Opinion
02 C 3293.
September 1, 2004
MEMORANDUM OPINION AND ORDER
Telewizja Polska USA, Inc. ("Polska") has sued EchoStar Satellite Corp. ("EchoStar") for breach of contract (Count I) or, in the alternative, for unjust enrichment (Count II). Defendant EchoStar raised fifteen affirmative defenses and four counterclaims. Before the Court is Polska's motion to strike EchoStar's affirmative defenses pursuant to Federal Rule of Civil Procedure ("Rule") 12(f) and to dismiss EchoStar's four counterclaims pursuant to Rule 12(b)(6). Polska later moved to withdraw its motion to strike as to eight of the affirmative defenses. In a Minute Order of 7/1/04, the Court granted the motion to withdraw in part as to the Second through Fourth, Sixth, and Seventh Affirmative Defenses and asked for further briefing as to the Eighth through Tenth Affirmative Defenses. For the reasons provided in this Memorandum Opinion and Order, the Court grants Polska's motion to strike EchoStar's Eighth, Ninth, Tenth, Twelfth, Thirteenth, and Fifteenth Affirmative Defenses, grants the motion to dismiss EchoStar's Third and Fourth Counterclaims, and denies the motion as to all other defenses and counterclaims. Accordingly, the Court denies Polska's motion to withdraw its motion to strike the Eighth through Tenth Affirmative Defenses.
BACKGROUND
Polska is a Delaware corporation engaged in the distribution of Polish language television and radio programming for the public, with its principal place of business in Illinois. (Am. Compl. ¶ 1.) EchoStar is a Colorado corporation that operates a Direct Broadcast Satellite service under the trade name "Dish Network." (Second Am. Answer Pt. III ¶¶ 1-3.) On or about April 30, 1998, EchoStar and Polska entered into an Affiliation Agreement ("Agreement") for Polska to provide Polish language television programming ("Programming Service") to EchoStar. ( Id. Pt. III ¶ 6.) Pursuant to the Agreement, Polska granted EchoStar a license to sell subscriptions for Polska's Programming Service. (Agreement ¶ 1.2.1.) The Agreement provides for a "Shared Revenue Arrangement," in which Polska is entitled to thirty percent of the first $199,800.00 paid to EchoStar by subscribers for Polska's Programming Service, and fifty percent thereafter. ( Id. ¶ 3.1.1.) Polska's portion of the shared revenue for a given month was to be paid within thirty days of the end of the month. ( Id. ¶ 3.2.) The Agreement also provided that within thirty days after the end of each month, EchoStar must report to Polska the total number of subscribers as of the last day of the billing cycle of the immediately preceding month. ( Id. ¶ 4.1.) The Agreement was for a contract term of three years, ending on April 30, 2001. (Second Am. Answer Pt. III ¶ 7.) Paragraph Two of the Agreement entitled "TERM" provides that:
upon the expiration or earlier termination of the Agreement, if EchoStar has already launched the Programming Service on its Satellite, it shall continue to provide EchoStar the Programming Service under the terms and conditions outlined herein for a period of time that is the shorter of twelve (12) months or that number of months necessary for EchoStar to provide the Programming Service to service Subscribers who bought a multi-month subscription to the Programming Service prior to the receipt by EchoStar of notice of termination of the Agreement.
(Agreement ¶ 2.) Polska continued to provide EchoStar its Programming Service for sale to EchoStar's T.V. Polonia customers through April 30, 2002. (Am. Compl. ¶ 13.) EchoStar continued to broadcast the Programming Service until May 2002. (Second Am. Answer Pt. III ¶ 15.)
Polska alleges that EchoStar breached the Agreement in the following ways: (1) by failing to pay Polska any subscription revenue subsequent to December 2001; (2) by failing to report subscriptions sold after April 30, 2001 and the revenue derived from them; (3) by refusing Polska's request for an audit as provided in the Agreement; (4) by broadcasting another Polish language Programming Service in violation of the one-year exclusivity granted to Polska in the Agreement; (5) by failing to return Polska's receivers as provided in the Agreement; (6) by failing to include access and service fees charged to subscribers in the calculation of shared revenue; and (7) by paying less than the agreed percentages for shared revenue. (Am. Compl. ¶ 14.) In the alternative, Polska alleges that EchoStar has been unjustly enriched by its wrongful conduct to Polska's detriment. ( Id. Count II ¶ 15.)
In Polska's supplemental brief in support of its motion to withdraw objections to EchoStar's Eighth through Tenth Affirmative Defenses, Polska also contends that EchoStar was without authority to sell new subscriptions after April 30, 2001. Because the Eighth through Tenth Defenses are stricken on grounds other than materiality or relevancy, the Court need not address whether Polska may amend its pleading, which is the subject of a separate motion, for purposes of this ruling.
EchoStar raises the following affirmative defenses: (1) statute of frauds; (2) Polska waived any rights by its actions; (3) laches; (4) estoppel; (5) statute of limitations; (6) Polska ratified EchoStar's alleged conduct; (7) failure to mitigate damages; (8) Polska's claims are barred by applicable agreements and/or law; (9) unclean hands; (10) assumption of risk; (11) Polska accepted payment from EchoStar; (12) to the extent that Polska seeks damages that may be considered a penalty, such claims are unenforceable; (13) the parties' rights and obligations were ambiguous; (14) mistake of fact; and (15) rescission. (Second Am. Answer at 7-11.) EchoStar also makes the following counterclaims: (1) Polska made false and defamatory statements about EchoStar to EchoStar's customers and potential customers and to other programmers who had negotiated with EchoStar; (2) Polska tortiously interfered with EchoStar's prospective economic advantage by making false and misleading statements to individuals with whom Polska knew that EchoStar had reasonable expectation of entering into a business relationship; (3) Polska committed trade libel or product disparagement by making false statements and allegations about the Dish Network service with the intent to cause injury to EchoStar; and (4) Polska violated the Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. § 510/1-7 (2004), by its unauthorized use of the name "Dish Network" to make false and misleading statements that have substantially harmed EchoStar. ( Id. Pt. III ¶¶ 25-53.)
