The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Newman-Green, Inc. ("NGI") has charged Newman-Green de
Venezuela ("NGV") and NGV shareholders Alejandro
Alfonzo-Larrain R., Irene Larrain de Caplan, Rafael Tudela,
Alberto Tudela and William Bettison (collectively
"Guarantors"*fn1) with violations of various agreements
involving NGV's manufacture and sales in Venezuela of NGI's
patented aerosol valves. Guarantors now move under
Fed.R.Civ.P. ("Rule") 56 for summary judgment as to Count I of
NGI's Amended Complaint. For the reasons stated in this
memorandum opinion and order, their motion is denied.
NGI, an Illinois corporation, has manufactured and sold
patented aerosol valves for at least 30 years (NGI President
Edward H. Green, Sr. Affidavit ["Green Aff."] ¶ 1). During the
early 1970's NGI developed a business relationship with
Guarantors out of a mutual desire to organize a Venezuelan
company to manufacture and sell Newman-Green aerosol valves in
Venezuela under an exclusive license from NGI. NGV was thus
born. NGI owns 25% of NGV's capital stock, and Guarantors own
the rest either directly or indirectly.
Following negotiations in both Illinois and Venezuela
(Pl.Mem. 4), on June 13, 1974 NGI and NGV entered into a
License Agreement (Def.EX. A). Because of
then-recently-enacted Venezuelan legislation, the parties
recognized the License Agreement would not become enforceable
unless and until it was approved by SIEX, an administrative
arm of the Venezuelan government (see Pl.Ex. A). NGV and
Guarantors did not want to delay commencement of operations
until approval was obtained (in which respect the lack of any
SIEX track record made the timetable uncertain), while NGI was
unwilling to risk any sale of its machinery or any provision
of know-how to NGV absent further contractual assurances
(Green Aff. ¶ 4). That gap was bridged by NGV's and Guarantors'
tendering of two additional letter agreements:
1. NGV's Confidentiality Agreement (App. A)
ensuring protection of NGI's trade secrets; and
2. Guarantors' Guaranty Agreement (App. B)*fn2
ensuring payment of royalties to NGI.
Both agreements were executed July 11, 1974. NGV president
Alberto Tudela had drafted the Confidentiality Agreement,
while it appears NGI attorney Perry Carvellas (Def.R.Mem. 9)
had drafted the Guaranty Agreement.
After the Confidentiality Agreement and Guaranty Agreement
were signed, NGI began performance by:
1. selling NGV valve-assembly machinery and
valve components; and
2. providing technical training and assistance
to NGV, both at NGI's Illinois plant and NGV's
NGV began manufacturing and selling aerosol valves July 1,
1975. Between 1975 and 1980 NGV's sales revenue from the
valves exceeded $7 million.
SIEX never approved the License Agreement. In December 1977
SIEX indicated it would do so with substantial modifications
(Def.Ex. 4), but NGI found the changes unacceptable and they
were never made.
Despite its large sales volume, NGV never made any royalty
payments to NGI. NGV apparently created a reserve fund for
that purpose (Def.Ex. 5), but largely because of the SIEX
problem the parties never worked out a mutually acceptable and
legal way to transfer the funds to NGI (Def.Exs. 5, 7, 8).
On January 25, 1979 NGI terminated and withdrew the
still-unapproved License Agreement and also terminated its
relationship with NGV. NGV continued to manufacture and sell
the aerosol valves until May 1980. Because NGI never received
royalty payments from NGV, NGI demanded royalty payments of
approximately $350,000 from Guarantors pursuant to the
Guaranty Agreement. Guarantors have refused, and NGI seeks
enforcement of that obligation in Count I.
Guarantors' summary judgment theory is that Venezuelan law
controls the validity of the Guaranty Agreement and renders it
unenforceable.*fn3 NGI has not disputed the outcome under
Venezuelan law, contending instead that Illinois law applies
and renders the Guaranty Agreement enforceable.
Summary Judgment Considerations
Rule 56 requires this Court to view the underlying facts in
the light most favorable to NGI. Hermes v. Hein, 742 F.2d 350,
353 (7th Cir. 1984). As movants, Guarantors have the burden of
showing there is no genuine issue of material fact. Egger v.
Phillips, 710 F.2d 292, 296 (7th Cir. 1983). It is an
understatement to say they have failed to meet that burden.
Guarantors are entitled to summary judgment only if they
establish one of two results as a matter of law:
1. Under applicable choice-of-law rules,
Venezuelan law controls (and negates)
enforceability of the Guaranty Agreement.
2. If instead Illinois law controls, it
similarly renders the Guaranty Agreement
As this opinion will reflect, however, each of those
propositions ultimately depends on the intention of the
parties to the Guaranty Agreement.
Under applicable Illinois law*fn4 the question of intent
(except, of course, as intent may be manifested by an
unambiguous contract) is an issue of fact. Graebe v. Graebe,
95 Ill. App.3d 1144, 1150, 51 Ill. Dec. 537, 542, 420 N.E.2d 1095,
1100 (5th Dist. 1981). And on that score analysis demonstrates
that precisely the opposite of what Guarantors must prove is
true: Either (1) the choice of law and the type of guaranty
expressed in the Guaranty Agreement both favor NGI's position
as a matter of law or (2) a fortiori there are genuine issues
of material fact as to both those subjects.
In this diversity action Klaxon Co. v. Stentor Electric
Manufacturing Co., 313 U.S. 487, 496-98, 61 S.Ct. 1020,
1021-22, 85 L.Ed. 1477 (1941) requires this Court to look to
Illinois' conflict-of-laws rules. One such rule permits parties
to a contract to specify the law applicable to
their agreement. Hofeld v. Nationwide Life Insurance Co.,
59 Ill.2d 522, 529, 322 N.E.2d 454, 458 (1975). Only when parties
fail to make a valid choice of law do courts apply the
traditional conflict-of-laws rules or engage in the "most
significant contacts" analysis of the Restatement (Second) of
Conflict of Laws ("Restatement") § 188 (1971).
Each of the three agreements involving NGI, NGV and
Guarantors contains a choice-of-law provision, and each
prescribes Illinois law:
1. License Agreement § XXIII: "This agreement
shall be construed under the laws of the State of