Opinion
No. 91 C 7119
October 15, 1993
MEMORANDUM OPINION AND ORDER
This case involves the fraudulent purchase of, and failure to pay for, computer modules destined for the "gray market." Plaintiff, Western Microtechnology, Inc. ("Western") is an authorized distributor of electronic products manufactured by Mitsubishi Electronics of America, Inc. Defendant, Goold Electronics Corporation ("Goold Electronics"), is also engaged in the business of distributing electronic components such as computer memory modules from numerous manufacturers to other manufacturers and authorized distributors. Defendant, Oliver Goold, is the president, director and 50% shareholder of Goold Electronics. Defendant, Carol Claussen, a/k/a Caroline v. Weinman ("Claussen") was a vice president of Goold Electronics. Defendant, Univision Technologies, Inc. ("Univision"), is engaged in the sale and manufacture of electronic equipment. Defendant, Nissim Shani ("Shani"), was a vice president and part owner of Univision.
Western is a California corporation with its principal place of business in California.
Goold Electronics is an Illinois corporation with its principal place of business in Illinois.
Oliver Goold is a resident of Illinois.
Claussen is a resident of Illinois.
Univision is a Massachusetts corporation with its principal place of business in Massachusetts.
Shani is an Israeli citizen residing in Massachusetts.
Plaintiff's diversity action alleges tortious interference with contract, fraud, breach of contract and breach of fiduciary duties. Before the court are motions by defendants, Goold Electronics and Oliver Goold, to dismiss Counts I and IV of the amended complaint and by defendants, Univision and Shani, to dismiss Count I. On a motion to dismiss, all well-pleaded factual allegations are accepted as true and are construed in favor of the claimant. Roots Partnership v. Lands' End, Inc., 965 F.2d 1411, 1416 (7th Cir. 1992). "Dismissal of the complaint is proper only if it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Id.
Goold Electronics and Oliver Goold also move to amend their answer to include certain cross-claims.
According to Western's amended complaint, Western and Goold Electronics were both authorized distributors of electronic products manufactured by Mitsubishi Electronics and others. Both distributors had lines of credit with Mitsubishi. Around July, 1991, Goold Electronics was nearing its credit limit and Mitsubishi refused to ship or fill additional purchase orders submitted by Goold Electronics. On July 20, 1991, Oliver Goold, as president of Goold Electronics, contacted Marshall Cox, an officer with Western, and requested that Western, using its line of credit, purchase 20,000 computer parts from Mitsubishi for Goold Electronics. Oliver Goold further stated that Goold Electronics would buy these parts to fill an existing purchase order Goold Electronics had received from Sears for 20,000 units. On July 24, 1991, Oliver Goold sent Cox a letter specifying the purchase prices of the modules.
In response to Oliver Goold's request, Western shipped 16,849 units of computer modules on July 24, 1991 and an additional 3,131 units on July 31, 1991 for an invoice price of $963,980.00 plus $1,845.52 shipping charges and interest at 1.5% per month. Goold Electronics never resold the computer modules to Sears. Instead, Goold Electronics sold the modules to Univision, which distributed them into the gray market.
MOTION TO DISMISS BY UNIVISION AND SHANI
Univision and Shani argue that Western fails to state a claim for intentional interference with contract, that this court lacks personal jurisdiction over Univision and Shani and that plaintiff's conspiracy charge does not allege fraud with the particularity required by Fed.R.Civ.P. 9(b). Because Western fails to state a claim for intentional interference with contract against Univision and Shani, defendants' personal jurisdiction arguments need not be addressed.
Univision and Shani argue Western has failed to state a cause of action for tortious interference with contractual relations. Under Illinois law, the elements of a tortious interference with contract claim are: (1) the existence of a valid and enforceable contract between the plaintiff and a third party; (2) defendant's awareness of that contractual relationship; (3) defendant's intentional and unjustified inducement of a breach by the third party; (4) a subsequent breach by the third party; and (5) damages resulting from the breach. Wheel Masters, Inc. v. Jiffy Metal Prods. Co., 955 F.2d 1126, 1129 (7th Cir. 1992). Defendants argue Western has failed to allege that either Univision or Shani intentionally induced Goold's breach of the contract with Western. R.E. Davis Chemical Corp. v. Diasonics, 826 F.2d 678, 685 (7th Cir. 1987).
Univision and Shani also argue, for the first time in their reply brief, that Western's allegations do not comply with Fed.R.Civ.P. 9 (b). This argument was neither raised in the motion nor dependent upon Western's answer brief and, therefore, will not be considered. Snider v. Consolidated Coal Co., 973 F.2d 555, 561 (7th Cir. 1992).
