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Song v. Pil

June 12, 2009


The opinion of the court was delivered by: John F. Grady, United States District Judge


Before the court is defendants' motion to dismiss Counts II through VI of the complaint.*fn1 For the reasons explained below, the motion is granted.


This is a diversity action in which plaintiff alleges breach of contract and several other state-law claims. Plaintiff, Jin Song, is a Texas citizen. Defendant PIL, L.L.C. is a single-member limited liability company whose single member is an Illinois citizen, and defendant Publications International, Ltd. is also an Illinois citizen. We will refer to defendants collectively as "PIL."

Plaintiff's allegations, which are taken as true and viewed in a light most favorable to plaintiff for the purposes of this motion, are as follows. Song is an inventor who created, among other things, a page and book identification system for a book reader. Song's invention was used to develop a product dubbed "Story Reader," a children's electronic storybook reader. Song and his family worked for four years to launch the Story Reader, Inc. corporation, investing more than $2 million. After establishing a position in the market for Story Reader, Song and his family explored the possibility of selling the business because they did not have the resources to continue funding it.

PIL expressed an interest in purchasing the assets of Song's company, and on May 9, 2003, Song and PIL entered into a contract titled "Asset Purchase Agreement" ("APA"). The parties agreed that PIL would purchase from Song "certain assets, intellectual property, and all other related rights, products and accessories used, sold or licensed in connection with the Story Reader product line (collectively, the "Business") which shall include but not be limited to rights in and to the Story Reader electronic base reader unit, cartridges, hardware, software, printed books and other associated literary works and audio recordings." (Mem. in Support of Mot. to Dismiss, Ex. A, APA at 1.) In return for the assets of Song's company, which included all intellectual property rights relating to the Business as well as product inventory, customer lists, and and business files, PIL agreed to pay $2 million in addition to royalties on future sales of certain products. The royalties were to be paid every six months, and Song was to receive no royalties on the first $50 million of Net Sales (as defined by the APA); 2.5 percent of the next $100 million of Net Sales; and 1.5 percent of the Net Sales thereafter. The APA provides that Song is entitled to royalties for a ten-year period on the following Products:

(i) the current version of the Story Reader product and any future versions thereof that uses [sic] magnetic page activation to read a story aloud; (ii) any newly created product that uses the Story Reader name and that uses magnetic page activation to read a story aloud (the Products described in (i) and (ii) shall collectively be referred to as the "Platform"), and; (iii) any associated book inserts currently published or to be published in the future utilizing the Platform. If [PIL] substitutes light, conductivity or microwave page activation in the Platform, of the type covered under the patent applications listed on the Intellectual Property Schedule 1.1.2, such substitutions shall be included in the definition of Products. (APA at 4, ¶ 2.1.) The APA also provides that once per calendar year during the ten-year royalty period and upon thirty days' written request, PIL would provide Song with "books and records sufficient to enable [Song] to verify the calculation" of royalties due. (APA at 13, ¶ 9.3.)

After the parties executed the APA, PIL paid Song certain royalties that Song claims represent only a portion of the royalties due. Song requested that PIL provide additional sales information in the periodic royalty reports that he received, but defendants failed to provide the information. Thereafter, Song exercised his right under the APA to review PIL's records and conducted an audit. Song alleges that as a result of the audit, he discovered that PIL was not paying him royalties on a product called "My First Story Reader."*fn2 According to Song, he is owed royalties with regard to this product and another product called Story Reader Video Plus because they both use his invention. PIL has refused to pay Song royalties on the sales of these products. After Song filed this lawsuit, PIL stopped paying Song royalties altogether.

The Second Amended Complaint contains six counts. Plaintiff asserts claims for breach of contract (Count I); unjust enrichment/quantum meruit, pled in the alternative (Count II); promissory estoppel, pled in the alternative (Count III); conversion (Count IV); violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Count V); and common-law fraud (Count VI). Plaintiff seeks actual damages, punitive damages, interest, attorneys' fees, and costs.

Defendants now move to dismiss Counts II through VI.


The purpose of a Rule 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 354 (3d ed. 2004). When evaluating such a motion, the court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Hentosh v. Herman M. Finch Univ. of Health Sciences, 167 F.3d 1170, 1173 (7th Cir. 1999). However, the "allegations must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level.'" EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Our Court of Appeals has cautioned courts and litigants against "overread[ing]" Bell Atlantic, see Limestone Dev. Corp. v. Village of Lemont, 520 F.3d 797, 803 (7th Cir. 2008), and the Supreme Court has since dispelled the notion that it had abandoned notice pleading. See Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed. 2d 1081 (2007). So, "heightened fact pleading of specifics" is still not required. Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007). Nevertheless, the complaint must "contain enough facts to state a claim to relief that is plausible on its face." Id.

PIL contends that this is a simple breach of contract action that will turn on the language of the APA specifying which products are royalty-bearing, and that Song's other claims must be ...

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