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D 56, INC. v. BERRY'S INC.

January 10, 1997

D 56, INC., f/k/a Department 56, Inc., Plaintiff,
v.
BERRY'S INC., JEFFREY A. BERRY, and "JOHN DOE" COMPANIES 1-10, Defendants.



The opinion of the court was delivered by: COAR

 Plaintiff, D 56, Inc., a manufacturer and distributor of various porcelain and ceramic figures and other accessories, brought suit against Berry's Inc. a/k/a Berry's World ("Berry's World"), a retailer of various gift items, Jeffrey Berry ("Berry"), the proprietor of Berry's World, and John Doe Companies 1-10 ("Doe Companies"), various authorized dealers of plaintiff. Count I of the complaint alleges Tortious Interference with Contractual Relations by Berry's World and Berry (hereinafter the" Defendants"). Count II alleges Tortious Interference with Prospective Economic Advantage by Berry's World and Berry. Count III alleges Breach of Contract by the Doe Companies. Counts IV and V allege violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505 et seq., and the Illinois Deceptive Trade Practices Act, 815 ILCS 510 et seq., by Berry's World and Berry. Count VI alleges trademark infringement in violation of the Lanham Act, 15 U.S.C. §§ 1051 et seq., by Berry's World and Berry. Count VII alleges a False Designation of Origin and Sponsorship Affiliation in violation of the Lanham Act, 15 U.S.C. § 1125(a), by Berry's World and Berry. Currently pending is defendants motion for summary judgment on Counts I, II, IV, V, VI, and VII.

 Background

 Plaintiff D 56, Inc. (hereinafter "Plaintiff") is a Minnesota corporation engaged in the business of producing, distributing, and marketing high-quality model products. (Defendants' Local Rule 12(M) Statement ("12(M)") PP 1-2). Berry's World is an Illinois corporation engaged in the retail business of selling various gift items that are similar in nature to those sold by Plaintiff. (Id. at PP 3-4). Berry is an Illinois resident and the president, treasurer, chief executive, and major shareholder of Berry's World. (Id. at P 5; Complaint ("Compl.") at P 6). Berry's World is not, and has never been, an authorized dealer of plaintiff. (Compl. at P 18). The Doe Companies are unknown authorized dealers of plaintiff who are engaged in the business of selling plaintiff's products at retail. (Id. at P 7).

 Plaintiff manufactures uniquely-designed, finely-crafted porcelain and ceramic "house" and "village" pieces, figurines, and other accessories (hereinafter "Collections"). (Plaintiff's Local Rule 12(N) Statement ("12(N)") P 31). The Collections are marketed and sold under trademarks registered to plaintiff (the "Marks"). *fn1" (Id.). Plaintiff markets the Collections exclusively through authorized dealers, which are independent retail sales outlets carefully chosen by plaintiff to act as exclusive retail sellers. (Id. at P 38-39). These retail stores must meet certain criteria to qualify as an authorized dealer--criteria which are designed to enhance plaintiff's reputation for quality. (Id. at P 40). Plaintiff has a policy and long-standing practice of selling the Collections only to its authorized dealers. (Id. at P 39). This policy is designed to ensure that the Collections purchased by consumers will be authentic and will be supported by superior product-related services. (Id. at PP 43-44). Plaintiff has developed a franchise for the Collections in the marketplace by selling them exclusively through authorized dealers. (Compl. at P 12).

 Each authorized dealer signs an Authorized Dealer Policy (the "Policy") in which the dealer agrees to (1) resell plaintiff's Collections at retail, and (2) refrain from transshipping the Collections to other retailers, wholesalers, or authorized dealers without plaintiff's express written permission. (Id. at PP 40-41, 52, 63-65; Defendants' Memorandum in Support of Motion for Summary Judgment ("Def. Memo.") Ex. B). The Policy confers authorized dealer status upon the signatory in exchange for compliance with the Policy's terms. (Id. at PP 47, 51-52, 63). Each Policy bears plaintiff's trademark and includes the following provision: "Transhipment of Department 56, Inc. products to another business or location . . . is not permitted unless pre-approved in writing by Department 56, Inc. Office of National Sales Director." (Id. at PP 42, 52; Def. Memo. Ex. B). A subsequent provision asserts, "[A dealer's] account cannot be transferred to another owner, investor or business (by total or partial sale of assets or equity or otherwise) or applied to any location . . . without written approval of Department 56, Inc., Office of National Sales Director." (Id.).

