United States District Court, N.D. Illinois, Eastern Division
TELEWIZJA POLSKA USA, INC., an Illinois corporation, Plaintiff,
ECHOSTAR SATELLITE CORPORATION, a Colorado corporation, Defendant.
The opinion of the court was delivered by: RONALD GUZMAN, District Judge
MEMORANDUM OPINION AND ORDER
Telewizja Polska USA, Inc. ("Polska") has sued EchoStar
Satellite Corp. ("EchoStar") for breach of contract (Count I) or,
in the alternative, for unjust enrichment (Count II). Defendant
EchoStar raised fifteen affirmative defenses and four
counterclaims. Before the Court is Polska's motion to strike
EchoStar's affirmative defenses pursuant to Federal Rule of Civil
Procedure ("Rule") 12(f) and to dismiss EchoStar's four
counterclaims pursuant to Rule 12(b)(6). Polska later moved to
withdraw its motion to strike as to eight of the affirmative
defenses. In a Minute Order of 7/1/04, the Court granted the
motion to withdraw in part as to the Second through Fourth,
Sixth, and Seventh Affirmative Defenses and asked for further
briefing as to the Eighth through Tenth Affirmative Defenses. For
the reasons provided in this Memorandum Opinion and Order, the
Court grants Polska's motion to strike EchoStar's Eighth, Ninth,
Tenth, Twelfth, Thirteenth, and Fifteenth Affirmative Defenses,
grants the motion to dismiss EchoStar's Third and Fourth
Counterclaims, and denies the motion as to all other defenses and
counterclaims. Accordingly, the Court denies Polska's motion to
withdraw its motion to strike the Eighth through Tenth
Affirmative Defenses. BACKGROUND
Polska is a Delaware corporation engaged in the distribution of
Polish language television and radio programming for the public,
with its principal place of business in Illinois. (Am. Compl. ¶
1.) EchoStar is a Colorado corporation that operates a Direct
Broadcast Satellite service under the trade name "Dish Network."
(Second Am. Answer Pt. III ¶¶ 1-3.) On or about April 30, 1998,
EchoStar and Polska entered into an Affiliation Agreement
("Agreement") for Polska to provide Polish language television
programming ("Programming Service") to EchoStar. (Id. Pt. III ¶
6.) Pursuant to the Agreement, Polska granted EchoStar a license
to sell subscriptions for Polska's Programming Service.
(Agreement ¶ 1.2.1.) The Agreement provides for a "Shared Revenue
Arrangement," in which Polska is entitled to thirty percent of
the first $199,800.00 paid to EchoStar by subscribers for
Polska's Programming Service, and fifty percent thereafter.
(Id. ¶ 3.1.1.) Polska's portion of the shared revenue for a
given month was to be paid within thirty days of the end of the
month. (Id. ¶ 3.2.) The Agreement also provided that within
thirty days after the end of each month, EchoStar must report to
Polska the total number of subscribers as of the last day of the
billing cycle of the immediately preceding month. (Id. ¶ 4.1.)
The Agreement was for a contract term of three years, ending on
April 30, 2001. (Second Am. Answer Pt. III ¶ 7.) Paragraph Two of
the Agreement entitled "TERM" provides that:
upon the expiration or earlier termination of the
Agreement, if EchoStar has already launched the
Programming Service on its Satellite, it shall
continue to provide EchoStar the Programming Service
under the terms and conditions outlined herein for a
period of time that is the shorter of twelve (12)
months or that number of months necessary for
EchoStar to provide the Programming Service to
service Subscribers who bought a multi-month
subscription to the Programming Service prior to the
receipt by EchoStar of notice of termination of the
(Agreement ¶ 2.) Polska continued to provide EchoStar its
Programming Service for sale to EchoStar's T.V. Polonia customers
through April 30, 2002. (Am. Compl. ¶ 13.) EchoStar continued to
broadcast the Programming Service until May 2002. (Second Am.
Answer Pt. III ¶ 15.)
Polska alleges that EchoStar breached the Agreement in the
following ways: (1) by failing to pay Polska any subscription
revenue subsequent to December 2001; (2) by failing to report
subscriptions sold after April 30, 2001 and the revenue derived
from them; (3) by refusing Polska's request for an audit as
provided in the Agreement; (4) by broadcasting another Polish
language Programming Service in violation of the one-year
exclusivity granted to Polska in the Agreement; (5) by failing to
return Polska's receivers as provided in the Agreement; (6) by
failing to include access and service fees charged to subscribers
in the calculation of shared revenue; and (7) by paying less than
the agreed percentages for shared revenue. (Am. Compl. ¶
14.)*fn1 In the alternative, Polska alleges that EchoStar
has been unjustly enriched by its wrongful conduct to Polska's
detriment. (Id. Count II ¶ 15.)
EchoStar raises the following affirmative defenses: (1) statute
of frauds; (2) Polska waived any rights by its actions; (3)
laches; (4) estoppel; (5) statute of limitations; (6) Polska
ratified EchoStar's alleged conduct; (7) failure to mitigate
damages; (8) Polska's claims are barred by applicable agreements
and/or law; (9) unclean hands; (10) assumption of risk; (11)
Polska accepted payment from EchoStar; (12) to the extent that
Polska seeks damages that may be considered a penalty, such
claims are unenforceable; (13) the parties' rights and
obligations were ambiguous; (14) mistake of fact; and (15) rescission.
