United States District Court, Northern District of Illinois, E.D
September 19, 1983
MAY'S FAMILY CENTERS, INC., PLAINTIFF,
GOODMAN'S, INC., DEFENDANT.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER*fn*
May's Family Centers, Inc. ("May's") has sued Goodman's, Inc.
("Goodman's") for (1) breach of contract and (2) tortious interference
with a business relationship between May's and Zayre Corp. ("Zayre").*fn1
Goodman's moves under Fed.R.Civ.P. ("Rule") 12(b)(6) to dismiss May's
six-count Amended Complaint (the "Complaint")*fn2 for failure to state a
claim upon which relief can be granted. For the reasons stated in this
memorandum opinion and order, each component of Goodman's motion is
Central National Bank of Chicago ("CNB"), legal titleholder to the
Premises,*fn4 leased them to Goodman's in December 1964. Then in
November 1971 Goodman's and CNB, as lessors, leased the premises to
Kankakee Bell Discount Department Store, Inc. ("Kankakee"), which later
assigned that lease as amended (the "Main Lease") to Belscot Department
Stores of Illinois, Inc. ("Belscot of Illinois").*fn5
On June 22, 1978 Belscot of Illinois in turn demised the Premises to
the "Sublease") with Goodman's consent. Sublease ¶ 10 provides:
INCORPORATION BY REFERENCE: The provisions of the
Main Lease are incorporated herein and made part of
this Sublease with the same force and effect as if
set forth at length herein, and this Sublease is
subject and subordinate to all of the terms,
provisions, covenants, undertakings, agreements,
obligations and conditions contained herein.
However, because Goodman's consent had been given in advance by a June 15
letter,*fn6 there is nothing in the record to show Goodman's had any
knowledge of Paragraph 10.
On January 21, 1981 May's (with Belscot's agreement) entered into an
agreement with Zayre (the "Agreement") to assign the Main Lease to Zayre
for $500,000. Almost exactly a year later May's asked Goodman's to
consent to the assignment pursuant to Main Lease § 6.01 ("Section
Lessee will not assign this Lease in whole or in
part, nor sublet all or any part of the leased
premises, without the prior written consent of
Lessor in each instance, which consent shall not be
unreasonably withheld. It shall not be deemed to be
unreasonable for Lessor to refuse consent to a
proposed assignee which does not have a net worth
equal to Belscot's net worth as of the date of the
assignment and which does not have a history of
operating retail discount or department stores in a
manner similar to that of Lessee. The consent by
Lessor to any assignment or subletting shall not
constitute a waiver of the necessity for such
consent to any subsequent assignment or subletting.
This prohibition against assigning or subletting
shall be construed to include a prohibition against
any assignment or subletting by operation of law. If
this Lease be assigned, or if the leased premises or
any part thereof be underlet or occupied by anybody
other than Lessee, or its permitted licensees and
concessionaires, Lessor may collect rent from the
assignee, under-tenant or occupant, and apply the
net amount collected to the rent herein reserved,
but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this
covenant, or the acceptance of the assignee,
under-tenant or occupant as tenant, or a release of
Lessee or any Guarantor from the further performance
by Lessee or any Guarantor of covenants on the part
of Lessee herein contained. Notwithstanding any
assignment or sublease, Lessee or any Guarantor
shall remain fully liable on this Lease and shall
not be released from performing any of the terms,
covenants and conditions of this lease unless Lessor
has consented to said sublease as herein provided.
Nothing contained herein shall prevent Lessee from
granting sublicenses or concessions for the conduct
of any department within Lessee's store as long as
said department is operated as part of Lessee's
store and its gross sales are reported as part of
Goodman's refused such consent even after May's told Goodman's (1) the
Agreement would expire February 6, 1982*fn7
and (2) May's needed the
$500,000 to carry on its retail business.
After the Agreement had already expired, Goodman's did belatedly
consent to May's proposed assignment to Zayre. May's then asked Zayre to
renew its offer. Zayre agreed to do so if May's would deliver Goodman's
consent before April 2, 1982. Some time before April 2 Goodman's
communicated directly with Zayre and led it to believe Goodman's would
not consent. Zayre then refused to negotiate further with May's.
Each of the six counts in the Complaint is premised on that series of
events but alleges a different theory or different damages:
1. Count I alleges breach of the Main Lease,
causing the loss of Zayre's $500,000.
2. Count II asserts $10 million in consequential
damages resulted from that breach (because May's
lost its entire retail business for want of the
3. Count III is like Count I, except that May's
advances the claim as Belscot's agent as well as on
its own behalf.
