United States District Court, Northern District of Illinois, E.D
October 4, 1985
THE COCA-COLA COMPANY FOODS DIVISION, A DELAWARE CORPORATION, PLAINTIFF,
OLMARC PACKAGING COMPANY, AN ILLINOIS CORPORATION, DEFENDANT. OLMARC PACKAGING COMPANY, AN ILLINOIS CORPORATION, COUNTERPLAINTIFF, V. THE COCA-COLA COMPANY FOODS DIVISION, A DELAWARE CORPORATION, COUNTERDEFENDANTS.
The opinion of the court was delivered by: Norgle, District Judge.
Plaintiff, Coca-Cola Foods ("FOODS") sued Defendant, Olmarc
Packaging Company ("OLMARC") for breach of contract. Foods filed
a single count complaint. Olmarc answered and pleaded two
affirmative defenses, along with two counterclaims. Foods' motion
to strike the affirmative defenses and dismiss the counterclaims
is the subject matter of this Order. For the following reasons,
Foods' motion is granted in part and denied in part.
In early 1977 Foods and Olmarc entered into a Packing Agreement
("AGREEMENT"). Essentially Olmarc agreed to mix, package, store
and ship dry powdered drink bases received from Foods in return
for payment from Foods in accord with a set "Fee Schedule." The
Agreement required Foods to furnish Olmarc with instructions and
specifications for Olmarc's performance.
In addition to Olmarc's packaging and shipping obligations
under the contract, Paragraph 8 required payments for certain
losses and shortages of materials provided by Foods. Paragraph
[Olmarc] shall . . . be responsible for all packing
supplies and all other property of [Foods] in its
(Olmarc's) care, custody or control and shall be
responsible to and . . . reimburse [Foods] for any
unauthorized usage or any unaccounted for or
unauthorized losses or shortage of . . . packing
materials, finished products and property or for
damages [to them], regardless of the cause . . . [for
such] shortage or damage. At the end of each month or
such other manufacturing period as may be established
by [Foods] . . . [Foods] will furnish . . . [Olmarc]
a schedule showing the authorized usage of . . .
supplies based upon the quantity of powders packed
and the Manufacturing Specification [sic] for powders
as from time to time amended in writing by [Foods],
[Olmarc] shall promptly reimburse [Foods] for any
unauthorized usage, losses, variances, shortages or
damages to packing supplies, and other property . . .
in . . . [Olmarc's] . . . control.
Paragraph 5 of the Agreement required Olmarc to make certain
reports to Foods "in such forms as [Foods] may from time to time
request, including weekly reports showing packing supplies
received and . . . used and inventories of packing supplies and
daily reports of powders packed and . . . shipped and powders on
Further, Olmarc was required to make periodic reports to Foods
("Daily report of Hi-C DM and MMC," "Weekly Co-Packer Production
and Inventory Report") in accord with the "Co-Packers Accounting
Procedures Manual." Based on the various reports submitted by
Olmarc and its own annual inventory, Foods calculated Olmarc's
"actual performance" and billed or credited Olmarc for
"authorized or unauthorized usage, losses, variances, shortages
and damages." Complt at 5.
Foods determined Olmarc had "unfavorable usage variations,
and physical inventory shortages" totalling $92,829.29 for the
period January through December, 1981. Further variations
shortages and damaged goods were found for the period December,
1981 through December, 1982 ($38,309.96 and $329.19). The
Agreement was terminated in January of 1983. Thereafter Foods
billed Olmarc for "net unfavorable usage variations, physical
inventory shortages and damages" ($10,432.11) and for 5,500
"pallets" which were unaccounted for by Olmarc ($24,700.00).
Foods has repeatedly requested a total payment of $166,649.55
from Olmarc. Olmarc has repeatedly refused to pay Foods.
In its Answer Olmarc generally denies it is in breach of the
Agreement and raises two affirmative defenses (estoppel and
changed conditions) as well as two counterclaims (promissory
estoppel and fraud by omission). Before the Court at this time
is a motion by Foods to strike the affirmative defenses and to
dismiss the counterclaims.
I. AFFIRMATIVE DEFENSES
Ruling on Foods' attack of Olmarc's affirmative defenses
requires a three part analysis.
