United States District Court, Northern District of Illinois, E.D
August 3, 1984
NEWMAN-GREEN, INC., ET AL., PLAINTIFFS,
ALEJANDRO ALFONZO-LARRAIN R., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
On April 23, 1984 Newman-Green, Inc. ("NGI") moved, pursuant
to various subparts of Fed.R.Civ.P. ("Rule") 12, against each
count of the Amended Counterclaim ("Counterclaim," for
convenience) brought by intervenor-defendant Newman-Green de
Venezuela ("NGV"). This Court's oral bench ruling that day:
1. denied NGI's motion as to five of the
Counterclaim's seven counts and
2. set for briefing NGI's Rule 12(b)(6)
challenge to the remaining two counts.
For the reasons stated in this memorandum opinion and order,
NGI's motion to dismiss Counterclaim Count IV is granted and
its motion to dismiss Counterclaim Count VII is denied.
This litigation's underlying dispute concerns efforts by all
parties to distribute NGI's product, aerosol valves, in
NGV was formed by the other defendants in this action to
manufacture and sell NGI aerosol valves in Venezuela. NGV
entered into a "License Agreement" with NGI that included a
promise by NGI to supply NGV with materials and expertise. For
reasons as to which plaintiffs' current Amended Complaint
("Complaint") and the Counterclaim do not entirely agree,
NGV's purpose was never carried out and it was forced to close
its operation after various losses had been incurred. This
Plaintiffs' Complaint comprises three counts:
1. In Count I NGI sues NGV's shareholders for
breach of an alleged guaranty agreement imposing
limited liability on them if NGV breaches its
2. In Count II NGI sues NGV itself for the
price of parts and equipment ordered from NGI and
delivered to NGV but never paid for.
3. In Count III NGI's affiliate Arnel, Inc.
("Arnel") sues NGV for breach of an equipment
lease (which NGV claims was in substance an
installment sale contract).
NGV's Counterclaim, directed exclusively against NGI,
alleges NGI breached the License Agreement and warranties
(Counts I and II), defrauded NGV in violation of state and
federal law (Counts III-V) and interfered with NGV's business
relations (Counts VI and VII). Because all the other counts
survived NGI's Rule 12 attacks in this Court's April 23 oral
ruling, only Counts IV and VII are now at issue:
1. Count IV alleges NGI violated Illinois'
Consumer Fraud and Deceptive Business Practices
Act (the "Act," Ill.Rev.Stat. ch. 121 1/2, ¶¶
261-272) by fraudulently inducing NGV to enter into
the License Agreement. NGV's theory is akin to
promissory fraud: NGI's allegedly false statements
were to the effect it would adequately perform the
2. Count VII alleges NGI interfered with an
advantageous business relationship between NGV
and Arnel by causing Arnel to declare NGV in
breach of the equipment lease (sued on in
Complaint Count III) after an inadvertent failure
by NGV to make a payment.
Act § 2 (Ill.Rev.Stat. ch. 121 1/2, ¶ 262) by its terms
covers "[u]nfair methods of competition and unfair or deceptive
acts or practices" without any express limitation. However that
section goes on to say:
In construing this section consideration shall be
given to the interpretations of the Federal Trade
Commission and the federal courts relating to
Section 5(a) of the Federal Trade Commission Act.
Thus Illinois' Act is a "little FTC Act." Consequently,
although Illinois courts are not bound by federal level
decisions, they have construed the Act with reference to those
decisions. See Fitzgerald v. Chicago Title & Trust Co., 46 Ill. App.3d 526,
5 Ill.Dec. 94, 361 N.E.2d 94
(1st Dist. 1977).
NGI argues the Act was not intended to reach isolated
breaches of contract, such as the one asserted here, between
parties neither of which is a consumer. NGI suggests if the
Act did reach such garden variety breaches of contract, it
would effectively supplant Illinois' common law of contracts
and fraud, because it permits recovery more readily than that
law in at least two respects:
1. Illinois courts have applied the Act to
provide "broader consumer protection than does
the common law of fraud," making actionable in
that area "innocent misrepresentations,"
including "false promises" not pertaining to
"existing material facts." See Duhl v. Nash Realty
Inc., 102 Ill. App.3d 483, 495, 57 Ill.Dec. 904,
914, 429 N.E.2d 1267, 1277 (1st Dist. 1981).
2. Act § 10a(c) (Ill.Rev.Stat. ch. 121 1/2, ¶
270a(c)) permits the court to award attorneys' fees
to the prevailing party.
So, NGI contends, while the Act may have been "a decisive move
on the part of the Illinois legislature to enact broad
protective coverage of consumers" (Duhl, 102 Ill. App.3d at
495, 57 Ill.Dec. at 914, 429 N.E.2d at 1277, emphasis
supplied), the legislature could not have intended it to apply
to this case between businessmen, or by implication it would
have replaced (and made more lenient) all contracts and fraud
NGV responds the Illinois General Assembly has done exactly
what NGI claims it could not have intended to do, for it
passed an amendment effective October 1, 1973 extending
standing to sue under the Act to "businessmen" as well as
"consumers and borrowers." See People ex rel. Scott v. Cardet
International, Inc., 24 Ill. App.3d 740, 746, 321 N.E.2d 386,
391 (1st Dist. 1974). Thus it accepts NGI's reductio ad
absurdum at face value, rather than attempting to explain how
NGV's own claim might be actionable while other everyday breach
of contract and fraud claims are not.*fn2
But there is considerable evidence the Act's 1973 amendment
did not effect a replacement of Illinois' common law of
contracts and fraud, as did the Field Code for California's.
