United States District Court, N.D. Illinois
May 4, 2004.
NATURAL JUICE CO., Plaintiff,
ORCHID ISLAND JUICE CO., Defendant
The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Natural Juice Company (hereinafter, "Natural") brought this
action against defendant Orchid Island Juice Company (hereinafter,
"Orchid") seeking damages for breach of contract (Count I) and a
declaratory judgment (Count II) of its contractual rights. Pending before
the Court is Orchid's Motion to Dismiss Pursuant to Federal Rule of Civil
Procedure 12(b)(6), for failure to state a claim upon which relief may be
Natural is an Illinois corporation engaged in the business of selling
and distributing fresh squeezed fruit and vegetable juice products.
Natural has filed a two-count complaint against Orchid, one of its juice
suppliers, alleging that Orchid has breached its obligations under an
Amended and Restated Exclusive Supply and Independent Distributor Master
Agreement (the "Revised Agreement").
According to Natural's Amended Complaint, prior to entering the Revised
Agreement, Natural was party to an exclusive distributorship agreement
(the "Original Agreement") with the Fresh Juice Company (hereinafter, "FJC"). FJC was subsequently bought by
a company called Saratoga Beverage Group, which was then bought by a
company called North Castle Partners (hereinafter, "North Castle"). A
few months later, North Castle purchased Orchid and consolidated the
manufacturing and packaging operations of FJC, Saratoga, Orchid, and
Shortly thereafter a dispute arose regarding the performance of North
Castle and its affiliated companies under the Original Agreement. Natural
subsequently filed suit in January 2001 against North Castle, Saratoga,
FJC, and Orchid for breach of the Original Agreement. Within about a
month of filing suit, however, Natural entered into the Revised Agreement
with FJC; Orchid; California Day-Fresh Foods, Inc.; Fantasia Fresh Juice
Company; and M. H. Zeigler and Sons, Inc. (each individually a
"party-company" or collectively the "party-companies"). According to
Natural, the parties settled the litigation and Natural dismissed its
claims in return for the party-companies' entering into the Revised
The Revised Agreement provided that the party-companies would use
commercially reasonable efforts to supply Natural with juice products for
Natural to distribute exclusively within the territory covered by the
agreement. Moreover, the party-companies were to supply products from a
party-company maintaining a Florida-based production facility when
commercially feasible. According to Natural, the only party-company with a Florida-based production
facility was and is Orchid.
The agreement did not obligate Natural to buy any minimum quantity of
juice from the party-companies. However, the agreement required Natural
to use commercially reasonable efforts to increase its sales. In
addition, the agreement provided that if Natural failed to purchase at
least 20,000 gallons of juice in any given month, the party-companies
could terminate the Revised Agreement without penalty.
Under the Revised Agreement, Natural paid for its requirements on "cost
plus $1.30" basis. In other words, for every gallon of juice supplied,
Natural paid the supplier $1.30 plus the cost of the fruit, packaging,
labeling, and pasteurization.
The Revised Agreement also permitted the "Companies" (i.e., the
party-companies) to terminate the agreement "without cause." To exercise
this provision, the party-companies would have to provide Natural with 60
days written notice, and pay a contractually-specified termination fee.
The Revised Agreement initially set this fee at $2.5 million, with the
fee declining by roughly $21,000 per month between March 1, 2004 and
February 28, 2011, when the fee would reach zero. The parties disagree as
to whether the agreement required payment of a termination fee for
any without cause termination, or only for without cause
terminations that met the contractually-specified conditions (i.e., 60
days written notice, apparent breach by all the party-companies
On October 31, 2003, following a dispute with Orchid concerning alleged
overcharges, Natural demanded assurances from Orchid that it would
continue to perform under the Revised Agreement. Orchid responded in a
November 4, 2003 letter, stating that it "intends to perform pursuant to
the Agreement," and that one its employees "is calling [Natural] to
schedule a pricing conference." Representatives of both parties attended
such a meeting on November 12, 2003. At this meeting, Natural claims that
Orchid stated that it neither would pay the overcharge credits requested
by Natural, nor continue to sell products to Natural at the price
specified in the Revised Agreement. In addition, Natural claims that
Orchid threatened that if Natural did not renegotiate its pricing, Orchid
would supply product from third-party vendors. These alleged statements
and threats by Orchid form the basis of Natural's suit.
II. LEGAL STANDARD
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to
test the legal sufficiency of a complaint, not the merits of the case.
Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586
(7th Cir. 1989); Majchrowski v. Norwest Mortgage, Inc.,
6 F. Supp.2d 946, 952 (N.D. Ill. 1998). When considering a motion to dismiss
pursuant to Rule 12(b)(6), the Court considers "whether relief is possible under [any] set of facts that could be
established consistent with [the] allegations." Bartholet v.
Reishauer A.G. (Zurich), 953 F.2d 1073, 1078 (7th Cir. 1992).
The Court views all the facts alleged in the complaint, as well as any
reasonable inferences drawn from those facts, in the light most favorable
to Plaintiff. Stachon v. United Consumers Club, Inc.,
229 F.3d 673, 675 (7th Cir. 2000). Dismissal is appropriate only where
it appears beyond doubt that under no set of facts would Plaintiff's
allegations entitle him to relief. Henderson v. Sheahan,
196 F.3d 839, 846 (7th Cir. 1999); Kennedy v. National Juvenile
Del. Ass'n, 187 F.3d 690, 695 (7th Cir. 1999). The complaint,
however, must allege that each element of a cause of action exists in
order to withstand a motion to dismiss. Lucien v. Preiner,
967 F.2d 1166, 1168 (7th Cir. 1992). Furthermore, Plaintiff
"cannot satisfy federal pleading requirements merely by attaching bare
legal conclusions to narrated facts which fail to outline the bases of
their claims." Collins v. Snyder, 2002 U.S. Dist. LEXIS 25016 at
*1 (N.D. Ill. 2002) (citations and quotations omitted).
III. CHOICE OF LAW
The contract at issue contains a provision that states, "[t]his
Agreement will be governed by and construed in accordance with the laws
of the State of Illinois." Illinois courts honor a contractual choice of
law clause unless the applicable law is "dangerous, inconvenient, immoral, or contrary to public policy."
DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326,
330 (7th Cir. 1987). The parties have not argued that any applicable
Illinois law would fall under an exception. Accordingly, the Court will
apply Illinois law.
A. Count I: Breach of Contract Claims
Natural's Count I, for breach of contract, actually contains three
separate claims or theories of damages. First, Natural alleges that
Orchid breached the Revised Agreement by failing to provide juice
products to Natural at the price established by the Revised Agreement. On
the same grounds, Natural accuses Orchid of breaching the covenant of
good faith and fair dealing. Finally, Natural alleges that Orchid
repudiated the Revised Agreement by failing to provide adequate
assurances of its performance under the agreement. To make it whole,
Natural's Count I seeks monetary damages, including an award of the $2.5
million termination fee.
To state a claim for breach of contract in Illinois, the plaintiff must
allege the following elements: "(1) the existence of a valid and
enforceable contract; (2) performance by the plaintiff; (3) breach of
contract by the defendant; and (4) resultant injury to the plaintiff."
Elson v. State Farm Fire and Cas. Co., 691 N.E.2d 807, 811 (Ill.
App. Ct. 1998) citing Nielsen v. United Services Auto Ass'n,
612 N.E.2d 526, 529 (Ill.App. Ct. 1993). While "Illinois, a fact-pleading state, also requires a
plaintiff to allege. facts sufficient to indicate the terms of the
contract claimed to be breached," the Federal Rules of Civil Procedure
"do not require particular facts to be alleged in the complaint."
Arifin v. Schude, 1999 U.S. Dist. LEXIS 7926 at *5 (N.D. Ill.
1999). As an initial matter, requirements (2) and (4) above are not
contested by Orchid, and this court finds that the Amended Complaint
sufficiently alleges Natural's compliance with the revised Agreement
(paragraph 39) and Natural's injury as a result of Orchid's breach
1. Challenge to the Validity of the Contract
Orchid's 12(b)(6) motion seeks dismissal of Count I on several
grounds. Orchid begins its attack by arguing that the Revised Agreement
constitutes an invalid contract because it lacks mutuality between Orchid
and Natural. Orchid notes that the Revised Agreement does not obligate
Natural to purchase product specifically from it. Indeed, Orchid points
out that the contract does not require Natural to purchase anything from
any of the party-companies. Rather, the agreement simply provides that
Natural will use commercially reasonable efforts to promote its sales,
and that if Natural does not buy at least 20,000 gallons per month for
three (3) successive months, the party-companies can terminate the
contract cost-free. Orchid's argument fails because Illinois law does not demand mutuality
to form a valid contract. See Land O'Lakes, Inc. v. Fredjo's
Enterprises, Ltd., 1992 U.S. Dist. LEXIS 7218, at *8 (N.D. Ill.
