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LifeWorks Technology Group LLC v. Walgreen Co.

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

January 10, 2018

LIFEWORKS TECHNOLOGY GROUP LLC, Plaintiff,
v.
WALGREEN CO., Defendant.

          MEMORANDUM OPINION AND ORDER

          Gary Feinerman, Judge

         LifeWorks Technology Group LLC alleges in this diversity suit that Walgreen Co. breached in various ways contracts under which LifeWorks provided goods for sale at Walgreen's retail stores. Doc. 26. Walgreen moves to dismiss in part the operative complaint under Federal Rule of Civil Procedure 12(b)(6). Doc. 27. The motion is granted.

         Background

          In resolving a Rule 12(b)(6) motion, the court assumes the truth of the operative complaint's well-pleaded factual allegations, though not its legal conclusions. See Zahn v. N. Am. Power & Gas, LLC, 815 F.3d 1082, 1087 (7th Cir. 2016). The court must also consider "documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice, " along with additional facts set forth in LifeWorks's brief opposing dismissal, so long as those additional facts "are consistent with the pleadings." Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1019-20 (7th Cir. 2013). The facts are set forth as favorably to LifeWorks as those materials allow. See Pierce v. Zoetis, Inc., 818 F.3d 274, 277 (7th Cir. 2016). In setting forth those facts at the pleading stage, the court does not vouch for their accuracy. See Jay E. Hayden Found, v. First Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir. 2010).

         LifeWorks is an electronics and fitness accessory importer and wholesaler. Doc. 26 at ¶ 11. Between 2012 and 2016, Walgreen-which operates a large pharmacy store chain- ordered goods from LifeWorks to be sold at Walgreen's stores. Id. at ¶¶ 12-15. The terms governing the transactions were set forth in two contracts: the General Trade and Electronic Data Interchange Agreement ("GTA"), and the Business Terms Agreement ("BTA"). Id. at ¶ 15; Doc. 26-1 at 2-15; Doc. 35 at 1, 4, 7.

         The GTA provides that its terms, "together with all attachments and exhibits attached hereto, by and between Walgreen and Vendor [LifeWorks] sets forth the terms and conditions under which the parties agree to facilitate their purchase and sale transactions." Doc. 26-1 at 3. The GTA further provides that, with certain exceptions not relevant here, "[t]he terms and conditions contained [in the GTA] shall apply to all merchandise ... sold by Vendor [LifeWorks] ... to Walgreen." Ibid. The BTA sets forth several supplementary terms, including insurance requirements, limitations on the use of Walgreen's trademarks, and-as relevant here-an agreement that "all products sold to Walgreens" would be made on a "guaranteed sale" basis, which, under the GTA, enabled Walgreen to pay LifeWorks only after selling the goods to its retail customers. Id. at 3, 14. Additional terms of both contracts are referenced below in the Discussion section. Neither the GTA nor the BTA specifies a quantity of goods that Walgreen would or was required to order from LifeWorks.

         LifeWorks performed its obligations under the contracts, timely producing the ordered goods pursuant to certain forecasts made by Walgreen. Doc. 26 at ¶ 19. Walgreen provided those forecasts to LifeWorks long in advance of the required delivery date, and LifeWorks, in turn, relied on the forecasts to conform to Walgreen's requirements for timely production and delivery. Id. at ¶¶ 20, 25, 27.

         In July 2016, however, Walgreen cancelled its remaining orders, leaving LifeWorks with approximately 228, 045 unsold units worth approximately $534, 674. Id. at ¶¶ 49-50. In addition, Walgreen's cancellation meant that it would not pay for an as-yet-undetermined quantity of goods that LifeWorks expected to produce and import for sale at Walgreen's stores during the remainder of 2016. Id. at ¶¶ 45-50. LifeWorks estimates that those goods would have been valued at approximately $2 million. Id. at ¶ 50.

         Shortly after Walgreen's cancellation of its remaining orders, LifeWorks filed this suit. Doc. 1. After Walgreen moved for partial dismissal of the complaint, Doc. 18, LifeWorks filed an amended complaint, Doc. 26. The amended complaint has three counts. Count I alleges that Walgreen breached the parties' contracts by underpaying LifeWorks in the amount of $1, 285, 432.27 (plus interest), in part by taking $471, 685.18 in "unauthorized chargebacks and deductions." Id. at ¶¶ 51-55. Counts II and III allege that Walgreen breached the parties' contracts by canceling orders for goods that LifeWorks had either already produced or planned to produce in 2016. Id. at ¶¶ 56-66. Walgreen seeks dismissal only of Counts II and III.

         Discussion

         The GTA's choice of law provision points to Illinois law, Doc. 26-1 at 5, and, in any event, the parties agree that Illinois law governs, Doc. 28 at 3; Doc. 35 at 11, 13. The court therefore applies Illinois law. See Thomas v. Guardsmark, Inc., 381 F.3d 701, 704-05 (7th Cir. 2004) (noting that, "[i]n a diversity case, the federal court must apply the choice of law rules of the forum state to determine applicable substantive law, " and that "Illinois respects a contract's choice-of-law clause so long as the contract is valid and the law chosen is not contrary to Illinois's fundamental public policy").

         "The basic rules of contract interpretation under Illinois law are well settled. In construing a contract, the primary objective is to give effect to the intention of the parties." Right Field Rooftops, LLC v. Chi. Cubs Baseball Club, LLC, 870 F.3d 682, 689-90 (7th Cir. 2017). "A court must initially look to the language of a contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties' intent." Id. at 690 (quoting Gallagher v. Lenart, 874 N.E.2d 43, 58 (111. 2007)). "Moreover, because words derive their meaning from the context in which they are used, a contract must be construed as a whole, viewing each part in light of the others." Gallagher, 874 N.E.2d at 58. "If the words in the contract are clear and unambiguous, they must be given their plain, ordinary and popular meaning." Right Field Rooftops, 870 F.3d at 690 (quoting Cent. III. Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (111. 2004)). By contrast, "[i]f the language of the contract is susceptible to more than one meaning, it is ambiguous, " and in that event "a court may consider extrinsic evidence to ascertain the parties' intent." Gallagher, 874 N.E.2d at 58.

         Section C(2) of the GTA states:

Walgreen may return, at Vendor's expense, cancel a purchase order and receive a full refund for all merchandise in excess of that ordered or which is defective or tainted or which varies from the sample from which or specifications for which the purchase order was placed, or for Vendor's failure to comply with Walgreen's shipping or billing directions or with these terms including, without limitation, the representations and warranties contained herein. In addition to Walgreen's rights at law or in equity, Walgreen reserves the right to return at Vendor's expense any merchandise, cancel the purchase order and receive a full refund, where a claim is made that the use or resale of the merchandise by Walgreen infringes any alleged patent, trademark or copyright rights. In addition, if a purchase order is designated as a "Guaranteed Sale, " "Sale and Return, " "Sale or Return, " "Consignment, " "Pay on Scan, " or "Vendor Returnable" transaction, Walgreen shall not be obligated to pay for any merchandise until after it is sold by Walgreen in accordance with terms agreed upon by the parties. For purposes of this Agreement, the term "Pay on Scan" shall mean that Vendor shall retain title to the merchandise until Walgreen has sold such merchandise, and payment for such merchandise shall not be due ...

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