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AMERICAN TOP ENGLISH v. LEXICON MARKETING

October 1, 2004.

AMERICAN TOP ENGLISH, Plaintiff,
v.
LEXICON MARKETING (USA), INC., Defendant.



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

MEMORANDUM OPINION AND ORDER

American Top English ("American") sues Lexicon Marketing (USA), Inc. ("Lexicon") for breaching the parties' contract by selling video courses in the State of Illinois. Lexicon counterclaims American breached the parties' contract by failing to pay invoices. Lexicon moves for summary judgment on its counterclaim and American's breach of contract claim under Fed.R. Civ. P. 56. Lexicon also moves to strike American's affirmative defenses under Fed.R. Civ. P. 12(f). American moves for summary judgment on Lexicon's counterclaim under Fed.R. Civ. P. 56.

BACKGROUND

  A. The 1990 Agreement

  All facts are undisputed unless otherwise noted.*fn1 Lexicon produces, markets and sells Ingles Sin Barreras, a twelve-volume instructional video course that teaches English to native Spanish speakers. Lexicon Facts ¶ 3. Lexicon contends it markets and sells numerous products under the brand name Ingles Sin Barreras, including Ingles Sin Barreras Compacto, a six-volume product, and Ingles Sin Barreras for Institutions. Id. at ¶¶ 4-7. American contends Lexicon markets and sells only one product under the brand name Ingles Sin Barreras, but through different versions. American Resp. to Lexicon Facts at ¶¶ 4, 6. American asserts these versions have identical content but different tools. Id. at ¶ 7.

  On May 2, 1990, American entered into a distribution agreement ("the 1990 agreement") with one of Lexicon's predecessors, Hispanic-American Educational Materials, Inc. ("HAEM"). Id. at ¶ 14. The parties contest whether the 1990 agreement limits American's distribution rights to one specific product. Lexicon contends American has rights to distribute and market "an English Language Course consisting of twelve (12) videocassette volumes and accompanying material to be used in the instruction of the English language to the Hispanic market," which means only the Ingles Sin Barreras complete product. Id. at ¶¶ 16-17. American contends the 1990 agreement does not limit distribution rights to the complete product and that it is entitled to sell all products under the Ingles Sin Barreras brand name. American Resp. to Lexicon Facts at ¶ 16. Either way, the 1990 agreement grants American sole and exclusive rights to distribute the product in the State of Illinois and in specific territories: (a) area codes 312 and 708, on an exclusive basis; and (b) the remainder of Illinois, on an exclusive basis, provided and so long as American purchased at least 75 video courses per month from Lexicon for Illinois' sales. Lexicon Facts at ¶¶ 18-19.

  Section 15 of the 1990 agreement provides:
If either party is in default under this Agreement and the default continues for not less than twenty (20) days after receipt of certified written notice from the non-defaulting party, the non-defaulting party shall have the full right, power and authority to terminate this Agreement, or any portions or paragraphs of this Agreement as the non-defaulting party may elect. Lexicon Facts at ¶ 27. The 1990 agreement also states "in any arbitration or litigation relating to this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees." Lexicon Add'l Facts at ¶ 29. "Any waiver by either party of any breach of any kind . . . shall not be construed as a continuing waiver, or consent to, any subsequent breach . . ." Id. at ¶ 30. The 1990 agreement contains an integration provision that the agreement constitutes the entire agreement between the parties and could be modified or amended "only by a writing signed by the parties and making specific reference that this Agreement is intended to be modified thereby." Lexicon Facts at ¶ 28.
  The parties completed an addendum to the 1990 agreement. Id. at ¶ 15. The addendum grants American rights to purchase sales leads generated by Lexicon's national advertising. Id. at ¶ 29. Section 11 of the addendum provides:
 
[Lexicon] will not advertise in the specified exclusive area of [American]. Sales leads generated by [Lexicon's] national advertising which spills over into [American's] territory, will be received by [Lexicon] and retransmitted to [American] at [Lexicon's] cost of advertising and toll calls as follows: using AT&T's Executive Summary for [Lexicon's] 800 telephone line, [American] will be charged that percentage of the bill that corresponds to [its] area's percentage of calls. [American] understands that said Executive Summary does not include calls from the State of California, which will not be figured into the above computation. This same percentage will then be applied to [Lexicon's] advertising bill that applies to [American].
American Add'l Facts at ¶ 115. On a monthly basis, Lexicon sends invoices to American reflecting the number of leads Lexicon provided to American for the previous month and the cost of those leads. Id. at ¶ 116. American's bill for the sales leads is determined by a formula prescribed by the addendum. Lexicon Facts at ¶ 30. The addendum requires American to notify Lexicon in writing if American does not wish to purchase the forwarded leads; American has never refused any of the offered sales leads. Lexicon Facts at ¶¶ 31-32. The addendum further provides "[i]f [American] purchases seventy-five (75) Video Courses per month, [American] will have the Exclusive Distributorship for the entire State of Illinois." American Facts at ¶ 11. Neither the 1990 agreement nor the addendum expressly state "time is of the essence." Id. at ¶ 15. The 1990 agreement is to be construed in accordance with the laws of the State of California. Id. ¶ 9; Lexicon Facts at ¶ 33.

