Loggerhead Tools, LLC v. Sears Holding Corp.

Citations: 19 F. Supp. 3d 775; 2013 WL 5951832; 2013 U.S. Dist. LEXIS 159337Docket: Case No. 12-CV-09033

Court: District Court, N.D. Illinois; November 5, 2013; Federal District Court

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LoggerHead Tools, LLC filed a lawsuit against Sears Holding Corporation on November 9, 2012, alleging eight separate counts, including claims of common law fraud, tortious interference, and unjust enrichment. On May 1, 2013, the court dismissed three of these counts without prejudice, allowing LoggerHead to amend its complaint. LoggerHead submitted an Amended Complaint on May 31, 2013, which included twelve counts against Sears, four against Apex Tool Group, LLC (a new defendant), and a joint civil conspiracy count against both Sears and Apex. Sears and Apex subsequently filed motions to dismiss several counts of the Amended Complaint, with Apex also seeking to strike specific paragraphs as irrelevant or scandalous.

LoggerHead is based in Illinois, while Sears is incorporated in Delaware and operates from Illinois. Apex, a supplier of tools to Sears, is located in Maryland. The lawsuit centers around the Bionic Wrench, invented by Daniel Brown, who holds two patents assigned to LoggerHead. The tool is designed to prevent slipping and allows users to work with various sizes of nuts and bolts. LoggerHead sells the Bionic Wrench through various retailers, including Sears, which significantly increased its purchases from LoggerHead over three years. In late 2011 and early 2012, Sears expressed intentions to enter a supply agreement and projected significant purchases of the Bionic Wrench, making representations that they would buy at least 300,000 units in 2012. These discussions included commitments from Sears’s employees, leading to LoggerHead's reliance on these representations.

On February 10, 2012, Sears issued purchase orders for 73,000 Bionic Wrenches for Father's Day, and LoggerHead worked to fulfill the order despite not having a signed supply agreement. Both companies engaged in producing advertising for the product, and sales met or exceeded forecasts. On March 6, 2012, LoggerHead sent a draft 2012 Supply Agreement proposing 300,000 units for the year, followed by revisions based on Sears's requests. Throughout this period, LoggerHead confirmed it was not selling the Bionic Wrench to competing retailers, such as Home Depot and Lowe's.

In May 2012, Sears projected a Christmas forecast of 213,519 units, prompting LoggerHead to prepare for increased production. However, this forecast was drastically reduced to 2,971 units by June 20, 2012, which surprised LoggerHead. Sears attributed the reduction to issues with a holiday TV ad campaign, a claim LoggerHead contended was false. The last communication regarding the 2012 purchases occurred on July 19, 2012. Subsequently, in September 2012, Sears launched a competing product, the Craftsman 'Max Axess Locking Wrench,' which LoggerHead alleged was a copy of the Bionic Wrench, created in collaboration with Apex.

LoggerHead claimed that Sears's failure to disclose its partnership with Apex led to significant losses in sales and profits. Additionally, it accused Sears of infringing on its registered trademark for the Bionic Wrench. LoggerHead alleged a conspiracy between Sears and Apex to infringe on its patents. Apex had previously filed a declaratory judgment action regarding the validity of LoggerHead's patents, which was dismissed.

LoggerHead initiated legal action against Sears on November 9, 2012. On May 1, 2013, the court granted Sears's motion to dismiss several counts from LoggerHead's original complaint, including claims of common law fraud and tortious interference, allowing LoggerHead to amend its complaint by May 31, 2013. LoggerHead subsequently filed an amended complaint that included Apex as a defendant and asserted seventeen claims. Sears then moved to dismiss additional claims of fraud and conspiracy, alleging they failed to state a claim under relevant procedural rules.

Apex has filed a Motion to Dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6) to dismiss Counts XV, XVI, and XVII of LoggerHead’s Amended Complaint, which involve claims of tortious interference, aiding and abetting wrongful acts, and civil conspiracy. Additionally, Apex seeks to strike specific paragraphs of the complaint as immaterial, impertinent, and scandalous.

In evaluating the complaint, courts must view it favorably for the nonmoving party, accepting well-pleaded facts as true and drawing all reasonable inferences in their favor. To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must present sufficient factual matter to establish a claim that is "plausible on its face." For allegations of fraud under Rule 9(b), plaintiffs must provide particular details about the alleged fraudulent conduct, including the who, what, when, where, and how.

The analysis of LoggerHead's claims reveals that Counts XI and XII assert common law fraud, which under Illinois law requires allegations of a false statement of material fact, knowledge of its falsehood, intent to induce reliance, and resulting injury. LoggerHead's previous fraud claim against Sears was dismissed due to insufficient allegations of reliance or damages, specifically regarding reliance on Sears's statements about future events. 