(Second Am. Answer at 7-11.) EchoStar also makes the following
counterclaims: (1) Polska made false and defamatory statements
about EchoStar to EchoStar's customers and potential customers
and to other programmers who had negotiated with EchoStar; (2)
Polska tortiously interfered with EchoStar's prospective economic
advantage by making false and misleading statements to
individuals with whom Polska knew that EchoStar had reasonable
expectation of entering into a business relationship; (3) Polska
committed trade libel or product disparagement by making false
statements and allegations about the Dish Network service with
the intent to cause injury to EchoStar; and (4) Polska violated
the Illinois Uniform Deceptive Trade Practices Act, 815 Ill.
Comp. Stat. § 510/1-7 (2004), by its unauthorized use of the name
"Dish Network" to make false and misleading statements that have
substantially harmed EchoStar. (Id. Pt. III ¶¶ 25-53.)
A. Polska's Motion to Strike EchoStar's Affirmative Defenses
In a motion to strike pursuant to Rule 12(f), "the court may
order stricken from the pleading any insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter." FED.
R. CIV. P. 12(f). Courts in this district, following Bobbitt v.
Victorian House, Inc., have traditionally used a three-part
inquiry when examining affirmative defenses subject to a motion
to strike: (1) whether the matter is appropriately pleaded as a
defense; (2) whether it is adequately pleaded under the
requirements of Rules 8 and 9; and (3) whether it meets the
standard for Rule 12(b)(6) motions. 532 F. Supp. 734, 737 (N.D.
Ill. 1982); see Ocean Atl. Woodland Corp. v. DRH Cambridge
Homes, Inc., No. 02 C 2523, 2003 WL 1720073, at *2 (N.D. Ill.
Mar. 31, 2003); H.R.R. Zimmerman Co. v. Tecumseh Prods. Co.,
No. 99 C 5437, 2002 WL 31018302, at *2-3 (N.D. Ill. Sep. 9, 2002); Ocean Atl. Dev.
Corp. v. Willow Tree Farm, L.L.C., No. 01 C 5014, 2002 WL
485387, at *2-3 (N.D. Ill. Mar. 29, 2002).
However, motions to strike defenses are disfavored and are not
ordinarily granted. Lirtzman v. Spiegel, Inc.,
493 F. Supp. 1029, 1031 (N.D. Ill. 1980). A defense will be stricken only if
it is insufficient on the face of the pleadings. Heller Fin.,
Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989).
A movant bears the burden of demonstrating that the challenged
allegations are so unrelated to plaintiff's claim as to be devoid
of merit, unworthy of consideration and unduly prejudicial.
Ocean Atl. Woodland Corp., 2003 WL 1720073, at *2. The
pleadings under consideration in a motion to strike must be
viewed in the light most favorable to the pleader. Lirtzman,
493 F. Supp. at 1031 n. 1. Where both parties have failed
adequately to address substantive legal questions underlying the
motion to strike, a defense that is at least pertinent and
material will be allowed to stand Donovan v. Robbins,
99 F.R.D. 593, 596 (N.D. Ill. 1983).
Polska correctly points out that the Tenth Affirmative Defense,
assumption of risk, is an improper defense to a breach of
contract complaint. (Mot. Strike Affirmative Defenses ¶ 2.)
Assumption of risk is a defense to negligence, and cannot be
asserted as a defense to breach of contract or intentional torts.
Chamberlain Mfg. Corp. v. Maremont Corp., No. 90 C 7127, 1993
WL 535420, at *6 (N.D. Ill. Dec. 19, 1993). Unjust enrichment is
based on an implied or quasi-contract, People ex rel. Hartigan
v. E. & E. Hauling, Inc., 607 N.E. 2d 165, 177 (Ill. 1992), the
intentional breach of which is likewise not subject to an
affirmative defense of assumption of risk. Where unjust
enrichment occurs through mutual mistake, the negligence of the
conferrer of the benefit does not preclude recovery. Bank of
Naperville v. Catalano, 408 N.E.2d 441, 444 (Ill.App. Ct.
1980). Assumption of risk is not a proper affirmative defense to
either of Polska's claims. It is true, as EchoStar contends, that parties to a
contract agree to allocate risk, and must abide by that
allocation. EchoStar is free to argue that it had the right to
act as it did because the contract did not explicitly forbid its
conduct. However, this is a denial of Polska's claims, not an
affirmative defense. See Bobbitt, 532 F. Supp. at 736. EchoStar
does not cite any case in which assumption of risk was asserted
as an affirmative defense to breach of contract or unjust
enrichment. The motion to strike EchoStar's Tenth Affirmative
Defense is granted.
Polska argues that EchoStar's First Defense, statute of frauds,
should be stricken because Polska is not suing EchoStar for
breach of any oral promise. (Reply Supp. Mot. Strike at 2.)
EchoStar explains that it raises the defense because after the
three-year term of the contract expired, "to the extent not
already allowed by the contract, EchoStar and Polska modified the
contract by conduct to allow EchoStar to sell new subscriptions
and continue month-to-month subscriptions to Polska's programming
through May 2002 while the parties negotiated a new agreement."
