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TIBOR MACH. PRODS. v. FREUDENBERG-NOK

March 24, 1997

TIBOR MACHINE PRODUCTS, INC., an Illinois Corporation, Plaintiff and Counter-Defendant,
v.
FREUDENBERG-NOK GENERAL PARTNERSHIP, a general partnership, Defendant and Counter-Plaintiff.



The opinion of the court was delivered by: GRADY

 Before the court is the defendant's motion to dismiss the plaintiff's recoupment and breach of contract claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons stated in this opinion, the defendant's motion is denied in part and continued in part.

 BACKGROUND

 The defendant and counter-plaintiff, Freudenberg-NOK General Partnership ("FNGP"), supplies component parts to the automotive industry. The plaintiff and counter-defendant, Tibor Machine Products, Inc. ("Tibor"), is an Illinois corporation that produces "machined" parts. In 1992, Nissan Motor Manufacturing Corporation ("Nissan") hired FNGP to supply Torsional Vibration Dampers ("TVDs") for Nissan's VG-30, Six Cylinder engine project. FNGP then contacted Tibor about a potential agreement under which Tibor would manufacture some of the elements of the TVDs. Within approximately two years, relations between Tibor and FNGP broke down. The events leading up to the collapse are the basis of the present controversy.

  Neither the parties nor the subject matter of this dispute are unfamiliar to the court. In Tibor Machine Products, Inc. v. Freudenberg-NOK General Partnership, 1996 U.S. Dist. LEXIS 2360, No. 94 C 7635, 1996 WL 99896 (N.D. Ill. Feb. 29, 1996) ("Tibor I "), we granted Tibor's 12(b)(6) motion to dismiss FNGP's counterclaims for economic duress and fraudulent misrepresentation. We dismissed the first claim because Illinois law does not recognize a cause of action for damages for economic duress and because the claim did not satisfy the "illegality" element of Michigan law. Id. at *2-*3. We also dismissed FNGP's claim for fraudulent misrepresentation, but granted FNGP leave to file an amended claim alleging that Tibor's misrepresentations constituted "a scheme or device used to cheat FNGP." Id. at *5. In Tibor Machine Products, Inc. v. Freudenberg-NOK General Partnership, 942 F. Supp. 1165, 1996 WL 535338 (N.D. Ill. 1996) ("Tibor II "), we denied Tibor's 12(b)(6) motion to dismiss FNGP's counterclaims for breach of contract, promissory estoppel, and fraudulent misrepresentation. We held that (1) FNGP had adequately alleged the existence of a contract and Tibor's acceptance of that contract, id. at *2-*3; (2) FNGP's breach of contract claim did not preclude its claim for promissory estoppel because "the terms of the alleged contract between the parties are not yet clear," id. at *4; (3) FNGP's amended claim for fraudulent misrepresentation adequately alleged that Tibor intended to defraud FNGP and that FNGP reasonably relied on Tibor's alleged concealments, id. at *5-*6; and (4) FNGP's amended claim for fraudulent misrepresentation met the requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Id. at *6. We also denied Tibor's motion to strike some of FNGP's claims for damages because FNGP adequately alleged that its payments to Tibor may have been compulsory. Id. at *7. In Tibor Machine Products, Inc. v. Freudenberg-NOK General Partnership, 942 F. Supp. 1165 (N.D. Ill. 1996) ("Tibor III "), we granted in part and denied in part FNGP's 12(b)(6) motion to dismiss Tibor's claims for common law fraud, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, promissory estoppel, and recoupment. Specifically, we held that (1) Tibor adequately alleged that FNGP engaged in a scheme to defraud Tibor and that Tibor reasonably relied on FNGP's alleged promise of a five-year contract, id. at 1169-71; (2) Tibor stated a claim under the Consumer Fraud Act even though the complaint did not allege an injury to consumers, id. at 1171-73; and (3) Tibor's complaint did not preclude its claim for promissory estoppel because it was unclear whether an enforceable contract had been created and because the terms of the alleged contract were uncertain. Id. at 1173-75. We dismissed Tibor's recoupment claim, but granted Tibor leave to file an amended claim alleging the existence of a contractual agreement. Id. at 1175-76.

 Our opinion today addresses FNGP's 12(b)(6) motion to dismiss Tibor's claim for breach of contract and Tibor's amended claim for recoupment. Because we must view them in the light most favorable to the nonmoving party, we draw the background facts from Tibor's complaint. Those facts are as follows. In 1992, Nissan hired FNGP to supply TVDs for the VG-30 project. The two main components of TVDs are "rings" and "hubs." FNGP asked Tibor to provide a price quotation for machining the rings and hubs necessary for the VG-30 project. FNGP indicated that if it accepted Tibor's quotation, it would purchase all of the required rings and hubs from Tibor. FNGP also indicated that the purchase agreement would mirror FNGP's contract with Nissan, which covered a five-year period. Tibor submitted a price quotation to FNGP on April 10, 1992. The quotation specified prices for quantities of parts ranging from 120,000 to 150,000 per year.

