United States District Court, Northern District of Illinois, E.D
July 17, 1980
JASON WINTER'S HERBALTEA (BAHAMAS) LTD. ET AL., PLAINTIFFS,
FLEMMING IMPORTS CORPORATION ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
OPINION AND ORDER
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
THE UNCONTROVERTED FACTS
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 the
account" (FT 63). Flemming used both accounts both for the
Herbaltea transactions and for his other herbal business (FT
62-67, Exhibits I and J).
Flemming's Herbs continued to make the $5 per bag payments to
Winter individually on all sales of Herbaltea until after this
suit was filed November 21, 1979. Flemming and Winter thereupon
agreed once again to modify the payment arrangements. At the end
of November 1979 Winter executed for Corporation and Flemming
executed for Flemming's Herbs a new written agreement, backdated
to October 30, 1979. That date was selected so that the agreement
would pre-date the filing of this suit and its terms would be
"included under consideration of the complaint" in this suit (FT
25, 26, 32, Exhibit F). Under the new written agreement
Corporation was to receive a $3 royalty for every bag of its
tea sold by Flemming Imports or Flemming's Herbs. At the same
time, though not covered by the written agreement, Flemming
agreed on behalf of defendants to pay Winter personally $2 for
each bag of tea sold. In that respect Flemming testified at his
deposition (FT 26, 35):
Q: The contract that was signed October 30th embodied
all your previous agreements?
Flemming: No, there are parts left out with payment
of complaint, maybe other things.
Q: The money to be paid directly to Mr. Winter was
also left out of that contract, was it not?
Flemming: Explain yourself. I don't know what you
Q: Did you pay money directly to Mr. Winter?
Flemming: That's correct.
Q: The October 30th agreement doesn't call for
payment directly to Mr. Winter.
Flemming: That is what he asked for.
Q: And you gave it to him?
Flemming: That's correct.
Q: Why was the sum then reduced to $3 per bag in the
November agreement predated to October 30th?
Flemming: Because Mr. Winter wanted me to pay him $2
outside the contract.
Q: And did you do that?
Flemming: I did that. I made the last payment in
Q: You made the last payment in February?
Flemming: Yes, sir, at his demand.
Q: After the lawsuit was still going on?
Flemming: That's correct.
Defendants have in fact made payments to Winter personally
under this new arrangement through February 1980. However, no
payment has ever been tendered to Corporation under the new
written agreement, because of the present lawsuit (FT 33, 35).
"REASONABLE INFERENCES" AND THE APPLICABLE LAW
Defendants argue that the facts are susceptible of several
"interpretations" — essentially that varied inferences can be
drawn from the uncontroverted facts — and that those possible
interpretations or inferences create a genuine issue as to
material facts. But the Court is not obligated to divorce itself
from the real world; the inferences
that the cases require be drawn in favor of parties opposing
summary judgment are only all "reasonable" inferences (this is
the language of the Central National case). As our Court of
Appeals put it in Mintz v. Mathers Fund, Inc., 463 F.2d 495
(7th Cir. 1972):
Appellate courts should not look the other way to
ignore the existence of the genuine issues of
material fact, but neither should they strain to find
the existence of such genuine issues where none
And as the Fifth Circuit said in Doyle v. Bethlehem Steel
Corp., 504 F.2d 911
, 913 (5th Cir. 1974):
A question of fact is not at issue, however, when
reasonable men could not differ on the existence of
In the Court's view no reasonable inference can be drawn from
the pattern of conduct here other than that defendants cooperated
with Winter in his diversion of funds properly payable to
Corporation. Defendants were dealing with Corporation; each
written agreement as well as Flemming's testimony confirmed that.
They knew that Winter was not the sole party in interest in
Nevertheless defendants engaged in a pattern of
oral modifications of the original written contract (which had
properly been for Corporation's sole economic benefit, not
Winter's individually), under-the-table payments to Winter and
then the back-dating of a document after this suit was filed —
and even the back-dated document was coupled with continued
(though smaller) under-the-table payments to Winter personally.
Flemming established a bank savings account "as Trustee for Jason
Winter" and was unable to explain exactly why he had done so.
Only one reasonable inference is possible: Defendants had a
direct and cooperative involvement in Winter's financial
self-aggrandizement to the detriment and at the expense of
Corporation, to which Winter owed fiduciary obligations as a
matter of law.
Thus the uncontroverted facts are not tempered or modified by
any reasonable inferences to the contrary favoring defendants.
Under the circumstances Illinois law, as exemplified by Zokoych
v. Spalding, 36 Ill. App.3d 654, 670, 344 N.E.2d 805 (1st Dist.
1976), compels the conclusion that defendants are liable to
Corporation for having cooperated with Winter in his breach of
fiduciary obligations to Corporation.
Accordingly the Court specifically finds "that there is no
genuine issue as to any material fact [involved in Count IV] and
that [plaintiffs are] entitled to a judgment [as to liability
under Count IV] as a matter of law" (Fed.R.Civ.P. 56(c)). In
accordance with Fed.R.Civ.P. 56(d), the Court further specifies
that the facts stated in the section of this opinion and order
captioned "THE UNCONTROVERTED FACTS" exist without substantial
Plaintiffs are directed to submit on or before August 1, 1980 a
proposed form of order embodying appropriate relief under Count
IV, together with a supporting memorandum as to the propriety of
the relief sought. Defendants are directed to submit an answering
memorandum on or before August 15, 1980. Plaintiffs are directed
to submit a reply memorandum on or before August 22, 1980. This
Court will thereafter consider the memoranda and enter its order
granting relief, but the Court defers its rulings as to other
relief sought by plaintiffs pending further proceedings in this