(Opp'n Polska's Mot. Strike at 3.) It is EchoStar, not Polska,
who argues that the terms of the written agreement do not govern
certain of the parties' actions and suggests the existence of an
unwritten agreement. Each of Polska's claims asserts that
EchoStar acted in violation of a specified paragraph of the
Agreement. (Am. Compl. ¶ 14.) EchoStar could simply have denied
that its actions violated the Agreement, without raising statute
Nonetheless, because there is a question of material fact as to
whether the Agreement governs some or all of the parties' actions
after the expiration of the three-year term, and whether the
parties may have modified their agreement through oral discussion
or course of dealing, evidence on the statute of frauds issue may
become relevant. Before a motion to strike can be granted, the
Court must be convinced that there are no questions of fact or
law in dispute, and the issue has no possible relation to the
controversy. Lirtzman, 493 F. Supp. at 1031. The benefit of any doubt should be given to the pleader. Bobbitt,
532 F. Supp. at 736-37. Polska's motion to strike EchoStar's
First Affirmative Defense is denied.
Polska next challenges EchoStar's Fifteenth Affirmative
Defense, rescission. EchoStar's pleading does not state grounds
for rescission, but it is presumably related to the Fourteenth
Defense, which suggests that "the Agreement by the parties may
have been made under a misconception of a material fact
concerning the parties' rights and obligations in the
Post-Termination/Expiration period." (Second Am. Answer at 10.) A
mistake of material fact is proper grounds for rescission. Real
Estate Value Co. v. USAir, Inc., 979 F. Supp. 731, 740 (N.D.
Ill. 1997). The Court strikes the Fifteenth Defense as redundant
and addresses Polska's arguments regarding rescission as
challenges to the Fourteenth Defense.
Polska challenges rescission on two grounds: that it is a form
of relief, not a defense, and that rescission is unavailable
because the contract has been fully performed. (Reply Supp. Mot.
Strike at 3.) Affirmative defenses have been defined as
"something that generally admits the matters in a complaint but
suggests some other reason why there is no right of recovery," or
"something that raises a matter outside the scope of plaintiff's
prima facie case and is thus a matter not raised by a simple
denial." Bobbitt, 532 F. Supp. at 736. With this defense,
EchoStar seeks to avoid the contract regardless of whether
Polska's allegations are true, thus meeting both definitions. The
defense of rescission is permitted in this district and in
Illinois. See, e.g., Fairbanks Capital Corp. v. Jenkins,
225 F. Supp.2d 910, 914-15 (N.D. Ill. 2002); State Farm Ins. Co. v.
Am. Serv. Ins. Co., 773 N.E.2d 666, 672 (Ill.App. Ct. 2002);
Volk v. Kendall, 389 N.E.2d 697, 699 (Ill.App. Ct. 1979).
Rescission for mistake is proper under Illinois law if EchoStar
can establish that: (1) the mistake is of a material nature; (2)
the mistake is of such consequence that enforcement is unconscionable; (3) the mistake occurred notwithstanding the
exercise of due care by the party seeking rescission; and (4)
rescission can place the other party in status quo ante. Real
Estate Value Co., 979 F. Supp. at 740. Polska challenges only
the last element, arguing that because Polska has provided
Programming Services, the Court cannot place the parties in the
positions they would have been in had no contract existed. (Reply
Supp. Mot. Strike at 3.) Although restoration of the status quo
initially requires return of property or other consideration, it
also requires the rescinding party to account for any benefits
received from the other party under the contract. Puskar v.
Hughes, 533 N.E.2d 962, 967 (Ill.App. Ct. 1989). Restitution is
a proper remedy for rescission. Id. That a party has benefited
from possession of land, goods, or other property does not
preclude restitution because the other party can be compensated
in money for this benefit. RESTATEMENT (SECOND) OF CONTRACTS §
384 cmt. a (1981). If the contract is rescinded, EchoStar may
compensate Polska for the value it received. Polska's motion to
strike EchoStar's Fourteenth Affirmative Defense is denied.
Polska asserts that EchoStar's Eighth and Ninth Affirmative
Defenses are "immaterial and irrelevant." (Reply Supp. Mot.
Strike at 2.) The Court addresses each in turn.
Although Polska seeks to withdraw its motion to strike as to
EchoStar's Eighth Affirmative Defense, which states that Polska's
claims are barred by applicable agreements and/or applicable law,
the Court nonetheless finds that this defense is insufficiently
pleaded. Rule 8(a) requires a short and plain statement showing
that the pleader is entitled to relief. FED. R. CIV. P. 8(a).
EchoStar's statement that Polska's claims are barred by
"provisions of applicable agreements and/or applicable law" does
not state why EchoStar is entitled to relief. The number of
agreements and laws to which the pleading might refer is
virtually unlimited. There is no notice given of the defense
alleged and the issues it raises. See Sauber Painting & Decorating, Inc. v. Int'l Union of Painters & Allied Trades
Dist. Council #30, No. 04 C 170, 2004 WL 1244133, at *2 (N.D.
Ill. June 3, 2004). In its brief in opposition to Polska's motion
to withdraw its motion to strike this affirmative defense,
EchoStar attempts to clarify this defense by arguing that breach
of contract and unjust enrichment claims cannot coexist. However,
as the case to which EchoStar cites goes on to say, a party is
not barred from pleading these claims in the alternative, as
Polska does here, albeit insufficiently. See Zic v. Italian
Gov't Travel Office, 130 F. Supp.2d 991, 997 (N.D. Ill. 2001).
Polska's motion to strike EchoStar's Eighth Defense is granted.