  B. The 1997 Agreement

  On June 25, 1997, Lexicon and American entered into an agreement:
In consideration for the promises made in this Agreement and for other good and valuable consideration, [American] hereby releases, remises, and forever discharges [Lexicon] from any and all claims, actions, causes of action, and/or rights of set-off arising out of performance or non-performance of the Distribution Agreements between the dates of May 2, 1990 through January 1, 1997.
Lexicon Facts at ¶ 38. In addition, the parties amended the 1990 agreement to include the following ninety-day contractual period of limitation:
The Distribution Agreements and each of them are amended in the following respects only to add the following: In the event that [American] learns of an unauthorized sale of [Lexicon] product in the sales territories of [American], [American] shall notify [Lexicon] in writing within two weeks of the finding. In such event and upon confirmation of the unauthorized sale, [Lexicon] shall pay the salesperson's commission for each such sale to [American]. In no event shall [American] seek compensation from [Lexicon] for unauthorized sales more than ninety [90] days after any such sale by [Lexicon].
Id. at ¶ 40. The 1997 Agreement is to be construed in accordance with the laws of the State of California. Id. at ¶ 41.

  C. American's Payments for Sales Leads and Telephonic Services

  In October 2003, the parties disputed the accuracy of advertising amounts reflected on Lexicon's invoices. American Add'l Facts at ¶ 125. American contends since 1990, Lexicon's sales leads and telephonic services invoices have enclosed various information including, beginning in 2001, data regarding the number of calls received per area code in all territories. Id. at ¶ 121. American contends it relied on this back-up data to verify the accuracy of Lexicon's invoices. Id. at ¶ 124; American Facts at ¶¶ 19-20. In October 2003, however, Lexicon stopped including the back-up data with the invoices. American Facts at ¶¶ 21-22. American asserts it could not verify the invoices' accuracy without knowing what states were included in the total number of sales leads. American Add'l Facts at ¶ 127. Lexicon contends the back-up information was provided as a courtesy and was unnecessary to verify the invoices' accuracy. Id.; Lexicon Facts at ¶ 97. Further, Lexicon contends there was no contractual obligation to provide American with the confidential and proprietary information. Id. at ¶ 26; ¶¶ 94-95.

  On October 13, 2003, Lexicon sent American a written demand for payment of $632,658.71 in outstanding invoices for sales leads. Lexicon Facts at ¶ 105. The October 13th letter stated: (1) on September 25th, American had been notified of its defaults; (2) the period to cure expired twenty days later on October 15th; and (3) Lexicon was entitled to terminate American's distribution agreement after the cure period expired. Id. at ¶ 106. The next day, American sent Lexicon a check for $632,658.11, sixty cents less the amount due, but stated it was paying the amount "under protest." Lexicon Facts at ¶ 107.

  The dispute over back-up data did not end in October 2003. In December 2003, and between January and March 2004, American and Lexicon exchanged e-mails relating to the production of back-up data. American Facts at ¶¶ 23-25, 27. American contends Lexicon agreed in a December 12, 2003 e-mail to provide the requested data before requiring payment, a representation upon which American relied. Id.; American Add'l Facts at ¶ 129. Lexicon disputes it agreed to provide the data. Lexicon Resp. to American Add'l Facts at ¶ 129.

  In the meantime, Lexicon invoiced American for sales leads as follows: (1) $55,939.45 on December 28, 2003 (January 15, 2004 due date); (2) $50,495.15 on January 20, 2004 (February 15, 2004 due date); (3) $32,788.70 on February 13, 2004 (March 15, 2004 due date); (4) $32,483.50 on March 18, 2004 (April 15, 2004 due date); (5) $59,083.09 on April 15, 2004 (May 15, 2004 due date); and (6) $53,914.03 on May 13, 2004 (June 15, 2004 due date). Id. at ¶¶ 68-73. Lexicon contends $7,679.70 remains unpaid on the February invoice, $46,152.27 remains unpaid on the March invoice, $37,201.10 remains unpaid on the April invoice, and $31,286.14 remains unpaid on the May invoice. Id. at ¶¶ 70-73. Lexicon contends all other invoices remain unpaid in full. Id. at ¶¶ 68-69. Further, Lexicon contends American owes $21,000.00 in unpaid invoices for telephonic services. Id. at ¶¶ 80-91.

  On March 17, 2004, Lexicon notified American by letter that it would be in default of the 1990 agreement if all outstanding invoices were not paid within twenty days. Lexicon Facts at ¶ 92. The letter also stated "while it may be true that you were receiving the full reports until October 2003, a review of our internal accounting practices indicated that the information being disclosed to you is proprietary confidential company data. As a result, Lexicon will no longer disclose the information you were previously receiving in the reports." American Add'l Facts at ¶ 133. American tendered a $25,000.00 payment to Lexicon on March 5, 2004; the memo portion of the check stated "[g]ood faith payment for January 2004 advertising." American Facts at ¶ 28. American also tendered a $50,000.00 payment to Lexicon. Id. at ¶ 29. Lexicon accepted and applied these payments to American's account. Lexicon Resp. to American Facts at ¶¶ 28-29. On March 31, 2004, American responded to Lexicon's March 17th letter, requested explanation for Lexicon's position that ...


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