In R.E. Davis, the Seventh Circuit upheld the district court's dismissal of an intentional interference claim against two doctors. Id. The two doctors breached their contract with a medical equipment supplier to lease expensive medical equipment. As a result of the doctors' breach, the medical equipment supplier breached its financing contract with the manufacturer of the medical equipment. Id. at 680. Although the doctors were aware of the contract between the supplier and manufacturer, and could be reasonably certain that their breach would cause the supplier to breach the financing contract, plaintiff failed to allege that the doctors in any way intended that result. The claim was dismissed because plaintiff failed to adequately allege that the doctors' intent in breaching their contract was to induce a breach of the supplier's contract with the manufacturer. Id. at 685-87. "The element of `inducement' in the context of a claim for intentional interference with contractual relations requires more than the knowledge that one's conduct is substantially certain to result in one party breaking its contract with another." Id. at 687.
Not only must plaintiff allege an intention to induce the breach, plaintiff must also allege facts indicating this intention and may not merely rest on conclusory allegations. Gold v. Wolpert, 876 F.2d 1327, 1332 (7th Cir. 1989) (allegation that defendant "intentionally and unjustifiably induced [third party] to breach an agreement or understanding with plaintiffs" insufficient); Zamouski v. Gerrard, 1 Ill. App.3d 890, 897-98, 275 N.E.2d 429, 433-34 (2d Dist. 1971) (allegation that defendants "carried on a series of systematic and intentional activities to induce the repudiation of" contract insufficient). Although the court must accept as true plaintiff's well-pleaded facts, it need not accept mere legal conclusions made without factual support. Paul v. Premier Elec. Constr., 581 F. Supp. 721, 725 (N.D. Ill. 1984). Defendants argue the amended complaint merely recites in conclusory fashion that the alleged scheme amounts to intentional interference with the Western-Goold Electronics contract.
According to defendants, Western has failed to allege any facts showing "that Univision or Shani desired Goold [Electronics] to breach its contract" with Western or "that the purpose of the scheme was to induce such a breach." Univision Mem. at 8. Although plaintiff has alleged a scheme to fraudulently procure computer modules for resale on the "gray market," plaintiff has alleged no facts establishing an intent on the part of Univision or Shani to induce Goold Electronics not to pay for the goods received under the scheme. The failure to pay is the only breach that Univision and Shani are alleged to have induced. Although Western alleges an intent on the part of Goold Electronics and Oliver Goold to fraudulently induce Western to sell the computer modules, See Am. Compl. Count II, neither Univision nor Shani are named in Count II. Therefore, Western has failed to state a claim for intentional interference with contract against Univision and Shani and they will be dismissed.
GOOLD ELECTRONICS' AND OLIVER GOOLD'S MOTION TO DISMISS
Defendants Goold Electronics and Oliver Goold also move to dismiss Counts I (tortious interference) and IV (breach of duty) of Western's amended complaint. The Goold defendants argue that the Goold Corporation cannot be liable for tortious interference with its own contract and that Oliver Goold, as a corporate officer of Goold Electronics, also cannot be held liable for tortious interference with Goold Electronic's contract.
Generally, a party, including a corporation, cannot be held liable for tortious interference with its own contract. George A. Fuller Co. v. Chicago Col. of Osteopathic Medicine, 719 F.2d 1326, 1334 (7th Cir. 1983); F.E.L. Publications Ltd. v. Catholic Bishop of Chicano, 754 F.2d 216, 221 (7th Cir. 1985); Brown v. Keystone Consol. Indus., Inc., 680 F. Supp. 1212, 1223 n. 7 (N.D. Ill. 1988). However, Illinois does recognize a cause of action for conspiring with a third party to breach one's own contract. Blivas Page, Inc. v. Klein, 5 Ill. App.3d 280, 286, 282 N.E.2d 210, 214 (2d Dist. 1972); J.F. Equipment. Inc. v. Owatonna Mfg. Co., Inc., 143 Ill. App.3d 208, 217, 494 N.E.2d 516, 522 (2d Dist. 1986); Walsh v. Franslow, 123 Ill. App.3d 417, 462 N.E.2d 965 (1st Dist. 1984); Bailey v. Meister Brau, Inc., 535 F.2d 982 (7th Cir. 1976); Burton v. Hitachi Am. Ltd., 504 F.2d 721, 726-27 (7th Cir. 1974); Hawthorne Partners v. ATT Technologies, Inc., No. 91 C 7167, 1992 WL 53684, at *5 (N.D. Ill. Mar. 11, 1992); F D Group Ltd. v. American Autofran, Inc., No. 89 C 3621, 1990 WL 205839, at *6 (N.D. Ill. Nov. 30, 1990); BMC Prods. v. HMK Group Cos., Inc., No. 89 C 4849, 1986 WL 13535 (N.D. Ill. Nov. 24, 1986); Laser Indus., Ltd. v. Eder Instrument Co., Inc., 573 F. Supp. 987, 993 (N.D. Ill. 1983); Robb Container Corp. v. Sho-Me Co., 566 F. Supp. 1143, 1151 (N.D. Ill. 1983). But see DP Service, Inc. v. AM Int'l, 508 F. Supp. 162, 168 (N.D. Ill. 1981) (holding no such cause exists). As the court stated in FD Group:
Defendants argued, erroneously, in their reply brief that the First District had never recognized such a cause of action.