Polska also seeks to withdraw its motion to strike EchoStar's
Ninth Affirmative Defense. The Court examines the defense for
sufficiency of pleading. Under Illinois law, EchoStar's Ninth
Defense, unclean hands, requires that the defendant show
misconduct by plaintiff (1) involving the transaction complained
of and (2) constituting fraud, misconduct, or bad faith toward
the defendant. Energetec Sys., Inc. v. Kayser, No. 84 C 10611,
1986 WL 8058, at *2 (N.D. Ill. July 17, 1986); Baal v.
McDonald's Corp., 422 N.E.2d 1166, 1171 (Ill.App. Ct. 1981). If
EchoStar means to allege that fraud occurred, Rule 9(b) requires
that the allegation include particular circumstance such as the
time, place, and content of the representation or omission.
Global Poly, Inc. v. Fred's Inc., No. 03 C 4561, 2004 WL
532844, at *6 (N.D. Ill. Mar. 11, 2004). EchoStar does not state
factual grounds for fraud with anything close to the requisite
specificity. Nor does EchoStar generally allege grounds for
misconduct or bad faith to meet the pleading standard of Rule
8.*fn2 The facts cited in support of the defense allege that
Polska advertised for, referred customers to, and accepted money from
EchoStar. It is unclear how such facially beneficial actions
could constitute misconduct toward EchoStar. If, on the other
hand, EchoStar wishes to allege that these actions were carried
out in bad faith, it must so state. Franklin Capital Corp. v.
Baker & Taylor Entm't, Inc., No. 99 C 8237, 2000 WL 1222043, at
*4 (N.D. Ill. Aug. 22, 2000). EchoStar alleges only that Polska's
performance on the contract after it was breached makes Polska a
participant in any harm caused. In the absence of fraud,
misconduct, or bad faith, the claim is more akin to estoppel or
laches. It is more properly made under those defenses. Safe Bed
Techs. Co. v. KCI USA, Inc., No. 02 C 97, 2003 WL 21183948, at
*6 (N.D. Ill. May 20, 2003). Polska's motion to strike EchoStar's
Ninth Defense is granted.
Finally, Polska makes a general argument that all of EchoStar's
affirmative defenses with the exception of the Fifth and Eleventh
are "bare bones legal conclusions." (Reply Supp. Mot. Strike at
3.) The Federal Rules of Civil Procedure require only fair notice
of what the pleader's claim is and the grounds upon which it
rests; the pleader need not set out facts in detail. Conley v.
Gibson, 355 U.S. 41, 47 (1957). Even vague allegations may be
construed to set forth a claim. Lewis v. Local Union No. 100,
750 F.2d 1368, 1373 (7th Cir. 1984). As discussed above, the
stated grounds are sufficient to support EchoStar's First and
Fourteenth Defenses. The motion to strike these defenses is
denied. The Court strikes EchoStar's Tenth Defense because it is
an inappropriate defense to a breach of contract claim; the
Fifteenth Defense because it is redundant; and the Eighth and
Ninth Defenses because they do not state a basis for relief.
EchoStar's Thirteenth Defense, which states that the parties'
rights and obligations in the post-termination period were
ambiguous, is in essence merely a denial of the breach of
contract claim. The motion to strike EchoStar's Thirteenth
Defense is accordingly granted.
EchoStar's Twelfth Defense does not clearly state grounds for
relief. It asserts that to the extent Polska seeks any damages under the parties' Agreement that
may be considered a penalty, such claims are unenforceable as a
matter of law. Presumably EchoStar refers to the common-law rule,
adopted in Illinois, that when the sole purpose of a contract
clause specifying damages is to secure performance of the
contract a "penalty" clause it is unenforceable. Checkers
Eight Ltd. P'ship v. Hawkins, 241 F.3d 558, 561-62 (7th Cir.
2001). The rule is inapplicable where there is no damages clause
at issue. Saunders v. Michigan Ave. Nat'l Bank, 662 N.E.2d 602,
609 (Ill.App. Ct. 1996). There is no such clause in the parties'
agreement. Polska's motion to strike EchoStar's Twelfth Defense
In sum, Polska's motion to strike EchoStar's First and
Fourteenth Affirmative Defenses is denied. The motion to strike
EchoStar's Eighth, Ninth, Tenth, Twelfth, Thirteenth, and
Fifteenth Affirmative Defenses is granted. EchoStar has requested
leave to amend any defenses stricken for insufficiency. (Opp'n
Mot. Strike at 4.) The Tenth, Twelfth, and Thirteenth Defenses
are stricken with prejudice because they are improper affirmative
defenses to Polska's claims. The Fifteenth Defense is stricken
with prejudice because it is already pleaded by the Fourteenth
Defense. EchoStar is granted leave to amend its Eighth and Ninth
Defenses within fifteen days of this Memorandum Opinion and
B. Polska's Motion to Dismiss EchoStar's Counterclaims
A Rule 12(b)(6) motion to dismiss for failure to state a claim
will not be granted unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which
will entitle him to relief. Conley, 355 U.S. at 45-46. Under
Rule 8, the complaint must give fair notice of what the claim is
and the grounds upon which it rests. Id. at 47. To survive a
motion to dismiss for failure to state a claim, pleadings need
only outline a violation of the law upon which the claim relies, and connect the violation to the parties
against whom it is claimed. Brownlee v. Conine, 957 F.2d 353,
354 (7th Cir. 1992). When evaluating a motion to dismiss, the
facts in the complaint are viewed in the light most favorable to
the non-moving party. Craigs, Inc. v. Gen. Elec. Capital Corp.,
12 F.3d 686, 688 (7th Cir. 1993).
Under Illinois law, a statement is considered defamatory if it
tends to cause such harm to the reputation of another that it
lowers that person in the eyes of the community or deters third
persons from associating with him. Kolegas v. Heftel Broad.
