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Rico Industries, Inc. v. TLC Group, Inc.

Court of Appeals of Illinois, First District, Fifth Division

February 7, 2014

RICO INDUSTRIES, INC., an Illinois Corporation, Plaintiff-Appellant,
v.
TLC GROUP, INC., an Arkansas Corporation, Defendant-Appellee

Appeal from the Circuit Court of Cook County. No. 12 CH 35979. Honorable Diane L. Larsen, Judge Presiding.

SYLLABUS

In answer to a certified question pursuant to Supreme Court Rule 308, the appellate court responded that a sales representative agreement that can only be terminated upon the express written consent of both parties does not contain a specific objective event that renders the agreement sufficiently definite in duration such that it is not terminable at will, since the Illinois Supreme Court has held that Illinois public policy prohibits contracts of indefinite duration and the appellate court has determined that a contract terminable only upon the mutual agreement of the parties is indefinite in duration and is terminable at will.

For APPELLANT: Gary I. Blackman, Christina E. Lutz, Levenfeld Pearlstein, LLC, Chicago, IL.

For APPELLEE: Alan E. Sohn, Law Offices of Alan E. Sohn, Chicago, IL.

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion. Justices Palmer and Taylor concurred in the judgment and opinion.

OPINION

GORDON, PRESIDING JUSTICE.

Page 416

[¶1] Plaintiff Rico Industries, Inc. (Rico), entered into an agreement with defendant TLC Group, Inc. (TLC), making TLC the exclusive sales representative of its products to Wal-Mart Stores, Inc. (Wal-Mart), and its affiliates and subsidiaries. The agreement contained a termination provision which stated that the contract may only be terminated by the written agreement of both parties. Rico filed a declaratory judgment action, seeking a judgment that the agreement is terminable at will because the termination provision created a perpetual contract and is thus contrary to Illinois public policy. In its answer, TLC pled counterclaims for breach of contract, quantum meruit, an accounting, and causes of action under the Arkansas sales representative statutes and the Illinois Sales Representative Act. Ark. Code Ann. § 4-70-301 et seq.

Page 417

(West 2012); 820 ILCS 120/0.01 et seq. (West 2012).

[¶2] TLC filed a motion pursuant to section 2-615 of the Illinois Code of Civil Procedure for judgment on the pleadings regarding whether the termination provision created a perpetual contract. 735 ILCS 5/2-615(a), (e) (West 2012). The trial court granted the motion, finding that the termination provision was not unenforceable as a matter of public policy. Rico filed a motion requesting a Rule 308 finding (Ill. S.Ct. R. 308 (eff. Feb. 26, 2010)), and the trial court certified the following question for our review: " Does a sales representative agreement that can only be terminated upon the express written consent of both parties contain a specific objective event that renders the agreement sufficiently definite in duration such that it is not terminable at will?" For the following reasons, we answer the certified question " no," and, therefore, reverse and remand for further proceedings, including consideration of TLC's counterclaims.

[¶3] BACKGROUND

[¶4] The following facts are taken from the pleadings and are not in dispute. Rico is an Illinois corporation engaged in the business of manufacturing novelty products. TLC is an Arkansas corporation that acts as a sales representative. On December 17, 2007, Rico and TLC entered into the agreement at issue, which was attached as an exhibit to the complaint. TLC agreed to serve as Rico's exclusive sales representative to Wal-Mart and its subsidiaries and affiliates. The entirety of the agreement is only two-thirds of a page long. Under the agreement, TLC has the right to serve as a sales representative to other companies, so long as other companies' products do not directly compete with Rico's products.

[¶5] The agreement includes a termination provision, which reads as follows: " Any change to, cancellation of, or termination of this Agreement shall be made in writing by TLC Group and Rico. Any change to, cancellation of, or termination of this Agreement shall be null and void unless TLC Group and Rico mutually agree in writing to do so ." (Emphasis added.) In Rico's amended complaint for declaratory judgment, Rico alleges that it was not represented by counsel during the negotiating and drafting of the agreement.

[¶6] Rico also attached as an exhibit to its complaint a letter dated September 24, 2012. In the letter, Rico informed TLC that Rico desired to terminate the agreement and that Rico believed it had the legal right to unilaterally terminate the agreement. The letter argued that the termination provision in the agreement was " null and void, unenforceable and against public policy. Under this provision, Rico could conceivably be required to work with [TLC] forever." Rico attached to its letter a copy of its proposed complaint in the case at bar.

[¶7] On September 24, 2012, the same day it sent the letter, Rico filed its complaint for a declaratory judgment. The complaint contains two counts. First, Rico asks the trial court to determine that it had the right to terminate the agreement unilaterally because the termination provision created a perpetual contract and is therefore contrary to Illinois public policy. Second, Rico alleges that a dispute exists regarding commissions owed by Rico to TLC. TLC filed a motion to dismiss pursuant to section 2-615 of the Illinois Code of Civil Procedure (735 ILCS 5/2-615 (West 2012)). The trial court granted the motion as to count I and denied the motion as to count II. The trial court granted Rico leave to file an amended count I. Rico filed an amended complaint for declaratory

Page 418

judgment on January 7, 2013, realleging in count I that the termination provision violates Illinois public policy and, therefore, the agreement is terminable at will. Rico attached the agreement and the September 24, 2012, letter to the complaint as exhibits.

[¶8] On January 16, 2013, TLC filed its answer, which included five counterclaims. Count I requested an accounting, alleging that Rico ceased making commission payments to TLC following the September 2012 letter. TLC alleges that Rico directly bills Wal-Mart for its sales and that TLC is entitled to a 12% commission on all sales to Wal-Mart. TLC alleges that, as a result of the direct billing arrangement, Rico controls the information needed to determine the amount owed to TLC. TLC also alleges that it " is informed and believes Rico underpaid it on sales made since the inception of" the agreement. Count II alleges a breach of contract, alleging that Rico's failure to pay commissions since the September 2012 letter amounts to a breach. Count III alleges a cause of action under the Arkansas sales representative act (Ark. Code Ann. § 4-70-301 et seq . (West 2012)). Count IV alleges, in the alternative, a cause of action under the Illinois Sales Representative Act (820 ILCS 120/0.01 et seq . (West 2012)). The Arkansas sales representative act and the Illinois Sales Representative Act provide that a principal will be liable to a sales representative for three times the damages sustained by a sales representative in the event that a principal fails to compensate a sales representative for commissions owed under a contract. Ark. Code Ann. § 4-70-306 (West 2012); 820 ILCS 120/3 (West 2012). Count V, also pled in the alternative, alleges a cause of action for quantum meruit recovery. In count V, TLC ...


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