to Sears. Jd. Emerson argues that Sears’ conspiracy allegations are insufficient in that (1) Sears has
failed to plead properly the wrongful conduct underlying the claim, and (2) the facts asserted do not
provide enough evidence of an agreement between Emerson and its alleged co-conspirators.

As to its first argument, Emerson correctly notes that Sears’ conspiracy claim must rest on
some sufficiently pleaded “civil wrong resulting in damage.” Pusser v. Gordon, 684 S.W.2d 639, 642
(Tenn, App. 1984). To the extent that its claim amounts to an alleged conspiracy to defraud, Sears
must satisfy the pleading requirements for the underlying fraud. See id. As we have discussed, Sears
has not pleaded fraud with the requisite specificity in certain respects. We do not agree with Emerson,
however, that this shortcoming provides an adequate ground for dismissal. Construing the language of
Count 13 in Sears’ favor, we agree with Sears that the wrongful conduct necessary to establish its civil
conspiracy allegations is supplied by its properly pleaded claims for fraudulent inducement and tortious
interference with contract (Counts 4-7). Sears alleges in Count 13 that Emerson and its co-
conspirators, Q.C. Recycling, State Line Metals, Inc., and DRF Montrex “sought to and succeeded in
retaining and obtaining Sears’ tooling and related intellectual property in violation of the law,” causing
Sears significant economic damage. See Complaint, 123-132. Bolstered by the matters alleged in
Counts 4-7, which outline Emerson and its alleged co-conspirators’ efforts improperly to obtain Sears’
tooling, Count 13 states a claim for civil conspiracy.

We further reject Emerson’s argument that the pleadings fail to provide enough detailed
evidence of aconspiracy. Pleading conspiracy simply requires the plaintiff “to indicate the parties,
general purpose, and approximate date, so that the defendant has notice of what he is charged with.”

Walker v. Thompson, 288 F.3d 1005 (7% Cir. 2002). Sears has satisfied these requirements.

19


breach contract. The elements required for pleading these claims are identical. Givens v. Mullikin, 75
S.W.3d 383, 405 (Tenn. 2002). A plaintiff must allege that (1) a legal contract existed; (2) the
defendant was aware of the contract; (3) the defendant intended to induce a breach of that contract; (4)
the defendant acted with malice; (5) a breach of contract occurred; (6) the breach was a proximate
result of the defendant’s conduct; and (7) the breach injured the plaintiff. Jd. Emerson offers three
reasons why Sears’ contract interference claims should be dismissed. It contends that Sears has not
alleged a breach of contract, that it lacks standing to bring the claims, and that it has failed to alleged
that the contracts were in writing and therefore legally enforceable. None of these arguments convince
us that dismissal is proper.

Emerson argues that Sears has not pleaded breach of contract because the complaint alleges
only promises not to sell to Emerson and “says nothing as to any promise they made to impose similar
conditions on subsequent resale.” Mot. to Dismiss at 13. This argument misses the mark, however,
because Sears alleges that the “subsequent resale” was a sham. The circumstances alleged by Sears
indicate that a breach of contract took place when Emerson’s straw purchasers gained title to the
tooling. Moreover, Emerson misreads the complaint; Sears specifically alleges that both Stump and
State Line promised not to resell the tooling either “directly or indirectly” to Emerson. Complaint,
4978, 85.

Emerson next argues that Sears lacks standing to sue for tortious interference, in that Sears was
not a party to the relevant contracts with Stump and State Line. It points to language in the complaint
that states that “Sears’ agent contracted with Weldon F. Stump,” and that “Sears, through its agent,

Ryobi Motor Products Corp. ... contracted with State Line Metals.” Complaint, 425, 35. As Sears

13


manufacture power tools for The Home Depot, one of Sears’ competitors. As a result of this series of
transactions, Sears alleges, Emerson was able to circumvent Sears’ efforts to prevent Emerson from
acquiring and exploiting its manufacturing equipment.

By Sears’ account, Emerson used similar tactics to acquire a special grinding machine, originally
purchased for the Paris plant, that Sears sought to prevent Emerson from using following the termination
of the contract. Sears hired Weldon F. Stump and Company, a used equipment broker, to purchase
and resell the grinder, allegedly on the condition that Stump would not resell to Emerson. According to
the complaint, however, Emerson hired DRF Montrex, a straw purchaser, to acquire title to the grinder,
and Emerson has since used the grinder to manufacture tools for Home Depot.

On August 13, 2002, Sears filed a twelve-count complaint against Emerson in this Court. The
complaint alleged civil RICO violations, common law fraud, breach of contract, tortious interference
with contract, inducement to breach contract, conversion, unjust enrichment, and violation of the
Tennessee Trade Secrets Act. Sears also asked for a declaratory judgment that it is excused from
making any outstanding payments under its tooling agreements with Emerson. On September 20,

2002, Emerson moved to dismiss each count of the complaint except Sears’ claim for breach of
contract and its request for a declaratory judgment. On October 16, 2002, Sears filed an amended
complaint, striking its claim under the Tennessee Trade Secrets Act and adding claims for common law
trade secret misappropriation, civil conspiracy, and violation of the Tennessee Consumer Protection
Act. On November 14, 2002, Emerson filed a second motion, seeking to dismiss each of the new

claims raised in Sears’ amended complaint. We now consider both of Emerson’s motions to dismiss.