Corp., 607 N.E.2d 201, 206 (Ill. 1992). The alleged defamatory
words that were spoken or published must be set forth. Wilton
Partners III, LLC v. Gallagher, No. 03 C 1519, 2003 WL 22880834,
at *5 (N.D. Ill. Dec. 5, 2003). The purpose of this requirement
is so that responsive pleadings may be formed. Woodard v. Am.
Family Mut. Ins. Co., 950 F. Supp. 1382, 1388 (N.D. Ill. 1997);
Vantassell-Matin v. Nelson, 741 F. Supp. 698, 708 (N.D. Ill.
1990). The language need not be quoted verbatim; an allegation is
sufficiently specific if it allows the other party to understand
the nature of the claim and respond. Wilton Partners, 2003 WL
22880834, at *5. The precise date when the statements were made
need not be included in the pleadings. Woodard,
950 F. Supp. at 1388.*fn3 The defamatory statements identified by EchoStar are: (1) that
the reason EchoStar and Polska could not reach a new Agreement
was that EchoStar was demanding exclusivity from Polska (Second
Am. Answer Pt. III ¶ 19); and (2) that EchoStar was "scamming"
Polska of subscription fees and monies owed under the 1998
Agreement (id. ¶ 20). The general language of the defamatory
statements is set forth with sufficient specificity to give
Polska notice of the nature of EchoStar's claims. Although
EchoStar's allegations are made "on information and belief," such
allegations are acceptable under the liberal, notice pleading
requirements of Rule 8. Syscon, Inc. v. Vehicle Valuation
Servs., 274 F. Supp.2d 975, 977 (N.D. Ill. 2003).
Under Illinois law, defamation may be per se or per quod.
Muzikowski v. Paramount Pictures Corp., 322 F.3d 918, 924 (7th
Cir. 2003). EchoStar alleges both. A statement cannot by
definition be both defamatory per se and defamatory per quod
because defamation per se is defined as obviously harmful,
whereas a statement is considered defamation per quod if its
defamatory character is not apparent on its face. See Smith v.
SRDS, Inc., 1997 WL 11014, at *5. The Court will treat them as
To state a cause of action for defamation per se when the
complainant is a corporation, the statements alleged "`must
assail the corporation's financial position or business methods,
or accuse it of fraud or mismanagement.'" Geske & Sons v. NLRB,
103 F.3d 1366, 1373 (7th Cir. 1997) (quoting Vee See Constr. Co.
v. Jensen & Halstead, Ltd., 399 N.E.2d 278, 281 (Ill.App. Ct.
1979)).*fn4 The statement that EchoStar was "scamming"
Polska assails the company's business methods. The statement that EchoStar was responsible for
the parties' failure to reach an agreement because it was
demanding exclusivity from Polska is not prima facie an assault
on the company's business practices or an accusation of fraud or
mismanagement, so it cannot be grounds for defamation per se.
EchoStar's claim for defamation per se must rest on the
"scamming" statement alone.
In a claim for defamation per se in Illinois, words are not
defamatory if they are reasonably capable of innocent
construction. Kolegas, 607 N.E.2d at 206. Polska contends that
"scamming" can be construed as referring to the fact that
EchoStar was not paying Polska monies due under their agreement.
(Mot. Dismiss Countercl. ¶ 7.) As such, Polska contends, the
statement does not suggest fraud or unethical conduct, but
rather, a "garden variety" breach of contract. (Reply Supp. Mot.
Dismiss at 3.)
Polska also cites cases in which it was found that words
similar to "scamming," such as "cheating," are susceptible to
different interpretations and can be found defamatory only where
the context in which they are made forecloses an innocent
construction. In particular, Dilworth v. Dudley, 75 F.3d 307,
310 (7th Cir. 1996), noted that "scam" has a figurative meaning
that may be used as non-actionable hyperbole, and its defamatory
character must be considered in context. That the word was used
in a literal sense in the statement alleged by EchoStar is
apparent from the fact that it is followed by an indirect object:
"EchoStar was `scamming' Polska of subscription fees and monies Polska was owed." (Second Am. Ans.
Pt. III ¶ 20.)*fn5 The innocent-construction rule requires
courts to give words and their implications their natural and
obvious meaning. Kolegas, 607 N.E.2d at 206. Here, as Polska
acknowledges (see Reply Supp. Mot. Dismiss at 3), the statement
is naturally construed as an accusation of actual conduct carried
out contrary to obligation. As such it clearly imputes a lack of
integrity, foreclosing innocent construction. EchoStar has
sufficiently stated a claim for defamation per se.
In order to state a claim for defamation per quod, EchoStar
must allege extrinsic facts showing the defamatory character of
the statements, and specific facts establishing special damages.
Anderson v. Vanden Dorpel, 667 N.E.2d 1296, 1303 (Ill. 1996).
EchoStar alleges that Polska's statements were false and were
made in order to convince T.V. Polonia subscribers and others to
purchase Polska's Programming from EchoStar's competitor in lieu
of EchoStar, and to ruin EchoStar's good reputation. (Second Am.
Answer Pt. III ¶ 24.) In its opposition to Polska's motion,
EchoStar adds that as a result of these statements, "not only
could consumers be driven away, but other programmers EchoStar
works with, or hopes to works with, could be influenced by
Polska's false and malicious statements." (Opp'n Mot. Dismiss
Countercl. at 5.) These allegations suffice as extrinsic facts
from which the defamatory character of the statements may be
inferred. Polska does not challenge this element of the claim.
