United States District Court, N.D. Illinois, Eastern Division
July 26, 2004.
WILLIAM D. JONSON, Plaintiff,
LARRY J. HINTZ, H & H SORTING, SERVICES, INC., an Illinois corporation, and H & H VENTURES, INC., an Illinois corporation, Defendants.
The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Defendants Larry J. Hintz's
("Hintz"), H&H Sorting Services, Inc.'s ("H&H Sorting") and H & H
Ventures, Inc.'s ("H&H Ventures") joint motion to dismiss. For
the reasons stated below, we grant the motion to dismiss in part
and deny the motion to dismiss in part.
From 1983 through 1990 Jonson worked for a trucking company
owned by Hintz. In the late 1980s Hintz began a business
involving the sorting of screws, fasteners, and hand assembling
parts ("sorting business"). In 1991 Hintz hired Jonson to manage the sorting business and formed an Illinois
Corporation entitled H&H Sorting Services, Inc. as the entity to
own and operate the business. In December of 1993 Jonson entered
into a written purchase agreement ("PA") with Hintz to purchase
the sorting business. In accordance with the PA, Hintz formally
changed the name of his corporation from H&H Sorting Services,
Inc. to H&H Ventures, Inc. in order to enable Jonson to name his
new corporation H&H Sorting Services, Inc. and use the original
name and good will of the company built up by Hintz.
Under the PA Jonson agreed to pay the purchase price in monthly
installments over twenty years. Jonson alleges that from December
of 1993 through December of 1998, he fully performed his
obligations under the terms of the contract, including paying
Hintz $6,000 a month towards the purchase price. In December of
1998 Jonson retired from the H&H Sorting Services, Inc. and under
paragraph 25(b) of the contract Hintz exercised his option to
repurchase the shares of H&H Sorting Services, Inc. Paragraph
25(b) fo the contract provides as follows: "Upon the death of
Jonson or his retirement from Buyer, Seller has an option to
purchase the shares from Jonson or his estate upon the same terms
and conditions of this contract for sale of shares." Thus, the
terms of the new contract formed involving the repurchase by
Hintz were the exact reverse of the terms in the sale from Hintz
Accordingly, Jonson claims that he became the seller of H&H
Sorting Services, Inc. and Hintz became the buyer and all terms
included in the first contract became binding upon Hintz as a purchaser. Jonson claims that he
transferred his shares of H&H Sorting Services, Inc. to Hintz and
that Hintz was required in exchange to pay the calculated
purchase price of $2,187,616.60. Jonson alleges that Hintz made
two or three nominal payments of $1,000 but did not otherwise
abide by terms of the contract.
On December 16, 2003, Jonson filed the instant action against
Hintz, H&H Sorting Services, Inc., and H&H Ventures, Inc. The
complaint contains a breach of contract claim (Count I), and
breach of fiduciary duty claim (Count II). Defendants have
brought a motion to dismiss all claims.
In ruling on a motion to dismiss, the court must draw all
reasonable inferences that favor the plaintiff, construe the
allegations of the complaint in the light most favorable to the
plaintiff, and accept as true all well-pleaded facts and
allegations in the complaint. Thompson v. Illinois Dep't of
Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002); Perkins
v. Silverstein, 939 F.2d 463, 466 (7th Cir. 1991). The
allegations of a complaint should not be dismissed for a failure
to state a claim "unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which
would entitle him to relief." Conley v. Gibson, 355 U.S. 41,
45-46 (1957). Nonetheless, in order to withstand a motion to
dismiss, a complaint must allege the "operative facts" upon which
each claim is based. Kyle v. Morton High School, 144 F.3d 448, 445-55 (7th Cir. 1998); Lucien v.
