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MAGELLAN INTERN. CORP. v. SALZGITTER HANDEL GMBH

December 7, 1999

MAGELLAN INTERNATIONAL CORPORATION, PLAINTIFF,
v.
SALZGITTER HANDEL GMBH, DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

Salzgitter Handel GmbH ("Salzgitter") has filed a motion pursuant to Fed. R.Civ.P. ("Rule") 12(b)(6) ("Motion"), seeking to dismiss this action brought against it by Magellan International Corporation ("Magellan"). Because the allegations in Complaint Counts I and II state claims that are sufficient under Rule 8(a), Salzgitter's Motion must be and is denied as to those claims. Count III, however, is deficient and is therefore dismissed without prejudice.

Facts

In considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, this Court accepts all of Magellan's well-pleaded factual allegations as true, as well as drawing all reasonable inferences from those facts in Magellan's favor (Travel All Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1429 (7th Cir. 1996)). What follows is the version of events set out in the Complaint, when read in that light.

Offers, Counteroffers and Acceptance

Magellan is an Illinois-based distributor of steel products. Salzgitter is a steel trader that is headquartered in Dusseldorf, Germany and maintains an Illinois sales office. In January 1999*fn1 Magellan's Robert Arthur ("Arthur") and Salzgitter's Thomas Riess ("Riess") commenced negotiations on a potential deal under which Salzgitter would begin to act as middleman in Magellan's purchase of steel bars — manufactured according to Magellan's specifications — from a Ukrainian steel mill, Dneprospetsstal of Ukraine ("DSS").

By letter dated January 28, Magellan provided Salzgitter with written specifications for 5,585 metric tons of steel bars, with proposed pricing, and with an agreement to issue a letter of credit ("LC") to Salzgitter as Magellan's method of payment. Salzgitter responded two weeks later (on February 12 and 13) by proposing prices $5 to $20 per ton higher than those Magellan had specified.

On February 15 Magellan accepted Salzgitter's price increases, agreed on 4,000 tons as the quantity being purchased, and added $5 per ton over Salzgitter's numbers to effect shipping from Magellan's preferred port (Ventspills, Latvia). Magellan memorialized those terms, as well as the other material terms previously discussed by the parties,*fn2 in two February 15 purchase orders. Salzgitter then responded on February 17, apparently accepting Magellan's memorialized terms except for two "amendments" as to prices. Riess asked for Magellan's "acceptance" of those two price increases by return fax and promised to send its already-drawn-up order confirmations as soon as they were counter-signed by DSS. Arthur consented, signing and returning the approved price amendments to Riess the same day.

On February 19 Salzgitter sent its pro forma order confirmations to Magellan. But the general terms and conditions that were attached to those confirmations differed in some respects from those that had been attached to Magellan's purchase orders, mainly with respect to vessel loading conditions, dispute resolution and choice of law.

Contemplating an ongoing business relationship, Magellan and Salzgitter continued to negotiate in an effort to resolve the remaining conflicts between their respective forms. While those fine-tuning negotiations were under way, Salzgitter began to press Magellan to open its LC for the transaction in Salzgitter's favor. On March 4 Magellan sent Salzgitter a draft LC for review.*fn3 Salzgitter wrote back on March 8 proposing minor amendments to the LC and stating that "all other terms are acceptable." Although Magellan preferred to wait until all of the minor details (the remaining conflicting terms) were ironed out before issuing the LC, Salzgitter continued to press for its immediate issuance.

On March 22 Salzgitter sent amended order confirmations to Magellan. Riess visited Arthur four days later on March 26 and threatened to cancel the steel orders if Magellan did not open the LC in Salzgitter's favor that day. They then came to agreement as to the remaining contractual issues.*fn4 Accordingly, relying on Riess's assurances that all remaining details of the deal were settled, Arthur had the $1.2 million LC issued later that same day.

Post-Acceptance Events

Three days later (on March 29) Arthur and Riess engaged in an extended game of "fax tag" initiated by the latter. Essentially Salzgitter demanded that the LC be amended to permit the unconditional substitution of FCRs for bills of lading — even for partial orders — and Magellan refused to amend the LC, also pointing out the need to conform Salzgitter's March 22 amended order confirmations to the terms of the parties' ultimate March 26 agreement. At the same time, Magellan requested minor modifications in some of the steel specifications. Salzgitter replied that it was too late to modify the specifications: DSS had already manufactured 60% of the order, and the rest was under production.

Perhaps unsurprisingly in light of what has been recited up to now, on the very next day (March 30) Magellan's and Salzgitter's friendly fine-tuning went flat. Salzgitter screeched an ultimatum to Magellan: Amend the LC by noon the following day or Salzgitter would "no longer feel obligated" to perform and would "sell the material elsewhere." On April 1 Magellan requested that the LC be canceled because of what it considered to be Saltzgitter's breach. Salzgitter returned the LC and has since been attempting to sell the manufactured steel to Magellan's customers in the United States.

Magellan's Claims

Complaint Count I posits that — pursuant to the Convention — a valid contract existed between Magellan and Salzgitter before Salzgitter's March 30 ultimatum. Hence that attempted ukase is said to have amounted to an anticipatory repudiation of that contract, entitling Magellan to relief for its breach.

Count II seeks specific performance of the contract or replevin of the manufactured steel. That relief is invoked under the Illinois version of the Uniform Commercial Code ("UCC," specifically 810 ILCS 5/2-716)*fn5 because Magellan is "unable to `cover' its delivery commitments to its customers without [un]reasonable delay" (Complaint ¶ 42).

Finally, Count III asserts that specifications given to Salzgitter for transmittal to DSS constitute "trade secrets" pursuant to the Illinois Trade Secrets Act ("Secrets Act," which defines the term "trade secret" at 765 ILCS 1065/2(d)). Salzgitter is charged with misappropriation of those trade secrets in attempting to sell the manufactured steel embodying those secrets to Magellan's customers (Complaint ¶¶ 9, 45-47). Magellan relatedly claims that the threat of future disclosure and use of those asserted trade secrets by Salzgitter causes Magellan irreparable harm (Complaint ¶ 49).

Documentary Grist for the Motion Mill

As an initial matter, Magellan's Response to Defendant's 12(b)(6) Motion To Dismiss ("Response") includes a request that Salzgitter's Rule 12(b)(6) pleading motion be converted to one for summary judgment under Rule 56, with Magellan thus having the right to obtain further evidence under Rule 56(f) to support the Response.*fn6 It is of course true that such an option is made available to a court under Rule 12(b) where "matters outside the pleading are presented to and not excluded by the court." But that alternative seldom makes sense at the threshold stage of any litigation (see, e.g., Rodi v. Society Nat'l Bank, No. 97 C 8441, 1998 WL 61200, at *1 (N.D.Ill. Feb. 9, 1998) — and even then it is ordinarily considered at the instance of a moving defendant, not a responding plaintiff).*fn7 Just so, Magellan's invitation is declined here.

Indeed, even apart from that last-mentioned consideration, the quoted Rule 12(b) language does not come into play in this case because the Salzgitter exhibits are not really "matters outside the pleading." That is so because the Complaint refers expressly or implicitly to all of the exhibits added to the Salzgitter Motion. Hence those exhibits can properly be considered as part of the pleadings (see, e.g., Venture Assocs. Corp. v. Zenith Data Sys. Corp., 98 ...


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