1) Is the alleged "affirmative defense" really an
affirmative defense, or is it simply a mistitled
denial already contained in the answer?
2) If the matter is properly designated an
affirmative defense, is it adequately pleaded under
the Federal Rules of Civil Procedure (e.g.,
Fed.R.Civ.P. 8 and 9)?
3) Finally, is the affirmative defense legally
sufficient under the standard identified in
See Instituto Nacional de Commercializacion Agricola v.
Continental Illinois National Bank & Trust Co., 576 F. Supp. 985
988 (N.D.Ill. 1983); Bobbitt v. Victorian House, Inc.,
532 F. Supp. 734
, 736-37 (N.D.Ill. 1982).
In support of its first affirmative defense Olmarc alleges the
1) Foods was informed of usage variations and
inventory shortages in excess of those originally
contemplated by the parties throughout the life of
2) with that information in its possession, Foods
took no action against Olmarc;
3) Foods' inaction constituted acquiescence in
4) Foods should be estopped from asserting the excess
variations and shortages as a basis for recovery.
Ans at 3-4.
Olmarc must plead and prove six elements in order to make out
an estoppel defense to Foods' claims. Olmarc must allege
1) words or conduct by Foods amounting to a
misrepresentation or concealment of material fact;
2) either actual or implied knowledge by Foods that
its misrepresentations were false when made;
3) a lack of awareness of the falsity of the
representations at the time they were made and at the
time there were relied upon;
4) Foods intent or its expectation that its
representations or conduct would be acted upon by
Olmarc (or the public in general);
5) actual reliance and action upon Foods'
representations or conduct;
6) prejudice if Foods is allowed to deny its conduct
or the truth of its representations.
Lowenberg v. Booth, 330 Ill. 548, 162 N.E. 191, 195 (1928);
Gary-Wheaton Bank v. Meyer, 130 Ill.App.3d 87, 85 Ill.Dec. 180,
473 N.E.2d 548
, 554-55 (2d Dist. 1984); Willowbrook Development
Corp. v. Illinois Pollution Control Bd., 92 Ill.App.3d 1074, 48
Ill.Dec. 354, 416 N.E.2d 385
, 389-90 (2d Dist. 1981). See also
Saverslak v. Davis-Cleaver Produce Co., 606 F.2d 208
, 213 (CA 7
1979), cert. denied, 444 U.S. 1078
, 100 S.Ct. 1029
, 62 L.Ed.2d
762 (1980) (estoppel arises when a party's conduct misleads
another to believe a right will not be enforced and causes him to
act to his detriment in reliance upon this belief).
Foods contends Olmarc has failed to plead the elements of
equitable estoppel. First Foods argues Olmarc fails to allege
it relied on any conduct suggesting a waiver of Foods' right to
seek reimbursements for variances and shortages. Foods identifies
a second defect in that Olmarc failed to allege it changed its
position to its detriment in reliance on any Foods conduct
approximating waiver. The Court agrees both of these allegations
are absent from. Olmarc's Answer and, therefore, the first
affirmative defense cannot stand.
The Court's decision takes into account Olmarc's suggestion
that this Court may infer detrimental reliance from what is
stated in the Answer. On this motion, Olmarc is entitled to
have its allegations taken as true; it also receives the benefit
of all reasonable factual inferences following from those
allegations. See generally Wright & Miller, Federal Civil
Procedure: Civil § 1363. But Olmarc is not entitled to factual
assumptions nor leaps in logic in the construction of its Answer.
Turning to the issue of amending the first affirmative defense,
Foods offers two persuasive arguments why Olmarc should tread
carefully. See generally Fed.R.Civ.P. 11. First, Foods argues
that Olmarc could not have relied on any inaction or silence
because the Agreement specifically and clearly holds Olmarc
liable for any variances and shortages.*fn1 Moreover, Illinois
law suggests any reliance by Olmarc on Food's silence or inaction
would not be reasonable. See Town & Country Bank of Springfield
v. James M. Canfield Contracting Co., 55 Ill.App.3d 91, 12
Ill.Dec. 826, 370 N.E.2d 630, 633 (4th Dist. 1977).