G. Count 14 (Tennessee Consumer Protection Act)

Finally, Sears alleges that Emerson’s actions as outlined in the complaint “constitute unfair and
deceptive acts or trade practices in violation of the Tennessee Consumer Protection Act” (“TCPA”).
Complaint, 134. We agree with Emerson that Sears has not stated a claim under the TCPA.

The TCPA prohibits “[u]nfair or deceptive acts or practices affecting the conduct of any trade
or commerce,” Tenn. St. §47-18-104(a), and authorizes suit by “any person who suffers an
ascertainable loss of money or property ...” as a result of such acts or practices. Tenn. St. §47-18-
109(a)(1). Sears relies on this broad language to seek relief under the Act, characterizing Emerson’s
efforts to retain and wrongfully obtain its tooling as “unfair and deceptive practices.” This asserted
claim, however, ignores the scope of the TCPA. The Act states that its provisions shall be construed
“to protect consumers,” and “to encourage and promote the development of fair consumer practices.”
Tenn. St. §47-18-102(2)(3). Moreover, the long enumeration of specific “unfair or deceptive acts or
practices” that the Act is designed to deter reveals that the Act is concerned with consumer
transactions, particularly unfair sales and marketing techniques. See Tenn. St. §47-18-104.? Sears
does allege that it was injured by Emerson’s deceptive behavior. But is quite a stretch for it to suggest
that its injuries were rooted in an unfair consumer transaction. Although its relationship with Emerson
was based on a supply contract, Sears was not injured as a power tool consumer. Rather, the

pleadings indicate that Sears’ injuries arose from Emerson’s sharp competitive maneuvers after the

3 A sample of the deceptive practices enumerated in § 104 includes “[fJalsely passing off goods or services
as those of another,” “[a]dvertising goods or services with intent not to sell them as advertised,” “[rlepresenting
that a service, replacement or repair is needed when it is not,” and “[c]ausing confusion or misunderstanding with
respect to the authority of a salesperson, representative or agent to negotiate the final terms of a consumer
transaction.” Tenn. St. § 104(b)(1}(9)(13)(14).

20


CONCLUSION
ss [docket items 8-

For the reasons stated above, the Court grants Emerson’s motions to dismi

14 of the amended complaint. The motions are otherwise denied.

{and 20-1] as to Counts 1, 2, 3 and

re January 22, 2003.

Sears has leave to file a further amended complaint on or befo

MATTHEW F. LLY
United States District Judge

Date: January 7, 2003

22


tooling it sold to Stump and State Line because those transactions extinguished Sears’ proprietary rights
in its secrets and exposed its secrets to the public. We find that Sears has stated a claim for trade
secret misappropriation. On the facts alleged, however, this claim cannot extend to any purported
trade secrets associated with the grinder sold to Stump and reacquired by Emerson.

First, the complaint adequately sets forth each element necessary to state a claim for trade
secret misappropriation. Sears alleges that its tooling and drawings are proprietary trade secrets,
Complaint, 4103, a proposition we must accept as true in a motion to dismiss. See Thompson, 300
F.3d at 753. Moreover, Sears alleges that Emerson used those secrets to produce power tools for
Sears’ competitor without Sears’ permission, and despite Sears’ efforts to prevent Emerson from doing
so, Emerson insists that Sears has offered no proof that its equipment was secret, and it argues that it
was entitled by contract to reverse-engineer Sears’ tooling. But these arguments are misplaced in a
motion to dismiss. Our task is simply to evaluate whether Sears has set forth the elements necessary to
plead misappropriation. See Higgs, 286 F.3d at 439; Dade Int'l, Inc. v. Iverson, 9 F. Supp. 2d 858,
863 (M.D. Tenn. 1998) (finding dismissal inappropriate when plaintiff asserted every element of the tort
for misappropriation of trade secrets). To the extent that Sears alleges that Emerson used tooling and
designs that it wrongfully retained at its Paris plant to produce tools for Home Depot, it has stated a
claim for misappropriation.

