Opinion
No. 03 C 9390.
April 30, 2004
ORDER
In this diversity action, Jolly Group, Ltd. ("Jolly") sues Medline Industries, Inc. ("Medline") for breach of contract. Medline moves to dismiss Jolly's amended complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6).
The following facts are taken from Jolly's amended complaint. In February 2003, Medline and Jolly representatives met to discuss the licensing and marketing of Jolly's patented bandages by Medline. Am. Compl. at ¶ 6. On March 4, Medline proposed that it market and manufacture the bandages in exchange for a royalty of $.20 per box sold. Id. at ¶ 6-7. Medline's proposal stated it had "no legal bearing until we draw up a contract." Id. During the next three months, Jolly and Medline representatives discussed contractual terms. Id. at ¶ 8. At the end of April, Don Malin, Medline's vice president of retail sales, informed Jolly that Medline's lawyers were working on the contracts as its president agreed to the transaction. Id. On May 7, Malin forwarded a contract to a Jolly representative that included essential terms of the parties' oral agreement including price per box and agreement duration. Id. at ¶ 9. In his email, Malin stated "[p]lease take a look at this contract and give me your thoughts. I tried to keep it as simple as possible." Pl.'s Opp. Mem. Ex. E. On May 18, Malin signed the contract on behalf of Medline. Am. Compl. ¶ 9, Ex. C. The contract was not signed by any Jolly representative. Am. Compl. Ex. C. Instead, Jolly requested modifications to the contract, resulting in continued negotiations regarding contractual language. Id. at ¶¶ 10-11. Malin then sent Jolly another contract — a red-lined version of a contract drafted by Jolly — incorporating "modifications . . . agreed to by both of the parties." Id. at ¶ 12. Neither party signed this version. Am. Compl. Ex. D. Instead, Jolly requested additional modifications "that it incorporated into another contract." Id. at ¶ 13; Def. Mem. Ex. B. Medline rejected the requested modifications. Id. Ultimately, Medline did not market Jolly's bandages. Id. at ¶ 18. Jolly sues for breach of contract, claiming that Medline is in breach because "a valid, binding and enforceable contract was entered . . . on May 18" and "a valid, binding, and enforceable modified contract was thereafter entered." Id. at ¶ 17.
A motion to dismiss tests the sufficiency of the complaint, not its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In ruling on a motion to dismiss, the court considers "whether relief is possible under any set of facts that could be established consistent with the allegations." Pokuta v. Trans World Airlines, Inc., 191 F.3d 834, 839 (7th Cir. 1999), citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Jolly's claim may be dismissed only if there are no sets of facts that would entitle it to relief based on the allegations in the amended complaint. Conley, 355 U.S. at 45-46. However, Jolly can plead itself out of court by asserting facts that undermine the allegations set forth in the amended complaint. McCormick v. City of Chicago, 230 F.3d 319, 325 (7th Cir. 2000).
Medline argues that the amended complaint must be dismissed because Jolly fails to allege a valid and enforceable contract. Specifically, Medline contends dismissal is warranted because Jolly admits it requested modifications to both of its purported written contractual offers. Venture Associates Corp. v. Zenith Data Systems, Corp., 987 F.2d 429, 432 (7th Cir. 1993) (no contract formed because offer deemed rejected when party proposes modifications, as opposed to accepting exact terms). In response, Jolly argues that the parties' inability to "agree on the language of the ultimate written contract" is irrelevant because the parties had already reached an oral contract. Pl.'s Opp. Mem. at 2. Jolly quotes Ebert v. Dr. Scholl's Foot Comfort Shops, Inc., 484 N.E.2d 1178, 1185 (1st Dist. 1985) for the proposition that "[p]rior agreements are not necessarily mere negotiations where it is clear that the ultimate contract will be based on terms substantially similar to those in the previous agreement." Jolly's argument is flawed.
