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Sunny Handicraft H.K. Ltd. v. Envision This, LLC

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

February 6, 2018

SUNNY HANDICRAFT H.K. LTD., AND BIN TEH HANDICRAFT SHENZEN CO., LTD., Plaintiffs,
v.
ENVISION THIS!, LLC, AND WALGREEN CO., Defendants.

          MEMORANDUM OPINION AND ORDER

          JOHN Z. LEE, UNITED STATES DISTRICT JUDGE.

         Plaintiffs Sunny Handicraft, Ltd., and Bin Teh Co., Ltd., (collectively “Sunny”) are Chinese companies that manufacture holiday decorations. Defendant Envision This!, LLC, (“Envision”) imports and distributes those decorations to retailers such as Defendant Walgreen, Co. (“Walgreens”). The Court presumes familiarity with earlier opinions in this case, which detail the breakdown of the companies' relationships. See Sunny Handicraft (H.K.) Ltd. v. Envision This!, LLC, No. 14 CV 1512, 2017 WL 1105400 (N.D. Ill. Mar. 24, 2017); Sunny Handicraft Ltd. v. Envision This!, LLC, No. 14 CV 1512, 2015 WL 5462054 (N.D. Ill. Sept. 16, 2015); Sunny Handicraft Ltd. v. Envision This!, LLC, No. 14 CV 1512, 2015 WL 231108 (N.D. Ill. Jan. 16, 2015).

         In anticipation of trial, the parties dispute whether Sunny's breach of fiduciary claim against Envision (Count VII) and unjust enrichment claims against Envision (Count IV) and Walgreens (Count II) should be tried before a jury or resolved by the Court. For the following reasons, the Court concludes that all three claims sound in equity and must be resolved by the Court.

         Legal Standard

         The right to trial by jury is determined by federal procedural law. Int'l Fin. Servs. Corp. v. Chromas Techs. Can., Inc., 356 F.3d 731, 735 (7th Cir. 2004). Fed.R.Civ.P. 38(a) dictates that there is a right to a jury trial where either the Seventh Amendment or a federal statute so requires. Id. Defendants have not pointed to any statutes supporting a right to trial by jury here. As a result, the Court must determine whether the claims at issue are legal or equitable. If a claim is legal in nature, it qualifies as a “Suit at common law” to which “the right of trial shall be preserved” under the Seventh Amendment. Lebow v. Am. Trans Air, Inc., 86 F.3d 661, 668 (7th Cir. 1996). On the other hand, if a claim is equitable in nature, its resolution is for the Court.

         This analysis proceeds in two parts. First, the Court must “compare the action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity.” Id. (internal quotation marks and ellipsis omitted) (citing Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565 (1990)). The second step requires the Court to “examine the remedy sought and determine[s] whether it is legal or equitable in nature.” Id. The second step is the more important of the two. Chauffeurs, 494 U.S. at 565.

         Analysis

         I. Plaintiffs' Breach of Fiduciary Duty Claim

         In its breach of fiduciary duty claim, Sunny contends that Envision served as Sunny's agent and owed Sunny fiduciary duties of loyalty and good faith and that Envision breached these duties by, inter alia, failing to forward to Sunny payments made by Walgreens for certain goods produced and delivered to Walgreens by Sunny. 3d Am. Compl. ¶¶ 110-14. Envision asserts that the claim is entitled to trial by jury, Defs.' Supp. Mem. at 3-4, ECF No. 243; Sunny argues that it is equitable and should be resolved by the Court, Pls.' Resp. to Court Order at 3-4, ECF No. 244.

         “Historically courts have considered a claim for breach of fiduciary duty to be a matter for courts of equity.” George v. Kraft Foods Glob., Inc., No. 07 C 1713, 2008 WL 780629, at *3 (N.D. Ill. Mar. 20, 2008); see also Client Funding Sols. Corp. v. Crim, 856 (N.D. Ill. 2013) (“There is no dispute that actions for breach of fiduciary duty historically were considered equitable.”); Ed Peters Jewelry Co., Inc. v. C & J Jewelry Co., Inc., 215 F.3d 182, 186 (1st Cir. 2000) (“Actions for breach of fiduciary duty, historically speaking, are almost uniformly actions ‘in equity'-carrying with them no right to trial by jury.” (internal quotation marks and citations omitted)).

         That said, Defendants argue that, because Sunny seeks money damages, the remedy is purely legal in nature. Defs.' Supp. Mem. at 3-4. But the mere fact that Sunny is seeking money damages is not dispositive, for even claims seeking money damages are “equitable where they are restitutionary, such as in action[s] for disgorgement of improper profits.” Chauffeurs, 494 U.S. at 570. “[T]he fact that disgorgement involves a claim for money does not detract from its equitable nature: in such an action, ‘the court is not awarding damages to which plaintiff is legally entitled but is exercising the chancellor's discretion to prevent unjust enrichment.'” S.E.C. v. Rind, 991 F.2d 1486, 1493 (9th Cir. 1993) (quoting S.E.C. v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d Cir. 1978)).

         Sunny's breach of fiduciary duty claim against Envision seeks disgorgement of funds Envision received from Walgreens, which Sunny contends Envision unjustly retained. Such a remedy is equitable. See Chauffeurs, 494 U.S. at 570. But there is yet another wrinkle.

         Here, Sunny also seeks punitive damages, 3d Am. Compl. ¶ 114, and this complicates matters, as “[p]unitive damages have traditionally been viewed as a legal remedy that must be imposed by a jury.” Lebow v. Am. Trans Air, Inc., 86 F.3d 661, 669 (7th Cir. 1996).

         In Client Funding Sols. Corp. v. Crim, a court in this district encountered precisely this situation-a breach of fiduciary duty claim sounding in equity, together with an equitable request for relief, a legal request for compensatory damages, and a legal request for punitive damages. Crim, 943 F.Supp.2d at 857-58. Noting that the dual nature of the relief “presents a challenging question, ” the court concluded after thoughtful analysis that, because the first prong of the test indicated ...


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