Emerson, however, offers a separate argument that Sears’ trade secret claim cannot extend to
the tooling that it purchased from Stump and State Line. As Emerson points out, “the voluntary
disclosure ... of ‘any alleged trade secret’ as part of a business transaction without reservation or

agreement of confidentiality prevents recognition of the information as a trade secret.” Turner v. Great

17


1990) (eighteen months); Vicom, Inc. v. Harbridge Merchant Services, Inc., 20 F.3d 771, 782 (7"
Cir. 1994) (nine months); Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 922 (7" Cir. 1992)
(eight months), longer schemes have survived judicial scrutiny. See United States v. Stodola, 953
F.2d 266, 270 (7 Cir. 1992) (twenty months). Sears has alleged that Emerson and others engaged in
racketeering activity from at least September 1997, when Emerson allegedly produced a fraudulent list
of tooling, through August 2000, when Emerson last assured Sears that it had not used its tooling to
compete. Given its three year duration, we cannot say that the scheme alleged fails to satisfy, for
purposes of a motion to dismiss, the standards for pleading a pattern.

3. RICO Enterprise

On the other hand, we do not think Sears has adequately alleged a RICO enterprise. Sears
alleges an “association in fact” enterprise, which is defined by statute as a “union or group of individuals
associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). Though an informal group may
constitute an enterprise, Sears must describe an “ongoing structure of persons associated through time,
joined in purpose, and organized in a manner amenable to hierarchical or consensual decision making.”
Stachon vy. United Consumers Club, Inc., 229 F.3d 673, 675 (7" Cir. 2000) (quoting Jennings v.
Emry, 910 F.2d 1434, 1440 (7" Cir. 1990)). Moreover, the enterprise alleged must be “an
organization with a structure and goals separate from the predicate acts themselves.” United States v.
Masters, 924 F.2d 1362, 1367 (7 Cir. 1991). If the “enterprise” is just a name for the fraudulent acts
alleged, or for the agreement to commit these acts, then it is not an enterprise within the meaning of the
statute.

Sears has alleged that Emerson, its “Special Products Division,” Q.C. Recycling, State Line

9


Sears asserts a substantive RICO claim under 18 U.S.C. § 1962(c). To state a claim under 18 U.S.C.
§1962(c), Sears must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering
activity. See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985); Slaney v. Int'l
Amateur Athletic Federation, 244 F.3d 580, 597 (7* Cir. 2001). Emerson argues that Sears’
allegations fail to set forth elements 2, 3 and 4. In considering Emerson’s arguments, we accept as true
all well-pleaded factual allegations and construe all inferences in the light most favorable to Sears.
Thompson, 300 F.3d at 753.

L Racketeering Activity

Sears’ substantive RICO claim must include allegations that Emerson engaged in racketeering
activity. Specifically, Sears must plead at least two valid RICO “predicate acts.” See Slaney, 244
F.3d at 599. Sears partially satisfies this burden by pleading nine instances of mail and wire fraud. See
Complaint, 455-69. As Emerson points out, however, Sears must allege that each of these acts is tied
to some “scheme or artifice to defraud.” See Reynolds v. East Dyer Development Company, 882
F.2d 1249, 1251 (7" Cir. 1989).

There is no doubt that Sears sufficiently alleges Emerson’s involvement in a scheme to defraud.
The complaint alleges that Emerson, with assistance from two straw purchasers, sought to “obtain
tooling and machines purchased by Sears which it would not lawfully be able to obtain for use in
creating product to sell to Sears’ competitor.” Complaint, 49. Sears asserts that Emerson and its
alleged partners concealed information and made a series of false representations calculated to carry
out its objectives. For example, Sears alleges that Emerson concealed Sears’ equipment and frustrated

its attempts to conduct an inventory at the Paris plant. Complaint, [{18-24. Sears also alleges that

6


DISCU:

When considering a motion to dismiss, the Court reads the complaint liberally, granting the

motion only if “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim

which entitles [it] to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957); First Ins. Funding Corp.
v. Federal Ins. Co., 284 F.3d 799, 804 (7* Cir. 2002). In support of its motions, Emerson argues
that Counts 1-10, 13, and 14 of Sears’ amended complaint (RICO violations, fraud, tortious
interference, inducement to breach contract, conversion, unjust enrichment, trade secret
misappropriation, civil conspiracy, Tennessee Consumer Protection Act) fail to state claims upon
which relief may be granted. In addition, Emerson argues that Sears has not alleged fraud with the
requisite particularity (Count 3) and that it is time-barred from asserting a claim under the TCPA
(Count 14).

A. Counts 1 and 2 (RICO)!

In Counts 1 and 2, Sears alleges that Emerson violated the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968. Specifically, Sears alleges that Emerson,
along with Q.C. Recycling, State Line Metals, Inc., and DRF Montrex, acting as an “association in
fact” enterprise, planned and executed a series of schemes to deprive Sears of tooling, intellectual
property, and competitive advantages. Complaint, {] 43-51. Emerson argues that Sears has failed to
allege adequately several of the requisite elements of a RICO claim.

In Count 1, Sears asserts a RICO conspiracy claim under 18 U.S.C. § 1962(d). In Count 2,

| We refer to each count as numbered and described in Sears amended complaint.

