United States District Court, Northern District of Illinois, E.D
January 26, 1981
DP SERVICE, INC., PLAINTIFF,
AM INTERNATIONAL ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
DP Service, Inc. ("DP") brings this action based on the breach
of an alleged distributorship agreement entered into with
defendants AM International, Inc. and Jacquard Systems
(collectively "AM"). DP's two-count complaint charges breach of
contract and tortious interference with prospective economic
advantage. AM has moved for dismissal of both counts. For the
reasons stated in this memorandum opinion and order, AM's motion
is denied as to Count I and granted as to Count II.
Choice of Law
In this diversity case the Illinois substantive law to which
this Court looks includes its choice-of-law rules. Klaxon Co. v.
Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed.
1477 (1941). Those rules are not the same for the two theories,
breach of contract and tort, sought to be invoked by DP's
1. Count I: Alleged Breach of Contract
Count I of the Complaint alleges the existence and AM's
subsequent breach of a written agreement dated July 1, 1978
establishing DP as a non-exclusive distributor of AM's products
in Illinois. AM argues that the alleged agreement is
unenforceable because no written agreement was ever signed by AM
or any of its agents and because any claimed oral agreement would
run afoul of the Statute of Frauds.
Illinois has not yet adopted the "most significant contacts"
approach for contract choice-of-law questions, as it has in other
areas of substantive law. Nor is there a sufficiently strong
indication of so doing in recent Illinois Supreme Court decisions
to justify this Court in not following the existing law in this
Accordingly this Court is required to follow the law as set
down in such cases as Cook Associates, Inc. v. Colonial Broach &
Machine Co., 14 Ill. App.3d 965, 304 N.E.2d 27, 31-32 (1st Dist.
1973): If a contract is to be performed in more than one state,
the law of the place of execution applies as to questions of
validity, construction and scope as well as performance. Here the
alleged Distributorship Agreement*fn1 calls for DP as distributor to
perform its activities in Illinois, while it contemplates that AM
as manufacturer will manufacture and ship its products to DP
"F.O.B. at the Manufacturer's factory" (¶ 4.2) in California.
Thus the answer under the Illinois conflicts rule is to look to
the place of execution.
On that score the alleged agreement has two provisions:
(1) It states on the cover page, "This Agreement shall first
become effective upon the Manufacturer's acceptance of the
Distributor's initial order. . . ." — which would be a California
(2) Paragraph 15.7 provides, "This Agreement may be executed in
counterparts, and whenever signed shall be deemed delivered and
executed at Santa Monica, California." Therefore Illinois
choice-of-law rules lead to California, the same law that is
specified by Paragraph 15.6 of the Distributorship Agreement:
This Agreement shall be interpreted and governed
exclusively by California law.
2. Count II: Alleged Tort Liability
DP's second Count sounds in tort. In that area of substantive
law Illinois has adopted the "most significant contacts" choice
of law rule, Ingersoll v. Klein, 46 Ill.2d 42, 262 N.E.2d 593
(1970). Ingersoll requires consideration of four factors:
(a) place of injury;
(b) place where the conduct occurred;
(c) place of incorporation and place of business of
the parties; and
(d) place where the parties' relationship is
In this case the alleged injury occurred in Illinois. AM's
claimed conduct, interfering with DP's business, had its effect
and may have been carried out in Illinois, but doubtless would
have been conceived in AM's corporate headquarters in California.
DP is incorporated and does business in Illinois, while AM is
incorporated in Delaware but operates in California. Finally, the
relationship of the parties stems from a contract negotiated in
both Illinois and California and, as already discussed, calling
for performance in both states.
Thus one of the four factors points to Illinois, another
involves either a divided or primarily California situs, and the
other two are evenly balanced between Illinois and California.
Under the most significant relationship test, the place of injury
is given presumptive importance only to be supplanted when
another state has a more significant relationship. In re Air
Crash Disaster, 644 F.2d 594 (7th Cir. 1981). Because
California's contacts are at best of equal significance with, and
indeed appear to be less significant than, those of the place of
alleged injury, Illinois law is controlling.
