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Smart Marketing Group, Inc. v. Publications International

September 11, 2008

THE SMART MARKETING GROUP, INC., PLAINTIFF,
v.
PUBLICATIONS INTERNATIONAL, LTD. AND CONSUMER GUIDE, LLC, DEFENDANTS.



The opinion of the court was delivered by: Judge Joan B. Gottschall

MEMORANDUM OPINION AND ORDER

Before the court are the plaintiff's motion for partial summary judgment on Count II of the Counterclaim and the defendants' motion for summary judgment on the plaintiff's amended complaint. For the reasons stated below, the plaintiff's motion is granted and the defendants' motion is granted in part and denied in part.

I. BACKGROUND*fn1

The plaintiff, Smart Marketing Group, Inc. ("SMG"), was in the business of marketing and selling products and services to automobile dealers to assist the dealers in making sales to consumers. The defendant, Publications International, Ltd. ("PIL"), publishes books and periodicals, including, as relevant here, consumer information under the "Consumer Guide" brand. The co-defendant, Consumer Guide, LLC, is a wholly-owned subsidiary or affiliate of PIL.*fn2 Consumer Guide helps consumers determine which automobiles to buy and also helps dealers increase their customer base. It entered into a business relationship with SMG to market and sell Consumer Guide programs. On March 5, 2003, the parties entered into an agreement whereby SMG would market Consumer Guide's Approved Program to dealers (the "March Agreement").

During the spring and summer of 2003, Consumer Guide developed a new program, , called the Leads and Listings program, under which dealers, in addition to being listed as "approved" on Consumer Guide's website, could receive internet-generated customer leads. On July 25, 2003, SMG and Consumer Guide entered into a new agreement that provided that SMG would market the Leads and Listings program in addition to the Approved Program (the "July Agreement").

On October 24, 2003, the parties executed a new contract (the "October Agreement"). At the time the parties signed the contract, Consumer Guide owed SMG over $200,000 in earned commissions.*fn3 The October Agreement rendered the prior agreements between SMG and Consumer Guide void and provided that Consumer Guide could terminate the contract for cause and that such a termination would result in SMG forfeiting future commission payments. Consumer Guide terminated the October Agreement on November 18, 2003, notifying SMG that it was doing so because SMG had misrepresented Consumer Guide programs and engaged in business practices that could negatively impact the Consumer Guide brand. Specifically, Consumer Guide contends that SMG submitted a contract, purportedly executed by Global Imports, that contained a forged signature.

SMG filed suit against Consumer Guide, invoking the court's diversity jurisdiction, on January 9, 2004. On June 2, 2006, following a round of motions to dismiss and extended discovery, SMG filed an amended complaint, alleging three counts of breach of contract, and, in the alternative, fraud and duress, promissory estoppel, and/or quantum meruit. On July 31, 2006, Consumer Guide answered and filed a counterclaim and third-party cross claim against SMG and certain of its principals, officers, and employees, for specific performance, and, in the alternative, commercial disparagement and declaratory judgment. The parties engaged in more extended discovery and consequently filed the motions for summary judgment that are now before the court.

II. ANALYSIS

SMG has moved for summary judgment on Count II of Consumer Guide's Counterclaim and Third Party Cross-Claim, which alleges commercial disparagement. Consumer Guide has moved for summary judgment on all counts of SMG's amended complaint.

A. Legal Standard

Summary judgment is appropriate when the record reveals that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). It is not appropriate if a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When considering a motion for summary judgment, the court must view the record and any inferences to be drawn from it in the light most favorable to the opposing party. See Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991).

In seeking a grant of summary judgment, the moving party must identify "those portions of 'the pleadings, depositions, answers to the interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the non-moving party's case." Id. at 325. In response, the non-moving party cannot rest on the pleadings, but must designate specific material facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S. at 324. "Summary judgment is appropriately entered 'against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" McKenzie v. Ill. Dep't of Transp., 92 F.3d 473, 479 (7th Cir. 1996) (quoting Buckley Dement, Inc. v. Travelers Plan Adm'rs of Ill. Inc., 39 F.3d 784, 787 (7th Cir. 1994) and Celotex Corp., 477 U.S. at 322).

