Lifeworks Tech. Grp. LLC v. Walgreen Co.
Lifeworks Tech. Grp. LLC v. Walgreen Co.
Opinion of the Court
LifeWorks Technology Group LLC alleges in this diversity suit that Walgreen *885Co. 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 ,
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 *886estimates 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. ,
"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 ,
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 *887on 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 and owing by Walgreen to Vendor until after such time, as is agreed upon by the parties. In addition, Walgreen shall have the unrestricted right to rescind its purchase of the merchandise from Vendor both before and after acceptance of such merchandise by Walgreen .....
Doc. 26-1 at 3 (emphasis added). Walgreen contends that the highlighted sentence that includes and follows the third "In addition"-which will be called the rescission provision-unambiguously allowed it to cancel its outstanding orders from LifeWorks, regardless of whether the goods had already been produced. Doc. 28 at 11-13. LifeWorks responds that the rescission provision applies only to "Pay on Scan" goods; if that is right, then the provision does not apply here, as it is undisputed that, pursuant to the BTA, the goods that LifeWorks contracted to sell to Walgreen were "Guaranteed Sale" goods, not "Pay on Scan" goods. Doc. 26-1 at 14; Doc. 28 at 3, 11; Doc. 35 at 4, 11-12; Doc. 36 at 3. LifeWorks adds that accepting Walgreen's reading of the rescission provision would improperly render superfluous both the first sentence of Section C(2)-which will be called the return provision-and the BTA. Doc. 35 at 11.
Walgreen's interpretation prevails, for understood in the context of the contracts as a whole, the rescission provision unambiguously contemplates a cancellation like the one Walgreen implemented here. Read most naturally, that provision-which, as noted, grants Walgreen an "unrestricted right to rescind its purchase of the merchandise from Vendor"-sets forth a standalone right to rescind, without prior notice, the purchase of any merchandise covered by the GTA. See Allergease, Inc. v. Walgreen Co. ,
Section C(2) uses the phrase "in addition" three times. Each "in addition" introduces what is, in effect, a different subsection in Section C(2) designed to deal with a discrete scenario. The text preceding the first "in addition" establishes the first substantive right granted in Section C(2), permitting Walgreen to return defective, excess, or nonconforming goods at LifeWorks's expense. The text following the first "in addition" and preceding the second "in addition" concerns an entirely different situation: Walgreen's right to return merchandise at LifeWorks's expense "where a claim is made that the use or resale of the merchandise by Walgreen infringes" a non-party's intellectual property rights. The text following the second "in addition" and preceding the third "in addition"-which will be called the designated purchase order provision-addresses still a third scenario, stating that, for "Guaranteed Sale," "Pay on Scan," and four other categories of purchase orders, Walgreen "shall not be obligated to pay *888for any merchandise until after it is sold by Walgreen."
The text following the third "in addition" is the rescission provision. Here, too, the phrase "[i]n addition" serves, much like a subheading, to set off the rescission provision from the text following the second "in addition." Consequently, the third "in addition," much like the term "moreover" would have done, indicates that what follows is a separate and independent right granted by the GTA-the absolute right to rescind a purchase order. See XPO Logistics Worldwide Gov't Servs., LLC v. United States ,
Pressing the opposite view, LifeWorks argues that the rescission provision's placement immediately after Section C(2)'s definition of "Pay on Scan" goods means that the rescission provision is limited to "Pay on Scan" goods. Doc. 35 at 11. Even putting aside its incompatibility with Section C(2)'s use of "In addition" to effectively create and set off different subsections, LifeWorks's argument cannot be reconciled with other aspects of Section C(2)'s text.
