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Wave 3 Learning Inc. v. Avko Educational Research Foundation, Inc.

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

November 28, 2017

WAVE 3 LEARNING, INC., Plaintiff,
v.
AVKO EDUCATIONAL RESEARCH FOUNDATION, INC. and DON MCCABE, Defendants.

          MEMORANDUM OPINION AND ORDER

          HON. JORGE ALONSO, UNITED STATES DISTRICT JUDGE.

         This dispute arises from a settlement agreement entered into between the parties regarding the licensing and distribution of certain educational materials. Unfortunately, the lengthy and ongoing feud between the parties reignited, and plaintiff filed this case, shortly after the ink on the settlement agreement dried. Plaintiff has filed a sixteen-count First Amended Complaint, alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, tortious interference with a business expectancy, common law unfair competition, deceptive trade practices, fraud, and punitive damages.[1] Before the Court is plaintiff's motion for partial judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). For the reasons set forth below, the motion [52] is denied.

         BACKGROUND

         On February 24, 2016, after several years of litigation in several different courts, plaintiff Wave 3 Learning, Inc. (“Wave 3”) and defendants AVKO Educational Research Foundation, Inc. (“AVKO”) and Don McCabe (“McCabe”) entered into a settlement agreement (the “Agreement”) to resolve their long-standing dispute over the Sequential Spelling materials. (Am. Ans. ¶¶ 7, 8.) Pursuant to the terms of the Agreement, Wave 3 agreed to dismiss all claims against defendants, pay defendants a fixed sum over a four-year period, and pay a 6% royalty on all future Sequential Spelling-related sales. (Am. Ans. ¶ 8; Am. Compl., Ex. A[2].) In exchange, defendants agreed to dismiss all claims against Wave 3 and allow it to use the Sequential Spelling website and trademark. (Id.) Under the Agreement, AVKO was also given the authority to approve any new Wave 3 material. (Am. Ans. ¶ 25.) The parties agreed that approval would not be “unreasonably withheld” and created an appeal mechanism to address any issues arising from the approval process. (Am. Ans. ¶¶ 26, 30; Am. Compl., Ex. A.) While defendants admit these material facts, defendants dispute many of Wave 3's remaining allegations.

         The crux of the instant case lies in the parties' disagreement over the licensing rights of the Sequential Spelling materials. Wave 3 alleges that, under the terms of the Agreement, defendants granted it an exclusive license to Sequential Spelling Levels 1-7 and its derivatives in the U.S. as well as a nonexclusive license to the Sequential Spelling materials worldwide. (Am. Compl. ¶ 8.) Defendants deny this and state that “AVKO granted an exclusive license to Wave 3 Revised Edition Sequential Spelling Teacher Editions 1-7, not AVKO's Sequential Spelling.” (Am. Ans. ¶ 9.) In other words, defendants say that they granted Wave 3 an exclusive license to the “revised” Sequential Spelling materials and any derivatives thereof but that they retained the rights to the “classic” Sequential Spelling materials.

         Wave 3 alleges that defendants have breached the Agreement by (1) selling the Sequential Spelling materials to distributors and other non-individuals in the United States after February 24, 2016, (2) refusing to give an accounting of and remit payment for AVKO's sale of the Sequential Spelling materials from February 24, 2016 to April 28, 2016, and (3) violating the non-disparagement clause of the Agreement through its communications with third parties. (Am. Compl. ¶¶ 59, 98.) Defendants deny these allegations. (Am. Ans. ¶¶ 9, 59, 98.) They state that Wave 3 did not work in good faith to fulfill the terms of the Agreement, that Wave 3 and its President, Thomas Morrow (“Morrow”), breached the Agreement by posting disparaging remarks on their website, and that AVKO's attorneys modified the Agreement without defendants' consent. (Id. ¶ 9)

         Wave 3 further complains that defendants breached the implied covenant of good faith and fair dealing by abusing the approval process. (Am. Compl. ¶¶ 28-37.) Wave 3 says defendants unreasonably denied approval of Wave 3's revised versions of the Sequential Spelling material in an attempt to force Wave 3 to renegotiate the Agreement. (Am. Compl. ¶¶ 64, 103.) Additionally, Wave 3 alleges AVKO abused the approval process so that it could continue selling the Sequential Spelling material to distributors and other non-individuals. (Id.)

         Defendants deny abusing the approval process and contend that they were merely attempting to correct deficiencies in the Agreement and coordinate with Wave 3 to reconsider certain terms of the Agreement, that McCabe was concerned about legal ramifications related to certain copyrights, and that McCabe had legitimate concerns about the material submitted to defendants for approval. (Am. Ans. ¶¶ 10-43, 59, 98.)

         Wave 3 alleges that defendants were unjustly enriched when they sold the Sequential Spelling materials to non-individuals after February 24, 2016. (Am. Compl. ¶¶ 68, 103.) AVKO admits that it sold the Sequential Spelling materials to non-individuals after February 24, 2016. (Am. Ans. ¶ 68.)

         Wave 3 next contends that AVKO intentionally interfered with Wave 3's business expectancy by convincing distributors and customers to purchase AVKO's goods instead of Wave 3's. (Am. Compl. ¶ 75.) Additionally, Wave 3 states that McCabe told Wave 3's current and potential distributors and consumers that AVKO had the right to sell the Sequential Spelling materials and Wave 3 did not. (Id. ¶ 112.) Defendants deny these allegations. (Am. Ans. ¶¶ 75, 112.)

