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Clutch Auto Limited v. Navistar

May 8, 2013

CLUTCH AUTO LIMITED, PLAINTIFF,
v.
NAVISTAR, INC., DEFENDANT.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Defendant Navistar, Inc.'s (Navistar) partial motion to dismiss. For the reasons stated below, the motion to dismiss is granted in part and denied in part.

BACKGROUND

Plaintiff Clutch Auto Limited (Clutch Auto) is a clutch manufacturer. On June 18, 2008, Clutch Auto allegedly entered into a supply agreement (Supply Agreement) with Navistar, a vehicle manufacturer. Under the terms of the Supply Agreement, Clutch Auto allegedly agreed to manufacture and supply clutches to Navistar that met Navistar's unique specifications. To produce clutches for Navistar, Clutch Auto allegedly made a significant investment in research and development, training, machinery, testing, hiring, and infrastructure. After doing so, Clutch Auto allegedly produced clutches for Navistar based on Navistar's EDI visibility and product forecast requirements.

On February 24, 2011, Navistar allegedly terminated the Supply Agreement. Subsequently, Navistar allegedly refused to purchase more than five million dollars worth of clutches that had been manufactured for Navistar (Inventory). Clutch Auto and Navistar allegedly had several discussions regarding whether the terms of the Supply Agreement required Navistar to purchase the Inventory. At a meeting held on September 19, 2011, Clutch Auto and Navistar allegedly reached a tentative settlement of their dispute. On October 19, 2011, Clutch Auto received an email from Navistar (October Email), requesting that Clutch Auto sign a settlement letter and indicating that a new service parts supply agreement (Service Parts Supply Agreement) would be forwarded to Clutch Auto the following week. On November 9, 2011, Persio Lisboa (Lisboa), Navistar's Chief Procurement Officer, allegedly sent Clutch Auto a finalized settlement letter (Letter Agreement). The terms of the settlement reflected in the Letter Agreement were allegedly contingent upon Clutch Auto signing a release of Clutch Auto's claims against Navistar (Release). Under the terms of the Letter Agreement, Navistar allegedly agreed to pay for $575,545 worth of the Inventory. Navistar also allegedly promised to enter into a Service Parts Supply Agreement, under which Navistar would purchase additional clutches from Clutch Auto to be used as service parts in existing vehicles. In addition, Navistar allegedly agreed to enter into a future supply agreement with Clutch Auto for clutches to be used in new cars. Further, under the Release, Navistar allegedly agreed to work with Clutch Auto to sell the remaining Inventory as service parts through Navistar's authorized dealers.

Clutch Auto alleges that during several meetings and exchanges prior to the execution of the Letter Agreement and Release, Navistar made misrepresentations regarding its willingness to do future business with Clutch Auto. Further, Navistar allegedly provided a business plan (Business Plan) to Clutch Auto that showed a projected increase in the future sale of Clutch Auto's products to Navistar. On November 9, 2011, Clutch Auto allegedly sent an email (November Email) to Navistar memorializing the agreements between the parties, and Navistar allegedly did not manifest any contrary understanding of those agreements. Clutch Auto alleges that based on Navistar's misrepresentations regarding future business between the parties, Clutch Auto agreed to sign the Letter Agreement and Release. Since that time, Navistar allegedly has not made any effort to work with Clutch Auto to sell the Inventory and allegedly has not made any offer to purchase the Inventory or any other product from Clutch Auto. Instead, Navistar has allegedly purchased clutches for use as service parts from Clutch Auto's competitors. Clutch Auto includes in its complaint a breach of contract claim (Count I), and a promissory fraud claim (Count II), pled in the alternative. Navistar now moves to dismiss the promissory fraud claim, and to dismiss the breach of contract claim as it relates to Navistar's alleged failure to purchase clutches from Clutch Auto, and as it relates to Navistar's alleged breach of the duty of good faith and fair dealing. Navistar has not moved to dismiss the breach of contract claim as it relates to Navistar's alleged failure to work with Clutch Auto to sell the Inventory.

LEGAL STANDARD

In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) (Rule 12(b)(6)), the court must draw all reasonable inferences that favor the plaintiff, construe the allegations of the complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in the complaint. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 622 (7th Cir. 2012); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). A plaintiff is required to include allegations in the complaint that "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level'" and "if they do not, the plaintiff pleads itself out of court."

E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007)(quoting in part Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)); see also Morgan Stanley Dean Witter, Inc., 673 F.3d at 622 (stating that "[t]o survive a motion to dismiss, the complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face," and that "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged")(quoting Ashcroft v. Iqbal, 556 U.S. 662 (2009))(internal quotations omitted).

DISCUSSION

Navistar argues that the promissory fraud claim should be dismissed and that the breach of contract claim should be partially dismissed.

I. Promissory Fraud Claim

Navistar argues that Clutch Auto has failed to state a valid claim for promissory fraud. Claims for promissory fraud are not generally recognized under Illinois law, but "an exception exists for certain fraudulent schemes, [which] applies if the misrepresentation is embedded in a larger pattern of deception or the deceit is particularly egregious." JPMorgan Chase Bank, N.A. v. Asia Pulp & Paper Co., Ltd.,707 F.3d 853, 865 (7th Cir. 2013); see also Desnick v. American Broadcasting Companies, Inc., 44 F.3d 1345, 1354-55 (7th Cir. 1995)(stating that "promissory fraud is actionable only if it either is particularly egregious or, what may amount to the same thing, it is embedded in a larger pattern of deceptions or enticements that reasonably induces reliance and against which the law ought to provide a remedy"); Bower v. Jones, 978 F.2d 1004, 1012 (7th Cir. 1992)(recognizing that "[p]romissory fraud is a disfavored cause of action in Illinois because fraud is easy to allege and difficult to prove or disprove," stating that "the burden on a plaintiff claiming promissory fraud is deliberately high," and indicating that "[i]n order to survive the pleading stage, a claimant must be able to point to specific, objective manifestations of fraudulent intent-a scheme or device," and that "[i]f he cannot, it is in effect presumed that he cannot prove facts at trial entitling him to relief [because] otherwise, anyone with a breach of contract claim could open the door to tort damages by alleging that the promises broken were never intended to be performed")(citations omitted). In addition, claims for promissory fraud are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) (Rule 9(b)). See, e.g., Shair v. Qatar Islamic Bank,2009 WL 691249, at *1 (N.D. Ill. 2009).

Rule 9(b) requires a plaintiff alleging fraud to "state with particularity the circumstances constituting fraud," which "ordinarily requires describing the 'who, what, when, where, and how' of the fraud." AnchorBank, FSB v. Hofer,649 F.3d 610, 615 (7th Cir. 2011)(citations omitted); see also Fed. R. Civ. P. 9(b)(stating that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake"). Clutch Auto alleges that "Navistar deliberately and intentionally made repeated false promises and misrepresentations, assuring Clutch Auto of Navistar's good faith intentions to continue their business relationship and to work with Clutch Auto to sell Clutch Auto's inventory." (Compl. Par. 3). Clutch Auto also alleges that "Navistar made repeated false promises and misrepresentations to Clutch Auto that it would 'work with Clutch Auto to sell as Service Parts the clutch products already built by Clutch Auto.'" (Compl. Par. 36). Clutch Auto further alleges that "during several meetings and exchanges prior to ...


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