1992). Rather, Illinois law states that a valid contract requires only
consideration. Here, the Revised Agreement contractually absolves all the
party-companies from any legal claim Natural may have pending against it.
As applied to Orchid, this release allowed Orchid to resolve the
then-pending legal claims Natural had filed against it. In doing so, the
legal release amounted to sufficient consideration to form the contract.
See Smyth v. Kaspar Am. State Bank, 136 N.E.2d 796 (Ill. 1956).
Orchid also claims that Count I should be dismissed because Natural
fails to allege a repudiation of the Revised Agreement. Orchid interprets
Illinois Commercial Code provisions 810 ILCS 5/2-610 and 810 5/2-609 to
read that Illinois law recognizes repudiation in only two ways: (1) an
overt communication of intention that demonstrates a clear determination
not to continue with performance; or (2) a failure to provide adequate
assurance when so requested by a party having reasonable grounds for
insecurity under the contract. Here, Orchid claims that its letter of
November 4, 2003, stating that it "intends to perform pursuant to the
Agreement" serves as sufficient evidence to support that it both did not overtly communicate a repudiation, and provided
Natural with adequate assurance upon request.
This argument also fails, as the Court notes that paragraph 32 alleges
that "Orchid would not sell products to Natural at the price set
forth in the Revised Agreement (emphasis added)." According to
Natural, Orchid issued this statement subsequent to sending its November
3, 2003 letter. As such, Natural's complaint sufficiently alleges that
Orchid overtly communicated its intent to repudiate. This satisfies
Natural's burden for purposes of surviving a motion to dismiss.
3. Insufficient Notice
Orchid's motion to dismiss further claims that the Amended Complaint
fails to state a claim for breach of contract because it does not allege
how Natural believes Orchid misinterpreted or breached the Revised
Agreement. However, the Seventh Circuit has made clear that, except for
claims of fraud, "a complaint is not required to allege all, or any, of
the facts logically entailed by the claim. . . ." Bennett v.
Schmidt, 153 F.3d 516, 518 (7th Cir. 1998). A complaint is only the
starting point of litigation. See Id. Here, the Amended
Complaint alleges that Orchid's breach stems from its failure "to provide
juice products to Natural at the price established according to the terms
of the Revised Agreement and the course of performance of the parties."
Amended Complaint, paragraph 36. In Count II the complaint further
requests an order declaring that the price shall be $1.30 plus the cost of fruit and
packaging only. These claims give Orchid more than sufficient notice of
Natural's allegations. Therefore, the Court denies Orchid's motion to
dismiss this portion of Natural's breach of contract claim.
B. Breach of Covenant of Good Faith and Fair
Orchid additionally seeks dismissal of Count I's allegations that it
breached the covenant of good faith and fair dealing. Orchid contends
that these allegations improperly duplicate the breach of contract claim.
Furthermore, Orchid argues that they are improper because Natural fails
to allege that Orchid had any discretion under Revised Agreement, a
necessary condition for a breach of the covenant of good faith and fair
To support Orchid's argument that Natural's breach of the covenant of
good faith and fair dealing claim improperly duplicates its breach of
contract claim, Orchid cites Codest Eng. v. Hyatt Int'l. Corp.,
954 F. Supp. 1224, 1233 (N.D. Ill. 1996), and Pepsico, Inc. v.
Vita-Fresh Vitamin Co., U.S. Dist. LEXIS 27026, at *3-4 (N.D. Ill.
1986). However, these two cases are easily distinguished from the present
action. In each cited case, the court properly dismissed the complaints
because the breach of the covenant of good faith and fair dealing claims
constituted their own counts, separate from the breach of contract
counts. In doing so, the complaints ran afoul of the Illinois rule that
there is no such thing as an independent claim for the breach of the implied
covenant of good faith and fair dealing. See Baxter Healthcare Corp.
v. O.R. Concepts, Inc., 69 F.3d 785, 792 (7th Cir. 1995); Beraha
v. Baxter Health Care Corp., 956 F.2d 1436, 1443 (7th Cir. 1992).