B. Plaintiff SMG's Motion For Summary Judgment on Count II of the Counterclaim

Consumer Guide brings a counterclaim for commercial disparagement, alleging that SMG, and William J. Magarity, Jr. ("Magarity"), Michael Welch ("Welch"), and Paul West ("West"),*fn4 made false and demeaning statements concerning the quality of Consumer Guide's services. The counterclaim rests on two bases: (1) statements allegedly made to several hundred dealers that Consumer Guide was financially responsible for contracts that the dealers entered into with Info4Cars; and (2) statements contained in SMG's January 14, 2004 draft press release. SMG has moved for summary judgment, arguing that Consumer Guide is unable to establish the necessary elements of its counterclaim.

Whether Illinois recognizes a common law cause of action for commercial disparagement, and, if so, to what extent the tort is coextensive with a statutory cause of action under the Illinois Uniform Deceptive Trade Practices Act, are unsettled questions of law. Compare Becker v. Zellner, 684 N.E.2d 1378 (Ill. App. Ct. 1997) (noting that the Second District does not recognize the claim), with Imperial Apparel, Ltd. v. Cosmo's Designer Direct, Inc., 853 N.E.2d 770, 781 (Ill. App. Ct. 2006) (1st Dist.) (rejecting the Becker court's holding that commercial disparagement is not a viable cause of action), rev'd on other grounds, Imperial Apparel, Ltd. v. Cosmo's Designer Direct, Inc., 882 N.E.2d 1011 (Ill. 2008) (declining to reach the issue of whether Illinois recognizes commercial disparagement as a cause of action). Assuming that such a claim is viable, "an action for commercial disparagement lies when the quality of [a business's] goods is demeaned." Imperial Apparel, 853 N.E.2d at 782; see Morton Grove Pharm., Inc. v. Nat'l Pediculosis Ass'n, Inc., 494 F. Supp. 2d 934, 943 (N.D. Ill. 2007) (noting the similarity of analysis for trade disparagement and Illinois Uniform Deceptive Trade Practices Act claims).

1. Statements Regarding Consumer Guide's Responsibility For Info4Cars' Contracts

Consumer Guide alleges that SMG made false statements of fact to hundreds of dealers, namely that Consumer Guide was financially responsible for contracts between dealers and Info4Cars. It is undisputed that Consumer Guide had acquired some ownership interest in Info4Cars, although the degree of that ownership is disputed. See Defs.' Resp. to Pl.'s Local R. 56.1(A) Statement ¶ 11 (denying that Consumer Guide purchased the assets of Info4Cars); Defs.' Rule 56.1 Statement of Add. Facts ¶¶ 1, 3 (asserting that Consumer Guide had a security interest in some of Info4Cars' assets, but did not have any rights under any dealer contracts); Maddrell Dep. 172:4-18, attached as Ex. C to Pl.'s Statement of Facts (declaring that Consumer Guide "purchased select assets" of Info4Cars and that it did not purchase all of the contracts); Dickinson*fn5 Dep. 109:6-13, attached as Ex. D to Pl.'s Statement of Facts (stating that Consumer Guide owned "basically all [Info4Cars'] intellectual property" but there were "functional things that they didn't own" such as furniture, fixtures, and some software programs). It is also undisputed that Info4Cars was having trouble meeting its contractual obligations. Consumer Guide contends that SMG's alleged statements equated Info4Cars and Consumer Guide as "one and the same" and implied that Consumer Guide would be unable to fulfill its obligations to dealers, just as Info4Cars had been unable to fulfill its obligations, thereby demeaning Consumer Guide's services.

The evidence supporting the claim that SMG published demeaning statements rests on a statement in an affidavit by Richard Maddrell, the President of PIL ("Maddrell"). Maddrell avers that forty to fifty car dealers stated that SMG had told them that PIL was refunding money based on contracts Consumer Guide had purchased from Info4Cars. See Maddrell Aff. ΒΆ 6, attached as Ex. A to Defs.' ...


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