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08/02/88 Oakleaf of Illinois, v. Oakleaf & Associates

August 2, 1988

OAKLEAF OF ILLINOIS, PLAINTIFF-APPELLEE

v.

OAKLEAF & ASSOCIATES, INC., DEFENDANT-APPELLANT



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

527 N.E.2d 926, 173 Ill. App. 3d 637, 123 Ill. Dec. 288 1988.IL.1189

Appeal from the Circuit Court of Cook County; the Hon. Jerome Lerner, Judge, presiding.

APPELLATE Judges:

PRESIDING JUSTICE HARTMAN delivered the opinion of the court. BILANDIC and EGAN, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARTMAN

Defendant Oakleaf & Associates, Inc. (Oakleaf), appeals from a jury verdict of $1 million for plaintiff Oakleaf of Illinois, Division of Mini Comp (Mini Comp). *fn1 The award is comprised of lost profits resulting from the breach of a sales distribution agreement between the parties.

The issues arising from the trial include whether: (1) Oakleaf's breach of contract caused Mini Comp's damages; (2) Mini Comp's calculation of lost profits was improper; (3) a Mini Comp witness was erroneously permitted to testify as an expert; and (4) hearsay testimony and closing argument by Mini Comp's counsel denied Oakleaf a fair trial.

Mini Comp was formed in Iowa by insurance salesman Dennis Burns and computer programmer David Cox. Mini Comp distributed a finance and insurance minicomputer, manufactured by Oakleaf, to automobile dealers. Oakleaf was founded in 1974 by Anders Eklov, who developed a computer (SX-330) with a built-in printer in 1977 to calculate and print certain forms used by automobile salesmen.

In autumn 1977, Burns first met Eklov; both were selling products to automobile dealer financial and insurance departments in California. Burns saw a demonstration of Eklov's computer there and discussed with him plans to market the product in Chicago.

Burns and Eklov travelled to Chicago together in February 1978, met Cox there, and visited automobile dealers, finding considerable enthusiasm for the computer they demonstrated. They discussed an exclusive distributorship of the computer for Burns and Cox. Eklov drew up the agreement, signed a lease for an office in Elmhurst, Illinois, to be shared by the parties, and asked Burns and Cox to start with $100,000 in capital; work full time in Chicago (Burns lived in California, Cox in Iowa); and make no sales of credit insurance connected with sales of his computers.

The parties signed the three-year distribution agreement in May 1978, which provided that, effective June 1, 1978, "Manufacturer [Oak Leaf] appoints Distributor [Mini Comp] as its exclusive selling representative to sell products . . . in the state of Illinois only . . .." The products were described as integrated finance and insurance minicomputers, designated as Oakleaf SX-330, to be made available to Mini Comp for $6,400 each, with a suggested selling price of $9,400. Oakleaf would supply all programming and technical services and retain revenue for such services. In exchange for using the Oakleaf name, among other things, Mini Comp agreed not to market any other products, system or services. Oakleaf could not terminate the agreement if sales quotas were achieved and if Mini Comp did not default on any provisions. The parties set the initial sales quota for the year ending May 31, 1979, at 120 minicomputers.

The record evidence supports the following summary. Mini Comp began marketing even before signing the agreement, obtaining a bank loan for $35,000 and purchasing an SX-330 around May 15, 1978. Burns and Cox rented an apartment in Illinois; Burns flew in from California to work four days per week while Cox drove in from Iowa. At first, lacking the Illinois software, they encountered sales resistance, since each State had its own insurance laws and tax rates and automobile dealers wanted a product they could use immediately. Eklov kept assuring them that the software was almost ready, but not until late July or early August did they receive a fairly complete software package. Eklov, however, believed Burns and Cox could demonstrate the machine, using California software, to obtain sales orders.

Mini Comp sold its machines for $9,800 for the computer alone or for $11,000 with software including a "TRW" option, which permitted communication with credit agencies. Eklov had not originally intended to include the TRW option as part of his agreement, but it was furnished later; he had sold machines in California for $9,400 including the TRW.

In September 1978, Mini Comp installed six machines and hired a salesman, Roger Moore, and in October nine more computers were sold. Burns testified that problems developed in October when some computers arrived without memory chips, which Oakleaf's local manager, Andre Hansen, had to locate. Other machines also arrived with parts missing, which required cannibalization of computers, since the supply of spare parts in Illinois was inadequate. Hansen testified that machines lacking memory chips were a problem near the end of 1978. For three to four weeks chips were not available and computers were not shipped from California until he located a supply in Chicago. Mini Comp did not pay for its computers until all the parts arrived.

In autumn 1978, Oakleaf began negotiations with Reynolds & Reynolds Company (Reynolds), which sold general purpose main frame computers to automobile dealers. Mini Comp worked with Reynolds cooperatively setting up demonstrations. According to Eklov, he kept Burns and Cox informed and they thought Reynolds' prestige would be helpful; however, they testified that they were very upset despite Eklov's repeated assurances that their business would not be adversely affected. Mini Comp installed 13 machines in January 1979, the most to that point, but in February spare parts problems adversely affected sales. At the National Auto Dealers Convention in late February, Oakleaf management became upset when Mini Comp was demonstrating the SX-330 and Burns overheard Eklov talking with a Reynolds employee concerning using that machine for interfacing with a Reynolds computer.

At a California meeting on February 27, 1979, Burns, Cox and Eklov agreed, in a contract addendum, that Wisconsin and Iowa would be added to Mini Comp's territory, with monthly sales quotas of five and three, respectively, starting March 1, 1979, for the former and April 1, 1979, for the latter. Cox and Burns claimed to have received assurances that any arrangement Oakleaf made with Reynolds would not injure them, but would enhance everyone's prospects. Burns remembered Eklov insisting that Reynolds would handle a different machine on a limited basis, not in Mini Comp's area, and would have nothing to do with Mini Comp. Eklov testified that the two States were added to Mini Comp's territory as compensation for the Reynolds deal.

Mini Comp hired three additional salesmen, two for their new territories. Mini Comp also made some sales in Indiana in the belief that Eklov had approved its selling in northwestern Indiana near Chicago; Eklov disagreed, but Oakleaf installed the machines in Indiana anyway.

On March 2, 1979, Eklov signed an agreement for Reynolds' purchase of 1,000 SX-330 units over 18 months, including software to support integration of the SX-330 with VIM machines sold by Reynolds. Installation was scheduled to begin in June 1979. Reynolds would sell the SX-330 as part of an integrated system to customers who used or ordered Reynolds VIM II or III or any subsequent VIM computer systems. The price per unit to Reynolds would depend on the number of machines ordered in any month, starting with $6,500 for one machine and decreasing to $4,700 per machine if 110 or more computers were ordered. The agreement related that Reynolds had already ordered and received 25 SX-330 units for program development and demonstrations and Oakleaf acknowledged receipt of $40,625 as 25% payment on that initial order. Reynolds could sell the SX-330 in any State it sold its VIM systems; a schedule provided for making software available for all 48 States in the continental United States and the District of Columbia. Software for Illinois would be available by June 1, 1979, for Wisconsin by November 1, 1979, and for Iowa by January 1, 1980.

Reynolds also encountered delays in obtaining Oakleaf equipment, software and servicing when it started operations. During 1979 and early 1980, Reynolds sold SX-330 units that were installed ...


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