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Leonel & Noel Corp v. Central Beer Import & Export

January 30, 2012

LEONEL & NOEL CORP., PLAINTIFF,
v.
CENTRAL BEER IMPORT & EXPORT, INC. AND G.K. SKAGGS, INC., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

Leonel & Noel Corp. (Tikal) sued Central Beer Import & Export Inc. (Central Beer) & G.K. Skaggs, Inc. (GKS). The case was tried to a jury on Tikal's claims against both Central Beer and GKS under the Beer Industry Fair Dealing Act (BIFDA) and against GKS for tortious interference with contract. The jury found in favor of Tikal against both defendants on the BIFDA claim and awarded Tikal compensatory damages totaling $172,000, as well as punitive damages of $125,000 against Central Beer and $185,000 against GKS. The jury also found in favor of Tikal against GKS on the tortious interference claim and awarded plaintiff compensatory damages of $14,000 and punitive damages of $40,000 on that claim.

Both defendants have moved for judgment as a matter of law on the claims that were tried to the jury, or in the alternative for a new trial. These motions largely concern arguments the Court dealt with before or during the trial. The Court incorporates those rulings here to the extent it does not expressly restate them.

In addition, Tikal has moved for an award of attorney's fees under BIFDA. GKS has moved for an award of attorney's fees with regard to two claims on which the Court previously granted summary judgment against Tikal, specifically, claims under the Lanham Act and the Illinois Consumer Fraud Act (ICFA). Finally, Tikal has filed a petition for fees pursuant to an earlier discovery sanctionsorder.

1. Motions for judgment as a matter of law

The Court notes that defendants have made certain arguments in their post-trial JMOL motions that were not contained in their JMOL motions filed during the trial before the deadline given by the Court. Because those points were not properly raised in a timely pre-verdict motion, they are not properly considered in a post-trial motion. See Wallace v. McGlothan, 606 F.3d 410, 418 (7th Cir. 2010). The Court finds them forfeited but nonetheless discusses their merits (with limited exceptions as noted below) to ensure a complete record on appeal.

On a motion for judgment as a matter of law under Rule 50(a), the Court views the evidence in the light most favorable to the party that prevailed at trial and draws reasonable inferences in that party's favor. See, e.g., Marcus & Millichap Inv. Servs. of Chicago v. Sekulovski, 639 F.3d 301, 313 (7th Cir. 2011).

a. Central Beer argues that during his testimony at trial, Tikal's owner, Leonel Mendia Sr., admitted that he had falsified certain reports that were sent to GKS to reflect a lower level of inventory than Tikal actually had, because the beer was about to reach expiration. It is undisputed that neither defendant was aware of this prior to trial and that neither relied on this sort of conduct in connection with Tikal's termination as a beer distributor. Central Beer contends, however, that this "after-acquired evidence" gave it the right under BIFDA to terminate Tikal without notice. See 815 ILCS 720/3(3)(G) (permitting termination without prior notice based on "[f]raudulent conduct by the wholesaler in its dealings with the brewer."). As a result, Central Beer argues, it is entitled to judgment on Tikal's BIFDA claim.

The argument lacks merit. Neither Central Beer nor GKS offered any evidence at trial to the effect that Central Beer actually would have terminated Tikal had defendants known the truth or the fact that Tikal submitted false reports.*fn1 Without such evidence, the after-acquired evidence defense is entirely speculative and thus provides no basis for entry of judgment as a matter of law.

In any event, as defendants suggested at trial (in arguing that Tikal's BIFDA and contract breach claims were duplicative), a BIFDA claim amounts to a breach of contract claim with a statutory overlay. Under Illinois' mend-the-hold doctrine, the defendant in a breach of contract suit may not change its defense in the course of litigation by citing a different ground for termination than the one on which it had relied. See, e.g., Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 746 (7th Cir. 2008); Harbor Ins. Co. v. Cont'l Bank Corp., 922 F.2d 357, 364 (7th Cir. 1990). Thus as a matter of general contract law in Illinois, there is no after-acquired evidence defense. See von Pein v. Hedstrom Corp., No. 2004 WL 1102317, at *2-4 (N.D. Ill. May 4, 2004) (rejecting after-acquired evidence doctrine as a matter of Illinois common law). And none of the cases Central Beer cites is a BIFDA case. There is no support for the contention that this would have been an available defense even if defendants had offered evidence that the misconduct they cite actually would have led to Tikal's termination.

b. Central Beer's next argument is that the evidence established that there was good cause to terminate Tikal because it did not comply with Central Beer / GKS's reasonable requirements and did not devote reasonable efforts and resources to fulfilling its obligations. Taking the evidence in the light most favorable to Tikal, a reasonable jury could find that Tikal met its requirements. In addition, as Tikal points out, even if defendants believed (as they did) that Tikal was not performing adequately, BIFDA still required advance notice, an opportunity to cure, and good faith efforts to resolve the dispute. A reasonable jury could find defendants did not do what the statute requires before Tikal was terminated.

c. The jury was instructed that damages on the BIFDA claim consisted of the fair market value of Tikal's rights regarding the particular brand of beer at issue. The valuation of Tikal's distribution rights provided by its expert, Lawrence Levine, was sufficiently grounded in the evidence. The fact that Tikal's business, overall, was not profitable does not mean, as Central Beer suggests, that the particular distribution rights at issue had no value or that Levine's opinion regarding those rights' value was unsupported or unsupportable. As to GKS's parallel argument, the relatively modest compensatory damage award on the tortious interference claim likewise had a sufficient basis in the evidence.

d. The Court agrees with Tikal that BIFDA, as worded, authorized it to pursue a claim on which its damages arose in part from sales activity that Tikal conducted outside Illinois. BIFDA defines a wholesaler as an entity that "is engaged in this State in purchasing, storing, possessing or warehousing any alcoholic liquors for resale or reselling at wholesale, whether within or without this State." Tikal was engaged in purchasing "in this State" beer for resale at wholesale both "within and without this State." The fact that in some instances it sold to distributors does not make those sales any less "wholesale" sales.

e. The Court disagrees with Central Beer's argument that application of BIFDA to Tikal's out-of-state sales violates the Commerce Clause of the U.S. Constitution. The Commerce Clause "precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the States." Healy v. Beer Institute, Inc., 491 U.S. 324, 336 (1989) (internal quotation marks and citation omitted). In this case, BIFDA was not applied to commerce that took place "wholly outside of [Illinois'] borders." Rather, it was applied to commerce that took place in Illinois -- Tikal purchased and got delivery of its beer here -- involving an Illinois company whose only place of business was in this ...


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