In the Amended Complaint, LoggerHead adds details about Sears's alleged fraudulent concealment related to the development of its Craftsman wrench. LoggerHead claims to have relied on Sears's omissions of material facts, including its plan to launch the Craftsman wrench, and argues that Sears's negotiations were a sham aimed at preventing LoggerHead from selling to competitors. Despite no purchase order or signed agreement, Sears provided LoggerHead with forecasts that were adjusted when it decided not to sell LoggerHead's product in favor of its own.

The Amended Complaint alleges that LoggerHead reasonably relied on ongoing negotiations with Sears, asserting sufficient factual material to support claims of fraudulent concealment and common law fraud. To establish fraudulent concealment, a plaintiff must demonstrate that the defendant intentionally omitted or concealed a material fact that it was obligated to disclose, which arises in fiduciary or confidential relationships or situations of trust. LoggerHead claims such a duty existed, arguing that Sears, as a primary vendor, was in a position of influence and superiority, impacting LoggerHead's negotiations with competitors like Home Depot and Lowe's. The complaint states that LoggerHead suffered injury by forgoing solicitation of these competitors due to reliance on Sears’s statements, and by the time LoggerHead realized it had no arrangement with Sears, it lacked sufficient time to engage with other vendors.

Additionally, LoggerHead's Count XIII asserts a claim of promissory fraud, which in Illinois requires proof of a fraudulent scheme involving unfulfilled promises. LoggerHead contends that Sears's false promises and ongoing negotiations were part of a scheme to defraud, arguing that Sears's actions went beyond mere projections and included secretly developing its own wrench to hinder LoggerHead's sales opportunities. The court finds LoggerHead's allegations of promissory fraud to be facially plausible, thus denying Sears’s Motion to Dismiss Counts XI, XII, and XIII of the Amended Complaint.

Count XVII of the Amended Complaint alleges civil conspiracy against Sears and Apex, with both defendants moving to dismiss the claim. Under Illinois law, a civil conspiracy requires proof of an agreement between two or more parties to achieve an unlawful purpose or a lawful purpose through unlawful means, along with at least one tortious act by a co-conspirator that causes injury to the plaintiff. LoggerHead claims Sears and Apex conspired to infringe on its Bionic Wrench patents and fraudulently maximize sales of the Max Axess Locking Wrench. However, Apex argues there are no factual allegations that it entered into an agreement with Sears for an unlawful purpose. The court finds that LoggerHead's allegations are conclusory and lack the factual specificity required to support a conspiracy claim, particularly since a conspiracy involving fraud must be pled with particularity. Additionally, the civil conspiracy claim is deemed duplicative of the underlying fraud claim already asserted by LoggerHead. Consequently, Count XVII is dismissed.

Count XV asserts tortious interference with business relations against Apex, claiming it knowingly interfered with LoggerHead's relationship with Sears. To establish this claim in Illinois, the plaintiff must show a reasonable expectation of a business relationship, the defendant's awareness of that expectation, purposeful prevention of the relationship's development, and resulting harm. LoggerHead fails to provide facts indicating that Apex was aware of its negotiations with Sears, relying instead on publicly available information. LoggerHead also does not demonstrate that Apex’s existing relationship with Sears was targeted at interfering with LoggerHead's business. As a result, Count XV is dismissed for failing to state a claim.

Count XVI of the Amended Complaint claims that Apex aided and abetted wrongful acts by Sears, including fraud and unfair competition. To establish aiding and abetting under Illinois law, the plaintiff must show that: 1) a wrongful act was performed by the party aided, causing injury; 2) the defendant was aware of their role in providing assistance; and 3) the defendant knowingly and substantially assisted in the wrongful act. LoggerHead's allegations against Apex consist of conclusory statements without supporting facts, specifically only asserting Apex's involvement in Sears's intention to cease purchasing the Bionic Wrench. Consequently, Count XVI is dismissed for failure to state a claim under Rule 12(b)(6).

Apex also filed a motion to strike certain paragraphs from the Amended Complaint, arguing they are immaterial and impertinent. The court agrees, granting the motion to strike paragraphs 75 and 83-89, which include irrelevant historical lawsuits against Sears and details about Bain Capital's relationship with Apex.

In conclusion, the court grants Sears's motion to dismiss Count XVII (civil conspiracy) against both Sears and Apex, with prejudice. Apex's motions to dismiss Counts XV (tortious interference) and XVI (aiding and abetting) are granted, allowing LoggerHead the opportunity to replead these claims within 30 days. LoggerHead's Amended Complaint includes thirteen counts against Sears, with an agreement to merge claims of common law fraud and fraud in the inducement into a single count. Sears's argument against the addition of certain claims is denied, as LoggerHead's consolidation of fraud claims allows for this analysis to apply to both Counts XI and XII.