5


American Opportunities, Inc., 716 S.W.2d 40, 44 (Tenn. App. 1986). Sears would not normally be
required to plead the existence of a confidentiality agreement as part of its trade secrets claim. But the
complaint reveals that Sears sold some of its tooling to third parties, thereby publicly exposing any trade
secret value it might have. Complaint, 425, 35. A plaintiff can plead himself out of court by pleading
facts that undermine the allegations set forth in the complaint. McCormick v. City of Chicago, 230
F.3d 319, 325 (7th Cir. 2000). Thus, the complaint must allege some measures taken to secure the
confidentiality of any trade secret equipment that Sears sold to Stump and State Line. Sears does
allege that its contract with State Line included a promise “to destroy or disable” the tools. Complaint,
25. But Sears has pled itself out of court with respect to the grinder it sold to Weldon Stump. The
allegations surrounding that contract not only fail to allege the existence of a confidentiality agreement,
but in fact reveal that Sears hired Stump to resell the grinder. It is irrelevant that the contract also
contained a promise not to sell to Emerson, for a trade secret cannot be kept from a single company,
and held open to the rest of the world. Thus, Sears has stated a trade secret misappropriation claim,
but not one that extends to the grinder Emerson acquired from Weldon Stump.

F Count 13 (Civil Conspiracy)

In Count 13 of its amended complaint, Sears asserts a claim for civil conspiracy. To state a
claim for civil conspiracy, Sears must allege that Emerson acted together with at least one other person
acted together to accomplish an unlawful purpose, or to accomplish an otherwise lawful purpose
through unlawful means. Braswell v. Carothers, 863 S.W.2d 722, 727 (Tenn. App. 1993). Sears
must also allege that Emerson and its co-conspirators acted together with a common design, that they

committed at least one overt act in furtherance of the conspiracy, and that their actions resulted in injury

18


scheme to defraud and has thus alleged the “racketeering conduct” essential to its §1962(c) claim.

2. RICO Pattern

Emerson next argues that even if Sears has properly alleged racketeering activity, it has failed to
identify a pattern of activity sufficient to state a RICO violation. To plead a pattern of racketeering
activity, a RICO plaintiff must allege a series of predicate acts of racketeering that show “continuity plus
relationship.” Sedima, 473 U.S. at 496. In the Seventh Circuit, courts examine four factors to identify
a RICO pattem: (1) the number and variety of predicate acts and length of time over which they were
committed; (2) the number of victims; (3) the presence of separate schemes; and (4) the occurrence of
distinct injuries. Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7" Cir. 1986). In order to
demonstrate a pattern over a closed period, where no continuing threat of racketeering activity is
expressly alleged, a plaintiff must identify a “series of related predicates extending over a substantial
period of time.”” Vicom v. Harbridge Merchant Services, Inc., 20 F.3d 771 (7* Cir. 1994) (quoting
HJ, Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 242 (1989)).

Emerson argues that Sears has failed to allege a series of racketeering acts sufficient to show
continuity. It further contends that the Morgan factors weigh in its favor, as Sears’ pleadings outline a
single overall scheme to defraud, with one basic injury to one victim. The Seventh Circuit, however,
has emphasized that the duration of racketeering activity is the crucial element for discerning a RICO
pattern, especially in a closed-ended, single-scheme claim. See Midwest Grinding Co., Inc. v. Spitz,
976 F.2d 1016, 1024 (7 Cir. 1992) (“duration is perhaps the closest thing we have to a bright-line
continuity test”). Though particularly short-lived single victim schemes have failed to show the

continuity necessary to demonstrate a pattern, see Hartz v. Friedman, 919 F.2d 469, 474 (7 Cir.

8


‘Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge Matthew F, Kennelly than Assigned Judge
CASE NUMBER 02 C5771 DATE 1/7/2003 i
CASE Sears Roebuck and Co. vs. Emerson Electric Co.
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.] :

DOCKET ENTRY:

qd) oO Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) 0 Answer brief to motion due. . Reply to answer brief due.

(4) Oo Ruling/Hearing on set for at

(5) 0 Status hearing[held/continued to] [set for/re-set for] on set for at

(6) 0 Pretrial conference[held/continued to] [set for/re-set for] on set for at

(7) oO Trial[set for/re-set for] on at

(8) ia} {Bench/Jury trial] [Hearing] held/continued to at

(9) QO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}

OOFRCP4(m) Local Rule 41.1 CI FRCP41(a)(1) 1 FRCP41(a)(2).

(io [Other docket entry] For the reasons set forth on the attached Memorandum Opinion and Order,
the Court grants Emerson’s motions to dismiss (8-1 and 20-1) as to Counts 1, 2, 3 and 14 of the amended
complaint. The motions are otherwise denied. Sears has leave to file a further amended complaint on or
before 1/22/03.

ql) @ [For further detail see order attached to the original minute order.)