Section C(2) defines "Pay on Scan" to "mean that Vendor [LifeWorks] shall retain title to the merchandise until Walgreen has sold such merchandise, and payment for such merchandise shall not be due and owing by Walgreen to Vendor [LifeWorks] until after such time, as is agreed upon by the parties." Given that definition, it would be odd, if not nonsensical, for the rescission provision to be limited to "Pay on Scan" goods. After all, if LifeWorks retained title to "Pay on Scan" merchandise until Walgreen sold it to a Walgreen's customer, rescission of Walgreen's purchase of that merchandise would be unnecessary, if not impossible, because there would be no purchase from LifeWorks to unwind until after a Walgreen's customer bought the merchandise, at which point rescission would involve taking that nonparty customer's property and declaring the purchase void. See Chi. Limousine Serv., Inc. v. Hartigan Cadillac, Inc. ,
*889Settled principles of contract interpretation counsel against such an interpretation. See BKCAP, LLC v. CAPTEC Franchise Tr. 2000-1 ,
This conclusion is confirmed by the internal structure of two key sentences of Section C(2). The sentence defining "Pay on Scan" goods states that "the term 'Pay on Scan' shall mean that Vendor [LifeWorks] shall retain title to the merchandise until Walgreen has sold such merchandise , and payment for such merchandise shall not be due and owing by Walgreen to vendor until after such time, as is agreed by upon by the parties" (emphasis added). Note that when the sentence first refers to the designated category ("Pay on Scan") of merchandise, it uses the phrase "the merchandise," while subsequent references to that category are to "such merchandise." Similarly, after establishing Walgreen's "unrestricted right to rescind its purchase of the merchandise from Vendor," the rescission provision proceeds to say "both before and after acceptance of such merchandise by Walgreen." If the rescission provision governed only "Pay on Scan" goods, it would have provided for the "right to rescind [Walgreen's] purchase of such merchandise," thereby referring back to the "Pay on Scan" merchandise defined in the previous sentence. Instead, the rescission provision refers at the outset to "the merchandise," thereby connoting that the provision is no longer referring, and is not limited, to "Pay on Scan" goods.
LifeWorks also contends that Walgreen's reading of the rescission provision renders superfluous Section C(2)'s return provision-the text preceding the first "In addition"-which allows Walgreen to "return" or "cancel" excess, defective, or nonconforming merchandise "at Vendor's expense." There is no superfluity. The return provision states that Walgreen may return merchandise if LifeWorks sends excess, defective, or nonconforming goods; under those circumstances, LifeWorks bears the expense of returning the merchandise. The rescission provision, by contrast, states that Walgreen may rescind the purchase of merchandise for any reason, "both before and after acceptance of such merchandise by Walgreen"; under those circumstances, naturally, Walgreen bears the cost of returning the merchandise. Because they address different situations and allocate costs differently, the two provisions are not superfluous. See Curia v. Nelson ,
LifeWorks next argues that Walgreen's interpretation of the rescission provision renders superfluous the BTA when read together with the Guaranteed Sale portion of the designated purchase order provision, *890reasoning that "Walgreens would not require a separate document [the BTA] to discuss guaranteed sales if the GTA provided for an absolute right of return." Doc. 35 at 11. LifeWorks's argument has some force. Because the parties agreed under the BTA that all merchandise that LifeWorks produced for Walgreen would be sold on a "Guaranteed Sale" basis, it is not clear why Walgreen needed the additional benefit of the rescission provision. As noted, the designated purchase order provision states that if a "purchase order is designated as a 'Guaranteed Sale' ... 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." Thus, the argument goes, the designated purchase order provision already releases Walgreen from the obligation to pay LifeWorks for any goods that it did not sell.
Even if there may be overlap between the designated purchase order provision and the rescission provision, that overlap does not undermine Walgreen's reading of Section C(2) by creating a fatal redundancy. See In re Kazmierczak ,
LifeWorks also contends that Section 5(a) of Exhibit 1 of the GTA required Walgreen to give thirty days' notice of its decision to terminate its obligations under the GTA. Doc. 35 at 13; see Doc. 26-1 at 8 ("This Agreement shall remain in effect until terminated by either party on thirty (30) days' prior written notice ...."). But the operative complaint does not allege that Walgreen failed to provide such notice, Doc. 26, and so whether Walgreen complied with the thirty-day notice provision is not at issue in this case.
Finally, LifeWorks contends that the parties' prior course of dealing is relevant to whether Walgreen's cancellation was contemplated by the rescission provision. Doc. 35 at 7-8. To support this argument, LifeWorks points to Section 4(c) of Exhibit 1 of the GTA, which provides that "the conduct of the parties pursuant to this Agreement ... shall, for all legal purposes, evidence a course of dealing and a course of performance accepted by the parties in furtherance of this Agreement ...." Doc. 26-1 at 8. But Illinois law clearly provides that the parties' course of dealing cannot contradict a contract's express terms. See *891Echo, Inc. v. Whitson Co. ,
The cases cited by LifeWorks, Doc. 35 at 8-9, are not to the contrary. In K'sMerchandise Mart, Inc. v. Northgate L.P. ,
Conclusion
For the foregoing reasons, Walgreen's partial motion to dismiss is granted. Counts II and III of the operative complaint are dismissed. Because the defects in those counts are incurable, see Gonzalez-Koeneke v. West ,
Reference
- Full Case Name
- LIFEWORKS TECHNOLOGY GROUP LLC v. WALGREEN CO.
- Cited By
- 2 cases
- Status
- Published