United States District Court, N.D. Illinois, Eastern Division
[Copyrighted Material Omitted]
Bonita L. Stone, Laura Ann Brake, Katten Muchin Rosenman LLP, Heather J. Kuhn O'Toole, Krasnow Saunders Cornblath Kaplan & Beninati LLP, Chicago, IL, for Plaintiff.
Robert Joseph Kopka, Kopka, Pinkus, Dolin & Eads, P.C., Buffalo Grove, IL, Rebecca J. Hanson, Kopka, Pinkus, Dolin & Eads LLC, Chicago, IL, for Defendants.
MEMORANDUM OPINION AND ORDER
REBECCA R. PALLMEYER, District Judge.
SMS Assist L.L.C. (" SMS" ) is a company that provides maintenance services to corporate clients by contracting with, and supervising, third parties who perform those services. In October 2008, Family Dollar Stores, Inc. (" Family Dollar" ) hired SMS to manage snow removal and de-icing services (" snow removal services" ) at Family Dollar stores across the nation during the 2008-2009 snow season. SMS, in turn, contracted with Defendant East Coast Lot & Pavement Maintenance Corp. (" East Coast" ), owned by Defendant Uri Ben-Yashar, to perform snow removal services for Family Dollar. When Ben-Yashar started a new company, Defendant National Maintenance Systems Inc. (" National" ), a few months later, SMS signed an identical contract with National, and National assumed East Coast's responsibilities under the contract with SMS.
The collaboration between SMS and Defendants ended poorly, and SMS is now claiming common law fraud against all Defendants (Count I); claiming breach of contract, breach of oral agreement, and/or promissory estoppel against East Coast and National (Counts II, III, and IV); seeking a declaratory judgment against East Coast and National (Count V); and claiming that East Coast and National are alter-egos of Ben-Yashar (Count VI). (2d Am. Compl. .) Defendants have moved for summary judgment on the fraud claim and the alter-ego allegations (Counts I and VI). (Defs.' Mem. in Support of Their Mot. for Summ. J. as to Counts I and VI, hereinafter " Defs.' Mem." ) For the reasons set forth below, Defendants' motion is denied.
SMS manages the provision of floor care, window cleaning, landscaping, and snow plow services for customers across the United States. SMS is organized under Delaware law and has its principal place of business in Chicago. (2d Am. Compl. ¶ 1.) In 2008, SMS had an exclusive contract with Family Dollar to manage all floor care services for approximately 6,700 Family Dollar stores in 44 states. (Defs.' Reply to SMS' Resp. to Defs.' Local Rule 56.1 Statement of Undisputed Material Facts in Support of Mot. for Summ. J. as to Counts I and VI , hereinafter " Defs.' Reply" , ¶ 1; Levadnuk Dep. 50:15-17.) At some point in 2008, Family Dollar Chief Information Officer Josh Jewett, Divisional Vice President of Procurement Hoyt Hackney, and Vice President of Store Operations Colin McGinnis, decided to consolidate the provision and billing of snow removal services for Family Dollar stores at a corporate level. (Defs.' Reply ¶¶ 2-3; Hackney Dep., Ex. HH to Defs.' Reply, 9:7-11, 18:11-17, 20:7-12, 23:2-7.)
Early in 2008, Brodie Levadnuk, then a Family Dollar employee, sought " preliminary information" from three snow removal organizations that he identified through a Google search. (Levadnuk Dep. 113:7-24, 114:1-23.) Levadnuk testified that each organization offered services in " a different way" and with different pricing models. (Levadnuk Dep. 117:11-16, 118:20-24, 119:1.) SMS, with whom Family Dollar had a pre-existing relationship— as noted, SMS had an exclusive contract to manage floor care services to Family Dollar— was not among the organizations that Levadnuk researched. Levadnuk reported to Family Dollar Vice President of Procurement Hackney that he " couldn't make heads or tails" of the snow removal options;
once he completed and passed on his preliminary research, Levadnuk had no further involvement in Family Dollar's snow removal decision-making. (Levadnuk Dep. 120:11-24, 121:1-2, 122:3-11.) Levadnuk was later hired by SMS in July 2008 to be SMS's Vice President of Operations. (Levadnuk Dep. 5:19-21, 40:4-8.)
