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AMERICAN SOC., ETC. v. MURRAY COMMUNICATIONS

August 23, 1982

THE AMERICAN SOCIETY OF CONTEMPORARY MEDICINE, SURGERY & OPHTHALMOLOGY, PLAINTIFF,
v.
MURRAY COMMUNICATIONS, INC., OPHTHALMOLOGY TIMES, INC. AND DAVID L. MURRAY, DEFENDANTS.



The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff, The American Society of Contemporary Medicine, Surgery & Ophthalmology ("the Society"), brought this five-count diversity action against defendants, Murray Communications, Inc. ("Murray Communications"), David L. Murray ("Murray") and Ophthalmology Times, Inc. ("Times, Inc."), to recover damages arising from Murray Communications' alleged breach of contract in publishing two of the Society's scholarly journals, Glaucoma and Annals of Ophthalmology ("Annals"). The Society also alleges that its contract with Murray Communications to publish the journals was induced by defendants' fraud. Defendant Murray Communications has answered the complaint and asserted a variety of counterclaims against the Society and counterdefendants, Dr. Randall T. Bellows and Dr. John G. Bellows ("the Bellows"). Presently before the Court are the Society's motions for summary judgment on Count I and judgment for liability on Count III of the complaint as well as dismissal of the third, fourth and fifth counterclaims.*fn1 Murray Communications has moved to dismiss Counts IV and V of the complaint.*fn2 This Court will address these motions in seriatim.

I. Motion For Summary Judgment on Count I

The contract executed between the Society and its publisher Murray Communications in July, 1979, provided that Murray Communications share with the Society 50 percent of subscription revenues obtained from subscribers other than "controlled circulation ophthalmologists,"*fn3 20 percent of all reprint revenue and up to 20 percent of advertising revenues. Contract, ¶¶ 7, 9.2, 9.3, 9.4, 9.6. Count I of the Society's complaint, based upon "[a] preliminary audit of defendant Murray Communications' books[,]" seeks recovery of at least $38,713, plus interest, in unpaid subscription, reprint and advertising revenues due the Society under these terms. Murray Communications, while not challenging the results of the audit as such or the Society's interpretation of the contract, argues that summary judgment on this claim is premature because the five counterclaims asserted in this case seek to recover from plaintiffs and counterdefendants an amount well in excess of that sought in Count I of the complaint. That the Society's liability under a variety of independent claims ultimately might reduce or eliminate the defendants' net liability in this case does not, however, raise a genuine issue of fact material to resolution of Count I.

On the other hand, the third counterclaim advanced by Murray Communications alleges, inter alia, that the Society and the Bellows fraudulently concealed more than $70,000 in subscription revenues obtained from subscribers other than controlled circulation ophthalmologists.*fn4 In his affidavit opposing summary judgment, David Murray makes clear that up to 1,200 of these hidden subscribers were ophthalmologists living outside of the United States and various institutions in the United States. Murray Affidavit, ¶ 23. Under the contract, those revenues should have been split evenly with Murray Communications. Contract, ¶¶ 9.2, 9.3. Because the amount of subscription revenues due each party under the contract remains a genuine issue of material fact, summary judgment on this count must be denied.

II. Motion for Summary Judgment on Liability on Count III

Paragraph 3.3 of the contract provides that "[Murray Communications] agrees to publish at least 1,300 editorial pages per year in [Annals] and at least 300 editorial pages in [Glaucoma]." Count III of the Society's complaint seeks to recover $238,000 from defendants for Murray Communications' alleged failure to publish the required number of editorial pages in either journal. Although Murray Communications does not dispute the shortfall, the defendant argues that its limited publication did not breach the parties' agreement because the parties intended that the minimum page requirement would take effect only after a sufficient amount of advertising could be generated to account for 45 percent of the total number of pages published. Murray Affidavit, ¶ 5. Contract, ¶ 3.3. The lack of available advertising, defendant asserts, excuses the shortfall in the number of editorial pages published.

Although the contract does not, on its face, reflect the intention asserted by Murray Communications, it is clear under Illinois law that extrinsic evidence is admissible in order to determine whether the parties' written agreement is as complete and unambiguous as it appears and whether the parties intended the instrument to be controlling under all circumstances. Ortman v. Stanray Corp., 437 F.2d 231, 235 (7th Cir. 1971); Keep Productions, Inc. v. Arlington Park Towers Hotel Corp., 49 Ill. App.3d 258, 7 Ill.Dec. 648, 652, 364 N.E.2d 939, 943 (1st Dist. 1977). Taking the extrinsic evidence submitted by Murray Communications into account, the Court holds that the defendant's failure to publish the number of pages delineated in the agreement does not, as a matter of law, establish a breach of contract. Moreover, Murray Communications' affirmative defenses to this claim raise a variety of factual issues which cannot be resolved on this record.*fn5 Accordingly, the Society's motion for summary judgment on Count III will be denied.

