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United Laboratories, Inc. v. Savaiano

December 21, 2007

UNITED LABORATORIES, INC., A DELAWARE CORPORATION, AND JULIE ANNE BENSON, AS DIRECTED TRUSTEE ON BEHALF OF UNITED LABORATORIES, INC.'S EMPLOYEE STOCK OWNERSHIP PLAN AND AS DIRECTED TRUSTEE ON BEHALF OF UNITED LABORATORIES, INC.'S LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN, PLAINTIFFS,
v.
MAUREEN R. SAVAIANO, INDIVIDUALLY, AS EXECUTOR OF THE ESTATE OF NICHOLAS J. SAVAIANO, DECEASED, AND AS TRUSTEE OF THE NICHOLAS J. SAVAIANO 1997 TRUST, DONALD F. SAVAIANO, INDIVIDUALLY AND AS NOMINEE FOR FLORENCE SAVAIANO, A TRUSTEE ON BEHALF OF THE SCULLY SAVAIANO INSURANCE TRUST, ROBERT G. DIFINO, JAMIE SAVAIANO MALONEY AND WILLAMETTE MANAGEMENT ASSOCIATES, INC., AN OREGON CORPORATION, DEFENDANTS.
MAUREEN R. SAVAIANO, INDIVIDUALLY, AS EXECUTOR OF THE ESTATE OF NICHOLAS J. SAVAIANO, DECEASED, AND AS TRUSTEE OF THE NICHOLAS J. SAVAIANO 1997 TRUST, DONALD F. SAVAIANO, ROBERT G. DIFINO AND JAMIE SAVAIANO MALONEY, DEFENDANTS/COUNTERCLAIMANTS,
v.
UNITED LABORATORIES, INC., A DELAWARE CORPORATION, PLAINTIFF/COUNTERDEFENDANT, AND JULIE ANNE BENSON, KIMBERLY J. THEODORE, MARK A. HOFFMEYER, WILLIAM BECKER, ROBERT WAHLBECK, AND PAUL O'NEILL, COUNTERDEFENDANTS.



The opinion of the court was delivered by: James F. Holderman, Chief Judge

MEMORANDUM OPINION AND ORDER

On April 13, 2006, plaintiffs United Laboratories, Inc. ("United Labs") and Julie Anne Benson (as directed Trustee on behalf of United Labs' Employee Stock Ownership Plan ("ESOP I") and United Labs' Leveraged Employee Stock Ownership Plan ("ESOP II")) (collectively "Plaintiffs") filed a nine-count Amended Complaint alleging claims for breach of fiduciary duty, prohibited transactions, unjust enrichment, aiding and abetting breach of fiduciary duty, breach of contract, and conspiracy, in violation of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq., and state common law. The Amended Complaint was directed against defendants Willamette Management Associates Inc. ("Willamette"), Cole Taylor Bank ("Cole Taylor"), and former United Labs' Board of Directors members Maureen R. Savaiano,*fn1 Donald F. Savaiano,*fn2 Robert G. Difino, and Jamie Savaiano Maloney ("the Savaiano Defendants"). Plaintiffs voluntarily dismissed Cole Taylor as a defendant in this case on June 5, 2006.

On October 27, 2006, the Savaiano Defendants filed a twenty-count Counterclaim against Plaintiff/Counterdefendant United Labs and Individual Counterdefendants Julie Anne Benson ("Benson"), Kimberly J. Theodore ("Theodore"), Mark A. Hoffmeyer ("Hoffmeyer"), William Becker ("Becker"), Robert Wahlbeck ("Wahlbeck"), and Paul O'Neill ("O'Neill") (collectively the "Individual Counterdefendants"). Addressed in this memorandum opinion is United Labs' and the Individual Counterdefendants' Rule 12(b)(6) Motion to Dismiss Counts XII, XIII and XV through XX of the Savaiano Defendants' Counterclaim. (Dkt. No. 131).

For the reasons set forth below, the Counterdefendants' Motion to Dismiss is granted in part and denied in part. Counts XV and XVI are dismissed with prejudice. All other counts remain pending. The Counterdefendants are to file their Answer to Counts XII, XIII and XVII through XX on or before January 11, 2008. The case remains set for a report on status at 9:00 a.m. on January 17, 2008 to discuss further scheduling in this case.

BACKGROUND

United Labs is a Delaware corporation with its principal place of business located in St. Charles, Illinois. It is engaged in the business of manufacturing, purchasing, and selling specialty chemical products used by professional maintenance personnel at institutions, industrial companies, municipalities, and commercial establishments. United Labs was founded by Nicholas Savaiano in 1964 and, until early 2004, its Board of Directors was at all times majority-controlled by members of the Savaiano family.

In their Amended Complaint, Plaintiffs allege that new management elected in April, 2004, uncovered evidence that many of United Labs' previous financial transactions operated to benefit members of the Savaiano family, instead of United Labs and its shareholders. Among these allegedly unlawful transactions are certain alleged violations of federal ERISA law. The court's jurisdiction is based in part upon its authority to determine questions of federal law, see 28 U.S.C. § 1331, as well as its supplemental jurisdiction over all relevant state law claims and counterclaims. See 28 U.S.C. § 1367.