4. Count IV asserts the same agent-and-principal
theory as Count III and the same $10 million
consequential damages as Count II.
5. Count V charges Goodman's interfered with May's
business relationship with Zayre, causing $500,000
6. Count VI makes the same substantive claim but
asserts $20 million in damages because of May's loss
of its retail business.
Complaint Counts I-IV: Theory of Liability
Counts I through IV all turn on the same issue: Can May's sue to
enforce Section 6.01? Goodman's says May's, as a non-party to the Main
Lease, cannot do so because:
1. May's is not in privity with Goodman's.
2. Nor is May's an intended third-party
beneficiary of the Main Lease.
May's responds to both contentions by asserting:
1. Privity exists because Sublease ¶ 10
incorporated all provisions of the Main Lease, and
Goodman's consented to the Sublease. Indeed
Goodman's admitted such privity exists by asserting
a claim directly against May's in the bankruptey
2. May's is within the class of entities intended
to benefit from Section 6.01. As a third-party
beneficiary it can enforce the Main Lease.
Only one of May's theories need be successful to sustain its claims.
Because the second does the job, this Court need not consider the dubious
Under Illinois law a non-party can sue on a contract only if the
parties intended to benefit that non-party. Carson Pirie Scott & Co. v.
Parrett, 346 Ill. 252, 257, 178 N.E. 498, 501 (1931). Though the contract
need not name the third party specifically, it must sufficiently describe
or designate the non-party. Candlewick Lake Utilities Co. v. Quinones,
82 Ill. App.3d 98, 103, 37 Ill.Dec. 479, 483, 402 N.E.2d 369, 373 (2d
Dist. 1980). Whether someone may sue as a third-party beneficiary depends
on the intent of the parties, determined on a case-by-case basis.
Securities Fund Services, Inc. v. American National Bank and Trust Co. of
Chicago, 542 F. Supp. 323, 329 (N.D. Ill. 1982).
Application of those principles to the present case brings May's
squarely under the mantle of Section 6.01 as an intended beneficiary of
Goodman's promises. By its specific terms Section 6.01 contemplated the
possibility of successive assignments or sublettings:
1. It expressly negated any one consent as "a
waiver of the necessity for such consent to any
subsequent assignment or subletting."
2. Most significantly, Goodman's express
contractual undertaking in favor of the proposed
assignor ("consent shall not be unreasonably
withheld") is also expressly made applicable to
every proposed assignment ("prior written consent of
Lessor [Goodman's] in each instance").
Goodman's direct contemplation of successive assignments, coupled with
its direct promise as to each such assignment,*fn8
distinguishes this case from Goodman's effort to rely on such cases as
Slate Printing Co. v. Metro Envelope Co., 532 F. Supp. 431
(N.D.Ill. 1982)(where this Court held a mere assertion the supplier knew
the manufacturer intended to sell the product did not make the buyer an
intended third-party beneficiary).
Thus May's has alleged the facts required under Rule 12(b)(6) standards
to state a claim as an intended third-party beneficiary of Section 6.01.
That sustains the Complaint's first four counts in terms of liability,
but it remains necessary to examine the sufficiency of the added damage
claims of the even-numbered among those counts.
Complaint Counts II and IV: Consequential Damages
Counts II and IV seek consequential damages*fn9 based on Goodman's
alleged violation of Section 6.01. That claim is based on May's having
told Goodman's the Agreement would expire February 6, 1982 and the Zayre
$500,000 "was necessary to enable May's to continue to carry on its
retail business" (Count II ¶ 11 and Count IV ¶ 12). Goodman's
counters such knowledge of possible consequential damages has to be
communicated at the time the contract (in this case the Main Lease) was
entered into, not at some later date when the situation arises.
Unfortunately neither party has really addressed the conceptual
underpinnings that should be examined to decide the question.
To recover consequential damages based on lost profits, May's would
ordinarily have to prove (1) the fact and amount of the loss with a
reasonable degree of certainty, (2) Goodman's wrongful act caused the
loss and (3) the profits were reasonably within the contemplation of
Goodman's when the contract was entered into. Student Transit Corp. v.
Board of Education of the City of Chicago, 76 Ill. App.3d 366, 369-70, 32
Ill.Dec. 122, 124, 395 N.E.2d 69, 71 (1st Dist. 1979). Both elements (1)
and (2) are adequately asserted by the Complaint (given Rule 8's notice
pleading approach). What remains for decision is whether the third
component is applicable to a situation like that presented here.
