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Royal Sleep Products, Inc. v. Restonic Corp.

March 22, 2010


The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer


Dissatisfied with the promotional services rendered by Defendants, Plaintiff Royal Sleep Products, a mattress manufacturer and seller, brings this action for breach of contract against the licensor of patents and trademarks that cover Plaintiff's products. Defendant Restonic Corporation ("Restonic") is the owner of certain patents and trademarks relating to the manufacture and sale of mattresses, box springs, and other bedding products. Defendant Restonic Mattress Corporation ("RMC") is a licensee of Restonic and is authorized to sublicense rights in Restonic's patents and trademarks to third parties.*fn1 Royal is one such sublicensee. Royal is also a minority shareholder in RMC. Pursuant to a sublicense agreement with RMC, first executed in 2001, Royal has the right to use Restonic's patents and trademarks in connection with the manufacture and sale of mattresses and box springs. Since 2001, the parties have executed three amendments to that agreement, most recently in June 2007. In addition to authorizing the use of Restonic's intellectual property, the sublicense agreement entitles Royal to receive RMC "know-how, programs, and services," as those terms are defined by the contract, on "terms and conditions applicable to other RMC Sublicensees." Royal alleges that RMC breached its obligations under the agreement and that Restonic tortiously interfered with Royal's contractual rights.

Defendants have moved to dismiss Royal's claims for lack of jurisdiction and for failure to state a claim. For the reasons stated below, the motion to dismiss is granted. RMC simultaneously filed a motion for summary judgment on Count III of Royal's complaint, which, as described more fully below, asserts a distinct breach of contract claim based on the parties' stock restriction agreements. That motion is stricken without prejudice, pending Plaintiff's showing that federal jurisdiction exists in this case.


Royal initially filed suit in this court in November 2007, claiming that Restonic, RMC, and other companies had colluded to usurp sales opportunities that rightfully belonged to Royal. In particular, Royal alleged that four other companies with whom RMC did business formed a consolidated corporation, Sleep Alliance, LLC, ("Sleep Alliance"), with the purpose and consequence of depriving Royal of its sales opportunities. In addition to being an RMC sublicensee, Royal is also a minority shareholder of RMC. The various companies that formed Sleep Alliance had held ownership stakes in RMC, and the consolidation of their shares gave Sleep Alliance a controlling interest in RMC.*fn2 In its previous complaint, Royal asserted that RMC and Sleep Alliance's actions violated fiduciary duties to Royal. Specifically, Royal alleged that Sleep Alliance used its control of RMC to steer lucrative manufacturing deals to itself, at Royal's expense.

In an earlier opinion, this court dismissed Sleep Alliance and several other Defendants for lack of personal jurisdiction. See Royal Sleep Products, Inc. v. Restonic Corp., No. 07 C 6588, 2009 WL 303352 (N.D. Ill. Feb. 6, 2009) ("Royal I").*fn3 In the wake of that ruling, Royal filed an amended complaint, recasting its claims against RMC and Restonic as arising entirely out of Royal's sublicense agreement with RMC. In its amended complaint, Royal alleges that the quality of services that RMC rendered under the sublicense agreement has declined. This decline, Royal asserts, coincided with and contributed to the erosion of Restonic's brand and market position and, as a consequence, damaged Royal's sales. Royal asserts five claims against Defendants: Count I is a claim for breach of the sublicense agreement against RMC; Count II alleges that RMC breached an implied covenant of good faith and fair dealing; Count III alleges that RMC breached the stock restriction agreement that governed Royal's ownership of RMC stock; Count IV is a claim against RMC based on promissory estoppel; and Count V is a claim against Restonic for tortious interference with the sublicense agreement. The complaint does not actually specify precisely how RMC breached the sublicense agreement or how Restonic may have induced such a breach. Instead, as set forth below, the complaint identifies several services that RMC once provided to its sublicensees and alleges that the quality of those services (and the value of Restonic's brand) has declined. The complaint does not explain, however, how or whether those services were mandated by the parties' contractual arrangements or when (if at all) Defendants ceased providing the identified services.