DISCUSSION
A. Polska's Motion to Strike EchoStar's Affirmative Defenses
In a motion to strike pursuant to Rule 12(f), "the court may order stricken from the pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." FED. R. CIV. P. 12(f). Courts in this district, following Bobbitt v. Victorian House, Inc., have traditionally used a three-part inquiry when examining affirmative defenses subject to a motion to strike: (1) whether the matter is appropriately pleaded as a defense; (2) whether it is adequately pleaded under the requirements of Rules 8 and 9; and (3) whether it meets the standard for Rule 12(b)(6) motions. 532 F. Supp. 734, 737 (N.D. Ill. 1982); see Ocean Atl. Woodland Corp. v. DRH Cambridge Homes, Inc., No. 02 C 2523, 2003 WL 1720073, at *2 (N.D. Ill. Mar. 31, 2003); H.R.R. Zimmerman Co. v. Tecumseh Prods. Co., No. 99 C 5437, 2002 WL 31018302, at *2-3 (N.D. Ill. Sep. 9, 2002); Ocean Atl. Dev. Corp. v. Willow Tree Farm, L.L.C., No. 01 C 5014, 2002 WL 485387, at *2-3 (N.D. Ill. Mar. 29, 2002).
However, motions to strike defenses are disfavored and are not ordinarily granted. Lirtzman v. Spiegel, Inc., 493 F. Supp. 1029, 1031 (N.D. Ill. 1980). A defense will be stricken only if it is insufficient on the face of the pleadings. Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989). A movant bears the burden of demonstrating that the challenged allegations are so unrelated to plaintiff's claim as to be devoid of merit, unworthy of consideration and unduly prejudicial. Ocean Atl. Woodland Corp., 2003 WL 1720073, at *2. The pleadings under consideration in a motion to strike must be viewed in the light most favorable to the pleader. Lirtzman, 493 F. Supp. at 1031 n. 1. Where both parties have failed adequately to address substantive legal questions underlying the motion to strike, a defense that is at least pertinent and material will be allowed to stand Donovan v. Robbins, 99 F.R.D. 593, 596 (N.D. Ill. 1983).
Polska correctly points out that the Tenth Affirmative Defense, assumption of risk, is an improper defense to a breach of contract complaint. (Mot. Strike Affirmative Defenses ¶ 2.) Assumption of risk is a defense to negligence, and cannot be asserted as a defense to breach of contract or intentional torts. Chamberlain Mfg. Corp. v. Maremont Corp., No. 90 C 7127, 1993 WL 535420, at *6 (N.D. Ill. Dec. 19, 1993). Unjust enrichment is based on an implied or quasi-contract, People ex rel. Hartigan v. E. E. Hauling, Inc., 607 N.E. 2d 165, 177 (Ill. 1992), the intentional breach of which is likewise not subject to an affirmative defense of assumption of risk. Where unjust enrichment occurs through mutual mistake, the negligence of the conferrer of the benefit does not preclude recovery. Bank of Naperville v. Catalano, 408 N.E.2d 441, 444 (Ill.App.Ct. 1980). Assumption of risk is not a proper affirmative defense to either of Polska's claims. It is true, as EchoStar contends, that parties to a contract agree to allocate risk, and must abide by that allocation. EchoStar is free to argue that it had the right to act as it did because the contract did not explicitly forbid its conduct. However, this is a denial of Polska's claims, not an affirmative defense. See Bobbitt, 532 F. Supp. at 736. EchoStar does not cite any case in which assumption of risk was asserted as an affirmative defense to breach of contract or unjust enrichment. The motion to strike EchoStar's Tenth Affirmative Defense is granted.
Polska argues that EchoStar's First Defense, statute of frauds, should be stricken because Polska is not suing EchoStar for breach of any oral promise. (Reply Supp. Mot. Strike at 2.) EchoStar explains that it raises the defense because after the three-year term of the contract expired, "to the extent not already allowed by the contract, EchoStar and Polska modified the contract by conduct to allow EchoStar to sell new subscriptions and continue month-to-month subscriptions to Polska's programming through May 2002 while the parties negotiated a new agreement." (Opp'n Polska's Mot. Strike at 3.) It is EchoStar, not Polska, who argues that the terms of the written agreement do not govern certain of the parties' actions and suggests the existence of an unwritten agreement. Each of Polska's claims asserts that EchoStar acted in violation of a specified paragraph of the Agreement. (Am. Compl. ¶ 14.) EchoStar could simply have denied that its actions violated the Agreement, without raising statute of frauds.
Nonetheless, because there is a question of material fact as to whether the Agreement governs some or all of the parties' actions after the expiration of the three-year term, and whether the parties may have modified their agreement through oral discussion or course of dealing, evidence on the statute of frauds issue may become relevant. Before a motion to strike can be granted, the Court must be convinced that there are no questions of fact or law in dispute, and the issue has no possible relation to the controversy. Lirtzman, 493 F. Supp. at 1031. The benefit of any doubt should be given to the pleader. Bobbitt, 532 F. Supp. at 736-37. Polska's motion to strike EchoStar's First Affirmative Defense is denied.