         Wave 3 also complains that defendants used deceptive trade practices by inducing third parties to purchase the Sequential Spelling materials from AVKO by misrepresenting to third parties that Wave 3 did not have the rights to sell the Sequential Spelling materials. (Am. Ans. ¶¶ 84, 122.) Defendants deny these allegations. (Am. Ans. ¶¶ 84, 122.)

         Finally, Wave 3 says that AVKO, at the direction of McCabe, committed fraud by making false statements of material facts to Wave 3-that it had licensed the Sequential Spelling material only to JJH Publishing only when AVKO had in fact sold the materials to twenty other non-individuals-to make Wave 3 believe that its improper sale of the Sequential Spelling material was less egregious than it was. (Am. Ans. ¶¶ 87, 124.) Defendants deny these allegations. (Am. Ans. ¶¶ 87, 124.)

         STANDARD

         Generally, a motion for judgment on the pleadings under Rule 12(c) is governed by the same standards as a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6). See Hayes v. City of Chi., 670 F.3d 810, 813 (7th Cir. 2012). However, when, as here, a party uses Rule 12(c) “to attempt to dispose of [a claim] on the basis of the underlying substantive merits[, ].. . . the appropriate standard is that applicable to summary judgment, except that the court may consider only the contents of the pleadings.” Alexander v. City of Chi., 994 F.2d 333, 336 (7th Cir. 1993); see also Hous. Auth. Risk Retention Grp., Inc. v. Chicago Hous. Auth., 378 F.3d 596, 600 (7th Cir. 2004) (stating that the pleadings “consist of the complaint, the answer, and any written instruments attached as exhibits”). In considering such a motion, the Court must view the facts and all reasonable inferences drawn from those facts in the light most favorable to the non-moving party. Janssen v. BRI Holding, LLC, No. 16 C 10098, 2017 WL 2080424 at *2 (N.D. Ill. May 15, 2017). “A judgment on the pleadings is proper when only questions of law, and not questions of fact, exist after the pleadings have been filed.” All Am. Ins. Co. v. Broeren Russo Const., Inc., 112 F.Supp.2d 723, 728 (C.D. Ill. 2000). A court will grant a motion for judgment on the pleadings only when “no genuine issues of material fact remain to be resolved and . . . the [moving party] is entitled to judgment as a matter of law.” See Alexander, 994 F.2d at 336. A dispute involving interpretation of a contract is generally amenable to resolution in the context of a judgment on the pleadings. See Asta, L.L.C. v. Telezygology, Inc., 629 F.Supp.2d 837, 842 (N.D. Ill. 2009) (quoting Rickher v. Home Depot, Inc., 535 F.3d 661, 664 (7th Cir. 2008) (“Under Illinois law, the interpretation of a contract presents a question of law that is decided by the court.”)).

         DISCUSSION

         Breach of Contract (Counts I and IX)

         “A settlement agreement is in the nature of a contract and is governed by principles of contract law.” Rose v. Mavrakis, 799 N.E.2d 469, 473 (Ill.App.Ct. 2003). Under Illinois law, to assert a claim for breach of contract, a plaintiff must show “(1) the existence of a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) a breach by the defendant; and (4) the resultant damages.” Hongbo Han v. United Cont'l Holdings, Inc., 762 F.3d 598, 600 (7th Cir. 2014) (quoting Reger Dev., L.L.C. v. Nat'l City Bank, 592 F.3d 759, 764 (7th Cir. 2010)). A court's primary objective in interpreting a contract is to give effect to the intent of the parties. See Matthews v. Chi. Transit Auth., 51 N.E.3d 753, 775 (2016). A court will first look to the language of the contract because the language, given its plain and ordinary meaning, is the best indication of the parties' intent. See Gallagher v. Lenart, 874 N.E.2d 43, 58 (2007). A court will also view the contract as a whole rather than viewing particular terms and provisions in isolation. See Matthews, 51 N.E.3d at 776. “In Illinois, the determination of whether a contract is ambiguous, as well as the construction of an unambiguous contract, are questions of law for the court.” Hickman v. Wells Fargo Bank N.A., 683 F.Supp.2d 779, 791 (N.D. Ill. 2010). “A contract is ambiguous when its terms may reasonably be interpreted in more than one way.” Krilich v. Am. Nat. Bank and Trust Co. of Chi., 778 N.E.2d 1153, 1164 (Ill.App.Ct. 2002). However, a term in a contract is not automatically rendered ambiguous simply because the parties disagree on the meaning of that term. See Thompson v. Gordon, 948 N.E.2d 39, 48 (Ill. 2011).

         The Agreement

         The main point of contention between the parties involves the scope of the licensing rights granted to Wave 3 under the Agreement. Paragraph 3 of the Agreement provides:

         Materials at Issue

         AVKO shall grant and hereby grants an exclusive license in the United States and Canada, and a worldwide nonexclusive license to the below titles and their derivatives (collectively “Sequential Spelling”):

• Sequential Spelling Level 1 Teacher Guide
• Sequential Spelling Level 2 Teacher Guide
• Sequential Spelling Level 3 Teacher Guide
• Sequential Spelling Level 4 ...

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