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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-1651

NORTHBOUND GROUP, INC.,

Plaintiff-Appellant.

v.

NORVAX, INC., et al.,

Defendants-Appellees.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 11 C 6131 — Sidney I. Schenkier, Magistrate Judge.

____________________

ARGUED OCTOBER 30, 2014 — DECIDED JULY 28, 2015

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 afCase: 14-1651 Document: 37 Filed: 07/28/2015 Pages: 11
2 No. 14-1651

firm 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 Northbound. 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 damCase: 14-1651 Document: 37 Filed: 07/28/2015 Pages: 11
No. 14-1651 3

aged 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, 427 

 

1 One detail of the district court proceedings deserves mention, however. As part of the summary judgment briefing on damages, the defendants filed a motion to strike portions of Northbound’s damages evidence. The district court granted that motion in part, but only after ordering Northbound not to respond to the motion. While a court may summarily deny a motion without hearing from the non-moving party, summarily granting a motion without hearing from the non-moving party is a 

different matter. The record does not indicate why the district court took 

this unusual and troubling step, which raises basic issues of fairness and

due process. The district court’s apparent procedural error was harmless, 

though. Northbound’s damages evidence would be relevant only if 

Northbound could show that its breach of contract claim should have 

survived summary judgment, which it has not done.

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N.E.2d 94, 101 (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 

(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 of contract, 

he can not recover them in a suit against appellee because 

appellee was not a party to the contract.”).

These are the general rules of corporate and contract law, 

but they come with exceptions, of course. Northbound tries 

to create one new exception and invokes two established 

ones. We find no basis for holding Norvax liable for any alleged breach of the contract between Northbound and Leadbot LLC, the Norvax subsidiary.

First, the attempt at creating a new exception: Northbound argues that it may bring a breach of contract claim 

against Norvax simply because Norvax was in privity of 

contract with Leadbot LLC and Leadbot LLC was party to a 

contract with Northbound. In support of this novel proposition Northbound cites Kaplan v. Shure Brothers, Inc., 266 F.3d 

598, 602 (7th Cir. 2001). Kaplan addressed the question of 

who might sue for breach, not who might be sued for 

breach. We held there that a non-party to a contract was 

barred from suing for breach of that contract because he had 

not shown that a contracting party had assigned its rights 

under the contract to him. We wrote: “Under Illinois law, a 

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No. 14-1651 5

cause of action based on a contract may be brought only by a 

party to that contract, by someone in privity with such a party, or by an intended third-party beneficiary of the contract.” 

Id. at 602 (citations omitted). That rather vanilla statement of 

contract law cannot be read to authorize a party to a contract 

to sue a non-party for breach of the contract simply because 

the non-party has a close relationship with the other party to 

the contract who has breached. We decline to read this innocuous statement from Kaplan so expansively that it upsets 

the foundations of contract and corporate law.

Northbound also tries to invoke two recognized doctrines under which one company can be held liable for another company’s obligations. The first is called “direct participant liability.” The Illinois doctrine of direct participant liability provides that a parent company may be liable for the 

alleged wrong of its subsidiary when the “alleged wrong can 

seemingly be traced to the parent through the conduit of its 

own personnel and management.” Phillips, 2012 WL 6111405, 

at *9, quoting Forsythe v. Clark USA, Inc., 864 N.E.2d 227, 235 

(Ill. 2007) (recognizing doctrine in negligence case). The Forsythe case relied on a United States Supreme Court case that 

applied the doctrine to hold that a parent could be liable in 

tort for pollution if it participated directly in the wrongdoing, see United States v. Bestfoods, 524 U.S. 51, 61–63 (1998), 

which in turn relied on a law review article co-authored by 

the future Justice Douglas, William O. Douglas & Carrol M. 

Shanks, Insulation from Liability Through Subsidiary Corporations, 39 Yale L.J. 193 (1929). See also Graham v. Bostrom Seating, Inc., 921 N.E.2d 1222, 1232 (Ill. App. 2010) (applying doctrine to products liability case); see generally Refrigeration 

Sales Co. v. Mitchell-Jackson, Inc., 770 F.2d 98, 103 (7th Cir. 

1985) (applying Illinois law: if corporate officer personally 

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engaged in conversion, he could be held personally liable 

and could not be protected by role as corporate agent).

