Onvi, Inc. v. Radius Project Dev.

ONVI, INC., Plaintiff, v. RADIUS PROJECT DEVELOPMENT, INC., and JABIL, INC., Defendants.

No. 19 C 3201

United States District Court, N.D. Illinois, Eastern Division

February 23, 2022

MEMORANDUM OPINION AND ORDER

Gary Feinerman Judge

Onvi Inc. brings this diversity suit against Radius Project Development, Inc. and Jabil, Inc., alleging common law fraudulent misrepresentation, fraud in the inducement fraudulent concealment, breach of contract, promissory estoppel, unjust enrichment, and conversion. Doc. 104. (The court dismissed Onvi's statutory fraud claims under Civil Rule 12(b)(6), Docs. 72, 74 (reported at 2020 WL 4607242 (N.D. Ill. Aug. 11, 2020), and Onvi did not attempt to replead them, Doc. 104 at p. 21 n.1.) Radius asserts counterclaims against Onvi for breach of contract and unjust enrichment. Doc. 121 at pp. 23-24.

With discovery closed, Radius and Jabil move for summary judgment on all claims against them, Docs. 113, 116, and Onvi moves for summary judgment on Radius's breach of contract counterclaim, Doc. 110. Onvi's motion is denied Radius's motion denied as to part of Onvi's contract claim and granted in all other respects; and Jabil's motion is denied as to Onvi's fraudulent concealment claim and granted in all other respects.

Background

Because the parties cross-move for summary judgment, the court ordinarily would view the disputed facts in the light most favorable to Onvi when considering Defendants' motions and in the light most favorable to Defendants when considering Onvi's motion. See First State Bank of Monticello v Ohio Cas. Ins. Co., 555 F.3d 564, 567 (7th Cir. 2009) (“[B]ecause the district court had cross-motions for summary judgment before it, we construe all facts and inferences therefrom in favor of the party against whom the motion under consideration is made.”) (internal quotation marks omitted). But because the court will grant in substantial part Defendants' motions and deny Onvi's the facts are set forth as favorably to Onvi as the record and Local Rule 56.1 permit. See Garofalo v. Village of Hazel Crest, 754 F.3d 428, 430 (7th Cir. 2014). At this juncture, the court must assume the truth of those facts, but does not vouch for them. See Gates v. Bd. of Educ., 916 F.3d 631, 633 (7th Cir. 2019).

A. Onvi

Onvi is a start-up dental technology company founded to develop Prophix, a wireless toothbrush designed to enable users to take and transmit high-quality video and photographs of their teeth. Doc. 134 at ¶ 3; Doc. 131 at ¶ 2; Doc. 127 at ¶ 3. At all relevant times, “Onvi was led by a team of sophisticated, educated and credentialed individuals.” Doc. 131 at ¶ 3. Onvi's founder and chief executive officer, Dr. Craig Kohler, is a practicing dentist with a Doctorate of Dental Surgery and an MBA; he had previously run his own dental practice, managed employees, paid taxes, and contracted for sophisticated dental equipment. Doc. 127 at ¶ 4. Onvi's other officers included chief marketing officer Emily Kohler, who had “nearly a decade of experience in marketing strategy, operations, and business management”; chief operating officer and chief financial officer Alex Riemer, who had an advanced degree in engineering management and had worked for companies making high-tech products; and Jamail Carter, Riemer's successor as chief operating officer, who had an MBA and had worked to successfully develop early-stage companies over his entire career. Doc. 131 at ¶¶ 4-6; Doc. 127 at ¶¶ 5-7. B. Onvi's Preliminary Negotiations with Radius

To develop Prophix, Onvi sought the assistance of Radius, a product design and development firm. Doc. 134 at ¶¶ 4, 8; Doc. 127 at ¶ 1. At ¶ 2014 meeting with the Kohlers, Radius gave a presentation that included oral representations that Radius could get Prophix to market in “about one year.” Doc 134 at ¶¶ 12-13, 32. Craig was “very impressed that the proposals would be done in the amount of time that was estimated.” Doc. 112-2 at 22 (83:23-83:25). Onvi asserts that it relied on this one-year timeline in deciding to contract with Radius. Doc. 134 at ¶ 33.

Radius further represented “that [Radius] would own the Prophix project in-house except for the use of an outside contractor for website development.” Id. at ¶ 14; Doc. 112-3 at 12 (44:15-44:24) (Emily testifying that Radius “said it would own [Prophix development] inhouse, and the only reference to an outside contractor was in regards to the website development”). Additionally, Radius told Onvi that it “had the capabilities of electronic engineers in-house” to work on Prophix. Doc. 134 at ¶ 16; Doc. 112-2 at 24 (90:17-91:12) (Craig's testimony). At the time, however, Radius did not employ any electrical engineers in its Chicago office, save a lone intern. Doc. 134 at ¶¶ 19-20. Radius employed electrical engineers in other offices. Doc. 122-5 at 19 (71:1-71:6).

