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GENERAL CAPITAL v. U.S. FAMILY SPORTING GOODS

United States District Court, Northern District of Illinois, E.D


November 8, 1972

GENERAL CAPITAL CORPORATION, AN OHIO CORPORATION, PLAINTIFF,
v.
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 Complaint.

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. Rentschler, 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.
      Family").

  2.  U.S. Family paid plaintiff $200,000 and
      signed a promissory note in the amount of
      $827,000.

  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
      Agreement by:

      a. Advancing large sums of money to their
      officers in violation of paragraph 7(L) of
      the Agreement;

      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

A. Jurisdiction

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
  between —

(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
  business."

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
                OF                     APPLICABLE
  COUNT      PLAINTIFF                 DEFENDANT
  -----     -----------             ---------------

                               U.S. Family Sporting Goods,
    I   Ohio and District of   Inc. — Delaware and Illinois
           Columbia

                               U.S. Family Sporting Goods,
   II   Ohio and District of   Inc. — Delaware and Illinois
           Columbia

  III   Ohio and District of   U.S. Distributing, Inc. —
  Virginia
           Columbia

   IV   Ohio and District of   William H. Rentschler —
  Illinois
           Columbia

    V   Ohio and District of   William H. Rentschler —
  Illinois
           Columbia

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.

B. Venue

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 (7th Cir. 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 detriment.

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.


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