The problem is that Illinois courts have applied this theory of direct participation to torts or violations of statute, not 

to breaches of contract. Phillips, the case that Northbound 

cites for this theory, held that “the direct participant doctrine 

does not authorize the imposition of liability for breach of 

contract,” Phillips, 2012 WL 6111405, at *11, and that limit is 

consistent with the broader range of case law, including the 

cases just cited. The only claim that Northbound pursues on 

appeal is one for breach of contract. As a federal court, we 

will not revise Illinois doctrine to extend direct participant 

liability to breaches of contracts, where parties may choose 

which individuals or companies will be bound. Northbound 

cannot hold Norvax liable for a breach of contract by Leadbot LLC under the direct participant liability theory. See Phillips, at *11 (“The Court will leave it to the Illinois state courts 

to determine whether liability under the direct participant 

liability theory should be expanded to breach of contract 

claims.”); accord, e.g., Boston Fish Market, Inc. v. EMS-USA 

Insulated Doors, Inc., No. 12-C-6751, 2013 WL 2421744, at *2–4 

(N.D. Ill. June 3, 2013) (declining to extend direct participant 

liability doctrine from tort cases to contract cases until Illinois state courts do so).

The second doctrine that Northbound tries to invoke to 

hold Norvax liable for alleged breaches by Leadbot LLC is 

the alter ego doctrine. Under Illinois law: “Generally, before 

the separate corporate identity of one corporation will be 

disregarded and treated as the alter ego of another, it must 

be shown that it is so controlled and its affairs so conducted 

that it is a mere instrumentality of another, and it must furCase: 14-1651 Document: 37 Filed: 07/28/2015 Pages: 11
No. 14-1651 7

ther appear that observance of the fiction of separate existence would, under the circumstances, sanction a fraud or 

promote injustice.” Main Bank, 427 N.E.2d at 101. Northbound argues that Leadbot LLC is an alter ego of Norvax.

In support of its alter ego theory, Northbound cites deposition testimony from the CEO of Norvax that Leadbot LLC 

was a brand under the Norvax umbrella. Northbound also 

cites affidavits attesting that Norvax paid the purchase price 

for Leadbot LLC’s acquisition of Northbound’s assets and for 

the salaries of Leadbot LLC employees. And Northbound 

says that Norvax assumed certain obligations under the asset purchase agreement.2

These facts may show that Leadbot LLC was a “mere instrumentality” of Norvax, the first element of an alter ego 

theory. Northbound offers no evidence, however, that respecting the separate corporate existence of Norvax would 

“sanction a fraud or promote injustice,” which is the second 

necessary condition for piercing the corporate veil under Il-

 2 Assumption is another established doctrine under which a contract 

can be enforced against a non-party. See Arthur Andersen LLP v. Carlisle, 

556 U.S. 624, 631 (2009) (“‘[T]raditional principles’ of state law allow a 

contract to be enforced by or against nonparties to the contract through 

‘assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.’”), quoting 

21 R. Lord, Williston on Contracts § 57:19, at 183 (4th ed. 2001). But outside of a conclusory mention in the alter ego section of its principal brief,

Northbound hardly mentions the word “assumption,” much less develops an assumption argument. If Northbound thought it made an assumption argument, then that “argument is perfunctory and undeveloped, and is therefore waived.” Argyropoulos v. City of Alton, 539 F.3d 

724, 738 (7th Cir. 2008).

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linois law. This showing is especially difficult for a party to 

make in a breach of contract action where “courts should 

apply even more stringent standards to determine when to 

pierce the corporate veil than they would in tort cases.” Tower Investors, LLC v. 111 East Chestnut Consultants, Inc., 864 

N.E.2d 927, 941 (Ill. App. 2007), citing 1 W. Fletcher, Cyclopedia of Corporations § 41.85, at 692 (1999).

In this respect, Illinois law aligns with the broadly recognized corporate law principle that “it is a lot harder to hold 

investors personally liable in contract disputes than for tort 

judgments.” Secon Service System, Inc. v. St. Joseph Bank & 

Trust Co., 855 F.2d 406, 413 (7th Cir. 1988). As we explained in 

Secon Service: 

The reason is simple: contract creditors have 

entered into a voluntary arrangement with the 

corporation, which gave them an opportunity 

to negotiate terms reflecting any enhanced risk 

to which doing business with an entity enjoying limited liability exposed them. If they 

wanted guarantees from the investors, they 

could have negotiated for them. Tort creditors 

had no chance to obtain compensation ex ante 

for exposure to increased risk, so to cut off all 

liability might encourage excessively risky behavior. 

Id. at 413–14.

Northbound did not argue its alter ego theory in the district court, and in this court its briefing on the theory leaves 

much to be desired. We could certainly deem it waived, but 

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No. 14-1651 9

as we just explained it is meritless. Our rejection of this theory is not an artifact of the way this case has been litigated.