Hadley v. Baxendale and its progeny proceed from the premise a party
cannot fairly be saddled with the "costs of untoward consequences of a
course of dealing" unless there is real "foreseeability of harm." EVRA
Corp. v. Swiss Bank, 673 F.2d 951, 957, 959 (7th Cir. 1982). In economic
terms the need for notice before formation of the contract is to enable
the risk-taker to build the cost of that risk into the price for its
goods or services. 11 Wihiston, Contracts § 1357, at 295 (3d ed.
1968); cf. 5 Corbin, Contracts § 1008, at 74-75 (1964).
Somehow the general goods-and-services rule does not appear to fit
here, at least at the threshold pleading stage. In the very different
situation posed by this case, this Court's Erie function is not simply to
parrot the conventional formulation from Illinois cases on which Goodman's
relies. EVRA put it well, 673 F.2d at 956:
As so often in diversity cases, there is an
irreducible amount of speculation involved in
attempting to predict the reaction of a state's courts
to a new issue. The best we can do is to assume that
the Illinois courts would look to the policies
underlying cases such as Hadley and Siegel [v. Western
Union Tel. Co., 312 Ill. App. 86, 37 N.E.2d 868
(1941)] and, to the extent they found them pertinent,
would apply those cases here.
As an original matter, the reasons that support the requirement of
notice when the contract was formed do not necessarily operate here.
After all the Main Lease's "not unreasonably withhold consent" clause
does not normally have a price
attached to it.*fn10
On this Rule 12(b)(6) motion, Goodman's as lessor
has advanced nothing to show any unfairness in its having to bear risks
that were, after all, identified before it was required to act on the
request for consent. And Section 6.01 may perhaps be viewed in the same
way as an ongoing offer by Goodman's as lessor — an offer that
ripens into a contract whenever the current lessee seeks consent to a new
As our Court of Appeals said in EVRA, 678 F.2d at 957:
[T]he animating principle of Hadley v. Baxendale
. . . is that the costs of the untoward consequence
of a course of dealings should be borne by that
party who was able to avert the consequence at least
cost and failed to do so.
That would seem to point to Goodman's rather than May's at this point in the
lawsuit (with May's having the benefit of all favorable inferences).*fn11
When this Court becomes better informed in factual terms farther into the
litigation, perhaps the result may change. For the present, however, Counts
II and IV survive.
Complaint Counts III and IV: May's as Belscot's Agent
May's has alleged it acted as Belscot's agent (Count III and Count IV
¶¶ 5-7) in attempting to procure Goodman's consent to the Zayre
assignment. Goodman's moves to dismiss that claim because the alleged
principal, Belscot, has released all claims against Goodman's.*fn12 May's
retorts its agency is coupled with an interest and was thus not revocable
by Belscot's settlement of its own claims.*fn13
Although the Complaint does not allege specific facts in support of its
theory, it does allege May's was an agent. Under Rule 12(b)(6)
standards, May's is entitled to a chance to prove any set of facts that
would uphold the agency-coupled-with-an-interest relationship.*fn14
Mathers Fund, 564 F.2d at 783. Thus Counts III and IV also withstand
Goodman's motion to dismiss based on the Belscot release.
Complaint Counts V and VI: Tortious Interference
Initially Goodman's argued Counts V and VI of the original complaint
failed to state a claim for tortious interference with contractual
relationships. May's has now shifted (by its Complaint amendment) to
allegations of tortious interference with its business relationship with
Zayre. This opinion of course deals with the revised claims.
May's has pleaded facts providing the elements of such a cause of
1. May's reasonable expectancy of entering into a
business relationship with Zayre (Counts V and VI
¶¶ 4, 8);
2. Goodman's knowledge of that expectancy
(Counts V and VI ¶¶ 5, 9);
3. Goodman's intentional interference that
prevented the expectancy from ripening (Counts V and
VI ¶ 9); and
4. May's damages as a result of Goodman's
action (Counts V and VI ¶ 11).*fn15
See Woerner v. Brzeczek, 519 F. Supp. 517
, 523 (N.D.Ill. 1981). Counts V
and VI also survive attack at the pleading stage.
As this opinion has made plain, it does not necessarily represent the
final word on the subject in some respects. But at least for the
present, Goodman's motion to dismiss is denied in its entirety. Goodman's
is ordered to answer the Complaint on or before September 30, 1983.