Northbound Group, Incorporated v. Norvax, Incorporated
795 F.3d 647
7th Cir.2015Background
- Northbound Group, Inc. sold its Leadbot life-insurance-leads business via a February 2009 asset purchase agreement to Leadbot LLC, a subsidiary formed by Norvax, Inc.
- Purchase consideration was an earn-out tied to monthly net revenue of Leadbot LLC; an Illinois choice-of-law clause applied.
- Northbound alleged Leadbot LLC and Norvax breached the asset purchase agreement and sought damages; Leadbot LLC apparently had no assets and Northbound pursued judgment only against Norvax.
- The district court dismissed some claims and granted summary judgment for defendants on the remaining claims against Norvax; Northbound appealed only the breach-of-contract claim against Norvax.
- The Seventh Circuit considered whether Norvax—nonparty to the contract—could be held liable under doctrines including privity, direct participant liability, and alter ego; the court affirmed summary judgment for Norvax.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can Norvax be sued for breach of the asset purchase agreement though it was not a party? | Norvax is liable because it was in privity with Leadbot LLC and closely involved in the transaction. | A nonparty cannot be bound by a contract; Norvax was not a signatory. | No—contract law bars suing a nonparty for breach. |
| Does privity between parent and subsidiary permit suit against the parent for subsidiary's contractual breach? | Privity between Norvax and Leadbot LLC is sufficient to hold Norvax liable. | Privity does not make a nonparty contractually bound; Kaplan does not authorize suing a nonparty. | No—Kaplan does not permit expanding liability to nonparties via privity. |
| Can Illinois’ direct participant liability doctrine extend to contract breaches by a subsidiary? | Norvax’s active involvement equates to direct participation, so it should be liable. | Direct participant doctrine applies to torts/statutory violations, not contract breaches. | No—court will not extend direct participant liability to contract claims; leave to state courts. |
| Can Norvax be held liable under alter ego/piercing the corporate veil? | Leadbot LLC was a mere instrumentality of Norvax (common funding, shared management), so veil should be pierced. | Plaintiff failed to show the second required element—that respecting separate existence would sanction fraud or injustice. | No—evidence insufficient to meet Illinois alter ego test; no piercing. |
Key Cases Cited
- Main Bank of Chicago v. Baker, 427 N.E.2d 94 (Ill. 1981) (standard for piercing corporate veil under Illinois law)
- Van Dorn Co. v. Future Chemical & Oil Corp., 753 F.2d 565 (7th Cir. 1985) (corporate separateness principle under Illinois law)
- EEOC v. Waffle House, Inc., 534 U.S. 279 (U.S. 2002) (a contract cannot bind a nonparty)
- Kaplan v. Shure Brothers, Inc., 266 F.3d 598 (7th Cir. 2001) (who may sue for breach under Illinois law)
- United States v. Bestfoods, 524 U.S. 51 (U.S. 1998) (parent liability for subsidiary’s torts when parent directly participates)
- Forsythe v. Clark USA, Inc., 864 N.E.2d 227 (Ill. 2007) (recognition of direct participant doctrine in tort contexts)
- Secon Service System, Inc. v. St. Joseph Bank & Trust Co., 855 F.2d 406 (7th Cir. 1988) (easier to pierce corporate veil in tort than contract cases)
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (U.S. 2009) (nonparty enforcement doctrines such as assumption and alter ego exist under state law)