In April or May of 2008, Hackney, McGinnis, and SMS's President, Mike Rothman, began discussing the possibility of hiring SMS to consolidate snow removal services for Family Dollar. (Rothman Dep. 89:19-24, 90:4-12.) SMS had provided floor care services for Family Dollar since approximately 2003, but had never managed snow removal services before. (SMS' Disputed and Undisputed Addnl. Material Facts , hereinafter " Pl.'s Addnl." , ¶ 3; Levadnuk Dep. 86:17-19, 100:2-4.) On October 10, 2008, Family Dollar and SMS executed a contract for snow removal services (" Addendum C" ), initialed by Rothman for SMS and Hackney for Family Dollar. (Hackney Dep. 16:22-24, 17:9-22; Ex. R to Defs.' Local Rule 56.1 Statement of Undisputed Facts in Support of Mot. for Summ. J. as to Counts I and VI, hereinafter " Defs.' 56.1" .)
As Addendum C was not signed until October 2008, SMS had little time to set things up before the 2008-2009 snow season. Accordingly, SMS decided to seek out a " national" snow removal company that could find and manage local subcontractors working at each Family Dollar store throughout the nation. (Pl.'s Addnl. ¶ 6.) At the recommendation of someone he knew through trade associations, SMS's President, Rothman, contacted East Coast's President, Uri Ben-Yashar, in the summer of 2008 about the possibility of East Coast's providing snow removal services to Family Dollar. (Pl.'s Addnl. ¶ 7; SMS' Resp. to Defs.' Local Rule 56.1 Statement of Undisputed Facts in Support of Mot. for Summ. J. as to Counts I and VI of 2d Am. Compl. , hereinafter " Pl.'s 56.1" , ¶ 20; Ben-Yashar Dep. 23:11-24.)
Rothman and Ben-Yashar signed an Affiliate Agreement between SMS and East Coast on October 31, 2008. (East Coast Affiliate Agreement, Ex. L to Defs.' Reply, at 11.) The Agreement stated that it " constitute[s] the sole and only agreement between SMS Assist and [East Coast] respecting the work herein covered and the subject matter of this Agreement. Any prior agreement or conditions ... whether written or oral negotiations or bid proposals, unless specifically made a part hereof are null and void." (East Coast Affiliate Agreement at 10.) It also set out prices for each snow removal service based on the square footage of the area serviced. (East Coast Affiliate Agreement at 14.)
In December 2008, Ben-Yashar requested that SMS permit his newly-formed business, National, to perform the Family Dollar snow removal work in place of East Coast. (2d Am. Compl. ¶ 28; Pl.'s Addnl. ¶ 15.) Ben-Yashar intended for East Coast to do " self-performing" work— work done by East Coast's own employees— and for National to manage subcontractors. (Ben-Yashar Dep. 135:2-7.) Rothman agreed to allow National to assume East Coast's obligations under the Affiliate
Agreement with SMS, " as long as East Coast supports [the new company], and [Ben-Yashar] supports it." (Rothman Dep. II 147:17-24.) Rothman and Ben-Yashar signed an Affiliate Agreement between SMS and National on December 18, 2008 that is identical to the East Coast Affiliate Agreement. (National Affiliate Agreement, Ex. D to 2d Am. Compl.) SMS now asserts that, in reliance on various misrepresentations made by Ben-Yashar, it entered into three contracts: (1) Addendum C with Family Dollar to provide snow services based on the prices provided by Ben-Yashar; (2) an Affiliate Agreement with East Coast to invoice East Coast's snow services for Family Dollar on a per-square-foot model; and (3) the identical Affiliate Agreement with National. (Pl.'s Addnl. ¶ 14.)
Defendants contend that Ben-Yashar provided SMS with accurate information and made no misrepresentations. Defendants also assert that Rothman had a conversation lasting less than one hour with Ben-Yashar before signing the East Coast Affiliate Agreement; did not ask Ben-Yashar for any references; did not ask for the names of any subcontractors who had worked with East Coast; did not ask for any financial documents; and did not perform due diligence before entering into the Affiliate Agreement, even though it concerned SMS's largest customer, Family Dollar, which represented " roughly 80%" of SMS's business. (Defs.' Reply ¶ 24.) Defendants note Levadnuk's testimony that his first conversation with Ben-Yashar, which also included Rothman, was " around" an hour long. (Levadnuk Dep. 175:6-16.) For their part, Rothman and Levadnuk admit that they did not call any references for East Coast before entering into the contract with East Coast. (Rothman Dep. 135:17-24; Levadnuk Dep. 176:5-18.)
A. Defendants' Experience in Snow Removal Projects
Before October 2008, East Coast had performed snow removal services since 1996 on locations in Massachusetts, Rhode Island, Connecticut, Pennsylvania, and New York. (Defs.' Reply ¶ 16; Ben-Yashar Dep. 25:21, 26:2-11.) East Coast and National are Rhode Island corporations with their principal place of business in Pawtucket, Rhode Island. (2d Am. Compl. ¶ 3.) Defendants admit that as of 2008, East Coast " was a small regional business" that worked primarily in Rhode Island and Massachusetts, with an office in Connecticut and a small office on Long Island. (Defs.' Reply ¶ 16.) East Coast had never performed snow removal for more than 600 total stores in any single year, had never performed snow removal outside its local region, and had never remotely managed more than 100 subcontractors. (Defs.' Reply ¶ 21; Ben-Yashar Dep. 30:14-17.)
