United States District Court, Northern District of Illinois, E.D
November 8, 1972
GENERAL CAPITAL CORPORATION, AN OHIO CORPORATION, PLAINTIFF,
U.S. FAMILY SPORTING GOODS, INC., A DELAWARE CORPORATION, ET AL., DEFENDANTS. U.S. FAMILY SPORTING GOODS, INC., A DELAWARE CORPORATION, COUNTER-PLAINTIFF, V. GENERAL CAPITAL CORPORATION, AN OHIO CORPORATION, COUNTER-DEFENDANT.
The opinion of the court was delivered by: Bauer, District Judge.
MEMORANDUM OPINION AND ORDER
This cause comes on defendants' motion to strike and dismiss
The plaintiff, General Capital Corporation, an Ohio
corporation, filed a complaint against the defendants, U.S.
Family Sporting Goods, a Delaware corporation; U.S.
Distributing, Inc., a Virginia corporation; and William H.
a resident of the State of Illinois. Jurisdiction is alleged
to rest on diversity of citizenship pursuant to 28 U.S.C. § 1332.
The plaintiff's First Amended Complaint alleges that the
defendants breached an Agreement and Promissory Note between
the parties dated December 31, 1971. The plaintiff alleges
inter alia, the following facts:
1. On or about December 31, 1971 plaintiff sold
all outstanding stock of U.S. Distributing,
Inc. (hereinafter U.S.D.) to U.S. Family
Sporting Goods, Inc. (hereinafter "U.S.
2. U.S. Family paid plaintiff $200,000 and
signed a promissory note in the amount of
3. To secure the payment of the note and other
obligations of U.S.D. and U.S. Family,
defendant U.S. Family pledged all outstanding
U.S.D. stock to plaintiff.
4. Mr. Rentschler, President of U.S. Family and
U.S.D., knew the terms of the Agreement
between plaintiff and U.S.D. and U.S. Family.
5. Mr. Rentschler, despite such knowledge,
intentionally interfered with the contractual
relationship between plaintiff and U.S.D. and
U.S. Family by:
a. Appropriating in excess of $100,000 from
the assets of U.S.D. for his own use;
b. Causing other funds to be diverted from
U.S.D. and used for other corporations owned
or controlled by him.
6. The acts of Mr. Rentschler caused dissipation
of the assets of U.S.D.
7. The acts of Mr. Rentschler lessened the value
of collateral held by plaintiff.
8. The acts of Mr. Rentschler resulted in U.S.D.
and U.S. Family breaching the agreement
between plaintiff and U.S.D. and U.S. Family.
9. U.S. Family and U.S.D. breached this
a. Advancing large sums of money to their
officers in violation of paragraph 7(L) of
b. Defaulting in payments due under a certain
note in violation of the Agreement.
The defendant in support of his Motion to Strike and Dismiss
the Complaint contends:
1. That this Court lacks jurisdiction as to all
defendants and that venue is not proper in
this judicial district.
2. That Counts IV and V of the Complaint failed
to state a claim against the defendant
William H. Rentschler.
This Court is not persuaded by the defendants' arguments and
is of the opinion that jurisdiction and venue in this Court
are proper and that the plaintiff stated a cause of action
against William H. Rentschler in Counts IV and V.
I. This Court has Jurisdiction and Venue is Proper in
this Judicial District
Both parties have agreed that, for the purpose of this
motion, facts well pleaded must be taken as true.
28 U.S.C. § 1332 provides as follows:
"(a) The district courts shall have original
jurisdiction of all civil actions where the
matter in controversy exceeds the sum or value of
$10,000, exclusive of interest and costs, and is
(1) citizens of different States"
Subsection (c) provides:
"For the purposes of this section . . . a
corporation shall be deemed a citizen of any
State by which it has been incorporated and of
the State where it has its principal place of
The following table based on a reading of the First Amended
Complaint indicates that there is the requisite diversity
required for jurisdiction under 28 U.S.C. § 1332:
CITIZENSHIP CITIZENSHIP OF
COUNT PLAINTIFF DEFENDANT
----- ----------- ---------------
U.S. Family Sporting Goods,
I Ohio and District of Inc. — Delaware and Illinois
U.S. Family Sporting Goods,
II Ohio and District of Inc. — Delaware and Illinois
III Ohio and District of U.S. Distributing, Inc. —
IV Ohio and District of William H. Rentschler —
V Ohio and District of William H. Rentschler —
As the plaintiff and no defendants are citizens of the same
state, there is complete diversity. Therefore, jurisdiction
based upon 28 U.S.C. § 1332 does in fact exist.