Craig told Radius during the meeting that he had never previously brought a product to market. Doc. 134 at ¶ 9. Additionally, according to Onvi, Craig's naïveté regarding product development and commercial transactions meant that he did not know what questions to ask during the parties' negotiations. Doc. 145 at ¶ 4. Although Onvi had access to and could have sought legal counsel during the negotiations, as it had retained the law firm Greenberg Traurig in connection with the Prophix project, it did not seek the advice of counsel because Radius's reputation led Craig to believe what Radius told him. Doc. 131 at ¶ 7; Doc. 145 at ¶ 3. C. Onvi's Contract with Radius

Following the 2014 meeting, Onvi entered a contract with Radius for development work on Prophix. The contract contemplated that Radius would develop a prototype of Prophix. Doc. 117-12 at 4, 14. The contract comprised a series of ten “proposals, ” dated from May 29, 2014, through May 25, 2016, setting forth the phases of development work that Radius would complete. Doc. 131 at ¶¶ 8, 14-15. Each proposal included these terms:

2. What Payment Terms. [Radius] will not commence work until [it] receive[s] a prepayment fee equal to 50% of the total amount estimated for each upcoming phase. Radius will progressively invoice at key project milestones each month.

3. Budget & Schedule. Unless otherwise specified, [Radius's] budget and schedule and non-binding estimates based upon [Radius's] experience, project complexity, and information provided by [Onvi] at the time of the proposal. Due to the complex nature of new product development, it is often not possible to estimate time and budget with absolute certainty. New information or requirements, including design inputs, arising during the course of the project and not included in this proposal have the potential to affect the program's costs and scope. Radius reserves the right to provide revised budget and schedule estimates based on required, necessary, requested, or negotiated changes.

Id. at ¶ 10. Onvi paid only $149, 750 of an estimated cost of $436, 000, or about 34%, for the prototyping phase. Doc. 131 at ¶ 15. Onvi thus failed to satisfy the 50% prepayment requirement for that phase.

As written, the contract did not impose a one-year deadline or other completion date for the development of Prophix. Id. at ¶ 18; Doc. 112-2 at 22 (82:20-83:3) (Craig testifying that the one-year timeline “was not memorialized” in writing). However, Radius repeatedly made oral and written representations about the product development schedule and deadlines for completion, including representations that Prophix could be developed within one year. Doc. 131 at ¶ 18 (“Radius represented that it could develop the product within a year … and provided written documents reflecting the dates for completion, including an October 8, 2016 [sic] showing that Prophix would be ready for manufacturing and delivery by May 10, 2017.”); Doc. 145 at ¶ 5 (“[A] working prototype was verbally promised to be ready by May 2016 … .”); id. at ¶ 8 (“Radius provided Onvi with multiple product schedules that included specific deadlines for completions of phases and for actual development and production of Prophix.”).

As written, the contract did not prohibit Radius from using outside contractors. Doc. 131 at ¶ 20. Indeed, at least seven of the ten proposals stated Radius's intention to “work with its electronics development partner.” Id. at ¶¶ 21-22. Craig “assumed” that the term “partner” referred to Radius employees rather than outside contractors. Doc. 112-2 at 28 (106:1-107:3). Although Radius's contractor “was not disclosed by name in the engineering proposals, ” Doc. 145 at ¶ 16, Radius told Onvi in January 2015 that “we may need to partner (sooner and more intensely than previously envisioned) with one of our electrical engineering development partners.” Doc. 134 at ¶ 14. Some four months later, Radius disclosed the contractor's name and projected fees, as well as Radius's margin on those fees, but Onvi believed that the contractor was an “ordering house” rather than an engineering firm. Doc. 131 at ¶¶ 23-24. Onvi did not learn until April 2016 that the contractor was, in fact, a contractor. Doc. 145 at ¶ 21.

In October 2016, Radius submitted to Onvi a final proposal setting forth an estimated timeline of the remaining work required to complete Prophix and bring it to the commercial manufacturing stage. Doc. 131 at ¶ 16. Onvi did not agree to the proposal, and Radius never completed the Prophix project. Ibid. Onvi has an outstanding balance of $110, 170 for the work Radius performed. Id. at ¶ 29. Onvi acknowledges the outstanding balance, but submits that it does not owe any money because Radius fraudulently induced it to enter the contract and failed to perform its contractual obligations. Ibid.

Because of the outstanding balance, Radius did not give Onvi certain...