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.
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.
On June 25, 1997, Lexicon and American entered into an
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
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  days after any such sale by
Id. at ¶ 40. The 1997 Agreement is to be construed in
accordance with the laws of the State of California. Id. at ¶
C. American's Payments for Sales Leads and Telephonic
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; ¶¶
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 ...