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Kraft Foods Group, Inc. v. Afs Technologies, Inc.

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

December 5, 2014

KRAFT FOODS GROUP, INC., a Virginia corporation, Plaintiff/Counter-Defendant,
v.
AFS TECHNOLOGIES, INC., a Delaware corporation, Defendant/Counterclaimant.

MEMORANDUM OPINION AND ORDER

JAMES B. ZAGEL, District Judge.

Kraft Foods Group, Inc. ("Plaintiff"), a Virginia corporation with its principal place of business in Deerfield, Illinois, brought suit against AFS Technologies, Inc. ("Defendant"), a Delaware corporation with its principal place of business in Phoenix, Arizona. Defendant asserted two counterclaims against Plaintiff. Plaintiff now moves to dismiss Defendant's counterclaims pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. For the reasons set forth below, Plaintiff's motion is granted in part and denied in part.

I. BACKGROUND

A. The Professional Services Agreement and Amendments

Effective October 1, 2006, Plaintiff's corporate predecessor, Kraft Foods Global, Inc. ("KFG") and Defendant, at the time known as Answer Systems Inc., entered into a written agreement labeled "Professional Services Agreement" ("PSA"). Pursuant to the PSA, Defendant processed KFG's customer contracts and claims by utilizing Defendant's contract and claims processing software. Article 3 of the PSA provided that Plaintiff would pay Defendant a fixed monthly fee for a specified number of claims ("base claim rate") to be processed by Defendant in a given month. Further, the PSA provided an additional fee for each additional claim that exceeded the base claim rate. Under the PSA, the volume of the base claim rate and the fixed monthly price for processing the claims increased annually each year the PSA spanned.

Article 4 of the PSA stated that the agreement would be effective through and including September 30, 2009 "unless terminated earlier by either party" as provided in the contract, and that either could terminate the PSA without cause by providing 90 days written notice ("Early Termination Provisions"). Additionally, Article 19d of the PSA contained a "Non-Exclusivity" clause, which allowed either party from time to time to enter into similar agreements with third parties, which could be the other party's competitor. The PSA also contained an Illinois choice-of-law provision, which dictated that the parties would be governed by Illinois law in the case of a dispute.

KFG and Defendant mutually amended the PSA, effective April 1, 2007, through a written agreement entitled "First Amendment to the Professional Services Agreement" ("First Amendment"). The First Amendment replaced Article 3 of the PSA in its entirety with a new pricing schedule and added new services to be performed by Defendant.

The PSA was again mutually amended, effective November 1, 2007, through a written agreement entitled "Second Amendment to the Professional Services Agreement" ("Second Amendment"). The Second Amendment added another pricing schedule to Article 3 of the PSA for additional claims processing services KFG purchased. Additionally, the Second Amendment adjusted KFG and Defendant's billing and payment schedule.

Effective March 1, 2009, KFG and Defendant again mutually amended the PSA through a written agreement titled "Pricing Addendum" ("Pricing Addendum"). The Pricing Addendum pertained specifically to Defendant's pricing for "ContractPro" software that it provided KFG. The Pricing Addendum states that it replaces any other Amendment pertaining to the pricing of "ContractPro" services.

KFG and Defendant again amended the PSA through a written agreement entitled "Third Amendment to the Professional Services Agreement" ("Third Amendment"), which was effective October 1, 2009. The Third Amendment altered the PSA, the First Amendment, and the Second Amendment by extending the terms of the agreement from October 1, 2009 through September 30, 2012. Additionally, the Third Amendment provided a new pricing schedule for several claims processing services. However, the Third Amendment explicitly stated that the March 1, 2009, Pricing Addendum executed in connection with Defendant's "ContractPro" services remained unchanged.

B. The Spin-Off Agreement

On June 4, 2012, in anticipation of KFG's parent company splitting KFG's operation into two distinct public entities, a "North American grocery" company and a "global snacks" company ("Spin-Off Companies"), the parties again mutually amended the PSA through a series of written agreements entitled "Service Agreement, " "Spin-Off Addendum, " and "Exhibit A" (collectively referred to as the "Spin-Off Agreement"). The Spin-Off Agreement split the PSA as amended into two separate agreements, one intended for the "North American grocery" spin-off company and Defendant and the other for the "global snacks" spin-off company and Defendant. Further, because KFG's parent company would likely need to take further action in connection with the bifurcation of KFG's operations, the Spin-Off Agreement allowed for KFG, at its sole discretion, to assign its interest in the separate versions of the PSA to the Spin-Off Companies. Pursuant to the Spin-Off Agreement, KFG assigned its interest to Plaintiff, which is the "North American grocery" spin-off company.

The Spin-Off Agreement set forth all new and modified terms "that replace or supplement, as applicable, terms of the Original Agreement." Among other things, the Spin-Off Agreement set forth a new "Agreement Term" and a new "Flat-Rate Monthly Billing" regime. Under the Spin-Off Agreement, the term of the contract was to last from October 1, 2012 through October 1, 2015. The parties reflected this in the Spin-Off Agreement as follows: "Agreement Term: 10/1/12 through 10/1/15." As for the billing schedule, under the Spin-Off Agreement, Plaintiff paid a flat monthly price based on a projected number of claims that would be submitted each month to Defendant. Additionally, the new pricing scheme allowed for "quarterly true-ups" to account for months in which the volume of claims fell below or exceeded the projected number of claim submissions. If the number of claims submitted fell below the preset base number of claims for the month, then Defendant would credit Plaintiff according to the number of claims that fell below the monthly base rate. Conversely, if the number of claims submitted exceeded the base rate of claims for the month, then Defendant would bill Plaintiff for each additional claim that exceeded the base rate.

The Spin-Off Agreement also purported to incorporate by reference the PSA and all subsequent Amendments to the PSA. In addition, the Spin-Off Agreement contained an integration clause that stated, "This Agreement (including all exhibits, attachments, and POs, ) is our entire agreement with respect to its subject matter, and any prior agreements, oral or written, are no longer effective unless incorporated by reference." The Spin-Off Agreement also supplied a conflict provision. The conflict provision stated that if ...


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