Count I: Alleged Breach of Contract — The Substantive Law
California's Statute of Frauds, Cal.Civ.Code § 1624,
The following contracts are invalid, unless the same,
or some note or memorandum thereof, is in writing and
subscribed by the party to be charged or by his
1. An agreement that by its terms is not to be
performed within a year of the making
thereof . . .
Because the Distributorship Agreement specifies a 24-month term,
renewable for two additional periods of 12 months each, it was
not valid unless there was a writing sufficient to take it out of
the Statute of Frauds.
As a general rule the "in writing" requirement may be satisfied
by a contract comprising two or more writings, only one of which
need be signed by the party to be charged. Corbin, Contracts §
512. California follows that general rule. Walsh v. Standart,
174 Cal. 807, 164 P. 795 (1917); Searles v. Gonzalez, 191 Cal. 426,
216 P. 1003 (1923).*fn3
DP acknowledges that the original Distributorship Agreement is
unsigned by AM but argues that later documents, signed by AM,
constitute a sufficient writing in conjunction with the
original.*fn4 Complaint Exhibit E is a letter from AM to plaintiff,
signed by AM's Vice President-Sales Donald Novak, referring to
"your current Distributor Contract" (quite plainly a reference to
AM's printed form of Distributorship Agreement, Exhibit A, which
DP had signed). Exhibit F, a letter from AM's President Edgar
Bolton to DP, states that AM "fully intends to honor the
agreement we have with your organization." In light of those
exhibits it is somewhat remarkable that AM's memorandum in
response to this Court's request to brief California law lays
heavy stress on Straus v. DeYoung, 155 F. Supp. 215, 219
(S.D.Cal. 1957). Straus distinguished the California Supreme Court
decision in Searles in terms that appear to make the latter case
and not Straus controlling here (the following quotation repeats
the Straus language quoted in AM's memorandum, including its
A memorandum signed by the party to be charged which
forms no part of the contract, but which recognizes
the existence of a contract, is a sufficient
memorandum, and parol evidence is admissible to
establish the same. Searles v. Gonzalez, 191 Cal. 426,
216 P. 1003 (1923).
. . . In [the Searles case] the party to be charged
had not signed any document which formed an integral
part of the contract, but had signed another document
in which he expressly declared and recognized the
existence of a contract. In the instant case, the
three letters signed by DeYoung do not mention or
refer to the oral agreement embodied in exhibits 1 to
4 inclusive. None of said letters incorporates the
oral agreement therein by any internal reference.
None contains any language which indicates or from
which might be inferred an intention on the part of
the Defendants to authenticate or confirm the oral
On a motion to dismiss for failure to state a claim upon which
relief can be granted, this Court must not only accept as true
all well-pleaded allegations in the Complaint but must also
construe those allegations in favor of the party opposing the
motion. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683,
1686, 40 L.Ed.2d 90 (1974). From that perspective, the Court
cannot rule as a matter of law that the Exhibits attached to DP's
complaint do not constitute writings sufficient to avoid the
Statute of Frauds.*fn5
AM next argues that if a valid agreement does exist between the
parties, all of the relief requested by DP involves consequential
damages. Because Paragraph 15.6 of the Distributorship Agreement
contains a waiver of consequential damages, DP is precluded from
recovering them under the contract. DP does not contest the
validity of that provision but rather argues that it is not
requesting consequential damages.
Neither party, however, addresses the more difficult question
whether the injuries alleged in the Complaint should be
classified as consequential, as opposed to direct, damages. For
that reason the Court will deal with the issue only in threshold
and non-definitive terms.
25 C.J.S. Damages § 2 states the concept this way:
Consequential damages are such as are not produced
without the concurrence of some other event
attributable to some origin or cause; such damage,
loss, or injury as does not flow directly and
immediately from the act of the party, but only from
the consequence or results of such act.