The parties dispute what representations Ben-Yashar made to SMS concerning East Coast's experience in snow removal. According to SMS, Ben-Yashar told Rothman and Levadnuk in October 2008 that East Coast performed snow services on a national basis. (Pl.'s Addnl. ¶ 7; 2d Am. Compl. ¶ 12; Levadnuk Dep. 173:19-20, 177:7-9, 178:24.) In particular, Levadnuk testified that Ben-Yashar e-mailed Rothman and Levadnuk a PowerPoint presentation on October 7, 2008, to explain how Ben-Yashar supposedly ran his " national" business serving Rite Aid Corp. (" Rite Aid" ), a nationwide drugstore chain. (2d Am. Compl. ¶ 13; Levadnuk Dep. 351:13-19; Rothman Dep. 91:19-20.)
Ben-Yashar testified that he did not recall telling SMS that East Coast had performed snow removal services on a nationwide basis, but in his understanding, " national" means " servicing more than
one state and working with [a] national retailer within a national chain." (Ben-Yashar Dep. 104:1-7, 105:2-4). For example, Ben-Yashar testified, work done at locations in both Rhode Island and Massachusetts could be characterized as " national" work. (Ben-Yashar Dep. 104:15-16.) Under Ben-Yashar's definition of " national," therefore, East Coast had performed snow removal nationally before 2008.
SMS also alleges that Ben-Yashar falsely claimed in October 2008 that East Coast had performed snow removal services for Rite Aid. (Pl.'s Addnl. ¶ 7; Levadnuk Dep. 174:1-4.) Defendants admit that East Coast never performed snow services for Rite Aid. (Defs.' Reply ¶ 19; Ben-Yashar Dep. 69:4-7.) According to Defendants, Ben-Yashar merely showed Rothman and Levadnuk a bid proposal that East Coast had submitted to Rite Aid, and Rothman erroneously assumed that East Coast had won the contract and had performed snow services for Rite Aid. (Defs.' Reply ¶ 7.)
Plaintiff asserts that Ben-Yashar repeatedly misrepresented to Rothman and Levadnuk during " ongoing communication[s]" in the fall of 2008 that East Coast could provide nationwide snow services through its existing subcontractor network. (Pl.'s Addnl. ¶ 8; Rothman Dep. II 95:11-24, 96:1-9.) According to Defendants, however, Ben-Yashar merely told SMS that East Coast had experience managing remote subcontractors in different parts of the Northeast, and that managing remote subcontractors across the country would be " the same." (Ben-Yashar Dep. 114:1-6.) According to Defendants, Ben-Yashar never represented that East Coast could provide nationwide service for Family Dollar through its existing subcontractor network. (Defs.' Reply ¶ 8.)
B. Defendants' Billing Method for Services
Ben-Yashar proposed to SMS that Defendants should bill SMS for snow removal services at a set price per square foot. (Defs.' Reply ¶ 11.) On September 27, 2008, Ben-Yashar e-mailed Levadnuk, stating that the prices he proposed to SMS were based on competitive " sample prices from my contractors nation wide," allowing him to " c[o]me out with this national model" for snow removal pricing. (September 27, 2008 e-mail from Ben-Yashar to Levadnuk, Ex. 11 to Pl.'s 56.1; Pl.'s Addnl. ¶ 13.) SMS agreed to a per-square-foot pricing model in the East Coast and National Affiliate Agreements.
SMS now alleges that Ben-Yashar falsely represented that Defendants' pricing model was " standard and national pricing" that was " competitive in the industry." (Pl.'s Addnl. ¶ 11.) In reality, Plaintiff alleges, the standard pricing model is " bucket" pricing, in which each store is " placed in a bucket representing a range of square footages ... and billed the same price per service as each store in its bucket" rather than being billed on a per-square-foot basis. (Pl.'s Addnl. ¶¶ 17-18.) According to Plaintiff, Ben-Yashar also misrepresented to Levadnuk and Rothman that East Coast used a per-square-foot pricing model to bill Rite Aid for snow services, when in fact East Coast had relied on a " bucket" pricing model in its unsuccessful proposal to Rite Aid.  (Pl.'s Addnl. ¶¶ 13, 20.) Though he refused to label his Rite Aid proposal as " bucket" pricing, Ben-Yashar testified that for his Rite Aid proposal, he " divide[d]
[stores] in three categories" based on square footage, and provided prices based on those store categories. ...