Here, however, the Amended Complaint subsumes both these claims under
Count I, the breach of contract claim. This conforms to Illinois
practice, which permits plaintiffs to plead violations of the covenant of
good faith and fair dealing as part of a breach of contract
claim. See Banco. Del Estado v. Navistar Int'l Transp. Corp.,
942 F. Supp. 1176, 1182 (N.D. Ill. 1996); Solon v. Kaplan, 2001
U.S. Dist. LEXIS 1384, at *14 (N.D. Ill. 2001). Ergo, this argument
As to the second allegation, this court believes that Natural has
sufficiently alleged both discretionary duties and a breach of those
discretionary duties. Specifically, Natural alleges in paragraph 29 of
the Amended Complaint that Orchid informed it that if Natural will not
negotiate its pricing, Orchid will supply product from third-party
This, claims Natural, is a clear breach of its duty under § 5(a)
of the Revised Agreement, which states:
Each of the Companies will use commercially
reasonable efforts to supply Products to [Natural]
hereunder and . . . agrees that when commercially
feasible, the Products will be supplied from a
Company maintaining a Florida-based production
facility . . . In addition, any Company may at any time and from
time to time elect to supply to [Natural] Products
that are produced by third-party suppliers.
A fair reading of § 5(a) suggests the contract implicitly vests
Orchid with the discretionary authority to determine when it was
"commercially feasible" to supply juice from a party-company with a
Florida production facility. Since Natural claims that Orchid is the only
such party-company, this provision effectively means Orchid's
own juice. Interestingly, § 5(a) also grants Orchid the
right to supply juice from third-party vendors "at any time," a seeming
contradiction of its obligation to supply its own juice when
"commercially feasible." Natural asks the Court to reconcile these
provisions by interpreting the contract to grant Orchid the right to use
third-party vendors, but only when it is not "commercially feasible" to
supply its own juice. Although the Court makes no final contract
determination today, this seems a plausible enough interpretation to
survive a motion to dismiss. As Natural claims that Orchid conditioned
its to use third-party vendors on Natural agreeing to its pricing
demands, and not with respect to commercial feasibility, Natural
sufficiently alleges an abuse of a discretionary duty. Consequently,
Natural properly alleges a breach of the covenant of good faith and fair
dealing. See B.A. Mortgage & Int'l Realty Co. v. Am. Nat'l Bank
and Trust Co. of Chicago, 706 F. Supp. 1364, 1373 (N.D. Ill. 1989)
(a complaint states a cause of action for breach of contract if it alleges a failure to act in good faith in exercising discretion
permitted under the contract).
As a result, Orchid's motion to dismiss Natural's claim of breach of
the covenant of good faith and fair dealing is denied.
C. Termination Pee
In both Counts I and II, Natural claims its right to be awarded the
termination fee provided for in Clause 17(a) the Revised Agreement. That
clause states in part:
At any time, upon 60 days' prior written notice to
[Natural], the Party-companies may terminate this
Agreement without cause ("Without Cause
Termination"). On or prior to the effective date
of a Without Cause Termination, the Companies will
pay to [Natural] . . . the Termination Fee in
effect on the effective date of termination of
this Agreement. The Termination Fee will be
calculated as of the effective date of any Without
Cause Termination and initially will equal $2.5
million. Beginning on March 1, 2004, the
Termination Fee will decline monthly by $20,833.33
until February 28, 2011, after which no
Termination Fee will be payable for a Without
Cause Termination. [Natural] and the Companies
agree that the Termination Fee constitutes
reasonable compensation to [Natural] for a Without
Cause Termination [sic] will constitute full
satisfaction of all obligations then owed to
[Natural] under this Agreement.
Since Natural claims that Orchid has breached the Revised Agreement
"without cause," Natural demands that Orchid pay it the contractually
specified termination fee of $2.5 million.
Orchid responds that, according to Clause 17(a), a termination without
cause occurs only when the "Companies," collectively, provide 60 days written notice to Natural. Here, Orchid contends
that since it acted unilaterally, and gave no notice, it did not commit a
Clause 17(a) termination without cause.
In Orchid's view, Clause 17(a) provides an option for the
party-companies to contractually-withdraw from their relationship with
Natural by paying the applicable termination fee. Were the
party-companies to exercise this option, they would not be in actual
breach of the agreement.
Conversely, Orchid argues that, based on the facts alleged in the
Amended Complaint, it committed an actual breach. Since the
Revised Agreement does not specify damages for such a breach, Orchid
argues that Natural's remedy rests in an ordinary breach of contract'
action in which it must prove its damages suffered.
