The opinion of the court was delivered by: Shadur, District Judge.
Plaintiffs*fn1 filed a motion for summary judgment against
defendants*fn2 on Count IV of plaintiffs' Complaint. For the
reasons stated in this opinion and order, the Court grants
plaintiffs' motion and enters summary judgment against defendants
as to liability under Count IV of the Complaint. Plaintiffs'
right to relief is dealt with subsequently in this opinion.
Jurisdiction in this case is based on diversity of citizenship.
Although under conflict of law doctrines the facts might well
give rise to the application of substantive law other than that
of Illinois, defendants have not disputed the applicability of
Illinois law as asserted by plaintiff, and there is no showing in
any event that Bahamian law (or any other possibly applicable
law) involves any principles different from those under Illinois
law. Accordingly the Court will apply Illinois substantive law —
after of course determining under federal law whether summary
judgment is appropriate.
There are no controverted facts. Plaintiff relies on the facts
as stated by Ted Flemming ("Flemming," President of each
defendant corporation) in his deposition taken April 24, 1980,
and defendants have filed no counter-affidavit. Thus defendants'
opposition to the entry of summary judgment is predicated on
their argument that the uncontroverted facts give rise to
inferences that themselves create some genuine issue as to a
Corporation is the owner of a product known as Jason Winter's
Herbaltea ("Herbaltea") and the related trademark and goodwill.
Herbaltea involves a secret formula, both as to its ingredients
and its method of preparation, and is marketed on the basis of a
number of health claims. Corporation's shareholders are Jason
Winter ("Winter," the "inventor" of the tea and President of
Corporation) and Sung.
In 1979 defendants were purchasing Herbaltea on a wholesale
basis from Corporation (pages 6 and 18 of the transcript of
Flemming's April 24, 1980 deposition, hereafter "FT 6, 18"). At
the end of September or the beginning of October 1979 Flemming
traveled to the Bahamas to discuss with Winter an arrangement for
distribution of Herbaltea (FT 4, 6). In the Bahamas Winter,
acting for Corporation, and Flemming, acting for Flemming's
Herbs, entered into a written agreement under which Flemming's
Herbs would handle all retail orders arising in the North
American continent, and all wholesale orders would be forwarded
by Flemming's Herbs to "Winters International Market" for
distribution. Flemming's Herbs was to pay no royalty or
commission to Corporation for the retail orders but was to
purchase Herbaltea from Corporation at a rate of $25 per pound
(FT 9-11 and Exhibit A). When the agreement was entered into,
Flemming "deduced' (as he put it) that Sung had a financial
interest in Corporation (FT 50), and Winter so stated to Flemming
within a few weeks after the entry into the agreement (FT 48).
Almost immediately after execution of the written agreement
Flemming and Winter entered into an oral modification of its
terms. Under the revised arrangement Flemming's Herbs would not
purchase any tea from Corporation but would rather independently
purchase the herbs and would mix, bag and label Herbaltea for all
Corporation's orders, both retail and wholesale. Flemming's Herbs
would pay Winter personally a royalty of $5 per bag on all tea
sold and no payments of any kind would be made directly to
Corporation (FT 14, 21, 24, 56, 57). As Flemming stated at FT 67:
Flemming: I was requested to pay the royalty to Mr.
Winter by Mr. Winter.
Q: Directly to Mr. Winter even though the agreement
says to the corporation?
Flemming: He insisted on making checks out in that
In accordance with that modified agreement, Flemming's Herbs
began to make and distribute Herbaltea and to make payments
covering the $5 per bag royalty to Winter individually, including
a payment of approximately $20,000 personally delivered to Winter
by Flemming about October 30, 1979, while Flemming was visiting
Winter in Canada (FT 27, 28, 34).
While in Canada visiting Winter, Flemming was notified by his
office in Schaumburg, Illinois that a letter had been received
from an attorney representing Won K. Sung regarding defendants'
distribution of Herbaltea. Winter prepared the form of response
to that letter, which Flemming allowed Winter to cable to the
attorney over the name of Flemming Imports (FT 26-28, Exhibit
Flemming also established a checking account entitled "Jason
Winter's Herbaltea" and a savings account entitled "Ted Flemming,
Trustee for Jason Winter." Each account was maintained at the
Suburban National Bank of Woodfield, Illinois, with Flemming as
the signatory on each account. Flemming stated regarding the
savings account that "when Mr. Winter came to Schaumburg, I
thought it would be necessary that he would want a trust account,
than what you call signatory?" (FT 60) but that when Winter
visited Flemming in October "he did not want to be part of ...