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National Technology, Inc. v. Repcentric Solutions

United States District Court, N.D. Illinois, Eastern Division

August 15, 2014

NATIONAL TECHNOLOGY, INC., Plaintiff,
v.
REPCENTRIC SOLUTIONS and MICHAEL KADLEC, Defendants.

MEMORANDUM OPINION & ORDER

JOAN B. GOTTSCHALL, District Judge.

Plaintiff National Technology, Inc. (NTI) sued Defendants RepCentric Solutions and its president, Michael Kadlec, alleging breach of contract (Count I) and common-law fraud (Count II). NTI alleges that RepCentric breached an April 26, 2012, consulting agreement (Agreement) with NTI and committed fraud in an effort to induce NTI to enter into the Agreement.

On December 18, 2013, the court dismissed NTI's original complaint without prejudice pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. NTI filed an amended complaint on January 22, 2014, with the same claims. Now before the court is the defendants' motion to dismiss NTI's amended complaint pursuant to Rule 12(b)(6). For the following reasons, the motion is granted and the complaint is dismissed without prejudice.

I. FACTS

The court accepts all well-pleaded allegations in NTI's amended complaint as true for purposes of the motion to dismiss. See, e.g., Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007). NTI is an Illinois corporation that manufactures and sells electronic circuit boards. RepCentric is a Minnesota corporation involved in technical sales and marketing. In March 2012, Kadlec contacted NTI regarding RepCentric's ability to expand NTI's business by recruiting and managing a sales network on NTI's behalf. Kadlec represented that if NTI entered into an agreement with RepCentric, RepCentric would grow NTI's business by $1.385 million during the first year of the agreement, $4.025 million in the second year, $6.1 million in the third year, and $8.5 million in the fourth year. RepCentric and NTI entered into a written agreement in April 2012.

Pursuant to the terms of the Agreement, RepCentric Solutions was to "recruit, deploy and manage a variable-cost sales network to diversify end sectors and improve customer balance and accelerate revenue growth with increased EBITDA." (Compl. Ex. B (Agreement), ECF No. 1.) NTI, in turn, was to make monthly payments of $7, 000 to RepCentric. ( Id. ) The Agreement stated that it could "be terminated, with 30 day[s'] notice in writing by email or fax, by either party for any reason following the sixth month. Six month contract term is required to complete field team recruiting." ( Id. )

NTI alleges that RepCentric's president, Michael Kadlec, and RepCentric orally promised to NTI that, by July 2012, RepCentric would establish a network of twelve NTI sales representatives nationally and increase NTI's business by $10, 000. NTI further alleges that it purchased new manufacturing equipment and invested over $100, 000 in the planned expansion of its business. In July 2012, however, three months after executing the Agreement, NTI learned that Kadlec was employed by American Standard Circuits, one of its direct competitors in the circuit-board industry. This fact had not been disclosed to NTI.

NTI terminated the Agreement in July 2012 and sought return of the money it had paid to RepCentric. NTI alleges that it fully complied with the terms of the Agreement and that RepCentric breached the Agreement by failing to recruit any sales representatives on behalf of NTI and failing to use its best efforts to recruit, deploy, and manage a sales network on behalf of NTI. Count I of the complaint alleges breach of contract against RepCentric. Count II alleges common-law fraud against RepCentric and Kadlec, based on allegedly fraudulent representations made by Kadlec to induce NTI to enter into the Agreement with RepCentric.

II. LEGAL STANDARD

To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint satisfies this pleading standard when its factual allegations "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555-56; see also Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010) ("[P]laintiff must give enough details about the subject-matter of the case to present a story that holds together."). For purposes of the motion to dismiss, the court takes all facts alleged by the plaintiff as true and draws all reasonable inferences from those facts in the plaintiff's favor, although conclusory allegations that merely recite the elements of a claim are not entitled to this presumption of truth. Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011).

A complaint alleging fraud must further satisfy Rule 9(b) of the Federal Rules of Civil which requires that a party "alleging fraud or mistake... must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). This is often described as requiring a plaintiff to plead "the who, what, when, where and how" of the alleged fraud. United States ex rel. Garst v. LockheedMartin Corp., 328 F.3d 374, 376 (7th Cir. 2003). For purposes of a motion to dismiss for failure to comply with Rule 9(b), the court takes the allegations in the complaint as true and makes all reasonable inferences in the plaintiff's favor. Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007).

III. ANALYSIS

NTI's amended complaint, like its original complaint, contains two counts against the defendants: (1) breach of contract, and (2) fraud. In its December 18, 2013 order dismissing NTI's original complaint under Rule 12(b)(6), the court ruled that NTI failed to ...


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