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JOLLY GROUP, LTD. v. MEDLINE INDUSTRIES

June 4, 2004.

THE JOLLY GROUP, LTD., Plaintiff,
v.
MEDLINE INDUSTRIES, INC., Defendant.



The opinion of the court was delivered by: SUZANNE CONLON, District Judge

MEMORANDUM OPINION AND ORDER

In this diversity action, Jolly Group, Ltd. ("Jolly") sued Medline Industries, Inc. ("Medline") for breach of contract. Jolly moves for reconsideration of the court's order dismissing its amended complaint with prejudice and for leave to file a second amended complaint. In separate motions, Medline moves for sanctions pursuant to Fed.R.Civ.P. 11 and 28 U.S.C. § 1927.

BACKGROUND

  In February 2003, Jolly and Medline representatives met to discuss Medline's possible licensing and marketing of Jolly's patented bandages. Compl. at ¶ 6; Am. Compl. at ¶ 6; 2nd Am. Compl. at ¶ 6. On March 4, Medline proposed that it market and manufacture the bandages in exchange for a royalty of $.20 per box sold. Id. at ¶ 6-7. Medline's proposal stated it had "no legal bearing until we draw up a contract." Id. During the next three months, the parties discussed contractual terms. Id. at ¶ 8. Medline maintains the parties' negotiations ultimately failed and no contract resulted. See, e.g., Def. Mot. Dismiss Compl. at 1. Conversely, Jolly contends the parties entered into a valid, binding and enforceable contract subsequently repudiated by Medline. See, e.g., Compl. at ¶¶ 13, 17. Over the course of these proceedings, Jolly has proffered no less than four different versions of the so-called final contract to which the parties allegedly agreed.

  I. Original Complaint

  In the original complaint, Jolly alleged Medline forwarded a contract on May 7 (hereinafter, "May 7th contract") that "reflected the essential terms of the parties' agreement," but that a revised contract followed the next day (hereinafter, "May 8th contract"). Compl. at ¶¶ 9-10. The May 7th and May 8th contracts substantially differed in numerous respects. Compare Compl. Ex. B with Ex. C. In response, Medline purportedly sent Jolly a red-lined version of the May 8th contract (hereinafter, "July red-lined contract"); the parties orally agreed on the terms. Id. at ¶¶ 12-13. Jolly then re-typed the July red-lined contract and sent the final contract (hereinafter, "final contract") to Medline for signature. Id. at ¶ 13. Among other things, the final contract differs from the July red-lined contract insofar as it required Medline to pay an annual minimum royalty payment of $250,000 and to purchase $5 million in products liability insurance. Id. Ex. E. Jolly did not allege that Medline signed either the July red-lined contract or the final contract. Id.

  Upon receipt of Jolly's complaint, Medline moved to dismiss. Medline argued Jolly's complaint failed to allege the existence of a valid contract and the statute of frauds barred enforcement of the purported oral contract. Jolly did not respond. Instead, Jolly filed the amended complaint.

  II. Amended Complaint and Rule 11

  Jolly changed its tack in the amended complaint. Jolly again alleged that Medline sent it the May 7th contract "reflect[ing] the essential elements of the parties' oral agreement." Am. Compl. at 9. However, Jolly eliminated reference to the May 8th contract. Compare Compl. at ¶ 10 with Am. Compl. at ¶¶ 9-10. Jolly simply alleged that Medline's vice president Don Malin signed the May 7th contract on May 18 (hereinafter, "May 18th signed contract"). Am. Compl. at ¶ 9. According to Jolly, the May 18th signed contract constituted a valid, binding and enforceable contract. Id. at ¶ 17. Jolly also proffered the July red-lined contract as a valid, binding, enforceable modified contract to which the parties' thereafter agreed. Id. at ¶¶ 12, 17. The amended complaint contained no reference to the final contract identified in Jolly's original complaint. Id. at 13. Instead, Jolly merely alleged that it requested, but Medline rejected, additional modifications to the July red-lined contract. Id. at ¶ 13.

  Upon receipt of the amended complaint, Medline's counsel sent a letter to Jolly's counsel Michael J. Rovell ("Rovell") on March 25. Def. Rule 11 Mot. Ex. H. Medline's counsel pointed out factual inconsistencies between Jolly's original and amended complaints and warned that a Rule 11 motion would be served in the event Jolly did not withdraw the amended complaint within seven days. Id. Medline's counsel challenged the "sequence of events" laid out in the amended complaint, noting that Jolly sought "to enforce an entirely different contract than the `final contract' attached to its original complaint." Id. Medline's counsel pointed out that the May 18th signed contract that Jolly relied on as a valid, binding and enforceable contract was actually signed on August 18th, obviously after the parties exchanged the July red-lined contract. Id. Additionally, Medline's counsel argued that Jolly's amended complaint was legally defective under Illinois' "mirror image rule" governing contract actions because Jolly repeatedly requested modifications to the proposed contracts, including the May 7th and the July red-lined contracts. Id.

  On March 26, Medline filed a motion to dismiss. While this court considered the motion, Medline served a Rule 11 Motion on Jolly on April 15. Two weeks later, the court dismissed the amended complaint with prejudice. Minute Order, 4/30/04, Docket No. 17-1. In so doing, the court found the amended complaint legally defective because it alleged the existence of an unfulfilled condition precedent to the formation of a binding contract, i.e., the parties' failure to draw up a complete contract. Id. The court further determined that the writings on which Jolly relied for purposes of satisfying the statute of frauds insufficiently evidenced the existence of a contract or its terms. Id. ("Indeed, the writings reveal an obvious disagreement about the contract's essential terms and conditions"). Medline filed its Rule 11 motion with the court on May 13, 2004, after dismissal of the amended complaint.

  III. Second Amended Complaint and Motion for Sanctions

  The day after Medline filed its Rule 11 motion, Jolly sought leave to file a second amended complaint. Jolly now seeks to change course yet again. Not surprisingly, Jolly no longer alleges that the May 18th signed contract constitutes a valid, binding and enforceable contract between the parties. Instead, Jolly alleges that the May 7th contract constitutes a valid, binding and enforceable contract between the parties. 2nd Am. Compl. at ¶ 17. In addition, Jolly submits an entirely new contract dated August 25 as the parties' valid, binding and enforceable modified contract (hereinafter, "August 25th contract"). Jolly does not entirely abandon the July red-lined contract. Instead, Jolly alternatively alleges that the ...


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