Court of Appeals of Illinois, First District, Second Division
from the Circuit Court of Cook County No. 11 L 3020 Honorable
James E. Snyder, Judge Presiding.
JUSTICE MASON delivered the judgment of the court, with
opinion. Presiding Justice Hyman and Justice Pierce concurred
in the judgment and opinion.
1 Plaintiff, King Koil Licensing Company (King Koil), appeals
a jury's verdict in favor of defendants, Roger B. Harris
and Fox, Hefter, Swibel, Levin & Carroll, LLP (Fox
Hefter), in King Koil's legal malpractice action. King
Koil alleged that Harris negligently drafted a licensing
agreement with King Koil's long-term licensee, Blue Bell
Mattress Company (Blue Bell), causing a significant loss in
revenue. The case proceeded to a jury trial in October 2015,
resulting in a verdict in favor of Harris and Fox Hefter.
2 On appeal, King Koil contends that the court erred in
barring the introduction of certain evidence at trial and
refusing to order Harris to produce specific documents in
discovery. King Koil further challenges the court's
decision to allow Harris to propound special interrogatories
to the jury. Finally, King Koil maintains that the jury
verdict was against the manifest weight of the evidence. We
find no merit in any of King Koil's arguments and affirm.
4 I. King Koil
5 King Koil licenses proprietary sleep product designs and
manufacturing techniques to mattress manufacturers. Its
licensees sell both King Koil branded products as well as
private label products (King Koil products sold under the
licensees' brand names). King Koil's income comes
from licensees' payments of royalties and marketing fees
based on a percentage of the licensees' sales.
6 In 2008, King Koil had 10 licensees in the U.S. and 30
abroad. There was no standard license agreement between King
Koil and its licensees; each licensee paid a different
percentage of royalties and marketing fees on its sales, with
longer-term licensees paying less in royalties. Almost all of
King Koil's domestic licensees paid royalties on private
label sales; the purpose of this was to prevent licensees
from preferring sales of their private label products over
King Koil products. The only exception was that if a new
licensee had an existing private label business, it would not
have to pay royalties or make marketing contributions on that
business. Ultimately, though, the goal was that King Koil
would become the predominant part of the new licensee's
business and upon renewal of the license, King Koil could
insist on royalties on private label products.
7 The minimum marketing fee licensees paid was 1% of sales,
but King Koil would routinely negotiate for a higher
percentage because the licensees' contributions did not
completely cover King Koil's marketing expenses.
8 Beginning in 2006, and throughout this litigation, David
Roberts was the president of King Koil and was responsible
for negotiating license agreements with licensees. As of
March 2009, he had negotiated three to five license
agreements. After Roberts negotiated the business terms of a
license agreement, he relied on Harris to put those terms in
a contract. Since Roberts, who did not graduate from college,
could not always understand the "legalese" in the
contracts, he would focus on what he believed to be critical
issues and would rely on Harris to explain the finer points
of the agreements to him in layman's terms. For similar
reasons, Roberts also preferred reading "clean"
versions of drafts of the agreement as opposed to the
red-lined versions that tracked the document's changes
over time. Roberts could not say whether he informed Harris
that he did not review the red-lined versions.
9 Harris had been a licensed attorney since 1962 and spent
the majority of his legal career at the firm of Altheimer
& Gray. He began representing King Koil in 2001 while at
Altheimer & Gray. When that firm dissolved in 2003,
Harris joined Fox Hefter and retained King Koil as a client.
10 During his time representing King Koil at both firms,
Harris prepared approximately 15 license agreements.
Harris's practice when preparing license agreements was
to make handwritten revisions to an existing agreement after
receiving the business terms Roberts had negotiated with the
licensee. Harris's secretary would then enter the
handwritten revisions into the electronic version of the
agreement, red-lining the changes. Harris then sent both a
clean copy and a red-lined version of the agreement to
Roberts, expecting that Roberts would read both.
11 II. Blue Bell
12 In 2008, King Koil's largest licensee in the United
States in terms of sales and royalties was Blue Bell. Blue
Bell had been selling mattresses under its own label since
1930, and in the early 1980s, it became a King Koil licensee.
Blue Bell had two licensing agreements with King Koil: the
first commencing in 1991 and covering Connecticut,
Massachusetts, Maine, Rhode Island, New Hampshire, and
Vermont, and the second, a 1992 agreement covering several
counties in New York. Both agreements had 20-year terms.
Under those agreements, the royalty rate was 2% on up to $2
million in sales (on both King Koil and private label
products) and 1% thereafter. Blue Bell's marketing fees
were 1% of its sales. Blue Bell's royalty and marketing
contributions were lower than any other King Koil licensee
due in part to the age of the contracts as well as the fact
that it was King Koil's largest licensee.
13 III. Negotiations Between King Koil and Blue Bell
14 The owners of Blue Bell during the time period relevant
here were Mark Kolovson and his brother-in-law, Steve Byer.
Roberts and Kolovson began negotiations for Blue Bell's
license renewal in September 2008, about three years before
Blue Bell's 1991 license expired. On September 10,
Roberts sent Harris a draft agreement with Kolovson's
comments, and over the next month, Roberts and Harris worked
on revising the draft. Harris sent a revised working draft to
Roberts on October 15, 2008.
