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SOUTHWEST WHEY, INC. v. NUTRITION 101

October 16, 2000

SOUTHWEST WHEY, INC., A CORPORATION, PLAINTIFF,
V.
NUTRITION 101, INC., AN ILLINOIS CORPORATION, AND ROSS PETER, AN INDIVIDUAL, DEFENDANTS, AND NUTRITION 101, INC., AN ILLINOIS CORPORATION, AND ROSS PETER, AN INDIVIDUAL, COUNTERPLAINTIFFS, V. SOUTHWEST WHEY, INC., COUNTERDEFENDANT, AND NUTRITION 101, INC., AN ILLINOIS CORPORATION, AND ROSS PETER, AN INDIVIDUAL, THIRD-PARTY PLAINTIFFS, V. JACK MUSE, THIRD-PARTY DEFENDANT.



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

  OPINION
If you do not want another to tell your secrets, you must not tell them yourself.

Seneca: Phaedra

I. BACKGROUND

On May 10, 1989, Plaintiff Southwest Whey, Inc., ("Southwest Whey") and Defendant Nutrition 101, Inc., ("Nutrition 101") entered into a written agreement to operate a joint venture. Southwest Whey agreed to obtain whey from dairies and Nutrition 101 agreed to market whey to hog farmers in the region east of the Mississippi River and in other areas by mutual agreement. The joint venture was dissolved by Southwest Whey on September 16, 1993.

For most of the 1980's, Southwest Whey's business largely consisted of obtaining and selling whey west of the Mississippi River. Jack Muse ("Muse"), Southwest Whey's president, wanted to expand the business geographically. However, his efforts to obtain contracts with dairies or pork producers east of the Mississippi prior to the commencement of the joint venture produced little, if any, success.

Nutrition 101 was owned and operated by Ross Peter ("Peter"). Nutrition 101 primarily sold feed to pork producers. Peter was experienced in marketing feed to farmers and had an extensive customer base of pork producers. Peter and Muse began discussions which led to the formation of the joint venture on May 13, 1989. A written agreement was included "to guide the joint venture." Southwest Whey "agreed to procure whey from dairies and Nutrition 101 agreed to market whey to hog farmers in the region east of the Mississippi River." The agreement did not specifically include a non-compete restrictive covenant to govern the parties' actions or competition following dissolution.

Neither Southwest Whey nor Nutrition 101 had a written compilation of claimed trade secrets prior to or during the joint venture. The farmer and dairy contracts used by the parties did not contain any confidentiality or non-disclosure provisions. Moreover, Southwest Whey did not impose any confidentiality restrictions upon the dairies to prevent the disclosure of information learned by them from the joint venture regarding the sale, storage, transfer, or delivery of whey. Similarly, no confidentiality restrictions were imposed upon the truck drivers who transported the whey regarding any knowledge they had or may acquire because of their dealings with the joint venture.

By late 1992, a conflict had arisen between the partners to the joint venture. Southwest Whey suggested to Nutrition 101 that the parties consider shutting down the business. In January 1993, the parties met to discuss a proposed buy-sell agreement to wind up the joint venture. Nutrition 101's proposal was not acceptable to Southwest Whey. Southwest Whey's proposal included a restrictive covenant preventing Nutrition 101 from competing with them for ten years. This proposal was rejected by Nutrition 101. The parties were unable to agree to any of the proposals.

By the summer of 1993, Muse began to inform dairies of his plan to end Nutrition 101's interest in the joint venture. Muse visited farmers who purchased whey from the joint venture in St. Louis, Missouri, during the first week of September of 1993. He inquired as to whether farmers would continue to purchase whey at the same terms and prices if the joint venture ended and Southwest Whey ended up with the business. Muse indicated that each farmer agreed that they would continue to purchase from Southwest Whey.

On September 16, 1993, Southwest Whey informed Nutrition 101 that it had decided to cease operations as a joint venture, and that Nutrition 101 would no longer have access to whey from dairies under contract with the joint venture. One month later, Southwest Whey notified the customers of the dispute and solicited their continued business. Southwest Whey had no written contracts with pork producers who had no obligation to continue to take whey and could at any time "come and go."

This case was originally filed on September 11, 1998. On March 31, 2000, Southwest Whey filed its eight-count amended complaint against Nutrition 101, alleging (I) Breach of Contract; (II) Interference with Prospective Advantage; (III) Violation of Illinois Trade Secrets Act ("ITSA") (765 ILCS 1065/1 et. seq. (West 1998)); (IV) Violation of Illinois Trade Secrets Act — Exemplary Damages, (765 ILCS 1065/4(b) (West 1998)); (V) Conversion; (VI) Breach of Fiduciary Duty; (VII) Breach of Fiduciary Duty — Exemplary Damages; and (VIII) Breach of Good Faith and Fair Dealing.