No notices required, advised in open court. Document
- - Number
No notices required. umber of notices :
Notices mailed by judge's staff. JAN 0 9 2003
Notified counsel by telephone. date docketed
Y_ | Docketing to mail notices. a
Mail AO 450 form.
en-s'n Jepubyinkile
Copy to judge/magistrate judge. yunos Jats ysia's
courtroom _ pyr eu date mailed notice
OR deputy’s €0:4 Wa 8 mie
initials Sun — TW
vate/tit eH) no 4
central Clgbit's Beda rang dep nts
- —E7~ aa)



v. Birman Managed Care, Inc., 42 S.W.3d 62, 66-67 (Tenn. 2001).? Emerson argues that Sears has
failed to identify material misrepresentations with specificity. It also contends that Sears has not alleged
reasonable reliance. More generally, Emerson characterizes Sears’ grievances as breach of contract
allegations; it insists that Sears cannot seek recovery in tort. We find that Sears has stated a claim for
fraud but agree with Emerson that Sears must plead the circumstances of the fraud with greater
particularity.

Sears’ complaint sets forth a series of distinct representations that it alleges Emerson made to
gain title to Sears’ tooling, and to conceal its efforts to do so. Complaint, 71. For example, Sears
alleges:

In April 1999, Emerson told Sears and Sears’ agents that the tooling made ready for

disabling by State Line was not organized in any particular order and that spray paint

marks on the tools had no particular significance, when in fact the tools were organized

and spray-painted to identify them so that they could be sold to a straw purchaser, Q.C.

Recycling, and back to Emerson.

Complaint, 471(f). Sears also alleges that in April 1998, Emerson told Sears that it would have to
close its Paris plant when it was actually planning to operate the plant for a competitor, Complaint,
{71(e), and that in September 2000, Emerson told Sears that it had obtained its tooling in an arm’s
length transaction, when in fact it bought the tooling through straw purchasers. Complaint, $71(h).
Sears alleges that these statements and others were false, and were made “for the purpose of inducing

Sears to act or refrain from acting.” Complaint, 73. Sears also pleads reasonable reliance on these

misrepresentations. Complaint, 74. It is clear that the complaint covers each of the elements

2 The parties appear to agree that Tennessee law applies to Sears’ state law claims. Because the issue is
not disputed in their briefs, we refer to Tennessee law to supply the substantive elements of these claims.

11



Metals, Inc., and DRF Montrex formed an enterprise. Complaint, {43. But the description of the
racketeering scheme Sears’ alleges undermines the sufficiency of this claim. Sears states that
“[mJembers of the enterprise would and did agree to the commission of multiple acts of racketeering, in
the conduct of the affairs of the enterprise,” Complaint, 144. The only “affairs of the enterprise”
described, however, are the very predicate acts that Sears alleges have caused its injuries. Sears does
not suggest that the “enterprise” had its own structure or any goals beyond the commission of the
specific predicate acts involved here; DRF Montrex and Q.C. Recycling were simply entities that
Emerson recruited to carry out its dirty work. Though Sears has sufficiently described a conspiracy led
by Emerson, it has not adequately alleged the existence of an enterprise. See Bachman v. Bear,
Stearns & Co., 178 F.3d 930, 932 (7" Cir. 1999) (dismissing RICO claim for failure to allege
enterprise where fraud was committed by four persons over several years, and explaining that group
conspiracy to commit fraud without more does not constitute RICO violation).

4. RICO Conspiracy

Because Sears has failed adequately to allege a RICO enterprise, it does not state aclaim for
RICO conspiracy under 18 U.S.C. § 1962(c). See Stachon, 229 F.3d 673, 677 (7" Cir. 2000).

B. Count 3 (Fraud)

Emerson moves to dismiss Count Three under Rules 12(b)(6) and 9(b), arguing that Sears has
failed to state a claim for fraud or has at least failed to plead the circumstances of the fraud with the
necessary particularity. To state a claim for fraud, a plaintiff must allege (1) that the defendant
intentionally misrepresented a material fact or produced a false impression in order to mislead another,

and (2) that the plaintiff suffered an injury caused by reasonable reliance on the representation. Brown

10


Emerson marked and arranged some of the tooling before it left the Paris plant so that a straw
purchaser could retrieve it more easily. Complaint, []27-33. Moreover, Sears alleges that Emerson
paid its straw purchasers over $300,000 to misrepresent themselves or to interfere directly with Sears’
contractual safeguards. Complaint, #959-65. We also note that various steps of the scheme alleged by
Sears are linked directly to acts of wire or mail fraud. For instance, Sears pleads specific dates on
which it alleges that Emerson faxed purchase orders to Q.C. Recycling and DRF Montrex. Sears also
identifies mailings it alleges were sent between Emerson and DRF Montrex effecting their plan to
purchase Sears’ grinding machine.

