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American Hardware Manufacturers Association v. Reed Elsevier

January 4, 2010

AMERICAN HARDWARE MANUFACTURERS ASSOCIATION, PLAINTIFF,
v.
REED ELSEVIER, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Blanche Manning

MEMORANDUM AND ORDER

American Hardware Manufacturers Association has sued defendants Reed Elsevier, Inc., two of its divisions, Reed Exhibitions and Association Expositions & Services (collectively "Reed"), as well as Freeman Decorating Co. and Freeman Decorating Services, Inc. (collectively "Freeman"), over the annual National Hardware Show that American Hardware and Reed staged each year until they parted ways in 2003. Freeman served as Reed's general contractor. The defendants now seek summary judgment on several of American Hardware's claims, including claims that Reed breached various agreements and conspired with Freeman to defraud American Hardware. In addition, Reed and Freeman have moved to strike American Hardware's responses to their Local Rule 56.1 statements, and Reed has moved to file supplemental authority. For the following reasons, Reed and Freeman's motions are granted.

Motions to Strike [971-1] & [978-1]

As a preliminary matter, the court will first address the motions to strike filed by Reed and Freeman. Reed and Freeman move to strike American Hardware's Local Rule 56.1 statements on the grounds that they are: (1) non-responsive, irrelevant, and argumentative; (2) contain statements or assumptions related to contract claims the court has previously dismissed; (3) cite to evidence that does not support the assertions for which they are offered; (4) deny facts without citing to supporting evidence; and (5) contain improper legal arguments and conclusions. Before addressing these contentions, the court will review the local rules which dictate the parties' responsibilities in submitting their fact statements on summary judgment.

Local Rule 56.1 statements help the court by "organizing the evidence, identifying undisputed facts, and demonstrating precisely how each side propose[s] to prove a disputed fact with admissible evidence." Bordelon v. Chicago School Reform Bd. of Trustees, 233 F.3d 524, 527 (7th Cir. 2000). Local Rule 56.1(b) requires the party opposing summary judgment to submit a concise response to each of the moving party's statements and a statement, consisting of short numbered paragraphs, of any additional facts that require the denial of summary judgment. See L.R. 56.1(b)(3). The opposing party's statement must support any denial with "specific references to the affidavits, parts of the record, and other supporting materials relied upon." Id.

In addition, a response may not consist solely of "purely argumentative denials," Malec v. Sanford, 191 F.R.D. 581, 584 (N.D. Ill. 2000), or "evasive denials that do not fairly meet the substance of the material facts asserted." Bordelon, 233 F.3d at 528. The court need not "wade through improper denials and legal argument in search of a genuinely disputed fact." Id. at 529. Finally, the court may disregard statements that do not properly cite to the record. Cichon v. Exelon Generation Co., L.L.C., 401 F.3d 803, 809-10 (7th Cir. 2005) ("a district court does not abuse its discretion when, in imposing a penalty for a litigant's non-compliance with Local Rule 56.1, the court chooses to ignore and not consider the additional facts that a litigant has proposed").

Here, many of American Hardware's responses fall short of the requirements of Local Rule 56.1(b) in that they are not responsive to the defendants' fact statements, embed additional facts in response to the defendants' fact statements, or contain purely argumentative denials. For example, Reed states, "The NHS was sold out from 1985 through 1999 or 2000." Reed's Statement of Facts [856-1] at ¶ 21. American Hardware responds:

AHMA objects to Paragraph 21 as compound. Subject to that objection, Denied. Reed's use of the defined term "NHS," which purposefully conflates Reed's claimed ownership of the mark "National Hardware Show" with its claimed ownership of a trade show, is disputed and renders the statement misleading and contradicted by record facts. Contrary to the implication by Reed in its use of the defined term, in 1977, AHMA and Reed Publishing Corporation formed a new trade show venture for the hardware/home improvement industry that was conducted and sponsored by AHMA and managed by Reed. That new venture was known by many names.

American Hardware's Response to Reed's Statement of Facts [918-1] at ¶ 21. For all its verbosity, the evidence that American Hardware cites to support its denial does not address the sole fact asserted in Reed's statement of fact-that the hardware show was sold out during the specified period.

American Hardware's filing is filled with these sorts of non-responsive denials, and required the court to spend a considerable amount of time deciphering the filing. American Hardware's failure to comply with Local Rule 56.1 does not automatically result in judgment for the defendants, who bear the ultimate burden of persuasion to show that they are entitled to judgment as a matter of law. Raymond, 442 F.3d at 608. However, attempts to create a confusing record in the hopes of creating fact questions are unhelpful and simply lead to delay in resolving the substantive issues raised in the summary judgment motions.

As a consequence, the motions to strike those responses that fall short of the requirements of Local Rule 56.1(b)(3)(A) are granted.

BACKGROUND

In 1977 American Hardware and Reed entered into a written Show Agreement, under which the parties agreed that American Hardware would sponsor the hardware show and Reed would manage it. See Show Agreement (attached as Exhibit A to Second Amended Complaint [341-1]). Among other things, the Show Agreement contained a formula for the parties to share "gross revenue from the sale or rental of space at each Show." Id. at ¶ 10(b)-(c). It also provided that Reed would pay all expenses incurred in conducting the hardware show. Id. at ¶ 10(a). After each hardware show, Reed was required to provide American Hardware with a certificate from an independent certified public accountant attesting to the fact that the revenues Reed shared with American Hardware under the Show Agreement were correctly computed. Id. at ¶ 10(d).