Preiner, 967 F.2d 1166, 1168 (7th Cir. 1992). Under current
notice pleading standard in federal courts a plaintiff "need to
plead facts that, if true, establish each element of a "cause of
action.'" See Sanjuan v. American Bd. of Psychiatry and
Neurology, Inc, 40 F.3d 247, 251 (7th Cir. 1994) (stating
that a "[a]t this stage the plaintiff receives the benefit of
imagination, so long as the hypotheses are consistent with the
complaint" and that "[m]atching facts against legal elements
comes later."). The plaintiff need not allege all of the facts
involved in the claim and can plead conclusions. Higgs v.
Carter, 286 F.3d 437, 439 (7th Cir. 2002); Kyle, 144 F.3d at
455. However, any conclusions pled must "provide the defendant
with at least minimal notice of the claim," Id., and the
plaintiff cannot satisfy federal pleading requirements merely "by
attaching bare legal conclusions to narrated facts which fail to
outline the bases of [his] claim." Perkins, 939 F.2d at 466-67.
I. Breach of Contract Claims (Count I)
Hintz argues that the breach of contract claim should be
dismissed against him individually. H&H Sorting Services, Inc.
and H&H Ventures, Inc. provide a separate argument as to why the
breach of contract claim should be dismissed against them as well.
A. Breach of Contract Claim Against Hintz
Hintz argues that he is not personally liable to Jonson because
Hintz was not the seller referred to in the PA and thus he is not
bound by the formed contract relating to the repurchase. Hintz
re-acquired H&H Sorting Services, Inc. by exercising his option
under paragraph 25(b) of the PA. Jonson and Hintz do not dispute
that the contract they entered into in 1993 was for the sale of
H&H Sorting Services, Inc. from Hintz to Jonson. However, the
parties dispute what is meant by the term "seller" in the PA. The
PA refers to the seller numerous times in the contract, sometimes
in the plural, and sometimes in the singular. Hintz maintains
that the parties did not intend for the term seller to refer to
Hintz personally. Hintz contends that the term was intended to
refer to H&H Ventures, Inc. Jonson contends that Hintz was the
seller in his individual capacity and his corporate capacity as
H&H Ventures, Inc. and as H&H Sorting Services, Inc.
The primary goal in contract construction is to effectuate the
intent of the parties to a contract, Ind. Ins. Co. v. Pana Cmty.
Unit Sch. Dist. No. 8, 314 F.3d 895, 900 (7th Cir., 2002); Dix
Mutual Insurance Company v. LaFramboise, 149 Ill.2d 314, 320
(Ill. 1992), which is effectuated by looking to the contract as a
whole. LaFramboise, 149 Ill.2d at 320. The court can determine
the intent by evaluating the language of the contract. Jackson
Nat. Life Ins. Co. v. Gofen & Glossberg, Inc, 882 F. Supp. 713, 719 (N.D. Ill. 1995). In order to ascertain the
intent of the parties, a court must construe the contract as a
whole, taking into account the purpose and subject matter of the
entire contract. Dawn Equip. Co. v. Micro-Trak System,
186 F.3d 981, 987 (7th 1999). If the language used in a contract is
clear and unambiguous "a court must interpret the intent of the
parties solely from the plain language of the contract." Premier
Title Co. v. Donahue, 328 Ill. App.3d 161, 164 (2002).
If words of a contract are unambiguous, a court must afford
them their plain, ordinary, and popular meaning, but if they are
susceptible to more than one reasonable interpretation, they are
ambiguous and will be construed against the drafter. Bourke v.
Dun & Bradstreet Co., 159 F.3d 1032, 1036 (7th Cir. 1998).
Whether ambiguity exists in a contract is a matter of law.
Duquoin National Bank v. Vergennes Equip., Inc.,
234 Ill. App.3d 998, 1003 (Ill.App. Ct. 1992). There is an ambiguity in a
contract "if the words used can be interpreted in more than one
sense or if the agreement is obscure through indefiniteness of
expression or having a double meaning." Id. at 1004. Terms are
given "their meaning from the context in which they are used and
contracts must be viewed as a whole by viewing each part in light
of the others." Board of Trade of the City of Chicago v. Dow
Jones & Company, Inc., 456 N.E.2d 84, 90 (Ill. 1983).
