The opinion of the court was delivered by: Will, District Judge.
This case involves a commercial dispute between former
associates in the meat processing industry.
Plaintiff-counterdefendant Hollymatic Corporation ("Hollymatic")
filed a complaint alleging unfair competition, breach of
contract, trademark infringement, and violations of the Illinois
Deceptive Trade Practices, Consumer Fraud, and Anti-Dilution
Acts. Defendants-counterplaintiffs Harry Holly ("Holly") and
Holly Systems, Inc. ("Holly Systems") countered with charges
against Hollymatic of breach of contract, fraud, intentional
interference with prospective economic advantage, product
disparagement, and violation of the Sherman Act and the Illinois
Deceptive Trade Practices Act.*fn1 Both sides seek damages and
Before us is Hollymatic's motion to dismiss, under Federal Rule
of Civil Procedure 12(b)(6), Counts II (fraud) and V (product
disparagement) of the amended counterclaim. For the reasons
stated herein, the motion is granted as to Count II and denied as
to Count V.
In deciding this motion, we must take the facts alleged in the
counterclaim as true. Miree v. DeKalb County, 433 U.S. 25, 27 n.
2, 97 S.Ct. 2490, 2492 n. 2, 53 L.Ed.2d 557 (1977). The
presentation of the facts is supplemented by the terms of a
contract attached to the complaint and by the admissions set
forth in the answer to the complaint and reply to the
counterclaim. See 5 C. Wright & A. Miller, Federal Practice and
Procedure § 1357 (1969).
Hollymatic is engaged in the manufacture, distribution and sale
of meat processing, meat handling, and food portioning equipment.
Through a network of independent, authorized dealers, Hollymatic
sells its products to meat processors, restaurants, supermarkets,
institutional food suppliers and wholesale butchers.
From 1946 through 1978, Holly was the chief executive officer,
principal engineer and inventor for Hollymatic's predecessor in
interest. Between 1978 and 1982, Holly worked for Hollymatic's
predecessor as an independent consultant pursuant to a number of
written agreements. During this period, he developed a new
invention, the "Conversion," which attached to meat patty molding
machines, including Hollymatic models, and resulted in a
differently formed patty.
Count II of the amended counterclaim begins by incorporating
the allegations of Count I, the breach of contract claim. In
Count I, the counterplaintiffs allege that Hollymatic failed to
perform two implied obligations contained in the Agreement. The
first is a duty to make good faith efforts to market the
Conversion and is alleged to arise from ¶ 7 of the
Agreement*fn2; the second, allegedly arising from ¶¶ 7.10 and
1.2, is a duty not to interfere with Holly's right to sell the
In Count II, the counterplaintiffs attempt to convert these
allegations into a fraud claim by additionally claiming (1) that
Hollymatic falsely represented its intention to perform its
obligations under the Agreement; (2) that Hollymatic's
representations were known by Hollymatic to be false; (3) that
Hollymatic made the representations with the intent to induce
Holly to enter the Agreement; (4) that Holly reasonably relied on
the misrepresentations; and (5) that Holly suffered damages as a
result of his reliance. Thus, the allegations of Count II track
the five essential elements of common law fraud in Illinois. See,
e.g., Soules v. General Motors Corp., 79 Ill.2d 282, 286, 37
Ill.Dec. 597, 599, 402 N.E.2d 599, 601 (1980); Higgins v.
Kleronomos, 121 Ill.App.3d 316, 76 Ill.Dec. 913, 917,
459 N.E.2d 1048, 1052 (1984).
Hollymatic argues that the defendants have not stated a cause
of action for fraud because the alleged misrepresentations
related to future conduct, not a present condition of fact. It
is true that, traditionally, Illinois courts have been
reluctant to entertain actions for "promissory fraud." See
generally, Pollele, An Illinois Choice: Fossil Law or an Action
for Promissory Fraud?, 32 DePaul L.Rev. 565, 578-88 (1983). The
general rule is that a promise made without intent to perform
it is not a misrepresentation. Roda v. Berko, 401 Ill. 335,
340-41,81 N.E.2d 912, 915 (1948). A recognized exception
exists, however, "where the false promise or representation of
intention or of future conduct is the scheme or device to
accomplish the fraud." Id. at 340, 81 N.E.2d 912, 915;
Steinberg v. Chicago Medical School, 69 Ill.2d 320, 334, 13
Ill.Dec. 699, 706, 371 N.E.2d 634, 641 (1977); Sommer v. United
Savings Life Ins., 128 Ill.App.3d 808, 813-14, 84 Ill.Dec. 77,
82, 471 N.E.2d 606, 611 (1984). The question we must decide is
whether the general rule or the exception controls the instant
The Illinois cases are not easily reconciled and the Illinois
courts have rarely made more than half-hearted attempts to do so.
Certainly the language in which the exception is stated is not
illuminating in itself. One court of appeals suggested that a
scheme or device was equivalent to a "carefully constructed plan
of deceit." Metropolitan Bank & Trust Co. v. Oliver, 4 Ill. App.3d 975,
978, 283 N.E.2d 62, 64 (Ill.App.Ct. 1972); see also
Zaborowski v. Hoffman Rosner Corp., 43 Ill.App.3d 21, 24-25, 1
Ill.Dec. 465, 468, 356 N.E.2d 653, 656 (Ill.App.Ct. 1976) (total
facts must show scheme or device). Another court, acknowledging
that "the exception tends to engulf and devour much of the
general rule," recently held that a scheme had been properly
alleged when the defendant had done no more than make a promise
without intention of performing it. Vance Pearson, Inc. v.
Alexander, 86 Ill.App.3d 1105, 1112, 42 Ill.Dec. 204, 209,
408 N.E.2d 782, 787 (1980); see also Brudnicki v. General Elec. Co.,
535 F. Supp. 84, 88 (N.D.Ill. 1982) (exception applied where
misrepresentation was an "integral step in achieving the
agreement"). In short, the precedents appear to turn upon a
case-by-case weighing of the equities, rather than
We are aware of no Illinois case in which an alleged or even
proven implied promise or representation was found to be a
sufficient basis for applying the scheme or device exception.
After examining the entire contract in this case, we find that
the alleged representations at issue — the duties not to
interfere and to make good faith efforts to sell the Conversion
— are not expressly stated in the Agreement. Holly and Holly
Systems admit as much in their pleadings, where they refer to
each of the duties as "implied" duties. Amended Counterclaim,
¶¶ 8, 9. We have some doubt as to whether these obligations ...