Second, Foods argues Olmarc may not allege reliance because it
has already admitted (in its Answer) to receiving invoices from
Foods for the variances and shortages which serve as the basis
for this lawsuit. There would, of course, be no acquiescence or
waiver by Foods if it requested reimbursement from Olmarc and
Olmarc was aware of these requests. Hence no reliance by Olmarc
could be justified. Olmarc
claims that argument constitutes a misreading of the Answer
because "while the defendant admits receiving invoices, it does
not admit these invoices are the results of the audits now
specified by the plaintiff. Consequently, as the nature of these
invoices is still in dispute, the Court should not use them as
the basis for negating the defendant's ability to amend." Deft's
Memo at 3. This counter argument is unsound. While it is true
that Foods cannot prevail unless it supplies facts to support the
invoices this action is predicated upon, that does not mean
Olmarc's disputation of those underlying facts rises to the level
of an estoppel defense. Olmarc's theory appears to be that Foods'
claim for reimbursement rests on faulty accounting, not that
Foods has waived its right to reimbursement. The Court believes
Olmarc's theory will be adequately preserved if it merely
contests the factual basis supporting the invoices (Foods' basis
for recovery), rather than raise the matter as an affirmative
defense. For these reasons, Olmarc should consider very carefully
any future amendment.
B. CHANGED CONDITIONS/COMMERCIAL FRUSTRATION
The second affirmative defense is a rather brief allegation of
what Olmarc, calls "changed conditions"; Foods calls it
"commercial frustration."*fn2 Olmarc alleges Foods changed the
"nature and composition of the substances to be mixed, packaged
and stored." These changes were made without prior notice to
Olmarc and without Olmarc's agreement. Olmarc further alleges
these changes caused usage variations and inventory shortages not
contemplated by the parties. Ans at 4.
"Changed circumstances" constitutes an avoidance and is
therefore properly pleaded as an affirmative defense under
Fed.R.Civ.P. 8(c). Paragraph 23 of the Answer also comports
with Federal pleading rules. Thus, the only issue is whether
Olmarc has pleaded "changed circumstances" in accord with the
Rule 12(b)(6) standard: can Olmarc prove any set of facts in
support of its "changed circumstances" defense which would defeat
Foods' complaint? Foods argues it cannot; the Court agrees.
The pleading of the following two elements would entitle Olmarc
to relief (e.g. a defense) under a theory of commercial
1) the event leading up to the frustration of
performance was not foreseeable;
2) the unforeseen event totally, or nearly totally,
destroyed the value of the contract.
Northern Illinois Gas Co. v. Energy Cooperative, Inc.,
122 Ill. App.3d 940, 78 Ill.Dec. 215, 461 N.E.2d 1049, 1059-60 (3d
Dist. 1984); Smith v. Roberts, 54 Ill.App.3d 910, 12 Ill.Dec.
648, 370 N.E.2d 271, 272 (4th Dist. 1977). Neither of these
allegations is contained in Olmarc's Answer.
For example, Olmarc does not allege formula changes by Foods
were not foreseeable. Olmarc does allege Foods made changes
"without prior notice . . . and without [Olmarc's] agreement,"
but those allegations do not constitute a lack of foreseeability.
Indeed, rather specific language in the Agreement (granting Foods
the right to vary specifications) seems to negate any finding of
Additionally, Olmarc fails to allege the value of the contract
was totally or nearly totally destroyed. The only allegation in
support of this element is that changes by Foods caused shortages
and variations not contemplated by the parties. There simply is
no allegation of the effect of those shortages and variations on
the value of the contract to Olmarc. Consequently, the motion to
strike the second affirmative defense must be granted.