Despite these detailed allegations, Emerson contends that Sears never identifies activity
tantamount to fraud. Emerson argues that a racketeering “scheme to defraud” is narrowly defined, and
requires a plaintiff to allege reasonable reliance on specific misrepresentations. We acknowledge that
“not all conduct which strikes a court as sharp dealing or unethical conduct is a ‘scheme or artifice to
defraud.” Reynolds, 882 F.2d at 1252. However, causation and intent-not reliance-are required to
plead RICO fraud. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992);

United States v. Biesiadecki, 933 F.24 539, 544 (7" Cir. 1991)(“the appropriate inquiry is whether
[the defendant] possessed the intent to defraud”), We believe that Sears has adequately alleged
Emerson’s intent to defraud and that Emerson’s scheme caused its injuries. The complaint describes
misrepresentations and concealment efforts employed by Emerson to retain or regain possession of
equipment that Sears refused to sell and that it contracted to keep Emerson from using. Moreover,
Sears claims that this scheme caused it economic damage by allowing a competitor to enter the market

faster and at a lower cost than it could have otherwise. We believe that Sears has properly alleged a

7



parties’ contract had terminated.

Sears argues that the list of prohibited deceptive practices in § 104 is non-exhaustive, and that
the TCPA should be liberally construed to reflect a catch-all provision in that section which prohibits
“any other act or practice which is deceptive to the consumer or to any other person.” Tenn. St. §
104(b)(27). But this general language must be informed by the range of examples that precedes it.
See, eg., Lyons v. Rasar, 872 S.W.2d 895, 897 (Tenn. 1994) (explaining that “where general words
follow special words which limit the scope of the statute, general words will be construed as applying to
things of the same kind or class as those indicated by the preceding special words”). Sears cites no
authority, and we have discovered none, that convinces us that Tennessee courts would be willing
expand the TCPA to embrace deceptive practices unrelated to consumer transactions or consumer
injury. The only court we found to have considered the question refused to apply the Act where the
plaintiff's suit was not based on “any type of consumer transaction.” Operations Mgmt. Int'l, Inc. v.
Tengasco, Inc., 35 F. Supp. 2d 1052, 1058 (E.D. Tenn. 1999).

Sears’ reliance on Myint v. Allstate Ins. Co., 970 S.W.2d 920 (Tenn. 1998), is misplaced.

The Tennessee Supreme Court in that case extended application of the TCPA to grievances arising out
of the acts and practices of insurance companies. Jd. The suit at issue was clearly rooted in
transactions between insurers and their customers. Although the court made reference to the catch-all
provision in § 104, it did not read that section to expand the TCPA beyond the field of consumer
protection. Rather, it considered the catch-all clause as evidence that consumers could recover for
deceptive insurance practices under the Act, notwithstanding the comprehensive regulation scheme in

place to govern the insurance industry. Jd. at 925-926.

21


Sears and Emerson offer dramatically different versions of the events that unfolded during and
after Sears’ audit. For purposes of this Rule 12(b)(6) motion, however, we will focus on the narrative
offered by Sears’ well-pleaded factual allegations. See Hishon v. King & Spaulding, 467 U.S. 69, 73
(1984); Thompson v. Illinois Dep’t of Prof'l Regulation, 300 F.3d 750, 753 (7" Cir. 2002).

According to Sears, Emerson erected a series of hurdles to prevent it from conducting an effective and
comprehensive inventory of its tooling. First, Sears alleges that its representatives were forced to sign a
confidentiality agreement as a condition of the audit. The terms of this agreement, Sears claims, limited
the number of persons who could conduct the audit, precluded the use of cameras, and forced Sears’
auditors to perform its tasks during non-production hours in the evening and early morning. Sears also
asserts that Emerson’s employees attempted to intimidate the auditors and made false or misleading
statements about the location of some of Sears’ property. Further, Sears claims that Emerson

concealed a significant amount of its tooling in an abandoned shirt factory and falsely presented some of
the equipment stored in the factory as scrap material. As a result of these tactics, Sears contends, it

was unable to locate and account for all of its tooling.

In the spring of 1999, Sears made efforts to take possession of its tooling from Emerson.
According to the pleadings, Sears hired State Line Metals, Inc., a Tennessee scrap dealer, to take
possession of and disable some of the tooling. Sears claims that as a condition of payment, State Line
agreed not to resell the tooling to Emerson. Pursuant to the agreement, State Line retrieved the tooling
from Emerson’s warehouse. But not all of the equipment was disabled. Instead, State Line sold some
of the tooling to Q.C. Recycling Inc., which Sears claims was a “straw purchaser” enlisted by Emerson

that in turn resold the tooling to Emerson. Sears claims that Emerson has since used the tooling to

3



points out however, a party is free to enter into a contract through its agent, provided that it complies
with certain principles of agency law. See, e.g., Webber v. State Farm Mut. Automobile Ins. Co., 49
S.W.3d 265 (Tenn. 2001), Though Sears will have to generate the details of its contracts with Stump
and State Line through discovery, as a matter of pleading, it is sufficient for Sears to allege generally
that it entered into these contracts through its agent. See Higgs v. Carter, 286 F.3d 437, 439 (7" Cir.
2002) (“T]he federal rules require ... only that a complaint state a claim, not that it plead the facts that

if true would establish ... that the claim was valid).