Northbound argues that it was misled by the district 

court’s decision on defendants’ motion to dismiss. In response to Norvax’s argument that it was not a party to the 

asset purchase agreement, the district court said that Northbound’s allegations in paragraphs 13 and 14 of the complaint 

were sufficient to allege that Norvax was in privity of contract with Leadbot LLC, and thus that Northbound could 

proceed against Norvax for breach of contract. Northbound 

Group, Inc. v. Norvax, Inc., No. 11-C-6131, 2012 WL 394336, at 

*7 (N.D. Ill. Feb. 6, 2012), citing Kaplan v. Shure Brothers, Inc., 

266 F.3d 598, 602 (7th Cir. 2001). On defendants’ motion for 

summary judgment, however, the district court found that 

Northbound had offered no evidence that would support a 

finding that Norvax is liable for breach of a contract to which 

it was not a party. Northbound Group, Inc. v. Norvax, Inc., 5 F. 

Supp. 3d 956, 972–73 (N.D. Ill. 2013).

Northbound complains that if it had known the district 

court would require it to prove more than privity of contract 

between Norvax and Leadbot LLC at summary judgment, 

then it would have made an alter ego argument to the district court, and it asks us to remand so that it may have a 

second opportunity to develop evidence to support the theory. We are not persuaded. 

Three circumstances combine to convince us that no such 

remand is necessary. First, we have allowed Northbound to 

make a new argument on appeal—the alter ego argument—

and we have considered that argument. Second, Northbound says in its principal brief that there is “ample evidence” in the record supporting its alter ego argument, yet 

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Northbound fails to address or even acknowledge the second prong of the alter ego doctrine, the need to prevent 

fraud or injustice. Third, Northbound offers no details about 

what evidence it might reasonably expect to present on remand to support its alter ego argument. Under these circumstances, and despite its perfunctory assertion otherwise, we 

are confident that Northbound was not deprived of a fair 

opportunity to be heard on any theory it might have offered 

to hold Norvax liable for Leadbot LLC’s alleged breaches of 

contract.

At the summary judgment stage, with a number of other 

issues pared away, the district court appears to have focused 

more on the startling nature of Northbound’s effort to pierce 

the corporate veil based only on Norvax’s privity of contract 

with Leadbot LLC, and the court correctly rejected that theory. Northbound suggests that this was contrary to the “law 

of the case,” but we disagree. If a district court makes what 

is arguably a mistake of law in allowing a plaintiff to pursue 

a claim at an early stage of the case, the plaintiff is not entitled to assume that the district court or especially this court 

will follow that same view of the law when the arguable 

mistake is pointed out by the other side. The district court 

properly granted summary judgment in favor of Norvax on 

the claim for breach of contract.3

 3 Northbound also argues that Norvax breached the covenant of 

good faith and fair dealing, which is “not an independent source of duties for the parties to a contract.” See Lansing v. Carroll, 868 F. Supp. 2d 

753, 761 (N.D. Ill. 2012), quoting Seip v. Rogers Raw Materials Fund, L.P., 

948 N.E.2d 628, 637 (Ill. App. 2011). Under Illinois law, the covenant is 

“used as a construction aid in determining the intent of the parties where 

an instrument is susceptible of two conflicting constructions.” Fox v. 

Heimann, 872 N.E.2d 126, 134 (Ill. App. 2007). Appealing to the covenant 

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No. 14-1651 11

We must tie up one more loose end. When Northbound 

filed this suit, Norvax stopped paying the monthly “earnout” that was owed to Northbound under the asset purchase 

agreement. The district court denied summary judgment for 

Northbound on this claim, finding a genuine issue regarding 

the proper amount of the accrued earn-out. The parties then 

stipulated that $45,000 was the amount of the withheld earnout. The district court entered a stipulated final judgment to 

that effect. Norvax then paid that amount to Northbound.

Northbound argues on appeal that it should be relieved 

of this stipulation because it agreed to the stipulation only in 

the face of an erroneous ruling by the district court on the 

evidence it would consider. But that is why parties have the 

ability to appeal. Stipulations are made for a reason—to resolve disputed issues conclusively, without trial or further 

dispute. See River v. Commercial Life Ins. Co., 160 F.3d 1164, 

1173 (7th Cir. 1998) (enforcing stipulation to bar argument 

on appeal). A party cannot avoid such a stipulation by saying merely that it thought the court was going to err by ruling against it. “To hold anything else would be to reduce 

stipulations to mere inconsequential gestures.” Id., quoting 

United States v. Sandles, 80 F.3d 1145, 1148 (7th Cir. 1996).

The district court’s judgment is AFFIRMED.

 

could help Northbound only if it offered some other basis for holding 

Norvax liable under the asset purchase agreement to which it was not a 

party.

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