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March 26, 1999


The opinion of the court was delivered by: Shadur, Senior District Judge.


Although the procedural history of this case is somewhat tortured, it essentially poses a standard contract dispute that arrived in this District Court via removal from the Circuit Court of Cook County on diversity jurisdiction grounds. Each of Hollymatic Corp. ("Hollymatic") and Daniels Food Equipment, Inc. ("Daniels Food"), in its initial pleadings, alleged that the other breached the contracts that provided for a distributor-manufacturer relationship between the companies. Daniels Food then filed an Amended Counterclaim ("A.Cc.") to add a Count III that claimed defamation per se by Hollymatic, based on a sales bulletin that Hollymatic had sent to its dealers about the conflict between the two companies.

Hollymatic now moves for summary judgment under Fed.R.Civ.P. 56 ("Rule 56") on Daniels Food's A. Cc. Count III — the defamation claim. Both parties have briefed their positions fully, and the issue is ready for decision. For the reasons set out in this memorandum opinion and order, Hollymatic's partial summary judgment motion is denied.

Summary Judgment Standards

Familiar Rule 56 principles impose on a party seeking summary judgment the burden of establishing the lack of a genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). For that purpose this Court must "read[] the record in the light most favorable to the nonmoving party," although it "is not required to draw unreasonable inferences from the evidence" (St. Louis N. Joint Venture v. P & L Enters., Inc., 116 F.3d 262, 265 n .2 (7th Cir. 1997)). That stance is reflected in the ensuing Facts section. As for the applicable law, this opinion follows the parties' treatment that looks to Illinois common law in this diversity case.


In May 1992 Hollymatic and Daniels Food entered into a manufacturing agreement and a distributing agreement. Those agreements provided that Daniels Food would be Hollymatic's exclusive manufacturer and that Hollymatic would be Daniels Food's exclusive distributor for some of the food equipment products that Daniels Food manufactured.*fn1 Included in those contracts was a termination provision that allowed either party to end the relationship by giving the other party six months' notice, though the parties would still be required to perform their contractual obligations during that notice period.

Beginning in early 1996 the relationship between the two companies soured. Daniels Food president Ed Daniels ("Daniels") sent a letter to Hollymatic on March 7, 1996 providing the requisite six-months' notice of his intent to terminate the agreements (D.Ex. 2*fn2). Following an April 4, 1996 meeting among Daniels, Hollymatic CEO Jim Azzar ("Azzar") and others including Hollymatic attorney Peter Tolley ("Tolley"), Tolley wrote Daniels a letter stating that he was confirming that Daniels Food had withdrawn its termination notice at that meeting (D.Ex. 5). Although Daniels testified during his deposition that he did not agree to withdraw the notice (Daniels Dep. 272-73), he never responded to Tolley's letter. Instead he asserted in a post-deposition January 22, 1999 affidavit that he was waiting to clear things up at a planned June meeting that Azzar later canceled (Daniels 1999 Aff. ¶¶ 4-6). According to Daniels 1999 Aff. ¶ 7, he kept telling Hollymatic people other than Azzar (whom he did not want to antagonize) that the exclusive arrangement would not exist once the six-month notice period ran out.

For the next year (well past the end of the six-month period) business between the companies appeared to continue smoothly, with Daniels Food (as before) continuing to provide all of its line of products to Hollymatic, although Daniels tried unsuccessfully to arrange a meeting with Azzar. Then on April 21, 1997 Daniels sent Hollymatic a letter stating that Hollymatic did not have exclusive rights over Daniels Food's products, as originally set forth in the March 7, 1996 termination notice letter (H.Ex. 2). That led to a May 28, 1997 meeting between Daniels Food and Hollymatic representatives, including both Daniels and Azzar, which ended shortly after it began because of contentious disagreements about whether the original contracts were still in effect.

Immediately after that May meeting Azzar stopped payment on all Daniels Food invoices. Daniels then told Hollymatic employees that he would be willing to ship equipment to Hollymatic only if it was paid for C.O.D. Daniels also started referring all customers calling with technical questions to Hollymatic, which had previously preferred to provide the first line of defense on service issues anyway. In the meantime Hollymatic was having difficulty with dealers whose orders it could not fill because of the conflict with Daniels Food.

On August 11, 1997 Hollymatic sent a sales bulletin to its roughly 60 to 70 exclusive dealers that contained the allegedly defamatory statement. That letter stated in part (A.Cc.Ex. 2):

  Daniels Food Equipment and Hollymatic Corporation are
  currently engaged in litigation regarding Daniels
  Food Equipment's breach of its manufacturing and
  distribution agreements with Hollymatic. As many of
  you know, Daniels Food Equipment has refused to honor
  technical support, warranty claims and open purchase
  orders for Hollymatic, notwithstanding its
  contractual obligations.

It then went on to assure the dealers that Hollymatic was replacing the Daniels Food line and to remind them of their exclusivity agreements with Hollymatic, which required them to get express written consent from Hollymatic before selling competitive products.

Contract litigation between Hollymatic and Daniels Food had commenced that summer of 1997, before Hollymatic distributed the just-quoted sales bulletin. After Daniels Food amended its previously filed counterclaim on August 6, 1998 to add the Count III defamation count based on the statement in that bulletin, Hollymatic responded with three defenses in its motion for partial summary judgment: (1) the statement in the bulletin was substantially true and thus cannot be defamatory; (2) ...

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