III. Motion to Dismiss Count IV of the Complaint

Count IV of the complaint alleges that Murray Communications damaged the Society's good will and the reputation and standing of its scholarly journals by wilfully and maliciously publishing and distributing Annals and Glaucoma in a materially substandard manner. Complaint, ¶ 8. The Society seeks to recover punitive as well as compensatory damages as the result of defendant's conduct. Murray Communications has moved to dismiss this count on the ground that the Society is merely "attempting to create a tort cause of action out of an alleged breach of contract by pleading that the breach was willful and malicious. . . ." Motion to Dismiss, ¶ 3.

The principle is well established in Illinois that a party suing for conduct amounting to a breach of contract is entitled only to compensatory damages. Hayes v. Moynihan, 52 Ill. 423, 426 (1869); Hutchinson v. Brotman-Sherman Theatres, Inc., 94 Ill. App.3d 1066, 1078-79, 50 Ill.Dec. 422, 419 N.E.2d 530 (1981). Punitive damages are recoverable only when the breach constitutes an independent and wilful tort accompanied by fraud, malice, wantonness or oppression. Garman v. New York Life Insurance Co., 501 F. Supp. 51, 53 (N.D.Ill. 1980); McGrady v. Chrysler Motors Corp., 46 Ill. App.3d 136, 141, 4 Ill.Dec. 705, 360 N.E.2d 818 (4th Dist. 1977). See also Restatement (Second) of Contracts, § 355 (1979). Although the conduct of which the Society complains in Count III may support a claim for breach of contract, that conduct also states an independent claim for recovery under a tort theory. The Society alleges, in essence, that by its poor workmanship, Murray Communications deliberately interfered with the Society's business and professional relationships with its contributors, members, subscribers, donors and advertisers. In this respect, the Society's claim is akin to cause of action for an intentional interference with a prospective business opportunity.*fn6 Cf. City of Rock Falls v. Chicago Title & Trust Co., 13 Ill. App.3d 359, 363, 300 N.E.2d 331 (3d Dist. 1973). That the same conduct may also constitute a breach of contract should not deprive the Society of the opportunity to seek punitive damages for conduct Illinois law regards as tortious. Accordingly, the defendants' motions to dismiss Count IV will be denied.

IV. Motion to Dismiss Count V of the Complaint

In Count V of its complaint, the Society alleges that at the time of negotiating the contract, the defendant Murray fraudulently misrepresented to plaintiffs that Murray Communications owned a variety of successful professional journals including Ophthalmology Times and Urology Times. Complaint, ¶¶ 8, 9. Contract, ¶ 19. In fact, the Society later learned,*fn7 these publications are owned by separate corporations founded by Murray and operated from Murray Communications' office in New York. Murray purportedly misrepresented the ownership of these other journals in an effort to induce the Society to enter into the contract at issue in this case. The Society alleges that it relied to its detriment on Murray's misrepresentation by entering into the contract with what plaintiff believed to be "a substantial enterprise" capable of satisfying any foreseeable damage claim which might result from a breach of contract involving Murray Communications. Based on these allegations, the Society seeks to hold defendants Murray and Times, Inc. jointly and severally liable for the breach of contract and tortious conduct alleged in Counts I through IV. Defendants have moved to dismiss Count V.

The Society's claim is conceptually defective. Under Illinois law, a plaintiff seeking to assert a claim for fraudulent misrepresentation must allege that the defendant knowingly made a false representation of material past or existing fact intended to induce the recipient to take affirmative action and that the recipient suffered injury as the result of his reasonable reliance on that representation. Merit Insurance Co. v. Colao, 603 F.2d 654, 658-59 (7th Cir. 1979), cert. denied, 445 U.S. 929, 100 S.Ct. 1318, 63 L.Ed.2d 763 (1980); Soules v. General Motors Corp., 79 Ill.2d 282, 286, 37 Ill.Dec. 597, 402 N.E.2d 599 (1980). In the present case, although the Society alleges that it was induced to enter this agreement by reason of Murray's misrepresentation, the injury of which plaintiff complains does not stem from the agreement itself. The Society has not alleged and this Court cannot infer from the complaint that Murray Communications' purportedly substandard performance under the contract was caused by or otherwise related to Murray's misrepresentation. Rather, the Society's alleged injury stems from Murray Communications' likely inability to satisfy a future judgment arising from the defendants' performance under the contract. ...


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