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BRANDON APPAREL GROUP v. QUITMAN MANUFACTURING

June 28, 1999

BRANDON APPAREL GROUP, INC., PLAINTIFF,
v.
QUITMAN MANUFACTURING COMPANY, INC., DEFENDANT. QUITMAN MANUFACTURING COMPANY, INC., COUNTER-CLAIMANT, V. BRANDON APPAREL GROUP, INC., BRADLEY KEYWELL, AND ERIC LEFKOFSKY, COUNTER-DEFENDANTS.



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

  MEMORANDUM OPINION AND ORDER

Before the court is counter-defendants Brandon Apparel Group, Inc., Bradley Keywell, and Eric Lefkofsky's motion to dismiss Counts I-IV of counter-claimant Quitman Manufacturing Company's counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the court grants the motion to dismiss as to Counts I-III and denies the motion as to Count IV.

I. BACKGROUND

A. Procedural history

Brandon Apparel Group ("Brandon") is a manufacturer and distributor of licensed apparel that is embroidered with the logos of various athletic teams. Quitman Manufacturing Company ("Quitman") is a manufacturer of sports apparel. On November 6, 1998, Brandon filed suit against Quitman in this court, asserting claims for breach of contract, fraud and misrepresentation, and unjust enrichment. This court has subject matter jurisdiction over the case pursuant to 28 U.S.C. § 1332 as there exists complete diversity between the parties and the amount in controversy exceeds $75,000.

In response to Brandon's complaint, Quitman filed a motion to dismiss for lack of personal jurisdiction, to dismiss for improper venue, or, alternatively, to transfer the case pursuant to 28 U.S.C. § 1404(a). The court denied Quitman's motion and ordered Quitman to file an answer to Brandon's first amended complaint. Brandon Apparel Group, Inc. v. Quitman Mfg. Co., 42 F. Supp.2d 821 (N.D.Ill. 1999).

On April 9, 1999, Quitman filed an answer to Brandon's first amended complaint. Quitman also filed a counterclaim, naming Brandon, Bradley Keywell ("Keywell"), and Eric Lefkofsky ("Lefkofsky") as counter-defendants. Keywell and Lefkofsky are officers of Brandon. The counterclaim contains eight counts: Counts I-III are claims for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962; Count IV is a claim for fraud; Count V and VI are claims for breach of contract; Count VII is a claim for conversion; and Count VIII is a claim for unjust enrichment.

On May 20, 1999, Brandon, Keywell, and Lefkofsky jointly filed a motion to dismiss Counts I-IV of Quitman's counterclaim. It is this motion that is currently before the court.

B. Allegations in Quitman's counterclaim

Quitman's counterclaim makes the following allegations which, for the purpose of ruling on this motion to dismiss, are taken as true.*fn1 In late 1997 and early 1998, representatives from Brandon and Quitman engaged in conversations relating to the possibility of Brandon and Quitman doing business together, the ability of Quitman to meet Brandon's production needs, and the possibility of the two companies merging. On March 16, 1998, Brandon sent Quitman a list of various items that Brandon expected to sell in the Fall of 1998. After a Quitman representative told Brandon that Quitman was ready to begin producing sports apparel for Brandon, Brandon sent Quitman many purchase orders. At its Georgia production facility, Quitman began producing the apparel ordered by Brandon.

In May of 1998, Brandon suggested that Brandon guarantee payment for the clothing being manufactured for it by Quitman via a factoring agreement involving Brandon's business with Montgomery Wards ("Wards"). Brandon told Quitman that Wards was a client with whom Brandon had ongoing business. Pursuant to the factoring agreement, Brandon would direct Wards to send to Quitman or Quitman's factor the payments which Wards owed to Brandon. In order to induce Brandon to enter into the factoring agreement, Brandon representatives knowingly made the following false and fraudulent statements: On June 29, 1998, Lefkofsky told Quitman via an interstate wire communication that during July of 1998, Brandon would be sending Wards approximately $300,000 worth of merchandise and that Wards' payment for the merchandise could be factored through Quitman. In July of 1998, Keywell represented to Quitman via an interstate wire communication that Brandon would be doing approximately $1,000,000 worth of business with Wards between July and December of 1998 and that Wards' payments to Brandon could be factored through Quitman.

Based on Keywell's and Lefkofsky's representations, Brandon and Quitman entered into the factoring agreement involving the Wards business. The factoring agreement provided that Brandon would direct Wards to pay invoices owed to Brandon to a factor account for Quitman established at Sun Trust Bank. The money paid was to serve as collateral to ensure that Brandon paid Quitman for the merchandise. Brandon, Keywell, and Lefkofsky each knew that the factoring agreement was actually a part of their scheme to defraud Quitman and Wards.

In reliance on the factoring agreement and a $50,000 letter of credit obtained by Brandon on behalf of Quitman, Quitman made many shipments of goods in July of 1998. On August 4, 1998, Quitman requested Brandon to issue the $50,000 letter of credit along with written authorization to offset payment owed by Brandon to Quitman with money collected pursuant to the factoring agreement. On August 17, 1998, Keywell authorized Quitman to offset the payment due with the money from the factoring agreement even through Keywell knew that Wards was being double billed by Brandon for the invoices. Keywell also issued the letter of credit on August 20, 1998.

In reliance on the factoring agreement, Brandon's ongoing assurances, and the $50,000 letter of credit, Quitman made many more shipments to Brandon in the month of August of 1998. On August 21, 1998, Quitman told Brandon that it owed Quitman $419,270.60 and that the Wards' invoices provided to Quitman only totaled $186,970.67. On August 25, 1998, Lefkofsky and Keywell denied the earlier agreements to provide collateral and told Quitman that it owed Brandon for fabric that was to be used in Brandon garments. Quitman agreed to offset Brandon's outstanding balance by the $32,626.96 invoice for the fabric.

During the months of August through early October of 1998, the parties continued to haggle back and forth about goods to be shipped by Quitman to Brandon and outstanding balances owed by Brandon to Quitman. Quitman continued to ship goods to Brandon after receiving money from either the factoring agreement or interstate wire transfers of funds.

In October of 1998, the relationship between the parties fell apart. Beginning on October 6, 1998 and continuing until the present time, Brandon refused to wire any additional money to Quitman and refused to factor enough Wards' invoices to cover the scheduled shipments. At least two times during October, Quitman was forced to transfer money collected pursuant to the factoring agreement to cover unpaid invoices owed by Brandon to Quitman. Quitman continues to hold orders in the amount of $78,750 for which Brandon refuses to pay and $35,000 worth of raw materials that is useless to Quitman.

II. DISCUSSION

A. Standard for deciding a Rule 12(b)(6) ...


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