Although the Court takes no position on the ultimate merit of Orchid's
arguments, the Court does not believe they represent the only possible
interpretation of its contract with Natural. Specifically, Natural makes
a cogent argument that the Revised Agreement recognizes both possible
types of contract terminations those with cause, and those
without cause. Any contract breach for which there is no cause, argues
Natural, must be read as a termination without cause, thus
triggering the contract's award of the termination fee. An alternative
reading, Natural contends, would suggest that the contract permits Orchid
to avoid paying the termination fee for an intentional unjustified
breach, provided it breaches unilaterally and without giving notice. Such a reading
leads to the usual outcome that the contract provides an Incentive to
breach without giving notice to Natural as it would reimpose on
Natural the difficult trial burden of proving damages in a regular breach
of contract suit. Indeed, Natural argues that the parties agreed to
Clause 17(a) precisely to avoid placing such a burden on Natural, noting
that Clause 17(a) defines the termination fee as "reasonable
compensation to [Natural] for a Without Cause Termination."
Furthermore, Natural argues that to permit Orchid to escape the
termination fee because it breaches unilaterally would similarly lead to
an odd contractual result. After all, Natural alleges that for seven
months out of the year, it deals exclusively with Orchid, as Orchid is
the only party-company with a Florida-based production facility. During
this period, Orchid effectively is the only party-company constituting
the "Companies." By reading the contract as Orchid desires, Natural notes
that the contract would allow the centrally important contracting party
to escape paying the termination fee, imposing substantial trial
obligations on Natural, provided that far less important party-companies
would continue to satisfy their obligations. Additionally, Natural points
out that the contract elsewhere gives individual party-companies the
unilateral authority to terminate the Revised Agreement under certain
conditions, such as those delineated in Clauses 4(b) (iii) and 17(b) (ii). Natural suggests that if the
contract provided for individual party-companies to withdraw for cause,
ipso facto, the contract similarly intended to provide the
circumstance in which a single party-company breaches without cause. This
leads to Natural arguing that the contract intended for any breaching
party to pay the termination fee, regardless of whether or not they
complied with the notice requirements of Clause 17(a) or whether they
acted unilaterally or collectively with the other party-companies. In the
view of the Court, this is a reasonable interpretation of the parties'
As noted above, the Court should grant a motion to dismiss only if no
relief is possible "under [any] set of facts that could be established
consistent with [the] allegations." Bartholet v. Reishauer A.G.
(Zurich), 953 F.2d 1073, 1078 (7th Cir. 1992). A motion to dismiss
is improper if the Court finds that the contract's language is ambiguous
regarding the parties' intent. See Quake Constr., Inc. v.
American Airlines, Inc., 141 Ill.2d 281, 288-289 (1990).
This, in turn, depends on whether the Court believes that the contract
has more than one reasonable meaning. See Meyer v. Marilyn Miglin,
Inc., 652 N.E.2d 1233 (Ill.App. Ct. 1995). Here, as noted above,
the Court finds that both Natural and Orchid present legitimate,
plausible interpretations of the contract regarding the termination fee
issue. Consequently, the Court denies Orchid's motion as to the
termination fee claims. D. Count Two: Declaratory Relief
In Count II, Natural claims that an actual controversy exists regarding
the proper calculation of the price term under the Revised Agreement and
regarding whether Orchid may supply products from third parties. Natural
requests declaratory relief stipulating that (1) Orchid must supply
products at a price of $1.30 plus the cost of fruit and packaging; (2)
that Orchid must supply its own products when commercially feasible; and
(3) that Orchid is in breach of the Revised Agreement and awarding
Natural its damages, including the $2.5 million termination fee.
In its motion to dismiss, Orchid attacks Count II on the grounds that
the requested declarations are inconsistent with one another, making the
single claim in which they appear, paragraph 42 of the Amended Complaint,
internally inconsistent. Orchid argues that the court cannot order Orchid
both to supply its own products to Natural, and at the same time order
Orchid to be in breach of the agreement and to pay Natural the $2.5
million termination fee. Natural responds that even assuming these two
requested declarations are inconsistent, the Federal Rules of Civil
Procedure nonetheless allow parties to demand relief in the alternative.
FED. R. CIV. P. 8(a)(3) ("Relief in the alternative or of several
different types may be demanded.").
While Natural's requested declarations do occur as part of the same
paragraph, the requested declarations are in fact the remedies requested by Natural. Since remedies may be pleaded in the
alternative, requests for inconsistent declarations appear to be condoned
by the Federal Rules of Civil Procedure, and therefore cannot be stricken
at the pleadings stage. Orchid's motion to dismiss Count II is therefore
For the reasons stated herein, Orchid's Motion Dismiss is
IT IS SO ORDERED.
© 1992-2004 VersusLaw Inc.