In evaluating the sufficiency of the complaint, the court accepts all well-pleaded facts as true and draws all reasonable inferences in Plaintiff's favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). As described in the court's previous opinion, Plaintiff's initial complaint left many factual questions unanswered. See Royal I, 2009 WL 303352 at *8. The amended complaint similarly makes only general allegations of wrongdoing. The court recounts the facts that are alleged as follows:

Royal became a sublicensee of RMC in April 2001, when the parties first entered into a written sublicense agreement. (Compl. ¶ 9.) That agreement was amended with the mutual assent of Royal and RMC on three separate occasions, most recently on June 1, 2007. (Id. at ¶ 10.) Royal's complaint refers to the amendments collectively and asserts that "the prior sublicense agreements and the June 1, 2007 Amended and Restated Sublicense Agreement . . . granted Royal the same or similar rights with respect to Restonic's intellectual property." (Id. at ¶ 11.) The complaint does not explicitly state which iteration of the sublicense agreement was in effect at the time of RMC's alleged breach, but the court infers from the preceding sentence that the June 2007 version of the agreement governs Plaintiff's claims. Plaintiff did not attach the sublicense agreement to its complaint, but Defendants have provided the June 2007 agreement as an exhibit to their motion to dismiss. (Sublicense Agreement, Ex. A to Def. Mot.)*fn4 Royal does not dispute the authenticity of the contract Defendants have provided. The agreement states, in pertinent part:

During the term of this Agreement and subject to the conditions stated herein, RMC grants to Sub-Licensee [Royal] the right:

(a) to use Restonic Patents and Restonic or RMC Proprietary Components solely in connection with the manufacture at Sub-Licensee Locations and at no other locations . . .

(b) to use Restonic Trademarks, but only in connection with the promotion and sale of RMC Products manufactured at or shipped from a Sub-Licensee Location . . .

(c) to receive and use RMC Know-How and RMC Services on terms and conditions applicable to other RMC Sub-Licensees;

(d) to participate in RMC Programs on terms and conditions applicable to other RMC Sub-Licensees; and

(e) to use the name "Restonic" as part of Sub-Licensee's business name but only in a manner approved in writing by RMC. (Id. at 3-4.) The contract defines "RMC Know-How" broadly as "trade secrets, information, techniques, materials, processes, specifications, and other technical and commercial information either (a) developed by Restonic and licensed to RMC or (b) developed by RMC for use in connection with the manufacture, promotion and sale of Bedding Products." (Id. at 3.) "RMC Programs" and "RMC Services" are similarly defined in broad general terms: RMC Programs are defined as "such programs as RMC shall make available from time to time to RMC Sub-Licensees, including advertising and promotional programs, educational programs, purchasing programs and marketing programs and also including all such programs made available by Restonic to RMC." (Id.) RMC Services are "such services as RMC shall make available from time to time to RMC SubLicensees, including advertising services, recommendations regarding sources of components, marketing information and statistics and data processing services and also including all such services made available by Restonic to RMC." (Id.) In return for these rights and benefits, Royal agreed to pay RMC $7,125.00 per calendar quarter or a set percentage of Royal's gross sales, whichever amount was greater.*fn5 (Id. at 4-5.) Under the contract's choice-of-law provision, the agreement is governed by the law of Illinois. (Id. at 14.)

In 2001, when Royal first became an RMC sublicensee, Restonic "was considered one of the seven largest mattress manufactures [sic] in the United States." (Compl. ¶ 6.) "For several years" following the initial April 2001 contract, "and in the performance of its obligations thereunder," RMC offered to Royal "numerous programs and services necessary for the support of Royal, other sublicensees, and the Restonic brand as a whole." (Id. at ¶ 15.) Plaintiff describes RMC's offerings during this period in language as general as what appears in the contract: Plaintiff alleges that RMC provided sublicensees with "advertising and marketing programs and related services, educational programs, purchasing programs and discounts, recommendations regarding sources of components, substantive information and statistics regarding industry matters, and well-placed marketing campaigns." (Id.) Plaintiff specifically identifies two programs--the "Restonic University" sales training program and the "Ad creator" promotional program--that were particularly "instrumental in both supporting the sublicensees and in promoting the Restonic brand." (Id. at ¶ 17-18.) The complaint does not allege that RMC was contractually obligated to maintain any specific programs, and the June 2007 sublicense ...

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