Polska does challenge the "special damages" element of
EchoStar's claim for defamation per quod. (Mot. Strike
Affirmative Defenses ¶ 6.) Rule 9(g) states that "[w]hen items of
special damages are claimed, they shall be specifically stated." FED. R.
CIV. P. 9(g). However, an estimation of dollar amounts is
unnecessary. Action Repair, Inc. v. Am. Broad. Cos.,
776 F.2d 143, 149 (7th Cir. 1985). The pleading need only specify the
nature and basis of the damages, making some connection between
the defamatory statements and the complainant's injury that shows
how the defamation caused the damage. Id. For example, in
Fleck Bros. Co. v. Sullivan, the plaintiff alleged that he had
expended money as a result of the defendant's libel.
385 F.2d 223, 225 (7th Cir. 1967). EchoStar meets this requirement when it
alleges that it was injured by loss of subscribers, future
subscribers, and profits. (Second Am. Answer Pt. III ¶ 34.)
Polska next contends that EchoStar's defamation claims must be
dismissed because Polska's statements were constitutionally
protected opinion. (Mot. Strike Affirmative Defenses ¶ 4.) The
test to determine whether a defamatory statement is
constitutionally protected is whether a statement cannot
reasonably be interpreted as stating actual facts. Milkovich v.
Lorain Journal Co., 497 U.S. 1, 20 (1990). Polska is correct to
point out that the word "scamming" alone could pass the test.
(Mot. Strike Affirmative Defenses ¶ 4.) However, EchoStar does
not confine its allegation to this one word. The statements
alleged are assertions of actual conduct by EchoStar that are
sufficiently factual as to be susceptible to being proven true or
false. See Milkovich, 497 U.S. at 20. They are not
constitutionally protected under the First Amendment. See id.
Polska correctly argues that as a public figure, EchoStar must
sufficiently allege actual malice in its defamation claim. (Mot.
Strike Affirmative Defenses ¶ 5.) Because EchoStar has sought
publicity and placed itself in the public eye by advertising,
engaging in commerce, and broadcasting, it is a public figure and
does not qualify for the higher level of protection from
defamation afforded to private persons. See Conseco Group Risk
Mgmt. Co. v. Ahrens Fin. Sys., No. 00 C 5467, 2001 WL 219627, at *9-10 (N.D. Ill. Mar. 6, 2001).
To succeed on a defamation claim, a public figure must plead and
prove actual malice. Id. at 10. In Illinois, actual malice
denotes knowledge of or reckless disregard for the falsity of a
defamatory statement. Id. EchoStar fulfills this pleading
requirement when it states, "Polska's conduct is made with
malice, in that Polska knows or should know that its statements
and allegations are false." (Second Am. Ans. Pt. III ¶ 32.)
Finally, Polska argues that EchoStar cannot state a claim for
defamation because Polska's statements were privileged. (Mot.
Dismiss Countercl. ¶ 8.) Illinois common law recognizes the
existence of a qualified privilege for statements that may
otherwise be actionable as defamation. The required elements are:
(1) good faith by the defendant in making the statement; (2) an
interest or duty to uphold; (3) a statement limited in its scope
to that purpose; (4) a proper occasion; and (5) publication in a
proper manner and to proper parties only. Kuwik v. Starmark Star
Mktg. & Admin., Inc., 619 N.E.2d 129, 133 (Ill. 1993). Polska
argues that it had an interest in communicating to its
subscribers why it was no longer being broadcast on EchoStar's
network. (Mot. Dismiss Countercl. ¶ 8.) Although Polska certainly
had an interest in informing its subscribers that its programming
would no longer appear on EchoStar's network, it is not at all
clear that Polska needed to tell them why. Moreover, EchoStar
alleges that the statements were made to other programmers, to
whom this interest does not apply. (Second Am. Ans. Pt. III ¶
22.) EchoStar also alleges that the statements were made with bad
faith intent to cause injury to EchoStar. (Id. at ¶ 32.) The
existence of a qualified privilege is not sufficiently
established to justify dismissal of EchoStar's counterclaims.
Even if it were established, a qualified privilege can be
overcome by a showing that the defamatory statement was
intentionally published with the knowledge that it was false, or
with reckless disregard as to the matter's falsity, which EchoStar alleges. See Smock v. Nolan,
361 F.3d 367, 372 (7th Cir. 2004). EchoStar has sufficiently
pleaded its counterclaims for defamation per se and per quod, and
Polska's motion to dismiss is denied.
2. Tortious Interference with Prospective Economic Advantage
Under Illinois law, to succeed in a claim for tortious
interference with prospective economic advantage, a plaintiff
must establish: "(1) that the plaintiff had a reasonable
expectation of entering into a valid business relationship, (2)
that the defendant knew of this expectancy, (3) that the
defendant intentionally and unjustifiably interfered to prevent
the expectancy from being fulfilled, and (4) that damages to the
plaintiff resulted from the interference." Fredrick v. Simmons
Airlines, 144 F.3d 500, 502 (7th Cir. 1998). EchoStar alleges
each of these elements when it states: (1) that EchoStar had a
reasonable expectation of entering into a valid business
relationship with certain individuals to whom Polska made false
and misleading statements (Second Am. Ans. Pt. III ¶ 37; (2) that
Polska had knowledge of EchoStar's reasonable expectation (id.
