United States District Court, N.D. Illinois
February 6, 2004.
J.V. PRO, INC
The opinion of the court was delivered by: PHILIP REINHARD, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, Larry Schumacher, filed a six-count, amended complaint
against defendants, J.V. Pro, Inc.(J V. Pro), Vincent Palmeri,
John Rudolph, Mark Skadowski, Charles Stiles, and Paragon Creative
Productions, Inc. (Paragon), alleging patent infringement in Count I,
breach of fiduciary duties in Count II, fraud in Count III, negligence in
Count IV, conversion in Count V, and a request for an accounting and
imposition of a constructive trust in Count VI. All claims are directed
at J.V. Pro, Palmeri, Rudolph, Skadowski, and Stiles. There are no
allegations against Paragon, and, in feet, me amended complaint alleges
numerous times that Paragon was injured by the acts of the other
defendants. Counts II-VI, as supplemental state-law claims, are based on
Illinois law and are brought by plaintiff "acting on his own behalf,
individually and as a minority shareholder of Paragon, and acting
representatively and derivatively on behalf of all similarly situated
minority stockholders of Paragon."
Defendants, J. V. Pro, Palmeri, and Stiles, have filed a motion for
summary judgment, contending that: (1) as to Count I, Palmeri and Stiles
did not actively induce the alleged patent infringement; (2) as to Count
II, plaintiff has no basis to bring a claim on his own behalf; (3) as to
Count II, Palmeri, Stiles, and J.V. Pro, did not have, nor did they
breach any, fiduciary duty; (4) as to Count II, Paragon was not deprived
of a corporate opportunity; (5) as to Count II, there is no evidence that
Palmeri, Stiles, and J.V. Pro diverted assets from Paragon to J.V. Pro;
(6) as to Count II, no breach of fiduciary duty occurred regarding
customer lists, pricing information, or any other confidential
information; (7) as to Count III, there is no evidence of fraud on the
pan of Palmeri, Stiles, or J. V Pro; (8) as to Count IV, there is no
evidence of negligence by any of these three defendants; (9) as to Count
V, there is no evidence that Palmeri, Stiles, or J.V. Pro converted any
property belonging to Paragon; and (10) as to Count VI, there is no
evidence of the need for either an accounting or a constructive trust.
Plaintiff filed an amended cross-motion for summary judgment in which
he contends that: (1) he is entitled to judgment on his claim that some
of the scoring tables produced by J.V. Pro infringed his patent; and (2)
he is entitled to judgment on his claim of breach of fiduciary duty in
Count II and conversion in Count V.
Summary judgment is proper where there is no genuine issue of
material fact and the moving party is entitled to judgment as matter of
law. Windle v. City of Marion. 321 F.3d 658, 660 (7th Cir.
The court first addresses a matter not raised by either motion. The
court sua sponte dismisses Paragon as a defendant as there are no
allegations directed at Paragon in the amended complaint, albeit Paragon
has filed a counterclaim against plaintiff.
Next, the court will take up plaintiff's cross-motion for summary
judgment. In that regard, the court denies the motion as to Counts II and
V as plaintiff has failed to demonstrate an absence of any genuine issues
of material fact or that he is entitled to judgment as a matter of law as
to those claims.
As for his claim of infringement of claim 1 of the `056 patent, the
court grants partial summary judgment on the narrow issue of whether
defendants infringed claim I. In so ruling, the court notes the absence
of any question of material fact as well as the lack of dispute by
defendants that they did in fact infringe the patent for the limited
period asserted There remain, however, issues of material fact related
to Count I and judgment is not entered as to those issues.
Turning to defendants' motion for summary judgment, the court grants
summary judgment as to all claims in Counts II-VI as they pertain to
defendant Stiles because claim in Count I. The undisputed facts show that
Stiles was merely an employee during the time when the alleged conduct
occurred and that he was not involved in the decision making process
during that time.
Regarding Count I, the court denies summary judgment as there is
evidence that would lead a reasonable trier of fact to find that Palmeri
and Stiles (as an officer and shareholder of J.V. Pro) knew of the
pending patent application and decided to make and sell the tables in a
form that could potentially infringe the sought after patent. This is not
to suggest that plaintiff will ultimately prevail on this claim but only
to conclude that there is enough evidence to withstand a summary judgment
in favor of these two defendants.
The court also rejects defendants' argument that plaintiff cannot
maintain any individual claim for breach of fiduciary duties as alleged
in Count II and that those claims are limited to a shareholder derivative
suit on behalf of Paragon and its other minority shareholders. Under
Illinois law, a stockholder does not acquire standing to maintain an
action individually when the injury is inflicted upon the corporation and
the only injury to the shareholder is the indirect harm which consists of
the diminution in value of his corporate assets. Small v.
Sussman, 306 III. App.3d 639, 643, 713 N.E.2d 1216, 1219 (1999).
If, on the other hand, the gravamen of the complaint states an injury to
the plaintiff upon an individual claim as distinguished from an injury
which indirectly affects the shareholders or affects them as a whole,
then the plaintiff may pursue individual claims based on a breach of
fiduciary duties Elmhurst Consulting Co. v. Gibson,
219 F.R.D. 125, 127 n. I (N.D. Ill. 2003) (citing Zokoych v. Spalding,
36 Ill. App.3d 654, 344 N.E.2d 805 (1976)). Examples of such individual
injuries would be removal as president and director, loss of salary, and
leaving the party as a guarantor of a corporate debt. Gibson,
219 F.R D. at 127 n. 1.
Here, while plaintiff is not entitled to recover individually for
general harm caused to Paragon by the alleged conduct of defendants, he
may recover for the above-described type of injuries, and has submitted
evidence sufficient to withstand summary judgment on those type of claims
as alleged in Count II.
Summary judgment is also denied on the asserted bases that there are no
genuine issues of material fact as to whether defendants owed or breached
a fiduciary duty, whether defendants diverted assets from Paragon to J.
V. Pro, whether defendants committed fraud, whether defendants acted
negligently, whether defendants converted property, and whether plaintiff
is entitled to an accounting or the imposition of a constructive trust.
Plaintiff's claim in Count III is, however, limited to constructive fraud
as opposed to actual fraud. See Hoopingarner v. Stenzel,
329 Ill. App.3d 271, 278, 768 N.E.2d 772, 778 (2002). As for negligence in
Count IV, plaintiff is limited under the business judgment rule to
showing that defendants acted in bad faith, abused their, discretion, or
acted with gross negligence See Spillyards v. Abboud,
278 Ill. App.3d 663, 681, 662 N.E.2d 1358, 1370 (1996).
The court grants defendants' summary judgment motion to the extent it
is directed at the usurpation of corporate opportunity theory of
liability in Count II. An essential element of that theory is the failure
to disclose the opportunity to the corporation which would have allowed
the corporation to act upon it. Goldberg v. Michael, 328 111.
App.3d 593, 599, 766 N.E 2d 246, 251 (2002). Here, it is undisputed that
both plaintiff and Paragon were keenly aware of the opportunity to
produce and sell scoring tables and did in fact do so prior to, during,
and after the demise of Paragon
The court also grants summary judgment in defendants' favor on
plaintiff's claim in Count II that defendants breached their fiduciary
duty regarding certain customer lists, pricing information, and other
confidential information. Plaintiff has failed to submit any evidence
that any of the information was in fact confidential or otherwise
For the foregoing reasons, the court grants plaintiff's motion for
summary judgment in part and denies it in part, grants in part
defendants' motion for summary judgment, and denies in part defendants'
motion for summary judgment. The parties are ordered to set a conference
with the magistrate judge to discuss mediation of this case.
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