Finally, Emerson argues that Sears has not alleged the existence of a legally enforceable
contract, in that the complaint fails to allege that Sears’ contracts with Stump and State Line were in
writing. Emerson seems to be arguing that a tortious interference claim requires a plaintiff to allege that
the contract in question does not violate the statute of frauds. As Sears points out, however, this
argument misconceives the federal pleading requirements and misstates the law. The statute of frauds is
an affirmative defense to breach of contract, not a substantive element of a plaintiff's claim. Hixson v.
Stickley, 493 S.W.2d 471 (Tenn, 1973) (statute of frauds is an affirmative defense to be pled in
defendant’s answer and not in plaintiff's complaint). Even were it otherwise, a plaintiff is allowed to
plead its claims generally, and “need not allege each element of a cause of action,” Jet Inc. v. Shell Oil
Inc., No, 02 C 2289, 2002 WL 31641627, at *8 (N.D. Ill. Nov. 22, 2002) (internal quotation marks

omitted).

D. Counts 8 and 9 (Conversion and Unjust Enrichment)

In Count 8, Sears alleges conversion of both the tooling that Emerson obtained from Stump and

14


ambiguities in the plaintiff's favor. See Thompson, 300 F.3d at 753. Emerson is entitled to raise the
release as a defense, but the release does not entitle it to dismissal of the complaint.

The same basic analysis applies to Sears’ claim in Count 9 for unjust enrichment. That claim
requires Sears to allege (1) a benefit conferred upon the defendant; (2) appreciation by the defendant
of the benefit; and (3) acceptance of the benefit without payment of its value. Ergon, Inc. v. Amoco
Oil Co., 966 F. Supp. 577, 586 (W.D. Tenn. 1997) (citing Paschall’s Inc. v. Dozier, 219 Tenn. 45,

407 S.W.2d 150, 154-155 (Tenn. 1966)). The complaint alleges that Emerson will be unjustly

enriched if it is permitted to retain ownership of “the drawings and tooling.” Complaint, J101. We
agree with Emerson that Sears’ unjust enrichment claim cannot extend to the tooling Emerson obtained
through Stump and State Line, as Emerson actually furnished consideration for that equipment, and
Sears has not alleged the consideration’s insufficiency. See Chase Manhattan Bank, N.A. v. CVE,
Inc., 206 F. Supp. 2d 900 (M.D. Tenn. 2002). As to the “tooling and drawings” that Sears’ claims
Emerson wrongfully retained in its Paris plant, Count 9 is sufficient to state a claim for unjust
enrichment.
E. Count 10 (Trade Secret Misappropriation)

Emerson next moves to dismiss Sears’ common law claim for trade secret misappropriation.
To state a claim, Sears must allege (1) the existence of a trade secret that is communicated to the
defendant while the defendant is a position of trust and confidence, and (2) use of that information by
the defendant to the plaintiff's detriment. Hickory Specialties, Inc. v. B&L Laboratories, Inc., 592
S.W.2d 583 (Tenn. App. 1979). Emerson argues that Sears has not adequately alleged the existence

of a trade secret. Alternatively, it contends that Sears cannot claim trade secret protection over the

16



“(t]he tooling shall remain the personal property of Sears at all times during this agreement,” and
instructed that Emerson “shall not use the tooling for any purpose other than the manufacture of goods
for Sears, without Sears’ prior written approval.” Complaint, 10.

On June 30, 1997, Sears terminated its contract with Emerson. Emerson offered to purchase
certain tooling remaining at the Paris plant, but Sears refused. On October 31, 1997, the parties
entered a termination agreement that further defined Emerson’s rights relative to Sears’ tooling. That
agreement states that “Emerson hereby warrants and represents to Sears that neither Emerson nor
anyone acting on its behalf (i) has used the tooling, dies, patterns, molds, drawings and designs ...
purchased or paid for, in whole or in part, by Sears under the Tooling Agreements entered into
between Emerson and Sears ... to produce new Tooling for Emerson or (ii) has used the Tooling to
produce any products sold or offered for sale to any party other than Sears.” Complaint, 414. Ona
number of occasions after the execution of the termination agreement, Emerson reaffirmed this
guarantee, stating to Sears that it had not used and would not use Sears’ drawings or tooling to
manufacture products for Sears’ competitors. Complaint, 415.

During the spring of 1998, Sears and Emerson began discussing Sears” plans to take
possession of its tooling. At that time, Emerson developed a list of Sears-owned tooling at the Paris
plant. Sears responded skeptically to the contents of the list, questioning whether Emerson had
provided a full and accurate inventory of its property. Thereafter, Sears requested an audit of the Paris
plant, and Emerson agreed. Accompanied by personnel from the accounting firm of Deloitte and
Touche, Sears representatives traveled to the Paris plant to conduct their own inventory of the tooling in

Emerson’s possession.


IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS -gsa\
EASTERN DIVISION et
SEARS ROEBUCK AND CO. )
Plaintiff, }
vs. ) Case No, 02 C 5771 : . aioe
EMERSON ELECTRIC CO. ; tee
Defendant. }

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:

Sears Roebuck and Co. has sued its former power tool supplier, Emerson Electric Co., for
violations of the Racketeer Influenced and Corrupt Organizations Act, breach of contract, fraud, civil
conspiracy, trade secret misappropriation, and other state law violations arising from Emerson’s alleged
conduct following the termination of the parties’ 30-year contractual relationship. The case is before
the Court on Emerson’s motion to dismiss. ,

CTU, CKGR:

From 1968 through 1997, Emerson and Sears were parties to a supply contract under which
Emerson manufactured power tools at a plant in Paris, Tennessee that Sears then purchased and sold at
retail under the Craftsman brand name. Under the contract, Sears purchased manufacturing equipment
(“tooling”) for the Paris plant. The contract provided generally that Sears would retain ownership of the

tooling, but it contemplated a series of separate agreements to govern each tooling acquisition that

became necessary throughout the contract term. Each of these later tooling agreements provided that

OM



necessary to establish fraud.

We reject Emerson’s argument that Sears has miscast a breach of contract claim as a cause of
action for fraud. A simple claim that Emerson has broken its promise not to use Sears’ tooling to
benefit a competitor would, in fact, be nothing more than a breach of contract claim. But the facts
alleged reveal Emerson’s elaborate efforts to conceal its breach of contract and to prevent Sears from
responding to the breach effectively. This element of deception allows Sears to state a claim for fraud.
See Rawlings v. The John Hancock Mutual Life Ins. Co., 78 S.W.3d 291 (Tenn. App. 2001)
(explaining that basic ingredient of fraud claim is deception); see also Trans Union LLC v. Credit
Research Inc., No. 00 C 3885, 2001 WL 648953, at *7 (N.D. Ill. June 4, 2001) (“If a party makes
false statements in an attempt to conceal a breach, that can be fraud.”).

Sears must, however, plead the circumstances constituting the alleged fraud with some greater
specificity. To satisfy the requirements of Rule 9(b), Sears must plead the “who” of the alleged fraud
along with the “what,” “where,” and “when” that now appears in its complaint. See Ackerman v.
Northwestern Mut. Life Ins, Co., 172 F.3d 467, 469 (7 Cir. 1999). Though Sears sets forth the
gist of certain alleged representations, and provides the specific calendar months in which they were
made, it fails to identify the individuals at Emerson responsible for making the alleged statements. We
therefore dismiss Count 3 with leave to file a further amended complaint within 14 days.

c Counts 4-7 (Tortious Interference)

Counts 4-7 focus on Emerson’s alleged interference with Sears’ contracts with Weldon Stump

and State Line Metals to resell and dispose of its tooling. Counts 4 and 5 allege common law claims for

tortious interference with contract. Counts 6 and 7 allege Tennessee state law claims for inducement to

12



State Line and the tooling and drawings that Sears claims Emerson wrongfully retained during and after
the contractual relationship ended. Emerson moves to dismiss this claim as to both categories of
property, contending (1) that Sears pleaded no current legal right in the tooling that Emerson obtained
from Stump and State Line, and (2) that Sears has released any claim related to property that Emerson
might have misappropriated during the period that the contract was in force. To state a claim for
conversion, a plaintiff must allege that the defendant appropriated property to its own use and benefit,
by the exercise of dominion over it, in defiance of the plaintiff's right. Barger v. Webb, 391 S.W.2d
664, 665, 216 Tenn. 275, 278 (Tenn. 1965). Given the facts alleged in the complaint, we agree that
Sears cannot claim conversion with respect to the tooling Emerson purchased through Stump and State
Line. A party cannot recover for conversion of property, the title to which is held by another, AHCI
v. Short, 878 S.W.2d 112, 144 (Tenn. App. 1993), and Sears relinquished its legal title to that tooling
when it was sold.

To the extent that Sears’ conversion claim involves equipment and intellectual property that
Emerson allegedly wrongfully disposed of prior to the parties’ termination agreement, its claim is
sufficient. Emerson’s argument based on the release clause in the termination agreement is unavailing, at
least for purposes of a motion to dismiss. The agreement indicates that Sears is barred from claiming
any breach, occurring before the execution of the termination agreement, and arising out of the parties”
“1968 Agreement or any other agreement or duty between the parties relating to Emerson’s
manufacture or sale of the Products to Sears.” Complaint, Ex. 3, p.4. But it is unclear to the Court
whether that language bars the claim that Emerson stole or misappropriated Sears’ property in the

context of the parties’ contractual relationship. On a motion to dismiss we are bound to construe

15