Polska next challenges EchoStar's Fifteenth Affirmative Defense, rescission. EchoStar's pleading does not state grounds for rescission, but it is presumably related to the Fourteenth Defense, which suggests that "the Agreement by the parties may have been made under a misconception of a material fact concerning the parties' rights and obligations in the Post-Termination/Expiration period." (Second Am. Answer at 10.) A mistake of material fact is proper grounds for rescission. Real Estate Value Co. v. USAir, Inc., 979 F. Supp. 731, 740 (N.D. Ill. 1997). The Court strikes the Fifteenth Defense as redundant and addresses Polska's arguments regarding rescission as challenges to the Fourteenth Defense.
Polska challenges rescission on two grounds: that it is a form of relief, not a defense, and that rescission is unavailable because the contract has been fully performed. (Reply Supp. Mot. Strike at 3.) Affirmative defenses have been defined as "something that generally admits the matters in a complaint but suggests some other reason why there is no right of recovery," or "something that raises a matter outside the scope of plaintiff's prima facie case and is thus a matter not raised by a simple denial." Bobbitt, 532 F. Supp. at 736. With this defense, EchoStar seeks to avoid the contract regardless of whether Polska's allegations are true, thus meeting both definitions. The defense of rescission is permitted in this district and in Illinois. See, e.g., Fairbanks Capital Corp. v. Jenkins, 225 F. Supp.2d 910, 914-15 (N.D. Ill. 2002); State Farm Ins. Co. v. Am. Serv. Ins. Co., 773 N.E.2d 666, 672 (Ill.App.Ct. 2002); Volk v. Kendall, 389 N.E.2d 697, 699 (Ill.App.Ct. 1979).
Rescission for mistake is proper under Illinois law if EchoStar can establish that: (1) the mistake is of a material nature; (2) the mistake is of such consequence that enforcement is unconscionable; (3) the mistake occurred notwithstanding the exercise of due care by the party seeking rescission; and (4) rescission can place the other party in status quo ante. Real Estate Value Co., 979 F. Supp. at 740. Polska challenges only the last element, arguing that because Polska has provided Programming Services, the Court cannot place the parties in the positions they would have been in had no contract existed. (Reply Supp. Mot. Strike at 3.) Although restoration of the status quo initially requires return of property or other consideration, it also requires the rescinding party to account for any benefits received from the other party under the contract. Puskar v. Hughes, 533 N.E.2d 962, 967 (Ill.App.Ct. 1989). Restitution is a proper remedy for rescission. Id. That a party has benefited from possession of land, goods, or other property does not preclude restitution because the other party can be compensated in money for this benefit. RESTATEMENT (SECOND) OF CONTRACTS § 384 cmt. a (1981). If the contract is rescinded, EchoStar may compensate Polska for the value it received. Polska's motion to strike EchoStar's Fourteenth Affirmative Defense is denied.
Polska asserts that EchoStar's Eighth and Ninth Affirmative Defenses are "immaterial and irrelevant." (Reply Supp. Mot. Strike at 2.) The Court addresses each in turn.
Although Polska seeks to withdraw its motion to strike as to EchoStar's Eighth Affirmative Defense, which states that Polska's claims are barred by applicable agreements and/or applicable law, the Court nonetheless finds that this defense is insufficiently pleaded. Rule 8(a) requires a short and plain statement showing that the pleader is entitled to relief. FED. R. CIV. P. 8(a). EchoStar's statement that Polska's claims are barred by "provisions of applicable agreements and/or applicable law" does not state why EchoStar is entitled to relief. The number of agreements and laws to which the pleading might refer is virtually unlimited. There is no notice given of the defense alleged and the issues it raises. See Sauber Painting Decorating, Inc. v. Int'l Union of Painters Allied Trades Dist. Council #30, No. 04 C 170, 2004 WL 1244133, at *2 (N.D. Ill. June 3, 2004). In its brief in opposition to Polska's motion to withdraw its motion to strike this affirmative defense, EchoStar attempts to clarify this defense by arguing that breach of contract and unjust enrichment claims cannot coexist. However, as the case to which EchoStar cites goes on to say, a party is not barred from pleading these claims in the alternative, as Polska does here, albeit insufficiently. See Zic v. Italian Gov't Travel Office, 130 F. Supp.2d 991, 997 (N.D. Ill. 2001). Polska's motion to strike EchoStar's Eighth Defense is granted.
Polska also seeks to withdraw its motion to strike EchoStar's Ninth Affirmative Defense. The Court examines the defense for sufficiency of pleading. Under Illinois law, EchoStar's Ninth Defense, unclean hands, requires that the defendant show misconduct by plaintiff (1) involving the transaction complained of and (2) constituting fraud, misconduct, or bad faith toward the defendant. Energetec Sys., Inc. v. Kayser, No. 84 C 10611, 1986 WL 8058, at *2 (N.D. Ill. July 17, 1986); Baal v. McDonald's Corp., 422 N.E.2d 1166, 1171 (Ill.App.Ct. 1981). If EchoStar means to allege that fraud occurred, Rule 9(b) requires that the allegation include particular circumstance such as the time, place, and content of the representation or omission. Global Poly, Inc. v. Fred's Inc., No. 03 C 4561, 2004 WL 532844, at *6 (N.D. Ill. Mar. 11, 2004). EchoStar does not state factual grounds for fraud with anything close to the requisite specificity. Nor does EchoStar generally allege grounds for misconduct or bad faith to meet the pleading standard of Rule 8. The facts cited in support of the defense allege that Polska advertised for, referred customers to, and accepted money from EchoStar. It is unclear how such facially beneficial actions could constitute misconduct toward EchoStar. If, on the other hand, EchoStar wishes to allege that these actions were carried out in bad faith, it must so state. Franklin Capital Corp. v. Baker Taylor Entm't, Inc., No. 99 C 8237, 2000 WL 1222043, at *4 (N.D. Ill. Aug. 22, 2000). EchoStar alleges only that Polska's performance on the contract after it was breached makes Polska a participant in any harm caused. In the absence of fraud, misconduct, or bad faith, the claim is more akin to estoppel or laches. It is more properly made under those defenses. Safe Bed Techs. Co. v. KCI USA, Inc., No. 02 C 97, 2003 WL 21183948, at *6 (N.D. Ill. May 20, 2003). Polska's motion to strike EchoStar's Ninth Defense is granted.