Jonson alleges that this contract as a whole and in the light
most favorable to Jonson, the contract is ambiguous as to what is
truly meant by "seller". Whether "seller" is meant to be Hintz in his individual capacity, or H&H
Ventures, Inc., or H&H Sorting Services, Inc. is susceptible to
more that one reasonable interpretation. Jonson alleges that
Hintz drafted the PA and thus the ambiguity must be construed
against the drafter. We note that we are merely ascertaining
whether or not Jonson states a claim against Hintz and are not
interpreting the terms of the PA or making a finding in regards
to this issue at this juncture. See Jackson Nat. Life Ins. Co.
v. Gofen & Glossberg, Inc., 882 F. Supp. 713, 723 (N.D. Ill.
1995) (denying motion to dismiss because of an ambiguity in the
agreement at issue and "the need for the resolution of factual
issues to clarify the scope of [of the terms.]. . . ."). Making
all inferences in Jonson's favor and accepting his allegations as
true, we cannot find that it "appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which
would entitle him to relief." Conley, 355 U.S. at 45-46.
Therefore we deny the motion to dismiss the breach of contract
claim against Jonson.
B. Breach of Contract Claim Against Corporations
H&H Sorting Services, Inc. and H&H Ventures, Inc. argue that
the breach of contract claim should be dismissed against them
because the complaint does not specifically allege that they
exercised an option to re-purchase the stock from Jonson.
However, such an argument is an overly technical view of pleading
and is entirely inconsistent with the notice pleading standard
applied in federal court. The allegations provide the corporate
Defendants with sufficient notice of the claims against them. The corporations are both owned and operated by
Hintz who is the other named defendant. Therefore, we deny the
motion to dismiss the breach of contract claim against H&H
Sorting Services, Inc. and H&H Ventures, Inc.
II. Breach of Fiduciary Duty Claims
Defendant Hintz argues that the breach of fiduciary duty claim
brought against Hintz should be dismissed because Hintz did not
owe a fiduciary duty to Jonson. Jonson argues that by refusing to
pay the money owed under the option contract and by drafting the
original contract ambiguously and in a self-serving manner, that
Hintz breached a fiduciary duty owed to Jonson. Jonson argues a
fiduciary relationship arose because Hintz is a director and
shareholder of H&H Sorting Services, Inc. and Hintz owed Jonson a
fiduciary duty as a "partner" in a corporation. However, Jonson
does not allege that he and Hintz were ever owners of H&H Sorting
Services, Inc at the same time and thus, one could not owe a duty
to the other. Jonson also argues that individuals who control
corporations owe a fiduciary duty to their corporations and their
shareholders. However, Jonson failed to allege in his complaint a
time when both he and Hintz were shareholders in the same
corporation at the same time, thus no fiduciary relationship
could arise within this context.
A fiduciary relationship exists in situations "where one party
possesses superior knowledge and influence over the other party, and
occupies a position of special trust." Commodity Futures Trading
Com'n v. Heritage Capital Advisory Services, Ltd., 823 F.2d 171,
173 (7th Cir. 1987) (citing A.T. Kearney, Inc. v. INCA Int'l
Inc., 477 N.E.2d 1326 (Ill. 1985)). Jonson has failed to allege
that the PA and the re-purchase contract were anything other than
arms-length transactions. Hintz did not become a fiduciary of
Jonson merely because he drafted the PA. Even when accepting
Jonson's allegations as true and making inferences in his favor,
Jonson fails to state a claim for breach of a fiduciary duty
against Hintz or the corporate Defendants. Therefore, we grant
the motions to dismiss the breach of fiduciary duty claims.
Based on the foregoing analysis, we deny the motion to dismiss
the breach of contract claims (Count I) and grant the motions to
dismiss the breach of fiduciary duty claims (Count II).
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