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NEWSUB MAGAZINE SERVICES LLC v. HEARTLAND DIRECT INC.

March 15, 2004.

NEWSUB MAGAZINE SERVICES LLC and GIFT SERVICES, LLC, Plaintiffs/Counter — Defendants;
v.
HEARTLAND DIRECT, INC., Defendant/Counter — Plaintiff



The opinion of the court was delivered by: JOHN GRADY, Senior District Judge

MEMORANDUM OPINION

Before the court are plaintiffs/counter — defendants' motion for summary judgment. For the reasons stated below, the motion for summary judgment as to liability on Counts I and II of plaintiffs' complaint is granted as to Count I and denied as to Count II, and the motion for summary judgment on defendant/counter — plaintiff's counterclaim is granted in part.

BACKGROUND

  This is a diversity action for breach of contract. Plaintiff's Newsub Magazine Services LLC ("Newsub") and Gift Services, LLC ("Gift Services") market and sell magazine subscript ions and merchandise, respectively, through "Inserts" included in credit — card statements. Chevron Products Company ("Chevron"), which is not a party to this action, allows third parties such as Newsub and Gift Services to market their products to Chevron's credit card Page 2 holders through the placement of these inserts in Chevron credit card statements. Chevron receives a commission from these third parties. Defendant Heartland Direct, Inc. ("Heartland") acted as a middleman between plaintiffs and Chevron (for which Heartland also received a commission). Heartland obtained "slots" for bill inserts from Chevron for plaintiffs, and it received from Chevron and forwarded to plaintiffs proceeds from the sale of merchandise to credit card customers, less Chevron's and Heartland's commissions.*fn1

  This action arises out of Heartland's alleged failure to — turn over to plaintiffs approximately $900,000 in. sale proceeds that. Chevron remitted to Heartland. Plaintiffs claim that this failure constituted a breach of an oral agreement between plaintiffs and Heartland (Count I). In the alternative, plaintiffs bring an unjust enrichment claim (Count II). Count III of the complaint is a conversion claim.

  Heartland had a contract with Chevron (the "Heartland/Chevron Agreement") to act as a middleman with regard to credit card statement inserts. According to Heartland, plaintiffs interfered with this contract by inducing Chevron to deal directly with plaintiffs and cut out Heartland. Heartland has filed a three — count counterclaim alleging tortious interference with contract Page 3 (Count I) and tortious interference with prospective economic advantage (Count II). Count HI of the counterclaim seeks a declaratory judgment of "the rights an contend obligations of the parties pursuant to the various agreements entered into by the parties," "the extent of entitlement to the funds in question." and "the liabilities of the parties under any agreements that may exist," (Answer/Counterclaim at 21.)

  Plaintiffs now move for summary judgment as to liability on Counts I and II of the complaint and for summary judgment on Heartland's counterclaim.

  DISCUSSION

  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 a judgment as a matter of law." Fed.R.Civ.P. 56(c). In considering such a motion, the court construes the evidence and all inferences that reasonably can be drawn therefrom in the light, most favorable to the nonmoving party — see Pitasi v. Gartner Group, Inc., 184 F.3d 709, 714 (7th Cir. 1999), "Summary judgment should be denied if the dispute is `genuine': `if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Talanda v. KFC Nat'l Mgmt. Co., 140 F.3d 1090, 1095 (7th Cir. 1998) (quoting Anderson v. Liberty, Lobby, Page 4 Inc., 477 U.S. 242, 248 (1986)). The court will enter summary judgment against a party who does not "come forward with evidence that would reasonably permit the finder of fact to find in [its] favor on a material question." McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir. 1995).

 A. Plaintiffs' Motion for Summary Judgment as to Liability on Counts I and II of Plaintiffs' Complaint

  Plaintiffs contend that they are entitled to summary judgment as to Heartland's liability on Count I of the complaint, which alleges breach of contract. To prove a claim for breach of contract under Illinois law, a plaintiff must show the existence of a contract, that plaintiff substantially performed its obligations under the contract, that defendant breached the contract, and that plaintiff suffered damage as a result. See. Klem v. Mann, 665 N.E.2d 514, 518 (Ill.App. Ct. 1996).

  1. Existence of a Contract

  The parties first came in contact with each other some Lime in early or mid — 1999. They never executed a written contract. Instead, plaintiffs submit evidence of an oral agreement that the parties would participate together in credit card insert promotion in the following way. Heartland, by virtue of its agreement with Chevron, was permitted to bid on "slots," which were spaces in Chevron's monthly credit card bills for advertising inserts. If plaintiffs wanted slots for a given promotion, they would inform Page 5 Heartland, which would reserve the slots. Plaintiffs were responsible for timely providing the inserts, providing the merchandise being advertised in the inserts, paying the sales taxes, and handling customer service. Credit card holders who ordered plaintiffs' merchandise would pay Chevron. Heartland was responsible to be the conduit through which Chevron transferred to plaintiffs their sales proceeds (less Chevron's commission). For its services as middleman, Heartland received a commission of $2.00 per 1000 inserts. (Plaintiffs' Local Rule 56.1 Statement, E.x. 1, Affidavit of Laurence Sheinman; Ex. 2, Transcript of Deposition of Charles Rey.)

  Heartland does not dispute these mechanics of the parties' relationship. However, Heartland insists that there was no "formal" agreement, but merely what it deems a "`Let's Get the Business Done' transaction." (Defendant's Local Rule 56.1 Response, 122,) Whether the agreement can be deemed "formal" is neither here nor there; the issues are simply whether there was an agreement, and if so, whether one of the agreed — upon terms was Heartland's responsibility for transferring the money it received from Chevron to plaintiffs, less commissions.

  Heartland's position is belied by the testimony of its president, Charles Rey, that plaintiffs and Heartland agreed that they would conduct business together in the manner outlined supra. Page 6 (Plaintiffs' Local Rule 56.1 Statement, Ex. 2, at 60-76.)*fn2 Heartland also explicitly states repeatedly in its Counterclaim that there was an agreement between the parties and describes what Heartland alleges were the terms:
10. Because Counter — Defendants did not have a marketing agreement with Chevron in the first quarter of 1999, Heartland and Counter — Defendants entered into an agreement whereby Heart], and agreed to solicit mailing slots from Chevron for Counter — Defendants so that Counter — Defendants would be able to sell its ["sic"] products through Chevron.
11. The agreements between Heartland and Counter — Defendants allowed Counter — Defendants to do business with Chevron and specified that Heartland was the seller. Chevron would then forward the proceeds from those sales to Heartland minus Chevron's commission pursuant to the [Heartland/Chevron Agreement].
12. In accordance with the agreement, between the parties and [the Heartland/Chevron Agreement], Counter — Defendants periodically printed and sent Inserts, previously approved by Chevron, to Chevron's "insertion facility." At this facility, Chevron assembled its customer billing statements with Counter — Defendants' Inserts.
(Answer/Counterclaim at 16-17.) Heartland wholly fails to acknowledge its prior position or ...

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