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United States District Court, Northern District of Illinois, E.D

August 3, 1984


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


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 Venezuela. 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 lawsuit ensued.

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
  License Agreement.

    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
  License Agreement.

    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.

Count IV

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 common law.

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 Illinois:

    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 Finally, 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 implicated.

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 by alleging:

  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

Count VII

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 denied.

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