[I]t would seem that the breaching party is liable for contract damages and only the interfering third person can be liable in tort. (Can a wife conspire with her lover to alienate her own affections?) Nevertheless, the fact that [a party) could not itself commit the tort does not logically preclude its conspiring to commit it. As a matter of policy it may be questionable to hold a party liable only for contract damages if he simply breaches his contract, however capriciously, but mulct him for punitive damages if he conspires with the interferor — who may have done no more than offer him a better deal.
As a federal court sitting in diversity such matters are not our concern when Illinois courts have spoken. [citing Blivas Page]
1990 WL 205839, at *6.
The Goold defendants argue that, even if Illinois recognizes a cause of action for conspiracy to tortiously interfere, Western has failed to plead adequately its elements. Defendants argue, similar to Univision and Shani, that Western only alleges a conspiracy to procure computer modules for the gray market and not a conspiracy to breach the contract by not paying for those modules. Western notes that one of the purposes of the alleged conspiracy was to obtain computer parts at costs below the prices at which they could be resold and distributed on the gray market and that not paying Western for the parts "certainly advances that purpose." Pl.s' Ans. Br. at 6.
For the same reasons that Western fails to state a claim for intentional interference against Univision and Shani in Count I, Western's amended complaint also fails to state a claim against Goold Electronics for conspiracy to interfere in Count I. There is simply no allegation that the alleged scheme has anything whatsoever to do with Goold Electronics' alleged breach — the failure to pay for the modules. Therefore, Count I fails to state a claim for conspiracy to interfere against Goold Electronics.
Ordinarily, corporate officers, such as Oliver Goold, cannot be held liable for tortiously interfering with one of their corporation's contracts. George A. Fuller, 719 F.2d at 1332-33; Medina v. Spotnail. Inc., 591 F. Supp. 190, 197 (N.D. Ill. 1984). In Fuller, the Seventh Circuit upheld the lower court's dismissal of plaintiff's claim that the president and vice president of the defendant corporation had tortiously interfered with a contract between the defendant corporation and plaintiff. 719 F.2d at 1328-32. The court noted that in order to maintain such an action, plaintiff must allege that the officers induced the breach to further personal goals or injure the other party to the contract and acted contrary to the best interests of the defendant corporation. 719 F.2d at 1333. Oliver Goold argues that Western's complaint fails to allege that his actions were for his own personal gain and contrary to the best interests of Goold Electronics.
Western argues that defendants misconstrue the applicable standard. The relevant inquiry, Western argues, is the "good faith" of the party inducing the breach. Bailey v. Meister Brau. Inc., 535 F.2d 982, 987 (7th Cir. 1976); Swager v. Couri, 77 Ill.2d 173, 395 N.E.2d 921, 927 (1979) (limited privilege of officers to interfere with corporation's contracts does not extend to malicious interference); Loewenthal Securities Co. v. White Paving Co., 351 Ill. 285, 299-301, 184 N.E. 310 (1932) (purpose of corporate officers' privilege is to protect those who exercise business judgment on behalf of their corporations in good faith). Western argues that the allegations of the amended complaint demonstrate that Oliver Goold's actions were outside of his corporate authority and beyond the protection of the corporate officers' privilege.
The very brief and general passage in Bailey, that "good faith" is the relevant standard for interference claims, does not address actions of officers, but rather those of third party inducers and does not support Western's position. 535 F.2d at 987. In Swager v. Couri, the Appellate Court rejected a narrow construction of the limited liability of corporate officers. 77 Ill.2d 173, 395 N.E.2d 921, 928 (1979). If good faith governed the limited liability of corporate officers, the exception for malicious actions by a corporate officer "would quickly swallow the rule itself in the case of most closely held corporations." Id.; see also Fuller, 719 F.2d at 1333 (corporate officers are not outsiders meddling in the business affairs of the corporation but rather are privileged to act on behalf of the corporation using business judgment and discretion). Oliver Goold is president and 50% shareholder of Goold Electronics. His interests and those of his company are most likely one and the same. Even without such an assumption, however, the amended complaint fails to allege that Oliver Goold's actions were contrary to the interests of Goold Electronics. Therefore, Count I fails to state a claim for tortious interference by Oliver Goold.