¶ 38); (3) that Polska purposely interfered with this expectation
by making false and misleading statements (id. ¶¶ 38-39); and
(4) that Polska's false and misleading statements caused EchoStar
to suffer damages (id. ¶ 40).
Polska and EchoStar cite apparently conflicting authority
regarding the specificity with which the third parties with
respect to whom an expected business relationship is interfered
must be identified. (Mot. Dismiss Countercl. ¶ 11; Opp'n Mot.
Dismiss Countercl. at 9-10.) However, the underlying authority to
which their cases cite is the same. In Parkway Bank & Trust Co.
v. Darien, the court found that the plaintiffs could not
maintain their cause of action because they did not allege an
interference with either a business relation between the
plaintiffs and specific third parties or an identifiable class of third
persons contemplating contractual arrangements with the
plaintiffs. 357 N.E.2d 211, 214-15 (Ill.App. Ct. 1976).
EchoStar's allegations concern prospective relationships, so the
required specificity is "an identifiable prospective class." See
id. Keeping in mind the liberal notice pleading standard, the
requirement is met by EchoStar's allegations that Polska's false
and misleading statements were made to EchoStar's T.V. Polonia
subscribers and to other programmers with whom EchoStar had
negotiated. (Second Am. Ans. Pt. III ¶¶ 21-22.) Although Polska
questions whether EchoStar could have had a reasonable
expectation of a continuing relationship with its T.V. Polonia
customers after its agreement with Polska terminated, EchoStar
claims that it did presumably by replacing Polska with another
Polish language programmer and the facts in the complaint are
viewed in the light most favorable to the non-moving party when
evaluating a motion to dismiss. See Craigs, Inc.,
12 F.3d at 688.
Polska also claims that EchoStar has not sufficiently alleged
that Polska's interference was unjustified in order to establish
the third element of the claim. (Mot. Dismiss Countercl. ¶ 12.)
Polska argues that it was justified in communicating with
EchoStar's T.V. Polonia customers in order to convey its position
in the controversy between the parties, and that this interest
constitutes a privilege. (Id. at ¶ 12.) In a suit for tortious
interference with a prospective economic relationship, privilege
exists if the defendant acted in good faith to protect an
interest or uphold a duty. Delloma v. Consol. Coal Co.,
996 F.2d 168, 171 (7th Cir. 1993). The statement must be limited in
scope to that purpose, and must be made on a proper occasion, in
a proper manner, and to proper parties only. Id. If privilege
exists, the complainant bears the burden of proving that the
defendant's conduct was malicious. Id. (citing Fellhauer v.
City of Geneva, 568 N.E.2d 870, 878 (Ill. 1991)). In this
context, "malicious" means intentionally and without justification. Id. As noted above with regard to
Polska's claim of privilege for defamation, it is not clear that
Polska acted in good faith and within the proper scope. It is
apparent that there are material questions of fact at issue, and
EchoStar's allegation that Polska's actions were unjustified is
sufficient to meet the requirements of pleading. See Craigs,
Inc., 12 F.3d at 688.
Finally, Polska incorrectly argues that EchoStar cannot base
its claim on allegations made only on "information and belief."
(Mot. Dismiss Countercl. ¶ 11.) Allegations made on "information
and belief" are permissible to fulfill the pleading requirements
of Rule 8. Hall v. Carlson, No. 85 C 6544, 1985 WL 2412, at *1
(N.D. Ill. Aug. 28, 1985) (citing 5 CHARLES ALAN WRIGHT & ARTHUR
R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1224 (1969));
Chisholm v. Foothill Capital Corp., 940 F. Supp. 1273, 1280
(N.D. Ill. 1996). The only exception to this rule applies when
the matter is within the personal knowledge of the pleader. HWB,
Inc. v. Braner, Inc., No. 92 C 5900, 1993 WL 389346, at *2 (N.D.
Ill. Sept. 30, 1993); 5 WRIGHT & MILLER, FEDERAL PRACTICE AND
PROCEDURE § 1224.*fn6 The nature of EchoStar's counterclaim
is necessarily speculative, dealing with matters beyond the
personal knowledge of the pleader, because it is based upon
prospective economic advantage. The exception does not apply.
EchoStar's pleadings "upon information and belief" are
sufficient. Polska's motion to dismiss EchoStar's counterclaim
for tortious interference with prospective economic advantage is denied.
3. Trade Libel/Product Disparagement
EchoStar's Third Counterclaim is labeled "trade libel/product
disparagement." There is some dispute over whether a common-law
tort of commercial disparagement exists in Illinois. Marchese v.
Dobry, No. 00 C 5606, 2001 WL 492471, at *2 (N.D. Ill. May 9,
2001); Schivarelli v. CBS, Inc., 776 N.E.2d 693, 702 (Ill.App.
Ct. 2002). Compare Becker v. Zellner, 684 N.E.2d 1378, 1387-88
(Ill.App. Ct. 1997) with Barry Harlem Corp. v. Kraff,
652 N.E.2d 1077, 1083 (Ill.App. Ct. 1995). Supposing that it is
recognized, to state a claim for common-law product disparagement
EchoStar would have to show that Polska made false and demeaning
statements regarding the quality of EchoStar's goods and
services. Barry Harlem Corp., 652 N.E.2d at 1083. The two
statements that EchoStar has alleged impugn only its integrity,
not its goods or services. (Second Am. Answer Pt. III ¶¶ 19-20.)
