4, 2018, ECF No. 28-2, PageID
# 142 (emphasis added in each instance).
Those statements were not made conditional based on any response from Maxtech. And it
makes sense that those statements were not framed as mere proposals. Chervon had entered into
the TTI settlement that allegedly required Chervon to abandon its right to exclusivity on the ‘523
patent, which frustrated “a key part of the Joint Venture Agreement.” Am. Compl. ¶ 24. It is
reasonable to infer that Boltz was proposing options for the parties to move forward after
8
Chervon’s breach, rather than merely proposing modifications to preserve the Agreement, given
that the joint venture was no longer viable in light of Chervon’s settlement with TTI.
Chervon contends that Maxtech has not alleged a specific duty or contractual provision
that Chervon breached, but fairly construed (and of course the plaintiff is entitled to all reasonable
inferences at this stage) Maxtech has alleged that Chervon breached all of the duties it incurred
when it entered into the Joint Venture Agreement, because it wrongfully withdrew from the joint
venture altogether. The breach of obligations imposed by the Joint Venture Agreement is implicit
in Boltz’s own statements. See Mot. to Dismiss, Ex. B, Email from Boltz to Vasudeva dated Jan.
4, 2018, ECF No. 28-2, PageID # 142 (stating that the purpose of the Joint Venture Agreement
“cannot be” achieved, Chervon “is” making changes to the Joint Venture Agreement, projects
“will be” suspended, and the monthly service fee “will not be” paid). Chervon’s obligations
included providing several services to the joint venture, including providing “sales channels and
sales organization” and a “production, purchasing, quality and operations team,” as well as
“preparing all orders for on-time shipment.” Joint Venture Agreement ¶ 8.02. Chervon was also
required to pay a royalty on net sales, share profits with Maxtech, and keep the books of account
for the joint venture. And according to Boltz, Chervon wasn’t going to deliver on these promises.
Chervon’s wrongful termination of the Joint Venture Agreement was reinforced, Maxtech
plausibly alleges, through the February 6, 2017 encounter between Boltz and Vesudeva. Chervon
contests Maxtech’s allegation that Boltz told Vesudeva during that encounter that “Chervon
considered its relationship with Maxtech over and would not honor the Joint Venture
Agreement . . . .” Am. Compl. ¶ 26. Because Maxtech placed quotation marks around the final
words of that sentence (“based on the TTI settlement”) but not around the preceding words,
Chervon contends that the unquoted words should not be credited. But allegations in a complaint
9
do not rise or fall on such technical niceties. See Christensen v. County of Boone, IL, 483 F.3d 454,
458 (7th Cir. 2007) (“Together, [Federal Rules of Civil Procedure 8(a) and 12(b)(6)] ensure that
claims are determined on their merits rather than on pleading technicalities.”). A plaintiff must
simply “give enough details about the subject-matter of the case to present a story that holds
together,” Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010), which is a burden that
can be met by alleging the gist of a statement rather than a verbatim quote. Requiring that
statements be quoted verbatim rather than summarized would likely run afoul of Federal Rule of
Civil Procedure 8’s mandate that complaints include “a short and plain statement of the claim
showing that the pleader is entitled to relief” (emphasis added), and would effectively close the
doors of the courthouse to those plaintiffs who don’t make a habit of being accompanied by a
stenographer.
Finally, the provision of the Joint Venture Agreement that allows a non-breaching party to
terminate the Agreement after a notice-and-wait period does not doom Maxtech’s claim either. See
Joint Venture Agreement ¶ 10.02. That provision provides a mechanism for terminating the Joint
Venture Agreement in the event of a breach, but it does not preclude a party from filing suit after
an alleged breach.
*
*
*
For the reasons stated above, Chervon’s motion to dismiss the amended complaint, ECF
No. 21, is denied.
_______________________
John J. Tharp, Jr.
United States District Judge
Dated: July 1, 2019
10
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?