II. THE COUNTERCLAIMS
Olmarc lodges two counterclaims against Foods: 1) promissory
estoppel and 2) fraud by omission. Foods moves to dismiss both
A. PROMISSORY ESTOPPEL
The elements of an action for promissory estoppel are 1) an
unambiguous promise, 2) which is expected or foreseeable to
induce reliance, 3) which, in fact, causes reliance and 4)
results in injury or detriment to the promisee. Levitt Homes,
Inc. v. Old Farm Homeowner's Asso., 111 Ill.App.3d 300, 67
Ill.Dec. 155, 444 N.E.2d 194, 204 (2nd Dist. 1982); Illinois
Valley Asphalt v. J.F. Edwards Construction Co., 90 Ill. App.3d 768,
45 Ill.Dec. 876, 413 N.E.2d 209, 211 (3d Dist. 1980). See
Restatement 2d of Contracts § 90. While the alleged promise
need not be express, Bank Computer Network Corp. v. Continental
Illinois Nat'l Bank & Trust Co., 110 Ill.App.3d 492, 66
Ill.Dec. 160, 442 N.E.2d 586, 591 (1st Dist. 1982), it must be
unambiguous and must be made so as to reasonably expect it to
produce action or forebearance. Huggins v. Central Nat'l Bank
of Matoon, 127 Ill.App.3d 883, 82 Ill.Dec. 768, 469 N.E.2d 302
(4th Dist. 1984).
Olmarc's allegations regarding promissory estoppel are as
1) Foods' representative promised Olmarc all of
Foods' packaging business for Hi-C and Minute Maid
drink bases if Olmarc "would secure sufficient
machinery to handle all of [Foods] packaging needs."
2) Olmarc purchased and leased over $750,000.00 of
machinery in reliance on the Foods' promise.
3) Olmarc informed Foods of its purchase and lease of
4) Despite its knowledge that Olmarc relied upon its
promise (by purchasing and leasing machinery), Foods
agreed to various packing arrangements with other
5) Olmarc suffered damages as a result of the above
actions by Foods.
Ans at 4-5. These allegations state a claim for promissory
estoppel. All of the elements for a cause of action under
Illinois law are pleaded. Foods certainly can ask no more under
federal notice pleading requirements. See Fed.R.Civ.P. 8.
Moreover, Foods' arguments in opposition to this counterclaim
are essentially factual and are thus more properly addressed on
a motion for summary judgment. For example, the Agreement,
standing alone, is not so inconsistent with Olmarc's reasonable
reliance claim that dismissal is appropriate. Consequently, the
motion to dismiss the first counterclaim is denied.
B. FRAUD BY OMISSION
Olmarc alleges Foods failed to inform it of certain material
facts which ultimately misled and damaged Olmarc. Olmarc cites
three material omissions by Foods.
a) Foods was building its own packing plant which
would compete with Olmarc and eventually draw off a
"substantial part of the business promised to
b) Foods negotiated and agreed to have its bases
mixed and packed by companies other than Olmarc.
c) In light of (a) and (b) Foods failed to inform
Olmarc that Olmarc could not possibly "employ in a
profitable fashion, the equipment it had bought in
reliance on [Foods'] promise."
Presumably the promise referred to in part (c) above is the same
promise identified in Answer ¶ 25 (e.g., to the effect that
Foods promised Olmarc that Olmarc would receive all of Foods'
Hi-C and Minute Maid packaging business).
In order to prevail on its fraud theory Olmarc must plead and
prove Foods 1) made a misrepresentation of a material fact 2)
knowing it was false 3) with intent to induce Olmarc to rely upon
it 4) which Olmarc reasonably relied and acted upon 5) to its
detriment or damage. Redarowicz v. Ohlendorf, 92 Ill.2d 171, 65
Ill.Dec. 411, 441 N.E.2d 324 (1982); Dolce v. Dolce,
108 Ill. App.3d 817, 64 Ill.Dec. 363, 439 N.E.2d 1028, 1032 (1st Dist.
1982). Because Olmarc alleges Foods failed to make a
representation when it ought to have made one, Olmarc must plead
and prove a duty on behalf of Foods to make an affirmative
statement. Manning v. Ashland Chemical Co., 498 F. Supp. 1382,
1383 (N.D.Ill. 1980). Cummings v. Dusenbury, 129 Ill.App. 338, 84
Ill.Dec. 615, 472 N.E.2d 575, 581 (2d Dist. 1984). Generally,
such a duty arises in two circumstances: 1) when the defendant's
acts contribute to the plaintiff's misapprehension of a material
fact and the defendant intentionally fails to correct plaintiff's
misapprehension, or 2) when the defendant owes some fiduciary
duty to the plaintiff to make full and fair disclosure and fails
to correct a misapprehension of a material fact. Manning supra,
at 1383; Tcherepnin v. Franz, 393 F. Supp. 1197, 1217, (N.D.Ill.