EchoStar makes a plausible case that customers will not want to
purchase its services because of Polska's statements, arguing
that "if subscribers, or potential subscribers, are led to
believe hostile business relations exist between EchoStar and its
programmers they could choose another provider they believed had
more stable business relationships with its programmers and feel
more assured their channel lineup would remain the same." (Opp'n
Mot. Dismiss at 7.) However, this merely states grounds for a
defamation action. See Allcare, Inc. v. Bork, 531 N.E.2d 1033,
1037-38 (Ill.App. Ct. 1988). The quality of EchoStar's goods and
services is not disparaged. Product disparagement and defamation
are separate and distinct torts; a defamation action lies when
the integrity or credit of a business has been impugned, whereas
an action for commercial disparagement lies if the quality of the
goods or services is demeaned. Crinkley v. Dow Jones & Co.,
385 N.E.2d 714, 719 (Ill.App. Ct. 1978); see Peaceable Planet, Inc. v. TY,
Inc., 362 F.3d 986, 993 (7th Cir. 2004) (citing Crinkley with
approval). Although it is possible that both actions could lie
simultaneously, they do not do so here. See Crinkley,
385 N.E.2d at 720.
There is no dispute that an action for product disparagement
may be brought under the Illinois Uniform Deceptive Trade
Practices Act ("Illinois UDTPA"), 815 Ill. Comp. Stat. §
510/2(a)(8). Cincinnati Ins. Co. v. E. Atl. Ins. Co.,
260 F.3d 742, 745 (7th Cir. 2001); Republic Tobacco, L.P. v. N. Atl.
Trading Co., 254 F. Supp.2d 985, 997-98 (N.D. Ill. 2002). The
relevant subsection has been held to substantially codify the
common law tort of disparagement. Republic Tobacco,
254 F. Supp.2d at 997-98; Crinkley, 385 N.E.2d at 719. It is
therefore limited to statements about the quality of one's goods
and services, and defamation of the credit and integrity of one's
business is not actionable under the act. Republic Tobacco,
254 F. Supp.2d at 998; Crinkley, 385 N.E.2d at 719.*fn7 The
statements alleged by EchoStar do not impugn the quality of its
goods and services. Polska's motion to dismiss EchoStar's Third
Counterclaim is granted.
4. Violation of Illinois Uniform Deceptive Trade Practices
EchoStar's Fourth Counterclaim alleges that Polska violated
four other subsections of the Illinois UDTPA. (Second Am. Answer
Pt. III ¶ 51.) The Act states, in pertinent part:
A person engages in deceptive trade practice when, in
the course of his or her business, vocation, or
occupation, the person: . . . (2) causes likelihood
of confusion or of misunderstanding as to the source,
sponsorship, approval, or certification of goods or services; (3) causes
likelihood of confusion or of misunderstanding as to
affiliation, connection, or association with or
certification by another; . . . (5) represents that
goods or services have sponsorship, approval,
characteristics, ingredients, uses, benefits, or
quantities that they do not have or that a person has
a sponsorship, approval, status, affiliation, or
connection that he or she does not have; . . . or
(12) engages in any other conduct which similarly
creates a likelihood of confusion or
815 ILL. COMP. STAT. § 510/2(a). The UDTPA was designed to cover
conduct involving misleading trade identification and false or
deceptive advertising. Lynch Ford, Inc. v. Ford Motor Co.,
957 F. Supp. 142, 147 (N.D. Ill. 1997). Implicit within the twelve
enumerated subsections of section two of the act is that for a
violation to occur, the defendant must make some form of
representation to the public or a potential buyer regarding a
good or service. Id. Because the Court found above that the
false and misleading statements alleged by EchoStar pertained
only to EchoStar's business, and not to its goods and services,
EchoStar has not stated sufficient grounds for a claim under the
Illinois UDTPA. Polska's motion to dismiss EchoStar's Fourth
Counterclaim is granted.
For the reasons discussed above, EchoStar sufficiently states
claims in its First and Second Counterclaims, i.e., defamation
per se and per quod in the alternative and tortious interference
with prospective economic advantage. EchoStar failed to state
grounds for its Third and Fourth Counterclaims, trade
libel/product disparagement and violation of the Illinois UDTPA.
Polska's motion to dismiss EchoStar's counterclaims is granted as
to the Third and Fourth Counterclaims and denied as to the First
and Second Counterclaims. EchoStar has requested permission to
replead any counterclaims that are dismissed without prejudice.
(Opp'n Mot. Dismiss at 12.) The Court grants EchoStar leave to
correct deficiencies in its Third and Fourth Counterclaims within
fifteen days of this Memorandum Opinion and Order if in doing so
it can meet its obligations under Rule 11. CONCLUSION
For the reasons set forth above, the Court grants Polska's
motion to strike EchoStar's Eighth, Ninth, Tenth, Twelfth,
Thirteenth, and Fifteenth Affirmative Defenses (barred by
agreement or law, unclean hands, assumption of risk, penalty,
ambiguity, and rescission); grants the motion to dismiss
EchoStar's Third and Fourth Counterclaims (trade libel/product
disparagement and violation of the Illinois UDTPA); and denies
the motion as to all other defenses and counterclaims [doc. no.
45-1]. Permission is granted to EchoStar to amend its Eighth and
Ninth Defenses and to replead its Third and Fourth Counterclaims
within fifteen days of the date of this Memorandum Opinion and
Order. The Court denies the remaining portion of Polska's motion
to withdraw its motion to strike with regard to EchoStar's Eighth
through Tenth Affirmative Defenses [doc. no. 90-1].