Despite Polska's arguments to the contrary, heightened pleading under Rule 9 is not required for unclean hands unless fraud is alleged. Ocean Atl. Woodland Corp., 2003 WL 1720073, at *6; Zic, 131 F. Supp.2d at 999 n. 8.
Finally, Polska makes a general argument that all of EchoStar's affirmative defenses with the exception of the Fifth and Eleventh are "bare bones legal conclusions." (Reply Supp. Mot. Strike at 3.) The Federal Rules of Civil Procedure require only fair notice of what the pleader's claim is and the grounds upon which it rests; the pleader need not set out facts in detail. Conley v. Gibson, 355 U.S. 41, 47 (1957). Even vague allegations may be construed to set forth a claim. Lewis v. Local Union No. 100, 750 F.2d 1368, 1373 (7th Cir. 1984). As discussed above, the stated grounds are sufficient to support EchoStar's First and Fourteenth Defenses. The motion to strike these defenses is denied. The Court strikes EchoStar's Tenth Defense because it is an inappropriate defense to a breach of contract claim; the Fifteenth Defense because it is redundant; and the Eighth and Ninth Defenses because they do not state a basis for relief. EchoStar's Thirteenth Defense, which states that the parties' rights and obligations in the post-termination period were ambiguous, is in essence merely a denial of the breach of contract claim. The motion to strike EchoStar's Thirteenth Defense is accordingly granted.
EchoStar's Twelfth Defense does not clearly state grounds for relief. It asserts that to the extent Polska seeks any damages under the parties' Agreement that may be considered a penalty, such claims are unenforceable as a matter of law. Presumably EchoStar refers to the common-law rule, adopted in Illinois, that when the sole purpose of a contract clause specifying damages is to secure performance of the contract — a "penalty" clause — it is unenforceable. Checkers Eight Ltd. P'ship v. Hawkins, 241 F.3d 558, 561-62 (7th Cir. 2001). The rule is inapplicable where there is no damages clause at issue. Saunders v. Michigan Ave. Nat'l Bank, 662 N.E.2d 602, 609 (Ill.App.Ct. 1996). There is no such clause in the parties' agreement. Polska's motion to strike EchoStar's Twelfth Defense is granted.
In sum, Polska's motion to strike EchoStar's First and Fourteenth Affirmative Defenses is denied. The motion to strike EchoStar's Eighth, Ninth, Tenth, Twelfth, Thirteenth, and Fifteenth Affirmative Defenses is granted. EchoStar has requested leave to amend any defenses stricken for insufficiency. (Opp'n Mot. Strike at 4.) The Tenth, Twelfth, and Thirteenth Defenses are stricken with prejudice because they are improper affirmative defenses to Polska's claims. The Fifteenth Defense is stricken with prejudice because it is already pleaded by the Fourteenth Defense. EchoStar is granted leave to amend its Eighth and Ninth Defenses within fifteen days of this Memorandum Opinion and Order.
B. Polska's Motion to Dismiss EchoStar's Counterclaims
A Rule 12(b)(6) motion to dismiss for failure to state a claim will not be granted unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which will entitle him to relief. Conley, 355 U.S. at 45-46. Under Rule 8, the complaint must give fair notice of what the claim is and the grounds upon which it rests. Id. at 47. To survive a motion to dismiss for failure to state a claim, pleadings need only outline a violation of the law upon which the claim relies, and connect the violation to the parties against whom it is claimed. Brownlee v. Conine, 957 F.2d 353, 354 (7th Cir. 1992). When evaluating a motion to dismiss, the facts in the complaint are viewed in the light most favorable to the non-moving party. Craigs, Inc. v. Gen. Elec. Capital Corp., 12 F.3d 686, 688 (7th Cir. 1993).
1. Defamation
Under Illinois law, a statement is considered defamatory if it tends to cause such harm to the reputation of another that it lowers that person in the eyes of the community or deters third persons from associating with him. Kolegas v. Heftel Broad. Corp., 607 N.E.2d 201, 206 (Ill. 1992). The alleged defamatory words that were spoken or published must be set forth. Wilton Partners III, LLC v. Gallagher, No. 03 C 1519, 2003 WL 22880834, at *5 (N.D. Ill. Dec. 5, 2003). The purpose of this requirement is so that responsive pleadings may be formed. Woodard v. Am. Family Mut. Ins. Co., 950 F. Supp. 1382, 1388 (N.D. Ill. 1997); Vantassell-Matin v. Nelson, 741 F. Supp. 698, 708 (N.D. Ill. 1990). The language need not be quoted verbatim; an allegation is sufficiently specific if it allows the other party to understand the nature of the claim and respond. Wilton Partners, 2003 WL 22880834, at *5. The precise date when the statements were made need not be included in the pleadings. Woodard, 950 F. Supp. at 1388.