This Court has been unable to locate a California case defining
"consequential" damages, but several California courts have
defined the term "special" (as opposed to general) damages, a
term closely related to consequential damages. Monarch Brewing
Co. v. George J. Meyer Manufacturing Co., 130 F.2d 582, 585 (9th
Cir. 1942). "Special" damages were defined in Myers v. Stephens,
233 Cal.App.2d 104, 43 Cal.Rptr. 420, 433 (1965), as:
damages which do not arise from the wrongful act
itself, but depend on the circumstances peculiar to
the infliction of each respective injury.
For purposes of AM's motion it is enough to determine that at
least some of DP's damages might not be classified as
consequential damages. Its complaint alleges:
(a) disruption of DP's day to day business;
(b) prevention of DP's pursuing its sales programs;
(c) prevention of DP's entering into agreements
with potential customers;
(d) loss of profits; and
(e) DP's incurring of expenses in developing
territory, marketing AM's product, training DP's
employees and paying attorneys to preserve its rights
under the contract.
Unquestionably the Distributorship Agreement contemplated DP's
selling of AM's machines for a profit. Alleged damages in the
form of loss of profits and the disruption of day to day
business, for example, could be viewed as flowing directly and
immediately from the breach of the claimed contract; see Myers v.
Stephens (loss of profits held to be general damages).
This Court cannot hold at this time that all of DP's requested
damages are consequential. It remains for future determination
which if any of DP's claims are barred by the contract
Count II: Alleged Tort Liability — The Substantive Law
Both parties have treated the allegations of DP's Count II as
asserting a claim for tortious interference with prospective
economic advantage. That tort requires a showing of:
(a) a reasonable expectation of entering into a
valid business relationship;
(b) defendant's knowledge of that expectation; and
(c) intentional interference by defendant
preventing plaintiff from realizing that expectation.
See Tom Olesker's Exciting World of Fashion, Inc. v. Dun &
Bradstreet, Inc., 16 Ill. App.3d 709, 306 N.E.2d 549
1973), aff'd in part, rev'd in part, 61 Ill.2d 129
334 N.E.2d 160
DP alleges that AM wanted to terminate its distributorships in
order to eliminate competition and take over the direct sales of
its own products; that in furtherance of that desire, AM tried to
coerce DP into signing a new and less favorable sales agency
agreement; that after DP refused, AM denied the validity of the
Distributorship Agreement and threatened its termination, all
with the same coercive purpose; and that AM finally breached the
contract wilfully and maliciously. When those allegations are
distilled to their essence, it appears that the only allegedly
tortious act was the breach of a contract between the parties.
But the tort of intentional interference with prospective
economic advantage requires some action toward a third party that
disrupts an economic relationship of a defendant. As stated in
Parkway Bank & Trust Co. v. City of Darien, 43 Ill. App.3d 400, 2
Ill.Dec. 234, 357 N.E.2d 211 (2d Dist. 1976) (emphasis added):
Although the plaintiffs state in cursory language
that the defendants `intentionally
interfered with plaintiffs' business affairs . . .'
none of the particular acts alleged that the
defendants purposely caused a third person not to
enter into or continue with prospective contractual
One contracting party does not have a cause of action against the
other for conspiring to breach their contract or for wrongfully
interfering with its own contract. Blivas & Page, Inc. v. Klein,
5 Ill. App.3d 280, 286, 282 N.E.2d 210
, 214 (2d Dist. 1972).
DP has not alleged any act of AM directed toward a third party.
Even were DP able to prove that AM's motive in breaching the
contract was to sell directly to DP's customers, under the
Illinois cases that would not constitute the tort of intentional
interference with prospective economic opportunity.
AM's motion under Fed.R.Civ.P. 12(b)(6) for failure to state a
claim upon which relief can be granted is denied as to Count I
and granted as to Count II. AM is ordered to answer Count I on or
before February 6, 1981.