Cases applying the Act, while giving it broad scope, have
framed its purpose and reach in terms of "broader consumer
protection." See, e.g., Duhl, 102 Ill. App.3d at 495, 57
Ill.Dec. at 914, 429 N.E.2d at 1277. And courts faced with
simple breach of contract claims between businessmen have
always denied recovery under the Act. See, e.g., Exchange
National Bank v. Farm Bureau Life Insurance Co., 108 Ill. App.3d 212,
215-16, 63 Ill.Dec. 884, 887, 438 N.E.2d 1247, 1250
(3d Dist. 1982).*fn3 In short, Illinois case law teaches the
Act does not extend to all common law contract and fraud
actions, so the question remaining is whether this action has
characteristics bringing it within the reach of the Act.
Frahm v. Urkovich, 113 Ill. App.3d 580, 69 Ill.Dec. 572,
447 N.E.2d 1007 (1st Dist. 1983), in holding the Act does not apply
to sales of services by lawyers, spoke to the Act's
availability to redress fraud and breach of contract in
general. Citing Exchange National Bank and Evanston Motor Co.
v. Mid-Southern Toyota Distributors, 436 F. Supp. 1370 (N.D.Ill.
1977), Frahm, 113 Ill. App.3d at 585-86, 69 Ill. Dec. at 576,
447 N.E.2d at 1011 stated:
Lastly, we do not interpret the liberal
construction requirements to mean that liability
under the Act is completely open-ended. Rather,
we believe that the Act is intended to reach
practices of the type which affect consumers
generally and is not available as an additional
remedy to redress a purely private wrong.
That passage indicates there might be two ways in which
Illinois courts could restrict the Act's application to simple
tort and contract actions: by a "public injury" requirement or
by a requirement that defendant's
conduct "affect consumers generally."
Any "public injury" requirement is not uniformly applied in
1. M & W Gear Co. v. AW Dynamometer, Inc.,
97 Ill. App.3d 904, 913-14, 53 Ill.Dec. 721, 730,
424 N.E.2d 356, 365 (4th Dist. 1981) expressly rejected
such a prerequisite.
2. Frahm cited with approval Evanston Motor,
which found such a requirement does exist.
Were that difference in approach viewed as a direct conflict,
it would place this Court in Frahm's corner.*fn4
Moreover M &
W Gear may have rested on an unnecessarily broad ground, for
instead of holding there is no "public injury" requirement it
could have held deceptive advertising as shown in that case
gives rise to a conclusive presumption of public injury. See
Evanston Motor, 436 F. Supp. at 1374-75 n. 6.*fn5
Judge McGarr's brief treatment of the issue earlier this week
in Overland Bond & Investment Corp. v. Mahoney, No. 82 C 2283,
slip op. at 12-13 (N.D.Ill. July 30, 1984) does not consider
either Frahm or the weaknesses of M & W Gear's
analysis. Thus if this Court had to resolve the issue now, it
would not be prepared to follow M & W and Overland
automatically. More extended analysis would be necessary.
This decision need not however rest on any "public injury"
prerequisites, because another fatal flaw defeats Count IV:
Under the Act an effect on consumers generally is required,
and none is present here. Frahm referred to "practices of the
type which affect consumers generally," while Exchange National
Bank, 108 Ill. App.3d at 216, 63 Ill.Dec. at 887, 438 N.E.2d at
1250 required defendants' "practices to be part of a pattern of
defendants' . . . activities." However the requirement is
worded, plaintiff must show defendant has engaged in deceptive
practices in promoting its goods or services to its market in
general. For example, a single course of deceptive conduct by a
defendant toward a plaintiff was not enough in Exchange
National Bank because consumer protection concerns were not
That concept is not at all inconsistent with the
legislature's 1973 expansion of the Act: Certainly a fair
reading of the amendment is that the General Assembly simply
intended to grant businessmen standing to sue to redress
competitive injury they suffer when other businessmen deceive
customers.*fn6 It stretches things impermissibly to infer the
amendment reflected a specific intent to treat businessmen
as direct "consumer"-type beneficiaries of the Act.
NGV's allegations cannot be read to accuse NGI of a pattern
of deceptive activities in its market.*fn7 NGV Mem. 9 argues
Counterclaim ¶ 57 meets the "pattern of activities" requirement
The foregoing misrepresentations were made by NGI
as part of a scheme or artifice to defraud
NGV. . . .
This opinion has already made clear a scheme to defraud a
single entity in a single course of dealing does not amount to
a "pattern" of deceptive activities. NGV's Counterclaim Count
IV must be dismissed without prejudice.*fn8
Counterclaim Count VII sounds in tortious interference with
advantageous business relations. NGI argues NGV cannot
complain NGI caused Arnel to break business relations with NGV
because, once NGV failed to make a payment under its equipment
lease, NGV no longer had any enforceable contract with Arnel.
This Court has recently dealt with a similar argument in
Haupt v. International Harvester Co., 582 F. Supp. 545, 548-49
(N.D.Ill. 1984). Haupt, 582 F. Supp. at 548 (along with cases
cited therein) teaches:
Illinois law has long recognized not only the
conventional tort of interference with contract
rights but the related tort (with less stringent
proof requirements) usually labeled interference
with advantageous relationships or with business
relationships or expectancies.
This Court went on to say it is permissible for a plaintiff
(here counterplaintiff) to sue under the related tort of
tortious interference with advantageous relations even when
the asserted interference was with an unenforceable contract,
so long as it can show the party with whom it had contracted
would have been willing to continue to perform the contract if
not for the defendant's tortious interference. NGV's pleadings
do not negate the possibility of such a showing. NGI's motion
against Counterclaim Count VII is denied.*fn9
NGI's Rule 12(b)(6) motion to dismiss Counterclaim Count IV
is granted and that count is dismissed without prejudice. Its
Rule 12(b)(6) motion to dismiss Counterclaim Count VII is