Polska cites Smith v. SRDS, Inc., No. 96 C 858, 1997 WL 11014, at *6 (N.D. Ill. Jan. 7, 1997), in which the court held that allegations of defamation were too general to state a claim because they did not identify "the precise statements that were made, when, by whom, and to whom." Other courts have required only that the language of the allegedly defamatory statements be set forth. The Smith court's purpose in imposing these additional requirements is so that it can be determined from the context whether the statements are defamatory, capable of an innocent construction, or protected by privilege. 1997 WL 11014, at *6. Where circumstances are sufficiently alleged that it appears possible the claimant can prove a set of facts that would entitle her to relief, the claim is sufficiently pleaded. Conley, 355 U.S. at 45-46. Although the Illinois in haec verba requirement in claims for defamation applies in federal court, heightened 9(b) pleading is not required. See Woodard, 950 F. Supp. at 1388.
The defamatory statements identified by EchoStar are: (1) that the reason EchoStar and Polska could not reach a new Agreement was that EchoStar was demanding exclusivity from Polska (Second Am. Answer Pt. III ¶ 19); and (2) that EchoStar was "scamming" Polska of subscription fees and monies owed under the 1998 Agreement ( id. ¶ 20). The general language of the defamatory statements is set forth with sufficient specificity to give Polska notice of the nature of EchoStar's claims. Although EchoStar's allegations are made "on information and belief," such allegations are acceptable under the liberal, notice pleading requirements of Rule 8. Syscon, Inc. v. Vehicle Valuation Servs., 274 F. Supp.2d 975, 977 (N.D. Ill. 2003).
Under Illinois law, defamation may be per se or per quod. Muzikowski v. Paramount Pictures Corp., 322 F.3d 918, 924 (7th Cir. 2003). EchoStar alleges both. A statement cannot by definition be both defamatory per se and defamatory per quod because defamation per se is defined as obviously harmful, whereas a statement is considered defamation per quod if its defamatory character is not apparent on its face. See Smith v. SRDS, Inc., 1997 WL 11014, at *5. The Court will treat them as alternative claims.
To state a cause of action for defamation per se when the complainant is a corporation, the statements alleged "'must assail the corporation's financial position or business methods, or accuse it of fraud or mismanagement.'" Geske Sons v. NLRB, 103 F.3d 1366, 1373 (7th Cir. 1997) (quoting Vee See Constr. Co. v. Jensen Halstead, Ltd., 399 N.E.2d 278, 281 (Ill.App.Ct. 1979)). The statement that EchoStar was "scamming" Polska assails the company's business methods. The statement that EchoStar was responsible for the parties' failure to reach an agreement because it was demanding exclusivity from Polska is not prima facie an assault on the company's business practices or an accusation of fraud or mismanagement, so it cannot be grounds for defamation per se. EchoStar's claim for defamation per se must rest on the "scamming" statement alone.
Some Illinois cases in which the plaintiff is a corporation apply the same standard as that used for individuals. Under the individual standard, there are five categories of statements that may be considered defamatory per se: (1) those imputing the commission of a criminal offense; (2) those imputing infection with a loathsome communicable disease; (3) those imputing an inability to perform or want of integrity in the discharge of duties of office or employment; (4) those stating false accusations of fornication or adultery; or (5) those that prejudice a party in his trade or profession. See, e.g., Wilton Partners III LLC, 2003 WL 22880834, at *5. The statement that EchoStar was "scamming" Polska meets the individual standard because it imputes want of integrity in the discharge of duties and lack of ability in EchoStar's business. The statement that EchoStar was responsible for the parties' failure to reach an agreement because it was demanding exclusivity from Polska is not obviously defamatory under this standard.
In a claim for defamation per se in Illinois, words are not defamatory if they are reasonably capable of innocent construction. Kolegas, 607 N.E.2d at 206. Polska contends that "scamming" can be construed as referring to the fact that EchoStar was not paying Polska monies due under their agreement. (Mot. Dismiss Countercl. ¶ 7.) As such, Polska contends, the statement does not suggest fraud or unethical conduct, but rather, a "garden variety" breach of contract. (Reply Supp. Mot. Dismiss at 3.)
Polska also cites cases in which it was found that words similar to "scamming," such as "cheating," are susceptible to different interpretations and can be found defamatory only where the context in which they are made forecloses an innocent construction. In particular, Dilworth v. Dudley, 75 F.3d 307, 310 (7th Cir. 1996), noted that "scam" has a figurative meaning that may be used as non-actionable hyperbole, and its defamatory character must be considered in context. That the word was used in a literal sense in the statement alleged by EchoStar is apparent from the fact that it is followed by an indirect object: "EchoStar was 'scamming' Polska of subscription fees and monies Polska was owed." (Second Am. Ans. Pt. III ¶ 20.) The innocent-construction rule requires courts to give words and their implications their natural and obvious meaning. Kolegas, 607 N.E.2d at 206. Here, as Polska acknowledges ( see Reply Supp. Mot. Dismiss at 3), the statement is naturally construed as an accusation of actual conduct carried out contrary to obligation. As such it clearly imputes a lack of integrity, foreclosing innocent construction. EchoStar has sufficiently stated a claim for defamation per se.
In its opposition to Polska's Motion to Dismiss Counterclaims, EchoStar argued that there can be no innocent construction of the word "scamming" because Polska explained the factual basis behind its statements: "i.e., EchoStar was deceiving the public by forcing demands of exclusivity on Polska and then lying about it." (Opp'n Mot. Dismiss at 4.) That EchoStar was lying about the demand for exclusivity appears to be a new accusation, or an expanded version of previous accusations. The Court considers only the defamatory statements alleged in the pleadings.
