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Officemax Inc. v. NHS Human Services, Inc.

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

March 15, 2017

OFFICEMAX, INC. Plaintiff,
v.
NHS HUMAN SERVICES, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          Robert W. Gettleman United States District Judge.

         Plaintiff Officemax, Inc. (“Officemax”) has filed a two count complaint against defendant NHS Human Services, Inc., (“NHS”) alleging anticipatory repudiation and breach of contract. Defendant has moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons described below, the court grants defendant's motion to dismiss.

         BACKGROUND [1]

         On June 10, 2011, Officemax and NHS entered into a sales agreement, effective as of July 1, 2011. The Sales Agreement provides that “Officemax shall be the primary supplier of all [NHS]-owned entities for copy paper, furniture, office supplies and toner, ” through June 30, 2016. The parties also agreed that NHS would purchase at least $1, 350, 000 of products per year from Officemax through 2016.

         The complaint alleges that the parties intended to agree in advance to settlement of damages that might arise from defendant's breach of the Sales Agreement by failing to have Officemax be the primary supplier of products to NHS. Section 15 of the Sales Agreement provides for liquidated damages “if Officemax terminates this Agreement due to a material breach by [NHS] which is not cured within ten (10) days of Officemax providing written notice of such breach to [NHS].” Section 15 of the Sales Agreement also provides a chart listing the amount of liquidated damages due to Officemax, depending on the date of termination. From 2011 to 2013, Officemax supplied millions of dollars of office supplies to NHS under the Sales Agreement.

         No later than November 2013, Officemax and NHS entered the First Amendment to Sales Agreement (“First Amendment”). The First Amendment extended the term of the Sales Agreement to June 30, 2021, and increased NHS's minimum purchase amount. Section 2 of the Sales Agreement remained in effect, requiring that “Officemax shall be the primary supplier of all [NHS]-owned entities for copy paper, furniture, office supplies and toner.” The First Amendment removed the language from section 15 regarding Officemax terminating “due to a material breach” by NHS, instead providing that Officemax is entitled to liquidated damages “if Officemax terminates this Agreement.” The First Amendment also provides a new chart listing the amount of liquidated damages due to Officemax, depending on the date of termination.

         The Sales Agreement and First Amendment (collectively, the “Contract”) were signed by Officemax's Vice President of Sales, Anthony Nucera, and NHS's Chief Financial Officer (“CFO”), Kevin McClure. Mr. McClure was later replaced by Derrick Yacovelli as NHS's CFO. On October 1, 2015, Mr. Yacovelli communicated to Mr. Nucera that NHS may seek bids from other suppliers of copy paper, furniture, officer supplies, and toner, despite the Contract with Officemax. Mr. Yacovelli stated that he had no involvement in the negotiation of the Contract, and he was skeptical of the present benefits of the Contract. Mr. Yacovelli stated that he knew NHS would owe more than $1, 000, 000 if the Contract terminated and/or if NHS breached the Contract. Mr. Yacovelli stated that, in doing “simple math, ” if NHS would save $200, 000 over five years with a new supplier then it would be “worth it” to terminate and/or breach the Contract.

         On February 9, 2016, NHS sent multiple request for proposal (“RFP”) e-mails to Officemax titled “consumable/janitorial RFP” and “Office Supply RFP.” One of the e-mails read “you are receiving this letter because you have been selected as potential supplier for office supplies for NHS.” The RFP e-mails also stated that “[NHS] is soliciting bids for a three year period for the procurement and distribution of office supplies for its entire enterprise, ” and “the intention of NHS is to award an agreement for office supplies, cut paper and toner cartridges at ¶ 100% level of business where the levels of service and cost meet the needs of NHS.” The complaint alleges that “pursuant to the clear and unambiguous terms of the Contract, Officemax was not a ‘potential supplier' to NHS for a ‘three-year period' but rather Officemax must be the ‘primary supplier' to NHS through 2021, [and] therefore NHS could not seek business from other companies to be the primary supplier of products.”

         Following the February 9 RFP e-mails, NHS e-mailed Officemax stating that “NHS has already issued and received responses from Officemax's competitors for products to be sent to all of NHS's facilities.” On March 14, 2016, Officemax notified NHS of the termination of the Contract and demanded that NHS pay Officemax the sum of $1, 050, 000, pursuant to section 15 of the Contract. On April 4, 2016, Officemax e-mailed NHS following up on the March 14, 2016, notification of termination. On April 15, 2016, Officemax e-mailed NHS, providing notice that more than 30 days had passed since NHS's receipt of the termination letter and inquiring as to the status of payment to plaintiff of the $1, 050, 000. Thereafter, NHS acknowledged receipt of the March 14 termination letter, but NHS has refused to pay the $1, 050, 000 demanded by Officemax.

         DISCUSSION

         I. Legal Standard

         In evaluating a motion to dismiss, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the plaintiff's favor. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). A motion to dismiss for failure to state a claim tests the sufficiency of the complaint, not its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.1990). To survive such a motion, the complaint must allege sufficient facts which, if true, would raise a right to relief above the speculative level, showing that the claim is plausible on its face. Twombly, 550 U.S. at 555. To be plausible on its face, the complaint must plead facts sufficient for the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         II. Defendant's Motion to Dismiss

         A. Count I - ...


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