1975), cert. denied, 439 U.S. 876, 99 S.Ct. 214, 58 L.Ed.2d 190
(1976); Obermaier v. Obermaier, 128 Ill.App.3d 602, 83 Ill.Dec.
627, 470 N.E.2d 1047, 1051 (1st Dist. 1984).
Additionally, Fed.R.Civ.P. 9(b) requires Olmarc to plead fraud
with particularity. That requires Olmarc to plead the "time,
place and particular contents of the false representations."
Bennett v. Berg, 685 F.2d 1053, 1062 (CA 8 1982), cert. denied,
464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983). The object
of such specificity is to apprise the defendant of the claim
against him and of the acts which the plaintiff alleges
constitute fraud. See generally Wright & Miller § 1297. But Rule
9(b) does not negate the general pleading requirements of Rule 8
(viz, a short, plain statement of a claim and simple, concise,
direct allegations). Thus, the balance between Rules 9(b) and 8
requires Olmarc to plead the particularities of fraud (time,
place, contents), but it does not require Olmarc to plead
Many of Foods' attacks on this counterclaim are focused on the
Rule 9(b) particularity requirement. For example, Foods wants to
know who was responsible for the omissions (Olmarc alleges Foods
representatives were responsible) and the date of the omissions
(Olmarc alleges the fraud took place in 1978). The Court finds
Rule 9(b) entitles Foods to no more particularity than Olmarc has
alleged in the Answer. To find otherwise would allow Rule 9(b) to
swallow up the general pleading requirements of Rule 8. See
generally, Wright & Miller, supra, § 1297-98.
More significant is Foods' argument that Olmarc fails to allege
a duty on behalf of Foods to correct any particular
misapprehension held by Olmarc. Foods argues that because neither
a contractual nor a fiduciary relationship existed between the
parties at the time of the alleged omission, Olmarc cannot expect
the Court to find "a statement allegedly made in arms length
negotiations . . . somehow imposes a duty on a party to the
contract to disclose all he . . . knows about the pending
transaction." From this Foods concludes Olmarc is unable to prove
any set of facts which would
allow it to recover on the counterclaim. Pltf's Memo at 18.
Olmarc counters with the suggestion that Foods mistakes its
motion to dismiss as a motion for summary judgment. The Court
The arguments made by Foods require factual determinations
which the Court is unable to make on this motion to dismiss.
Foods invites factual assumptions in its favor as a basis for
the Court's review of its own arguments. On a motion to dismiss,
the facts as alleged by Olmarc are taken as true. Thus, the only
argument the Court can consider is whether Olmarc has alleged
that Foods had a duty to disclose information which would correct
Olmarc's misapprehension of material facts.
It is true that no fiduciary relation existed between Olmarc
and Foods. They were parties to negotiation and contract, nothing
more. So in order to impose a duty upon Foods to speak and
correct misapprehensions, Olmarc must plead and prove that 1)
Foods' acts contributed to Olmarc's misapprehension 2) of a
material fact 3) which Foods intentionally failed to correct.
These elements are alleged in the counterclaim.
Olmarc alleges a representation by Foods that Olmarc would
receive all of Foods' packaging business for Hi-C and Minute
Maid. Ans at 4. That fact is material either to the terms of
the Agreement or to Olmarc's subsequent purchase and lease of
packing machinery. See Ans at 4-5. So too are the alleged
omissions material (Foods was building its own packaging plant;
Foods was making contemporaneous agreements with other packers;
Foods knew Olmarc could not profitably operate on Foods' false
promise). Ans at 5. Taking Olmarc's allegations as true for the
purposes of this motion, such facts, if proved, could contribute
to a misapprehension by Olmarc of which Foods was aware and which
it intentionally failed to correct. If Olmarc can prove what it
alleges, then Foods had a duty to speak and correct any
misapprehension it helped create. The motion to dismiss the
second counterclaim is denied.
The motion to strike Olmarc's two affirmative defenses is
granted. The motion to dismiss the two counterclaims is denied.
This case is set for a status hearing 21 days from the date of
IT IS SO ORDERED.