The amended complaint shows that the purported oral contract is not binding as a matter of law. Specifically, Jolly acknowledges that Medline's proposal was to have "no legal bearing until we draw up a contract." Am. Compl. ¶ 7. See also Pl.'s Opp. Mem. at 3 ("The parties intended, however, that this agreement was not to be binding until a contract was drawn"). Under Illinois law, this statement constitutes a condition precedent to the formation of a binding contract. See, e.g., Brunette v. Vulcan Materials Co., 256 N.E.2d 44, 46 (Ill.App. 1st Dist. 1970) (parties' statement that the "need for the drafting of an acceptable contract" constituted condition precedent precluding formation of contract "even if the actual terms ha[d] been agreed upon"). Accordingly, the parties' subsequent oral agreement is not binding as a matter of law because the unambiguous condition precedent was not satisfied. Interway, Inc. v. Alagna, 85 Ill. App.3d 1094, 1097-98 (1st Dist. 1980) (determination of whether the parties' oral agreement is binding is a question of law for the court where the parties' intent is unambiguous). No contract was completely drawn, thereby precluding formation of a binding contract. Jolly rejected each contract drawn up by Medline. Am. Compl. ¶¶ 10, 13.
Even assuming the parties intended oral negotiations to be binding, an oral contract would be unenforceable due to its five year term. Illinois' statute of frauds provides:
No action shall be brought upon any agreement that is not to be performed within the space of one year from the making thereof, unless the promise or agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized.740 ILCS 80/1 (West 2004). "A writing relied upon to satisfy the requirements of the Frauds Act must itself show the existence of a contract and its terms and conditions." Storm Associates, Ltd. v. Cuculich, 700 N.E.2d 202, 209 (1st Dist. 1998). See also Hartke v. Conn, 429 N.E.2d 885, 889 (Ill.App. 3rd Dist. 1981) ("[it] is required . . . that these writings shall so clearly evidence the fact that a contract was made, and what are its terms, that there is no serious possibility that the assertion of the contract is false") (internal quotation omitted). The writings relied upon by Jolly — the initial draft contract Malin signed on May 18 and the subsequent, red-lined modified contract — belie the existence of a contract and its terms and conditions. Am. Compl. Ex. C, D. Indeed, the writings reveal an obvious disagreement about the contract's essential terms and conditions. See, e.g., Am. Compl. ¶ 10 ("Jolly requested some modifications); ¶ 13 ("Although Jolly requested that the contract be modified by the addition of certain other clarifying terms . . . those proposed modifications were not accepted by Medline"); Ex. B ¶ 3 ("Medline shall pay Jolly . . . a royalty of $0.22 per box of net shipments less returns"), Ex. D. ¶ 3 ("Medline shall pay Jolly . . . a royalty of $0.25 . . . per box of bandages net sale shipments less returns"), Ex. D. ¶ 4c ("From ongoing conversations with Medline a figure of 2,000,000 boxes of Sports Shield Brand Bandages was a low estimate of projected annual sales. Jolly is requesting ½ of this estimated amount 1,000,000 (one Million) boxes as a minimum royalty payment per year"). The writings are deficient under the Statute of Frauds. Jolly's proposed amendment to its amended complaint does not change this result. The proffered e-mails buttress the parties' disagreement about essential terms and conditions of the contract. See, e.g., Pl's Opp. Mem. Ex. G ("your attachment . . . is actually a Jolly redline . . . which we rejected. . . . There is no contract"); Ex. F ("[a]ttached is the contract that we agreed upon, correct? . . . Richard called me and stated that it wasn't").
As Medline correctly points out, Jolly's preparation of "a mockup and sample of the bandage packaging and concept book" and design of "sales display ads" are not sufficient to allege the partial performance exception to the Statute of Frauds. Genin, Trudeau Co., Ltd. v. Integra Development Int'l, 845 F. Supp. 611, 619 (N.D. Ill. 1994) ("mere acts of preparation to perform are not partial performance of a contract"). Jolly's amended complaint must be dismissed.