In their Counterclaim, the Savaiano Defendants/Counterplaintiffs*fn3 allege numerous claims against United Labs for breach of contract (Counts I-VII and XIV) and anticipatory breach of contract (Counts VIII-XI). These counts are based upon various contracts executed between United Labs and the Savaianos. Additionally, and at issue in this pending Motion to Dismiss, the Savaianos assert that individual members of United Labs' Board of Directors (Benson, Theodore, Hoffmeyer, Becker, Wahlbeck, and O'Neill) are liable to the Savaianos for tortious interference with contract (Count XII) and conspiracy to commit tortious interference with contract (Count XIII), and that United Labs and the Individual Counterdefendants are liable for tortious interference with economic advantage (Count XV), breach of fiduciary duty (Count XVI), defamation (Counts XVII and XIX), and false light invasion of privacy (Counts XVIII and XX). This pending motion seeks the dismissal of only those counterclaims alleged against the Individual Counterdefendants.

LEGAL STANDARD

Under the Federal Rules of Civil Procedure, a complaint generally needs to include only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In other words, the complaint must "give the defendant fair notice of what the. . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1969 (May 21, 2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); see also Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007). As long as the factual allegations in the complaint "raise a right to relief above the speculative level" and plead "enough facts to state a claim to relief that is plausible on its face," the complaint will withstand a 12(b)(6) challenge. Killingsworth, 507 F.3d at 618 (quoting Bell Atlantic, 127 S.Ct. at 1965, 1974). The crux of the court's analysis is whether the factual detail in the complaint provides the defendant with sufficient notice of the claims alleged against him or her. Id. at 619 (citing Airborne Beepers & Video, Inc. v. AT & T Mobility, LLC, 499 F.3d 663, 667 (7th Cir. 2007)).

In conducting its analysis, the court assumes that all well-pleaded allegations in the complaint are true. Erickson v. Pardus, ___ U.S. ___, 127 S.Ct. 2197, 2200 (2007) (quoting Bell Atlantic, 127 S.Ct. at 1965). However, a plaintiff can plead herself out of court if a complaint includes facts that undermine its own allegations. Kolupa v. Roselle Park Dist., 438 F.3d 713, 715 (7th Cir. 2006). Any exhibits attached to a complaint are considered to be a part of the pleadings. Moranski v. Gen. Motors Corp., 433 F.3d 537, 539 (7th Cir. 2005).

ANALYSIS

Applying the legal standard articulated above, the court now turns its attention to each of the counterclaims alleged by the Savaianos against the Individual Counterdefendants.

1. Count XII - Tortious Interference with Contract

In Count XII of their Counterclaim, the Savaianos allege that counterdefendant Theodore unlawfully interfered with certain contracts between the Savaianos and United Labs, resulting in the breach of these contracts by United Labs. To prevail on their tortious interference with contract claim, the Savaianos must ultimately prove: (1) the existence of a valid and enforceable contract between the Savaianos and United Labs; (2) Theodore's awareness of this contractual relation; (3) Theodore's intentional and unjustified inducement of a breach of the contract; (4) a subsequent breach by United Labs, caused by Theodore's wrongful conduct; and (5) damages to the Savaianos. See HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672, 676 (Ill. 1989).

Theodore is currently the Chair of United Labs' Board of Directors. (Counterclaim ¶ 7).

Under Illinois law, corporate officers and directors are afforded a qualified privilege to use their business judgment and discretion on behalf of the corporation. IOS Capital, Inc. v. Phoenix Printing, Inc., 808 N.E.2d 606, 612 (Ill. App. Ct. 4th Dist. 2004) (citing HPI Health Care Servs., Inc., 545 N.E.2d at 677). In other words, as long as the corporate officers interfering in corporate contracts are "acting in accordance with their business judgment and discretion, [they] 'lack the requisite "malice" and therefore are not liable in tort.'" Id. at 613 (quoting Swager v. Couri, 395 N.E.2d 921, 928 (Ill. 1979)). In recognizing this qualified privilege, Illinois courts have determined that "[t]he duty of corporate officers and directors to their corporations' shareholders outweighs any duty they may have towards parties contracting with the corporation." MGD, Inc. v. Dalen Trading Co., 596 N.E.2d 15, 18 (Ill. App. Ct. 1st Dist. 1992) (citing HPI Health Care Servs., Inc., 545 N.E.2d at 677).

On the other hand, corporate officers are not privileged for "conduct which is totally unrelated or even antagonistic to the interest which gave rise to the defendant's privilege." HPI Health Care Servs., Inc., 545 N.E.2d at 678. For example, the privilege will not apply "where officers act solely for their own gain or solely for the purpose of harming [the] plaintiff since such conduct is not undertaken to further the corporation's interest." Cress v. Recreation Servs., Inc., 795 N.E.2d 817, 843 (Ill. App. Ct. 2d Dist. 2003) (quoting Mittelman v. Witous, 552 N.E.2d 973, 987 (Ill. 1989)) (emphasis in original). To overcome this qualified privilege, the plaintiff bears the burden of proving that the officer's conduct was unjustified or malicious, and therefore outside the scope of the privilege. HPI Health Care Servs., Inc., 545 N.E.2d at 677.

In their Counterclaim, the Savaianos have alleged that Theodore was United Labs' CEO and Chairman of United Labs' Board of Directors at the time she allegedly induced the breach of United Labs' contracts with the Savaianos. (Counterclaim ΒΆΒΆ 147, 149). The qualified privilege for corporate directors and officers therefore generally applies to Theodore's actions. At this stage in the proceedings, to avoid pleading themselves out of court, the Savaianos must allege sufficient facts ...


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