Nutrition 101 has moved for summary judgment on four counts: Count II, Interference with Prospective Advantage; Count III, Violation of ITSA; Count IV, Violation of ITSA — Exemplary Damages; and Count VIII, Breach of Good Faith and Fair Dealing.

II. Standard for Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.Pro. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In conducting this inquiry, the evidence of the non-movant is to be believed, and "all justifiable inferences drawn in his favor." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The moving party has the burden of producing documentary evidence to show the absence of a genuine issue of material fact. A genuine issue of material fact exists when "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In determining whether a genuine issue of material fact exists, the court must consider the evidence in the light most favorable to the nonmoving party. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Once the moving party has met its burden, the opposing party must come forward with specific evidence, not mere allegations or denials of the pleadings, which demonstrates that there is a genuine issue for trial. See Howland v. Kilquist, 833 F.2d 639 (7th Cir. 1987).

III. Breach of Good Faith and Fair Dealing (Count VIII)

The Court will address the counts in the order addressed by the parties. Count VIII of Southwest Whey's complaint alleges Breach of Good Faith and Fair Dealing. Nutrition 101 moves for summary judgment on Count VIII.

A duty of good faith and fair dealing is implied in every contract in Illinois. See Saunders v. Michigan Avenue National Bank, 278 Ill. App.3d 307, 315, 214 Ill.Dec. 1036, 662 N.E.2d 602 (1996). Pursuant to the duty, a party vested with contractual discretion is required to exercise that discretion reasonably and not arbitrarily, capriciously, or in a manner inconsistent with the parties' reasonable expectations. See Northern Trust Co. v. VIII South Michigan Associates, 276 Ill. App.3d 355, 367, 212 Ill.Dec. 750, 657 N.E.2d 1095 (1995). However, an independent claim based upon a breach of any implied duty of good faith generally is not recognized in Illinois. See Echo, Inc. v. Whitson Co., Inc., 121 F.3d 1099, 1106 (7th Cir. 1997); See also Brooklyn Bagel Boys, Inc. v. Earthgrains Refrigerated Dough Products, Inc., 212 F.3d 373, 381 (7th Cir. 2000).

The Court notes that the Illinois Second District Appellate Court recently indicated that an independent action for breach of good faith and fair dealing may exist in certain limited situations. See Voyles v. Sandia Mortgage Corp., 311 Ill. App.3d 649, 656, 724 N.E.2d 1276, 1281, 244 Ill. Dec. 192, 197-98 (2nd Dist. 2000). However, that court noted the concern that this recognition "will swallow ordinary breach of contract cases." Accordingly, the court limited its holding to the narrow circumstances of the case before it. See Voyles, 311 Ill.App.3d at 656, 724 N.E.2d 1276, 244 Ill.Dec. 192. Illinois courts have been reluctant to allow a plaintiff to bootstrap a breach of duty of good faith and fair dealing claim on the same factual basis as a breach of contract claim. See Teachers Insurance & Annuity Association of America v. LaSalle National Bank, 295 Ill. App.3d 61, 74, 691 N.E.2d 881, 891, 229 Ill.Dec. 408 (2d Dist. 1998).

A review of the complaint indicates that except for one addition, Southwest Whey's breach of duty of good faith and fair dealing claim (Count VIII) is identical to its breach of contract claim (Count I). In Count VIII, Southwest Whey adds one additional sentence alleging that the breach of contract action also constitutes a bad faith claim. Because Illinois generally does not recognize a separate cause of action for breach of duty of good faith and fair dealing, Nutrition 101 contends that it is entitled to summary judgment on Count VIII.

Southwest Whey has alleged no such egregious conduct here. Moreover, their argument that Nutrition 101 had broad discretion pursuant to the joint venture does not alone support an independent cause of action. The key to the Voyles decision was the nature of the case and the wrongfulness of defendant's conduct. 311 Ill.App.3d at 656-57, 244 Ill.Dec. 192, 724 N.E.2d 1276. It was not the fact that a party had abused its broad discretion pursuant to a contract.

The court in Voyles noted the concern that the recognition of such a tort could "swallow ordinary breach of contract cases." Because of the nature of the case, the risk there was low. Voyles, 311 Ill. App.3d at 656, 244 Ill.Dec. 192, 724 N.E.2d 1276. Here, the risk is much greater. Southwest Whey has basically restated its contract claim in Count VIII. They have merely added a sentence to Count I. Therefore, it appears to the Court as though they are merely trying to bootstrap Count VIII to their breach of contract claim. Southwest Whey has failed to articulate any of the criteria identified by the court in Voyles that future bad faith ...


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