In order to state a claim for defamation per quod, EchoStar must allege extrinsic facts showing the defamatory character of the statements, and specific facts establishing special damages. Anderson v. Vanden Dorpel, 667 N.E.2d 1296, 1303 (Ill. 1996). EchoStar alleges that Polska's statements were false and were made in order to convince T.V. Polonia subscribers and others to purchase Polska's Programming from EchoStar's competitor in lieu of EchoStar, and to ruin EchoStar's good reputation. (Second Am. Answer Pt. III ¶ 24.) In its opposition to Polska's motion, EchoStar adds that as a result of these statements, "not only could consumers be driven away, but other programmers EchoStar works with, or hopes to works with, could be influenced by Polska's false and malicious statements." (Opp'n Mot. Dismiss Countercl. at 5.) These allegations suffice as extrinsic facts from which the defamatory character of the statements may be inferred. Polska does not challenge this element of the claim.
Polska does challenge the "special damages" element of EchoStar's claim for defamation per quod. (Mot. Strike Affirmative Defenses ¶ 6.) Rule 9(g) states that "[w]hen items of special damages are claimed, they shall be specifically stated." FED. R. CIV. P. 9(g). However, an estimation of dollar amounts is unnecessary. Action Repair, Inc. v. Am. Broad. Cos., 776 F.2d 143, 149 (7th Cir. 1985). The pleading need only specify the nature and basis of the damages, making some connection between the defamatory statements and the complainant's injury that shows how the defamation caused the damage. Id. For example, in Fleck Bros. Co. v. Sullivan, the plaintiff alleged that he had expended money as a result of the defendant's libel. 385 F.2d 223, 225 (7th Cir. 1967). EchoStar meets this requirement when it alleges that it was injured by loss of subscribers, future subscribers, and profits. (Second Am. Answer Pt. III ¶ 34.)
Polska next contends that EchoStar's defamation claims must be dismissed because Polska's statements were constitutionally protected opinion. (Mot. Strike Affirmative Defenses ¶ 4.) The test to determine whether a defamatory statement is constitutionally protected is whether a statement cannot reasonably be interpreted as stating actual facts. Milkovich v. Lorain Journal Co., 497 U.S. 1, 20 (1990). Polska is correct to point out that the word "scamming" alone could pass the test. (Mot. Strike Affirmative Defenses ¶ 4.) However, EchoStar does not confine its allegation to this one word. The statements alleged are assertions of actual conduct by EchoStar that are sufficiently factual as to be susceptible to being proven true or false. See Milkovich, 497 U.S. at 20. They are not constitutionally protected under the First Amendment. See id.
Polska correctly argues that as a public figure, EchoStar must sufficiently allege actual malice in its defamation claim. (Mot. Strike Affirmative Defenses ¶ 5.) Because EchoStar has sought publicity and placed itself in the public eye by advertising, engaging in commerce, and broadcasting, it is a public figure and does not qualify for the higher level of protection from defamation afforded to private persons. See Conseco Group Risk Mgmt. Co. v. Ahrens Fin. Sys., No. 00 C 5467, 2001 WL 219627, at *9-10 (N.D. Ill. Mar. 6, 2001). To succeed on a defamation claim, a public figure must plead and prove actual malice. Id. at 10. In Illinois, actual malice denotes knowledge of or reckless disregard for the falsity of a defamatory statement. Id. EchoStar fulfills this pleading requirement when it states, "Polska's conduct is made with malice, in that Polska knows or should know that its statements and allegations are false." (Second Am. Ans. Pt. III ¶ 32.)
Finally, Polska argues that EchoStar cannot state a claim for defamation because Polska's statements were privileged. (Mot. Dismiss Countercl. ¶ 8.) Illinois common law recognizes the existence of a qualified privilege for statements that may otherwise be actionable as defamation. The required elements are: (1) good faith by the defendant in making the statement; (2) an interest or duty to uphold; (3) a statement limited in its scope to that purpose; (4) a proper occasion; and (5) publication in a proper manner and to proper parties only. Kuwik v. Starmark Star Mktg. Admin., Inc., 619 N.E.2d 129, 133 (Ill. 1993). Polska argues that it had an interest in communicating to its subscribers why it was no longer being broadcast on EchoStar's network. (Mot. Dismiss Countercl. ¶ 8.) Although Polska certainly had an interest in informing its subscribers that its programming would no longer appear on EchoStar's network, it is not at all clear that Polska needed to tell them why. Moreover, EchoStar alleges that the statements were made to other programmers, to whom this interest does not apply. (Second Am. Ans. Pt. III ¶ 22.) EchoStar also alleges that the statements were made with bad faith intent to cause injury to EchoStar. ( Id. at ¶ 32.) The existence of a qualified privilege is not sufficiently established to justify dismissal of EchoStar's counterclaims. Even if it were established, a qualified privilege can be overcome by a showing that the defamatory statement was intentionally published with the knowledge that it was false, or with reckless disregard as to the matter's falsity, which EchoStar alleges. See Smock v. Nolan, 361 F.3d 367, 372 (7th Cir. 2004). EchoStar has sufficiently pleaded its counterclaims for defamation per se and per quod, and Polska's motion to dismiss is denied.
2. Tortious Interference with Prospective Economic Advantage
Under Illinois law, to succeed in a claim for tortious interference with prospective economic advantage, a plaintiff must establish: "(1) that the plaintiff had a reasonable expectation of entering into a valid business relationship, (2) that the defendant knew of this expectancy, (3) that the defendant intentionally and unjustifiably interfered to prevent the expectancy from being fulfilled, and (4) that damages to the plaintiff resulted from the interference." Fredrick v. Simmons Airlines, 144 F.3d 500, 502 (7th Cir. 1998). EchoStar alleges each of these elements when it states: (1) that EchoStar had a reasonable expectation of entering into a valid business relationship with certain individuals to whom Polska made false and misleading statements (Second Am. Ans. Pt. III ¶ 37; (2) that Polska had knowledge of EchoStar's reasonable expectation ( id. ¶ 38); (3) that Polska purposely interfered with this expectation by making false and misleading statements ( id. ¶¶ 38-39); and (4) that Polska's false and misleading statements caused EchoStar to suffer damages ( id. ¶ 40).