15 This case turns on three provisions in that October 2008
draft: (1) section 1.6, defining "Total Annual
Sales" as "gross sales of all Sleep Products minus
only documented amounts of credits properly granted for (i)
actual returns and (ii) invoicing errors related to
quantities shipped or unit pricing"; (2) section
6.2(a)(ii), imposing a royalty fee of 2.75% of
"licensee's Total Annual Sales of Sleep Products
each Year of this Agreement"; and (3) section
6.3(a)(ii), requiring the licensee to contribute to a
marketing budget managed by King Koil, which was "no
less than 1% and no more than 2.5% of all U.S. licensees'
Total Annual Sales of King Koil Sleep Products.
(Licensee's sales to Bob's Furniture are excluded from
Licensee's Total Annual Sales of King Koil Sleep Products
for purposes of calculating the marketing budget and
Licensee's contribution thereto but not for other
16 Regarding section 6.3, according to Harris, Roberts and
another King Koil executive told him orally to exempt from
marketing fees both Blue Bell's sales to Bob's, as
well as Blue Bell's private label sales. That prompted
Harris to include the above-quoted parenthetical in section
6.3(a)(ii). Harris could find no written record of that
instruction, and Roberts denied so instructing Harris.
17 Roberts e-mailed the October 2008 working draft to
Kolovson, but the two did not go over the agreement until
March 2009. In March, Roberts and Kolovson spent five to six
hours reviewing the draft in person. During the meeting,
Roberts made handwritten notes on the agreement. One of the
changes Roberts made was to increase the marketing
contribution percentage to 1.5%, but at the time he made that
handwritten change, he did not notice that the marketing
contribution excluded private label sales.
18 After the meeting, on March 30, 2009, Roberts sent a
letter to Kolovson attaching a term sheet for the new license
agreement. The term sheet represented Roberts's
understanding of the points which he and Kolovson had agreed
on. Roberts copied Harris on the letter and asked him to
incorporate the terms into the October 15, 2008, working
19 IV. The April 2009 Communications
20 During the time Harris was working on Blue Bell's
license renewal, he was simultaneously working on a license
agreement for White Dove, a new King Koil licensee. White
Dove's license agreement did not require it to pay
royalties or marketing fees on its private label sales.
21 On April 24, 2009, John Skelton, Blue Bell's counsel,
asked Harris to provide him with White Dove's license
agreement. Harris forwarded the request to Roberts, who
responded in an e-mail:
"I do not want to share or be specific regarding other
agreements we may have with other licensees. Essentially,
however, you should inform [Skelton] that the agreement he is
working off of IS for all practical consideration [sic], the
same as what we have with White Dove and others. It is not
necessarily a goal of [King Koil] to have exact or similar
agreements with all licensees. Each licensee is a separate
entity and may have significantly different strategic value
and [King Koil] reserves the position to engage and contract
with each entity separately and individually." (Emphasis
in the original).
22 According to Roberts, he meant that approximately 90% of
the language in the licensing agreements was the same for all
licensees, and the 10% difference was in the financial terms,
which he did not want to share. Roberts did not mean to
instruct Harris to change the Blue Bell agreement.
23 But Harris understood Roberts's e-mail as an
instruction to revise the Blue Bell agreement to reflect the
terms of the White Dove agreement. In other words, Harris did
not interpret Roberts's e-mail as an instruction to lie
to Skelton, but to in fact ensure the Blue Bell and White
Dove agreements had the same terms. The effect of merging the
White Dove and Blue Bell agreements was to change the
definition of "Total Annual Sales" in the Blue Bell
agreement from "gross sales of all Sleep Products"
to "gross sales of all King Koil Proprietary
Sleep Products minus only documented amounts of
credits properly granted for (i) actual returns and (ii)
invoicing errors related to quantities shipped or unit
pricing." (Emphasis added.) Because the royalty
provision required licensees to pay royalties on "Total
Annual Sales, " the changed definition of that term
meant that Blue Bell had to pay royalties only on sales of
"King Koil Proprietary Sleep Products" and
not on the sale of "all Sleep Products, "
including private label products. The merging of the two
agreements had no effect on Blue Bell's marketing fees,
as the calculation already excluded sales of private label
products, although merging the two agreements removed the
specific reference to Blue Bell's sales to Bob's, as
that was a customer unique to Blue Bell.
24 On April 27, 2009, Harris sent a clean and red-lined copy
of the Blue Bell agreement with the changes, including the
changed definition of "Total Annual Sales, " to
Roberts. Harris pointed out a blank portion in one section
but, other than that, did not direct Roberts's attention
to any particular provision. Specifically, Harris did not
tell Roberts about the change in definition of "Total
Annual Sales." According to Roberts, if Harris had told
him about the change, he would not have signed the agreement.
25 Roberts probably reviewed the clean copy of the agreement
on April 29, 2009, on his way to Boston with Harris to meet
Skelton and Kolovson. He paid particular attention to the
points he and Kolovson had discussed in March 2009. At the
meeting in ...