Reed hired Freeman to serve as the hardware show's general contractor, a role Freeman undertook in 1982 when it purchased the company Reed had originally hired to be the hardware show's general contractor. Upon the expiration of the original agreement, Reed and Freeman entered into additional contracts in 1990 and 1994 in order to extend Freeman's role as general contractor. In 1998, Reed and Freeman extended Freeman's role again as general contractor, not only for the hardware show but also for all of Reed's trade shows. Each of these new contracts required Freeman to pay Reed certain commissions and provide it with free or discounted services, as is common in the industry.

American Hardware's relationship with Reed profited both entities. Their show's success grew each year until 2000, when demand for exhibit space began to drop. When demand dropped again in 2001, American Hardware became increasingly concerned and began questioning the prices Freeman was charging exhibitors. In September 2001, American Hardware called a meeting with Freeman and Reed to discuss exhibitor costs at the hardware show and ways to reduce those costs. American Hardware contends that it was during the September 2001 meeting that Freeman officials first admitted to "cost-shifting," under which Freeman allegedly recouped the costs of the commissions and discounts it provided to Reed by shifting those costs onto hardware show exhibitors, which had the effect of raising exhibition costs by as much as 20%. Reed and Freeman dispute that such an admission occurred.

In 2002 American Hardware concluded that it no longer wished to collaborate with Reed on the hardware show. On February 26, 2003, American Hardware and Reed signed a Separation Agreement which, among other things, terminated the Show Agreement after the August 2003 hardware show, ended the parties' collaboration after 2003, and permitted each party to hold its own hardware show subject to certain restrictions. See Separation Agreement (attached as Exhibit B to the Second Amended Complaint [341-1]). The Separation Agreement also contained a mutual release under which each party released the other from liability for any conduct predating the February 26, 2003, execution of the Separation Agreement. Id. at ¶ 7(a), (b). Reed began conducting its solo hardware show in Las Vegas in May 2004, where it continues to be held annually. American Hardware held its one and only solo show in Chicago in April 2004.

American Hardware filed the instant lawsuit on December 30, 2003. The Second Amended Complaint alleges that Reed schemed to exact kickbacks from Freeman, the cost of which Freeman passed on to show exhibitors, driving costs up and attendance down. American Hardware seeks rescission of its Separation Agreement with Reed, alleging that it was fraudulently induced into signing the agreement by Reed's failure to disclose its kickback scheme (although American Hardware alleges a claim of fraudulent inducement, it did not do so under a numbered count as it did with the remainder of its claims). It also seeks damages based upon, among things, civil conspiracy to defraud (Count III), breach of the Show Agreement (Count IV), tortious interference with prospective economic advantage (Count XI), and, alternative to its fraudulent inducement claim, breach of the Separation Agreement (Count XIII). Before the court are Freeman and Reed's motions seeking summary judgment on those counts.

ANALYSIS

I. Summary Judgment Standard

Summary judgment is appropriate when 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The court must evaluate admissible evidence in the light most favorable to the nonmoving party, and may not make credibility determinations or weigh evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). To avoid summary judgment a non-moving party "must produce more than a scintilla of evidence to support its position" that a genuine issue of material fact exists. Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001).

II. Fraudulent Inducement

Reed argues first that it is entitled to summary judgment on American Hardware's claim of fraudulent inducement, under which American Hardware seeks to rescind the Separation Agreement it entered into with Reed on February 26, 2003. American Hardware seeks to rescind the Separation Agreement because the agreement contained mutual releases under which both Reed and American Hardware agreed not to sue each other for "any and all matters" that occurred before the date of the agreement. Because many of American Hardware's claims are premised on conduct that predates the mutual release, American Hardware may pursue those claims only if it succeeds in rescinding the Separation Agreement.

In order to rescind the Separation Agreement and escape the effect of the mutual release contained within it, American Hardware asserts that pre-contractual statements made by Reed senior vice president Dennis MacDonald fraudulently induced it to sign the Separation Agreement. According to American Hardware, as a consequence of Reed's fraudulent inducement, it is entitled to rescind the Separation Agreement and, therefore, is not bound by the mutual releases contained within it.

A thorough understanding of American Hardware's fraudulent inducement argument necessitates a review of the parties' positions as articulated in briefs filed in 2005 regarding Reed's motion for partial summary judgment. As detailed in those briefs, American Hardware contends that it was fraudulently induced into signing the Separation Agreement by statements made by Reed in response to American Hardware's concerns that Reed had secretly been involved in staging competing trade shows in violation of the Show Agreement. As early as 1977, Reed had agreed not to "conduct, sponsor, or manage" a trade show related to hardware or home improvement products other than American Hardware's show. See Show Agreement (attached as Exhibit A to Second Amended Complaint [341-1]) at ¶ 11(a).

However, in January 2003 American Hardware began to suspect that Reed had violated its agreement not to conduct a competing show. Specifically, American Hardware received an e-mail from the Midwest Builders Show touting that the show was "[b]rought to you by... Reed Business Information." See American Hardware's Statement of Additional Facts [136-1] ΒΆ 7 ...


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