Venue is governed by 28 U.S.C. § 1391(a) and (c).*fn1
Rentschler is a citizen of Illinois; U.S.D. and U.S. Family
both do business in Illinois;*fn2 and U.S. Family has its
principal place of business in Chicago, Illinois. Since all
defendants reside (as defined by § 1391(c)) in the Northern
District of Illinois, venue is proper in this Court.
II. Counts IV and V of the Complaint State a Cause of
Action Against William H. Rentschler
The plaintiff's theory in Count IV is that defendant
Rentschler intentionally and tortiously interfered with the
contractual relationship existing between the plaintiff and
U.S.D. and U.S. Family. The essential elements of the tort of
intentional interference with contractual relations are: (1)
defendant's knowledge of the existing contract; (2) the
inducement to breach said contract; (3) subsequent breach by
the third person; and (4) damages to plaintiff. Republic Gear
Company v. Borg-Warner Corporation, 406 F.2d 57
1969). An examination of the facts as set forth in Plaintiff's
First Amended Complaint indicates that all essential elements
have been properly pleaded.
William Rentschler cannot escape liability for his alleged
intentional tortious acts by reason of his being a
shareholder, officer, and director of U.S. Family or officer
and director of U.S.D. It is well settled that executive
officers of a corporation incur individual and
personal liability for wilfully and maliciously inducing their
company to breach its contract with another corporation. W.P.
Inverson & Company v. Dunham Manufacturing Co., 18 Ill. App.2d 404,
152 N.E.2d 615 (1958). See also, Mellor v. Budget
Advisors, Inc., 415 F.2d 1218 (7th Cir. 1969); Republic of
Italy v. De Angelis, 206 F.2d 121 (2nd Cir., 1953);
Vassardakis v. Parish, 36 F. Supp. 1002 (S.D.N.Y., 1941). The
plaintiff in Count IV of the First Amended Complaint did
properly plead a cause of action by alleging the breach of a
security contract which was caused by the intentional and
malicious interference (inducement) of William Rentschler in
appropriating in excess of $100,000 from the assets of U.S.D.,
for his own personal use and causing other (as yet
undetermined) funds to be diverted from U.S.D. for the use of
other corporations owned or controlled by him.
In Count V of the Complaint, the plaintiff alleged that the
defendant William H. Rentschler, qua President of U.S. Family
breached his fiduciary responsibility to the plaintiff.
Plaintiff alleged that the actions of William H. Rentschler (as
described above) adversely affected his interest in collateral
security, placing U.S.D. in a hazardous financial condition
which resulted in damage to the plaintiff. Such action was
alleged to breach the covenants contained in the contract
between the plaintiff and U.S. Family (signed by William H.
Rentschler as president).*fn3
It is well settled that where an officer or agent of a
corporation breaches his fiduciary responsibility by
wrongfully converting or misappropriating funds and thereby
adversely affecting the contractual and equitable relation
between the corporation and a creditor, the creditor can
maintain an action against the officer personally. Pepper v.
Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1935);
Winger v. Chicago City Bank and Trust Co., 394 Ill. 94,
67 N.E.2d 265 (1946). See generally, 19 C.J.S.C.orporations § 849,
§ 850, § 859 and § 868 (1940).
Thus plaintiff has properly pleaded a cause of action in
Count V by alleging the existence of a fiduciary
responsibility and the breach of that duty to the plaintiff's
It is this Court's opinion that jurisdiction and venue lie
in this Court and that Counts IV and V of Plaintiff's First
Amended Complaint properly state a cause of action.
Accordingly, it is hereby ordered that defendants' motion to
dismiss and strike the complaint is denied.