Service By Air, Inc. v. Phoenix Cartage & Air Freight, LLC
78 F. Supp. 3d 852
N.D. Ill.2015Background
- SBA contracted with Phoenix under a Sales Agent Agreement (SAA) giving SBA a right of first refusal (ROFR), confidentiality obligations, and a 3‑year non‑compete in the Philadelphia area; the SAA expired February 28, 2014.
- Radiant executed an asset purchase agreement (Radiant‑Phoenix APA) to buy Phoenix’s Philadelphia assets with an effective date of March 1, 2014; Gabay (Phoenix owner/manager) negotiated with Radiant and then joined Radiant.
- SBA alleges Phoenix and Gabay disclosed SBA confidential customer/data to Radiant, cut SBA’s remote access to proprietary software at closing, and used SBA marks and client relationships post‑closing, causing SBA to lose ~ $1M/year revenue from that territory down to <$30k in 2014.
- SBA sued for breach of the SAA (ROFR, non‑compete, non‑disclosure), tortious interference, intentional interference with business expectancy, and trademark/unfair competition under the Lanham Act and Illinois law.
- Defendants moved to dismiss; the court treated the Radiant‑Phoenix APA as central and considered it on the motions to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Phoenix breached the ROFR by selling to Radiant before SAA expired | Radiant’s offer occurred before Feb 28, 2014; Phoenix failed to notify SBA of the offer | ROFR requires offer to be in writing and contain all terms; plaintiff didn’t plead that | Denied as to Phoenix — pleaded plausibly that an offer was made before expiration (facts re: APA timing and negotiations) |
| Whether Gabay is personally bound by and breached the ROFR | SAA language (references to spouse/family/employees) plausibly binds Gabay personally | SAA references Sales Agent (Phoenix LLC), not Gabay individually | Denied as to pleading plausibility — SAA may plausibly bind Gabay, so claim against him survives at pleading stage |
| Whether Phoenix breached the non‑compete by selling/operating post‑sale | Sale to Radiant and subsequent operations displaced SBA in the Philadelphia market | Asset sale alone doesn’t show Phoenix (the LLC) continued competing; Radiant operated assets, not Phoenix | Partially granted/denied — sale to competitor may violate non‑compete (claim survives on theory of sale), but theory that post‑sale operation by Radiant makes Phoenix liable fails |
| Whether Phoenix breached non‑disclosure provision | Phoenix disclosed customer lists, gave access to books/sites, and kept SBA software access post‑closing | Some required disclosures in APA were limited; many alleged disclosures are implausible or unsupported | Denied — SBA plausibly alleged Phoenix maintained access to proprietary software and transferred that access to Radiant, supporting a non‑disclosure breach |
| Whether Gabay is personally liable for tortious interference and interference with business expectancy | Gabay induced Phoenix to breach the SAA and interfered with SBA’s business relationships | Gabay, as corporate officer/owner, is protected by Illinois corporate officer privilege unless conduct was malicious/unjustified | Granted — Counts IV and VI dismissed because complaint alleges Gabay’s and Phoenix’s interests aligned and does not plead lack of justification |
| Whether trademark/unfair competition claims can proceed against Phoenix and Gabay | Defendants used SBA marks and created consumer confusion post‑sale | Dangler and its progeny shield corporate officers from personal trademark liability absent special showing of willful/knowing personal participation; asset sale means Radiant, not Phoenix, used marks | Counts VIII–XI dismissed as to Gabay and Phoenix — complaint fails to plead Gabay’s personal, willful use and Phoenix’s continued use post‑asset sale is implausible |
| Whether Radiant tortiously interfered with SAA / business expectancy | Radiant induced wrongful disclosures and stole customers / expectancy | Radiant’s APA limited disclosures to avoid SAA violation and included post‑closing covenants; competitor privilege and lack of pleading of inducement defeat claim | Count V (tortious interference with contract) dismissed as implausible; Count VII (intentional interference with business expectancy re: customers) survives factual plausibility review |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must raise plausibility above speculative level)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: courts accept well‑pleaded facts and reject legal conclusions)
- Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614 (district court accepts well‑pleaded allegations on Rule 12(b)(6))
- CAE, Inc. v. Clean Air Eng’g, Inc., 267 F.3d 660 (likelihood of confusion elements for trademark/unfair competition)
- HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill.2d 145 (Illinois corporate officer privilege; must plead lack of justification/malice to overcome)
- Dangler v. Imperial Mach. Co., 11 F.2d 945 (officers not personally liable for corporate trademark infringement absent special showing of willful/knowing personal participation)
- Nation v. Am. Capital, Ltd., 682 F.3d 648 (discusses corporate officer privilege and pleading requirements)