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Northbound Group, Inc. v. Norvax, Inc.

United States Court of Appeals, Seventh Circuit

July 28, 2015

NORTHBOUND GROUP, INC., Plaintiff-Appellant.
NORVAX, INC., et al., Defendants-Appellees

Argued October 30, 2014

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11 C 6131 -- Sidney I. Schenkier, Magistrate Judge.

For Northbound Group, Incorporated, Plaintiff - Appellant: Patrick M. Jones, Attorney, Chicago, IL.

For Norvax, Incorporated, Leadbot, LLC, Clint Jones, Michael Ahern, Defendants - Appellees: Christopher E. Kentra, Attorney, Jeffrey Brian Greenspan, Attorney, Cozen O'Connor, Chicago, IL.

Before WILLIAMS, TINDER, and HAMILTON, Circuit Judges.


Hamilton, Circuit Judge.

Plaintiff Northbound Group, Inc. sued several defendants on claims arising from the sale of its business to defendants. The district court dismissed some claims and later granted summary judgment for defendants on the remainder. Northbound appeals, arguing only that its breach of contract claim against Norvax, Inc. should have survived summary judgment. The district court had diversity jurisdiction under 28 U.S.C. § 1332, and we have jurisdiction on appeal under 28 U.S.C. § 1291. We affirm because Norvax was not actually a party to the contract that was allegedly breached, nor is there any basis for holding Norvax liable for any breach by a subsidiary.

Plaintiff Northbound Group, Inc. generates and sells life insurance leads. " Leadbot" is the brand name that Northbound gave this business. Northbound began developing the Leadbot brand in the late 1990s. It had some success, but during troubled economic times a decade later, Northbound eventually found itself out of cash with a frozen line of credit and revenue that did not support its overhead.

Defendant Norvax, Inc. generates and sells health insurance leads. In the course of commercial dealings between Northbound and Norvax, the parties discussed the idea of having Norvax expand into the life insurance leads market by acquiring Northbound. As 2008 turned to 2009, Northbound grew eager to close this transaction lest it have to cease operations entirely. An asset purchase agreement was executed in February 2009.

The asset purchase agreement was " by and between" Northbound and Leadbot LLC, which is a subsidiary of Norvax that was formed to purchase the assets of North-bound. Under the agreement, Leadbot LLC was obligated to use the assets it acquired from Northbound in furtherance of the Leadbot brand. The purchase price was not paid in cash. Instead Northbound would receive an " earn-out" calculated as a percentage of the monthly net revenue of Leadbot LLC. The agreement also contained an Illinois choice-of-law clause.

Northbound claims that Leadbot LLC and Norvax violated the asset purchase agreement in various ways that damaged Northbound. The details are not important here because this dispute turns on a more fundamental question of who was bound by the asset purchase agreement. We review that legal question, and the district court's grant of summary judgment more generally, de novo. Wisconsin v. Ho-Chunk Nation, 784 F.3d 1076, 1079 (7th Cir. 2015).[1]

In briefing Northbound directed its arguments against Norvax, and in oral argument Northbound confirmed that it is not seeking a judgment against Leadbot LLC. According to Northbound, Leadbot LLC has no assets. Northbound is seeking a judgment against only Norvax for breach of the asset purchase agreement. The problem for Northbound is that Norvax was not a party to that contract.

The core principle of corporate law is that a corporation is a distinct legal entity, separate from its shareholders, directors, officers, and affiliated corporations, so that the obligations of a corporation are not shared by affiliates, officers, directors, or shareholders. Main Bank of Chicago v. Baker, 86 Ill.2d 188, 427 N.E.2d 94, 101, 56 Ill.Dec. 14 (Ill. 1981); Van Dorn Co. v. Future Chemical & Oil Corp., 753 F.2d 565, 569-70 (7th Cir. 1985) (Illinois law).

" It goes without saying that a contract cannot bind a nonparty." EEOC v. Waffle House, Inc., 534 U.S. 279, 294, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002); see also Phillips v. WellPoint Inc., No. 10-CV-00357-JPG, 2012 WL 6111405, at *9 (S.D. Ill.Dec. 10, 2012) (" As a basic principle of contract law, a non-party cannot be held liable for a breach of contract." ), citing Credit General Ins. Co. v. Midwest Indemnity Corp., 916 F.Supp. 766, 772 (N.D.Ill. 1996); Ransom v. Glossop, 92 Ill.App. 476, 477 (Ill. App. 1900) (" If appellant is entitled to damages for breach ...

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