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Radioactive Energy of Illinois, LLC v. GZ Gourmet Foods & Beverage

February 24, 2009

RADIOACTIVE ENERGY OF ILLINOIS, LLC, AND WALTER ASCHER, PLAINTIFFS,
v.
GZ GOURMET FOODS & BEVERAGE, INCORPORATED AND R. RICHARD SAXBY, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Before the Court is Defendants' motion to dismiss Plaintiffs' complaint [10]. For the reasons stated below, Defendants' motion to dismiss is granted in part and denied in part.

I. Background

According to the verified complaint, Plaintiff Radioactive Energy of Illinois ("Radioactive") was formed for the exclusive purpose of marketing, distributing, and selling beverages -- and specifically the energy drink known as Radioactive Energy. Plaintiff Walter Ascher owns Radioactive. Defendant GZ Gourmet Foods and Beverage, Inc. ("GZ Gourmet") is in the business of creating, manufacturing, marketing, and distributing beverages, and owns the energy drink known as Radioactive Energy. Defendant Richard Saxby is the president of GZ Gourmet.

Plaintiffs allege that on March 2, 2007, Ascher entered into an exclusive distribution agreement with GZ Gourmet for the distribution and sale of the Radioactive Energy drink. The March 2007 agreement gave Ascher exclusive distribution rights to distribute the energy drink in Illinois, Florida, and Texas, except to a number of expressly delineated "major" retailers. In consideration for those rights, Ascher paid GZ Gourmet $592,600. Ascher also paid GZ $7,400 for the purchase of stock in the energy drink company. On March 14, 2007, the parties entered into a second agreement, granting Ascher exclusive rights to distribute the energy drink in four additional states (Arizona, Nevada, New York, and Wisconsin), except to a number of expressly delineated "major retailers." In consideration for the additional distribution rights, Ascher agreed to sponsor the product, as detailed in the agreement.

Plaintiffs allege that they expended great efforts toward marketing, distributing, and selling the beverage within the seven states in which they had distribution rights. Plaintiffs allege that they procured a NASCAR sponsorship for the energy drink at a cost of $1,000,000 or more, and rented six billboards, at an aggregate monthly rental rate of approximately $57,000. According to Plaintiffs, Defendants also agreed to grant Plaintiffs exclusive distribution rights to distribute the energy drink to Jewel-Osco locations, even though Jewel-Osco would be considered a "major" retailer. On April 20, 2007, Saxby sent Ascher an email confirming the right to distribute to Jewel-Osco with "no strings" attached.

According to the complaint, what drew Plaintiffs to the beverage was the "glow-in-the-dark" feature of the can. Plaintiffs allege that after entering into the distribution agreements, Defendants changed the can's design to all black, stopped using glow-in-the-dark materials, and changed the ingredients in the beverage. Additionally, in or around May or June 2007, Plaintiffs noticed that the energy drink was being stocked on shelves in bars, gas stations, and other "non-major" retailers, through no involvement on Plaintiffs' part. Plaintiffs further learned that others were marketing, distributing, and selling the energy drink in Plaintiffs' territories, and representing themselves as the exclusive Radioactive Energy drink dealers in Illinois. Plaintiffs allege that on May 5, 2007, GZ entered into a "Priority Selling Agreement" with Glow Distribution granting Glow the right to sell and distribute the product in the Dominican Republic, Greece, Bolivia, Mexico, Puerto Rico, Israel, Taiwan, and all of the United States, except Plaintiffs' seven states. Then, on June 5, 2007, GZ entered into a second, modified agreement in which Defendants gave Glow the right to sell and distribute the product anywhere in the United States, with no exceptions. Plaintiffs allege that Glow began marketing and distributing the beverage in one or more states within Plaintiffs' seven state territory, in direct competition with Plaintiffs. Plaintiffs also contend that Defendants sold the energy drink to Glow at a price below the price that Defendants charged Plaintiffs, and that Defendants repeatedly raised the price on the cases sold to Plaintiffs.

On October 5, 2007, Plaintiffs filed suit in the Circuit Court of the Eighteenth Judicial Circuit, Du Page County, Illinois. Plaintiffs brought causes of action for breach of contract (Count I), unjust enrichment (Count II), fraud (Count III), and breach of implied covenant of good faith and fair dealing (Count IV). On December 18, 2007, GZ Gourmet filed a complaint in this Court against Radioactive and Ascher (Case No. 07-C-7110). On January 14, 2008, the state court case was removed to this Court, and on May 20, 2008, the two cases were consolidated. Defendants in this case then filed a motion to dismiss Plaintiffs' complaint in its entirety.

II. Analysis

A. Legal Standard on Motion to Dismiss

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the complaint, not the merits of the case.See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). To survive a Rule 12(b)(6) motion to dismiss, the complaint first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1969 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the "speculative level," assuming that all of the allegations in the complaint are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Bell Atlantic, 127 S.Ct. at 1965, 1973 n.14). "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atlantic, 127 S.Ct. at 1969. The Court accepts as true all of the well-pleaded facts alleged by the plaintiff and all reasonable inferences that can be drawn therefrom. See Barnes v. Briley, 420 F.3d 673, 677 (7th Cir. 2005).

Rule 9(b) of the Federal Rules of Civil Procedure creates exceptions to the federal regime of notice pleading and specifies that, for "all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b); see also Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007). "Read together, Rule 9(b) and Rule 8 require that the complaint include the time, place and contents of the alleged fraud, but the complainant need not plead evidence." Amakua Development LLC v. Warner, 411 F. Supp. 2d 941, 947 (N.D. Ill. 2006) (citing Nissan Motor Acceptance Corp. v. Schaumburg Nissan, Inc., 1993 WL 360426, at *3 (N.D. Ill. Sept. 15, 1993)). In other words, the complaint must allege the "the who, what, when, where, and how: the first paragraph of a newspaper story." Borsellino, 477 F.3d at 507 (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)).

Paragraph 13.9 of the distributorship agreements, which were signed by both Plaintiffs and Defendants, state that the validity of the agreements and the rights, obligations, and relations of the parties pursuant to the agreements shall be construed under California law. Defendants assert that California law applies to the substantive issues in this case. Plaintiffs have not resisted the application of California law; rather, they also have addressed the claims under California law. The Seventh Circuit has commented that "before entangling itself in messy issues of conflict of laws a court ought to satisfy itself that there actually is a difference between the relevant laws of the different states." Barron v. Ford Motor Co., 965 F.2d 195, 197 (7th Cir. 1992). Recognizing the wisdom of the Seventh Circuit's advice, the Illinois Supreme Court has stressed that "[a] choice-of-law determination is required only when a difference in law will make a difference in the outcome." Townsend v. Sears Roebuck & Co., 227 Ill. 2d 147, 155 (2007) (quoting Barron, 965 F.2d at 197); see also Dow v. Abercrombie & Kent Int'l, Inc., 2000 WL 688949, at *1 n.1 (N.D. Ill. May 24, 2000). In this case, it appears to the Court (and the parties have not suggested ...


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