Polska and EchoStar cite apparently conflicting authority regarding the specificity with which the third parties with respect to whom an expected business relationship is interfered must be identified. (Mot. Dismiss Countercl. ¶ 11; Opp'n Mot. Dismiss Countercl. at 9-10.) However, the underlying authority to which their cases cite is the same. In Parkway Bank Trust Co. v. Darien, the court found that the plaintiffs could not maintain their cause of action because they did not allege an interference with either a business relation between the plaintiffs and specific third parties or an identifiable class of third persons contemplating contractual arrangements with the plaintiffs. 357 N.E.2d 211, 214-15 (Ill.App.Ct. 1976). EchoStar's allegations concern prospective relationships, so the required specificity is "an identifiable prospective class." See id. Keeping in mind the liberal notice pleading standard, the requirement is met by EchoStar's allegations that Polska's false and misleading statements were made to EchoStar's T.V. Polonia subscribers and to other programmers with whom EchoStar had negotiated. (Second Am. Ans. Pt. III ¶¶ 21-22.) Although Polska questions whether EchoStar could have had a reasonable expectation of a continuing relationship with its T.V. Polonia customers after its agreement with Polska terminated, EchoStar claims that it did — presumably by replacing Polska with another Polish language programmer — and the facts in the complaint are viewed in the light most favorable to the non-moving party when evaluating a motion to dismiss. See Craigs, Inc., 12 F.3d at 688.
Polska also claims that EchoStar has not sufficiently alleged that Polska's interference was unjustified in order to establish the third element of the claim. (Mot. Dismiss Countercl. ¶ 12.) Polska argues that it was justified in communicating with EchoStar's T.V. Polonia customers in order to convey its position in the controversy between the parties, and that this interest constitutes a privilege. ( Id. at ¶ 12.) In a suit for tortious interference with a prospective economic relationship, privilege exists if the defendant acted in good faith to protect an interest or uphold a duty. Delloma v. Consol. Coal Co., 996 F.2d 168, 171 (7th Cir. 1993). The statement must be limited in scope to that purpose, and must be made on a proper occasion, in a proper manner, and to proper parties only. Id. If privilege exists, the complainant bears the burden of proving that the defendant's conduct was malicious. Id. (citing Fellhauer v. City of Geneva, 568 N.E.2d 870, 878 (Ill. 1991)). In this context, "malicious" means intentionally and without justification. Id. As noted above with regard to Polska's claim of privilege for defamation, it is not clear that Polska acted in good faith and within the proper scope. It is apparent that there are material questions of fact at issue, and EchoStar's allegation that Polska's actions were unjustified is sufficient to meet the requirements of pleading. See Craigs, Inc., 12 F.3d at 688.
Finally, Polska incorrectly argues that EchoStar cannot base its claim on allegations made only on "information and belief." (Mot. Dismiss Countercl. ¶ 11.) Allegations made on "information and belief" are permissible to fulfill the pleading requirements of Rule 8. Hall v. Carlson, No. 85 C 6544, 1985 WL 2412, at *1 (N.D. Ill. Aug. 28, 1985) (citing 5 CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1224 (1969)); Chisholm v. Foothill Capital Corp., 940 F. Supp. 1273, 1280 (N.D. Ill. 1996). The only exception to this rule applies when the matter is within the personal knowledge of the pleader. HWB, Inc. v. Braner, Inc., No. 92 C 5900, 1993 WL 389346, at *2 (N.D. Ill. Sept. 30, 1993); 5 WRIGHT MILLER, FEDERAL PRACTICE AND PROCEDURE § 1224. The nature of EchoStar's counterclaim is necessarily speculative, dealing with matters beyond the personal knowledge of the pleader, because it is based upon prospective economic advantage. The exception does not apply. EchoStar's pleadings "upon information and belief" are sufficient. Polska's motion to dismiss EchoStar's counterclaim for tortious interference with prospective economic advantage is denied.
Rule 11 sanctions may also apply if the allegations could have been learned by reasonable pre-filing inquiry, but that does not impair the validity of the pleading. Zakutansky v. Bionetics Corp., 806 F. Supp. 1362, 1363-64 (N.D. Ill. 1992). When the heightened pleading requirements of Rule 9 apply, a claim made upon information and belief must contain an allegation of facts on which that information and belief rests. HWB, Inc., 1993 WL 389346, at *2; Hall, 1985 WL 2412, at *1; 5 WRIGHT MILLER, FEDERAL PRACTICE AND PROCEDURE § 1224. However, tortious interference with prospective economic advantage does not trigger the heightened pleading requirements of Rule 9. FED. R. CIV. P. 9(b).