 Berry's World has offered for sale at retail Plaintiff's Collections since, at least, December, 1994. (12(M) P 10). Berry's World purchased the Collections from the Doe Companies, who are authorized dealers in plaintiff's Collections. (12(N) PP 142-430. The Doe Companies neither sought nor received plaintiff's prior written consent to transship plaintiff's Collections to Berry's World. Defendants deny that they had any knowledge of plaintiff's relationship with the Doe Companies prior to the commencement of this action. (12(M) P 13). Defendants further deny any knowledge of any agreement between plaintiff and the Doe Companies against transhipment of the Collections. (12(M) P 16).

 Berry's World receives a large portion of its Collections inventory from Class Act, an authorized dealer in Lake Zurich, Illinois. (12(M) P 6). Berry's World has regularly purchased the Collections from Class Act since early 1994. (12(M) P 10). Defendants deny that they had any knowledge of plaintiff's contractual relationship with Class Act when they began to purchase the Collections from Class Act. (12(M) P 11). Defendants further claim that Class Act solicited Berry to purchase the Collections as early as 1993. (12(M) P 9).

 Plaintiff maintains that Berry has consistently misrepresented itself as an authorized dealer of the Collections to other authorized dealers in order to purchase the Collections. (12(N) PP 129-35). Several authorized dealers have testified that defendants solicited purchases of the Collections and misrepresented Berry's World as an authorized dealer. (12(N) PP 104, 129-35). The Defendants deny these allegations. (12(M) PP 23, 29).

 In early 1994, plaintiff instituted a widely publicized reward program under which $ 1000 was promised to anyone who reported the transhipment of D56 products. (12(N) PP 101-02; Weiser Aff. P 36 & Ex. 3). Berry denies any knowledge of such a reward campaign. (Def. Reply to ("12(N) 3b P 101). That same year, Berry's World's membership with the National Association of Limited Edition Dealers ("NALED") was suspended. (12(N) P 108; Berry Depo. 344-46, 349-51). Berry believes that the suspension was based on an order it placed for D56 products with an authorized dealer. (Id.). NALED's newsletter, which defendants had in their possession during the relevant period, contained express admonitions against transhipment of products subject to no transhipment provisions, and threatened offenders with termination of their NALED membership. (Id. at P 126). In addition, the newsletter contained listings of product sales by authorized dealers and explicitly warned that, "YOU MUST BE A D56 DEPT. 56 DEALER" to purchase such products. (Id. at P 127). Berry expressed awareness of the use of agreements against transhipment within the collectibles industry in his deposition testimony. *fn2" (Berry Depo. pp. 145-46).

 On December 21, 1994, plaintiff's counsel, David Weiser (Weiser), sent defendants a letter informing them of the contractual relationship between plaintiff and the Doe Companies and the alleged restriction on transhipment of the Collections. (12(M) P 17; Def. Memo. Ex. D). Berry called Weiser shortly after receiving the letter and requested a copy of the alleged agreement. (12(M) P 18). Weiser agreed to send Berry a copy of the agreement, but never did. (12(M) P 19).

 Berry's World has made, and continues to make use of plaintiff's and its authorized dealers' marketing materials, including store display signs. On two occasions, defendants distributed plaintiff's trademarked pamphlets and posters as a promotional tool. (12(N) PP 111, 114). Such materials are typically used by authorized dealers only. (Id. at P 112). Defendants also display signs bearing plaintiff's trademark in Berry's World and on its storefront and prominently feature the Collections in the store using signs bearing plaintiff's trademark. (12(N) PP 116-19). For example, defendants have situated a 20-inch-by-10-inch cardboard sign advertising one of plaintiff's promotions at the display case for the Collections at Berry's World. In addition, defendants use plaintiff's trademarked materials in their advertising. (Id. at PP 120-21). Defendants maintain that plaintiffs trademark has been used for informative purposes only. (12(M) P 30).