 On or about June 11, 1992, FNGP advised Tibor that it had decided to hire Tibor as its long-term supplier for the VG-30 project. FNGP submitted to Tibor a "Supplemental Purchase Terms and Conditions" document (the "SPTCD") which set forth the material terms of the agreement. The SPTCD stated that Tibor would be FNGP's exclusive supplier of rings and hubs for five years. On June 22, 1992, Tibor executed and presented a revised quotation (the "1992 Quotation") to FNGP which incorporated the terms of April, 1992 proposal and the SPTCD. In a letter dated June 23, 1992 (the "1992 Letter"), Tibor thanked FNGP for selecting Tibor as its supplier and proposed a number of modifications to the SPTCD. During the course of a telephone conversation, FNGP then indicated that the principal terms of the agreement had been established and that FNGP was considering the proposed modifications. On or about July 22 and July 23, 1992, FNGP submitted purchase orders (the "1992 POs") for Tibor to machine sample rings and hubs for the VG-30 project at agreed-upon prices.

 At FNGP's request, in March and April of 1993 Tibor began machining larger quantities of sample rings and hubs. Tibor determined that the prices quoted to FNGP could not be maintained without a substantial investment in specialized equipment. According to the complaint, FNGP knew from the outset that such equipment would be necessary to machine the quantity of rings and hubs needed for the VG-30 project. Tibor solicited proposals for automated and computerized equipment known as the "Robotic Cell." The Robotic Cell was to be dedicated exclusively to the production of VG-30 rings and hubs over the next five years. During a meeting on May 17, 1993, Tibor and FNGP discussed Tibor's possible acquisition of the Robotic Cell. On July 1, 1993, FNGP called Tibor to confirm that Tibor had ordered the Robotic Cell on June 30, 1993.

 At some time prior to July 1994, FNGP gained the capacity to do in-house machining of the rings and hubs required for the VG-30 project. As a result, FNGP began to divert the delivery of certain raw materials (or "castings") from Tibor to FNGP facilities. FNGP then threatened to cease further purchases of rings and hubs from Tibor unless Tibor agreed to a 30 percent reduction in prices. Because Tibor would not agree to the reduction, FNGP directed its castings supplier to cut off shipments to Tibor. Tibor was subsequently unable to machine the necessary amount of rings and hubs.

 Tibor alleges that, taken together, the SPTCD, Tibor's 1992 Quotation, and Tibor's 1992 Letter provided the material terms of an agreement between the parties. Tibor asserts that FNGP accepted these terms through the telephone conversation and through the 1992 POs sent to Tibor for rings and hubs. Tibor also asserts that it accepted the alleged offer by commencing delivery of the rings and hubs in accordance with the terms of the POs. Tibor contends that it suffered damages in excess of $ 5 million as a consequence of FNGP's breach of the contract. Tibor further contends that but for the alleged five-year contract, it would not have incurred expenses in excess of $ 1 million (such as the costs associated with the design and purchase of the Robotic Cell). Tibor therefore seeks to recoup these expenditures.

 DISCUSSION

 In deciding a motion to dismiss the court must assume the truth of all facts alleged in the complaint, construing the allegations liberally and viewing them in the light most favorable to the plaintiff. Jones v. General Electric Co., 87 F.3d 209, 211 (7th Cir.), cert. denied, 136 L. Ed. 2d 400, 117 S. Ct. 510 (1996); Wilson v. Formigoni, 42 F.3d 1060, 1062 (7th Cir. 1994). Dismissal is properly granted "'if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Cushing v. City of Chicago, 3 F.3d 1156, 1159 (7th Cir. 1993) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984)).

 FNGP contends that the complaint should be dismissed because Tibor has not alleged the existence of a valid contract. FNGP argues that (1) the SPTCD was a "draft" agreement used solely for the purpose of negotiation; (2) the documents relied on by Tibor contain materially different terms and, in some respects, are mutually exclusive; and (3) the 1992 Quotation and POs were independent "offers" with no relation to the SPTCD. FNGP also argues that the alleged contract would be invalid under the Statute of Frauds. FNGP maintains that Tibor's amended recoupment claim should be dismissed for the additional reasons that (1) the expenses Tibor seeks to recoup were not contemplated by the parties at the time the alleged agreement was made, and (2) Tibor did not share an at-will agency relationship with FNGP. We hold that Tibor has adequately stated a claim for breach of contract in Count V of the complaint. Because it is unclear whether an agency relationship is a necessary component of a claim for recoupment, we reserve judgement, for the moment, on the facial validity of Count VI.

 I. Count V: Breach of Contract

 To prevail on a claim for breach of contract under Illinois law, *fn1" a plaintiff must establish "an offer and acceptance, consideration, definite and certain terms of the contract, plaintiff's performance of all required contractual conditions, the defendant's breach of the terms of the contract, and damages resulting from the breach." Aardvark Art, Inc. v. Lehigh/Steck-Warlick, Inc., 284 Ill. App. 3d 627, 672 N.E.2d 1271, 1275, 220 Ill. Dec. 259 (Ill. App. Ct. 1996) (citing Mannion v. Stallings & Co., Inc., 204 Ill. App. 3d 179, 561 N.E.2d 1134, 1138, 149 Ill. Dec. 438 (Ill. App. Ct. 1990)). These substantive elements are reflected in Illinois pleading requirements. See Ontap Premium Quality Waters, Inc. v. Bank of N. Ill., N.A., 262 Ill. App. 3d 254, 634 N.E.2d 425, 429, 199 Ill. Dec. 586 (Ill. App. Ct. 1994) (holding that a breach of contract claim must include allegations of "the existence of a contract, performance of all contractual conditions, facts of defendant's breach, and the existence of damages as a consequence thereof"); Nuccio v. Chicago Commodities, Inc., 257 ...


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