3. Trade Libel/Product Disparagement
EchoStar's Third Counterclaim is labeled "trade libel/product disparagement." There is some dispute over whether a common-law tort of commercial disparagement exists in Illinois. Marchese v. Dobry, No. 00 C 5606, 2001 WL 492471, at *2 (N.D. Ill. May 9, 2001); Schivarelli v. CBS, Inc., 776 N.E.2d 693, 702 (Ill.App.Ct. 2002). Compare Becker v. Zellner, 684 N.E.2d 1378, 1387-88 (Ill.App.Ct. 1997) with Barry Harlem Corp. v. Kraff, 652 N.E.2d 1077, 1083 (Ill.App.Ct. 1995). Supposing that it is recognized, to state a claim for common-law product disparagement EchoStar would have to show that Polska made false and demeaning statements regarding the quality of EchoStar's goods and services. Barry Harlem Corp., 652 N.E.2d at 1083. The two statements that EchoStar has alleged impugn only its integrity, not its goods or services. (Second Am. Answer Pt. III ¶¶ 19-20.) EchoStar makes a plausible case that customers will not want to purchase its services because of Polska's statements, arguing that "if subscribers, or potential subscribers, are led to believe hostile business relations exist between EchoStar and its programmers they could choose another provider they believed had more stable business relationships with its programmers and feel more assured their channel lineup would remain the same." (Opp'n Mot. Dismiss at 7.) However, this merely states grounds for a defamation action. See Allcare, Inc. v. Bork, 531 N.E.2d 1033, 1037-38 (Ill.App.Ct. 1988). The quality of EchoStar's goods and services is not disparaged. Product disparagement and defamation are separate and distinct torts; a defamation action lies when the integrity or credit of a business has been impugned, whereas an action for commercial disparagement lies if the quality of the goods or services is demeaned. Crinkley v. Dow Jones Co., 385 N.E.2d 714, 719 (Ill.App.Ct. 1978); see Peaceable Planet, Inc. v. TY, Inc., 362 F.3d 986, 993 (7th Cir. 2004) (citing Crinkley with approval). Although it is possible that both actions could lie simultaneously, they do not do so here. See Crinkley, 385 N.E.2d at 720.
There is no dispute that an action for product disparagement may be brought under the Illinois Uniform Deceptive Trade Practices Act ("Illinois UDTPA"), 815 Ill. Comp. Stat. § 510/2(a)(8). Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260 F.3d 742, 745 (7th Cir. 2001); Republic Tobacco, L.P. v. N. Atl. Trading Co., 254 F. Supp.2d 985, 997-98 (N.D. Ill. 2002). The relevant subsection has been held to substantially codify the common law tort of disparagement. Republic Tobacco, 254 F. Supp.2d at 997-98; Crinkley, 385 N.E.2d at 719. It is therefore limited to statements about the quality of one's goods and services, and defamation of the credit and integrity of one's business is not actionable under the act. Republic Tobacco, 254 F. Supp.2d at 998; Crinkley, 385 N.E.2d at 719. The statements alleged by EchoStar do not impugn the quality of its goods and services. Polska's motion to dismiss EchoStar's Third Counterclaim is granted.
Although this construction of the act disregards the word "business" in the phrase "disparages the goods, services, or business of another," it is the interpretation applied by Illinois courts, and so it must be followed. Republic Tobacco, 254 F. Supp.2d at 998 n. 14.
4. Violation of Illinois Uniform Deceptive Trade Practices Act
EchoStar's Fourth Counterclaim alleges that Polska violated four other subsections of the Illinois UDTPA. (Second Am. Answer Pt. III ¶ 51.) The Act states, in pertinent part:
A person engages in deceptive trade practice when, in the course of his or her business, vocation, or occupation, the person: . . . (2) causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services; (3) causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with or certification by another; . . . (5) represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he or she does not have; . . . or (12) engages in any other conduct which similarly creates a likelihood of confusion or misunderstanding.
815 ILL. COMP. STAT. § 510/2(a). The UDTPA was designed to cover conduct involving misleading trade identification and false or deceptive advertising. Lynch Ford, Inc. v. Ford Motor Co., 957 F. Supp. 142, 147 (N.D. Ill. 1997). Implicit within the twelve enumerated subsections of section two of the act is that for a violation to occur, the defendant must make some form of representation to the public or a potential buyer regarding a good or service. Id. Because the Court found above that the false and misleading statements alleged by EchoStar pertained only to EchoStar's business, and not to its goods and services, EchoStar has not stated sufficient grounds for a claim under the Illinois UDTPA. Polska's motion to dismiss EchoStar's Fourth Counterclaim is granted.
For the reasons discussed above, EchoStar sufficiently states claims in its First and Second Counterclaims, i.e., defamation per se and per quod in the alternative and tortious interference with prospective economic advantage. EchoStar failed to state grounds for its Third and Fourth Counterclaims, trade libel/product disparagement and violation of the Illinois UDTPA. Polska's motion to dismiss EchoStar's counterclaims is granted as to the Third and Fourth Counterclaims and denied as to the First and Second Counterclaims. EchoStar has requested permission to replead any counterclaims that are dismissed without prejudice. (Opp'n Mot. Dismiss at 12.) The Court grants EchoStar leave to correct deficiencies in its Third and Fourth Counterclaims within fifteen days of this Memorandum Opinion and Order if in doing so it can meet its obligations under Rule 11.
CONCLUSION
For the reasons set forth above, the Court grants Polska's motion to strike EchoStar's Eighth, Ninth, Tenth, Twelfth, Thirteenth, and Fifteenth Affirmative Defenses (barred by agreement or law, unclean hands, assumption of risk, penalty, ambiguity, and rescission); grants the motion to dismiss EchoStar's Third and Fourth Counterclaims (trade libel/product disparagement and violation of the Illinois UDTPA); and denies the motion as to all other defenses and counterclaims [doc. no. 45-1]. Permission is granted to EchoStar to amend its Eighth and Ninth Defenses and to replead its Third and Fourth Counterclaims within fifteen days of the date of this Memorandum Opinion and Order. The Court denies the remaining portion of Polska's motion to withdraw its motion to strike with regard to EchoStar's Eighth through Tenth Affirmative Defenses [doc. no. 90-1].SO ORDERED.