 Legal Standard for Summary Judgment

 Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, admissions and affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Hedberg v. Indiana Bell Telephone Co., Inc., 47 F.3d 928 (7th Cir. 1995); Wainwright Bank & Trust Co. v. Railroadmens Fed. Sav. & Loan Ass'n of Indianapolis, 806 F.2d 146, 149 (7th Cir. 1986). The movant has the burden of establishing that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The primary inquiry is whether the evidence presents a sufficient disagreement to require a trial, or whether it is so one-sided that one party must prevail as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). If the moving party meets this burden, the nonmoving party must then respond by setting forth specific facts which demonstrate the existence of a genuine issue for trial. Fed. R. Civ. P. 56(e); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960, 78 L. Ed. 2d 336, 104 S. Ct. 392 (1983); see Curtis v. Bembenek, 48 F.3d 281 (7th Cir. 1995). All reasonable inferences from the record are to be drawn in favor of the nonmoving party. Johnson v. Runyon et al., 47 F.3d 911 (7th Cir. 1995); Donovan v. City of Milwaukee, 17 F.3d 944, 947 (7th Cir. 1994).

 I. COUNTS I and II: TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS and PROSPECTIVE ECONOMIC ADVANTAGE

 In Counts I and II of the complaint, plaintiff alleges that Berry's World and Berry tortiously interfered with the contractual relations and prospective economic advantage between plaintiff and the Doe Companies by deliberately inducing the Doe Companies to breach their agreements not to transship Plaintiff's Collections. To maintain an action for tortious interference with a contractual relationship, a plaintiff must plead five (5) elements: (1) the existence of a valid and enforceable contract between plaintiff and another; (2) defendant's awareness of the contractual relationship; (3) defendant's intentional and unjustified inducement of a breach of the contract; (4) a subsequent breach by the other, caused by defendant's wrongful conduct; and (5) damages. Schott v. Glover, 109 Ill. App. 3d 230, 234, 440 N.E.2d 376, 379, 64 Ill. Dec. 824 (1982). To state a cause of action for tortious interference with prospective economic advantage, plaintiff must plead four (4) elements: (1) the existence of a valid business relationship or expectancy; (2) knowledge of the relationship or expectancy on the part of the interferer; (3) an intentional and malicious interference inducing or causing a breach or termination of the relationship or expectancy; (4) resultant damage to the party whose relationship has been disrupted. 1 K Corp. v. One Financial Place Partnership, 200 Ill. App. 3d 802, 818, 558 N.E.2d 161, 172, 146 Ill. Dec. 198 (1990), app. denied, 135 Ill. 2d 556, 564 N.E.2d 838 (1990) (quoting Ancraft Products Co. v. Universal Oil Products, Co., 84 Ill. App. 3d 836, 844, 405 N.E.2d 1162, 1168, 40 Ill. Dec. 70 (1980)); see also Delloma v. Consolidation Coal Co., 996 F.2d 168, 170-71 (7th Cir.1993) (citing Fellhauer v. City of Geneva, 142 Ill. 2d 495, 511, 568 N.E.2d 870, 878, 154 Ill. Dec. 649 (1991)). The two torts are similar in that they "both recognize that a person's business relations are a form of property entitled to protection from unjustified tampering by others." Fishman v. Estate of Wirtz, 807 F.2d 520, 546 (7th Cir. 1986).

 Defendants argue that the Court should grant summary judgment on these counts for five (5) reasons: First, plaintiff fails to establish the existence of valid and enforceable contract(s). Second, plaintiff has failed to demonstrate that there was an actual breach of any alleged contract(s). Third, defendants were not aware of the existence of the alleged contract(s) during the relevant period. Fourth, any alleged interference by defendants does not constitute intentional inducement. Fifth, plaintiff has not incurred any damages resulting from the alleged interference. (Def. Memo. pp. 1-8). Additionally, defendants argue that the prospective economic advantage claim should be dismissed for several independent reasons. (Id. at 9-14). The Court addresses each of these contentions seriatim.

 A. Intentional Interference with ...


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