In Count IV, Western alleges that Oliver Goold and other officers of Goold Electronics breached their "duties," allowing Goold Electronics to commit fraud in the formation of its contract with Western. Oliver Goold argues that Western lacks standing to assert a claim against Oliver Goold for breach of fiduciary duties owed to Goold Electronics. Goold also notes that business relationships do not of themselves create fiduciary obligations. Western argues that Goold has misread the amended complaint and misconstrued the claim.
Western argues that Count IV seeks damages against Oliver Goold and the other named officers and directors for the breach of duties owed to Western as a creditor of Goold Electronics. Citing Chicago Title Trust Co. v. Munday, 297 Ill. 555, 131 N.E.2d 103 (1921), and Delano v. Case, 121 Ill. 247, 12 N.E. 676 (1887), Western argues that as directors and officers of Goold Electronics, Oliver Goold and the other named defendants are considered by Illinois law to be trustees for the corporate creditors. Neither case cited by Western supports the existence or recognition of such a duty. Munday is an action by the trustee in bankruptcy against former directors of a bank. Likewise, Delano is a one-page case from 1887 discussing the duty of bank officers to depositors. This court has not found, and Western has not shown, that any such duty exists on the part of officers of corporations to creditors. Although Goold's motion seeks dismissal of Count IV pursuant to Fed.R.Civ.P. 12(b)(1) for lack of "standing," Goold's argument actually establishes that Western fails to state a claim and it is on this basis that Count IV will be dismissed. Fed.R.Civ.P. 12(b)(6).
GOOLD ELECTRONICS' MOTION TO ADD CROSS-CLAIMS
The Goold defendants move to amend their answer to include cross-claims against Univision, Shani, and Claussen and to add additional parties Galaxy Electronics, Inc., Galaxy Electronics of Woodmere, Inc., Jerry Denker and Gail Denker. The proposed cross-claims mirror the claims raised in another action in this court, Goold Electronics Corp. v. Galaxy, 92 C 8023. That action has been dismissed for failure to state a federal claim and the state law claims were dismissed without prejudice. Goold's motion must be denied to the extent that it seeks to add RICO claims which are res judicata.
Defendants Univision and Shani will be dismissed, see supra, from the Western complaint. Therefore, as to Univision and Shani, Goold's motion must be considered one for leave to assert third-party claims. Fed.R.Civ.P. 14. Rule 14(a) allows third-party complaints where the third-party defendant is or may be liable to the third-party plaintiff for all or a part of plaintiff's claim against the third-party plaintiff. The Galaxy, Denker and Shani defendants argue that the proposed cross-claims do not arise out of the same transaction or occurrence that is the subject matter of Western's complaint. Shani argues that a legal obligation on the part of the Goold defendants to pay Western establishes no liability on the part of Shani or the rest of the third-party defendants to Goold.
Contrary to the briefs in opposition to Goold's motion, Western's complaint continues to allege more than simple nonpayment in breach of contract on the part of the Goold defendants. The same transactions which are the subject of the Western complaint are also those sued on in the proposed cross-claims. In Count II of Western's amended complaint, Western alleges fraud on the part of the Goold defendants. Goold's motion argues that by reason of this fraud perpetrated on Goold, the third-party defendants may be liable over to Goold to the extent Goold is found liable to Western.
A district court has subject matter jurisdiction over third-party supplemental claims when those supplemental claims do not destroy the diversity between Western and all other defendants. 28 U.S.C. § 1367 (b). Since all third-party defendants are of diverse citizenship to Western, this court has supplemental jurisdiction over Goold's third-party claims against the third-party defendants. The Goold defendants' motion to add state-law third-party claims will be granted.
IT IS THEREFORE ORDERED that the motion of defendants Univision and Shani to dismiss Count I of the amended complaint [40] is granted. The claims in Count I of the amended complaint against defendants Univision and Shani are dismissed with prejudice. The motion of defendants Oliver Goold and Goold Electronics to dismiss Counts I and IV [57] is granted. The claims in Count I against Goold Electronics and Oliver Goold are dismissed with prejudice. Count IV is dismissed with prejudice. The Goold defendants' motion to amend answer to file cross-claims [67) is granted in part and denied in part. Goold is granted leave to amend its answer to include its third-party state-law claims. The parties are to appear on status October 26, 1993 at 9:15 a.m.