IX. March 8-April 13, 1990: Chronology of 89c1113 and 89c1114 through the date when the 89c1114 case was dismissed in accordance with the settlement contract. 

  1. March 8-28:  Negotiating the 89c1114 settlement contract.
    1. The litigants’ asymmetrical information regarding the Everfresh entities.
    2. Stetler’s five-part proposal.
    3. The strategic decision to pursue discovery concessions rather than dollars.
    4. Grove Fresh’s conditions.
    5. The pecuniary value of the agreements regarding the Rule 30(b)(6) depositions.
    6. The implicit promise to forego a strategy of litigation by attrition.
    7. Stetler’s fraudulent misrepresentation regarding the age of the Flavor Fresh label.
    8. The March 20th discovery conference.
    9. McDermott Will & Emery’s unambiguous concession that discovery regarding Holiday Juice was within the scope of the 89c1113 case.
    10. The recitals regarding the Overlapping Claims.
    11. The recital regarding the age of the Flavor Fresh brand.
    12. The materiality of specific due dates for the discovery program.
    13. The provisional agreement regarding a confidentiality order.
    14. McDermott Will & Emery’s concession that the 89c1113 confidentiality order would not authorize or require the parties to file papers under seal.
    15. Mr. Troy’s reasons for accepting the 89c1114 settlement contract.
  2. The fraud that induced Grove Fresh to execute the settlement contract.
    1. The defense’s duty to disclose the existence of the Canadian Everfresh Inc. to avoid confusing or deceiving the public.
    2. Hugo Powell’s fraudulent failure to disclose the existence of the Canadian Everfresh Inc.
    3. McDermott Will & Emery’s fraudulent failure to disclose the existence of the Canadian Everfresh Inc., in violation of IRCP 4.1(b).
    4. McDermott Will & Emery’s fraudulent misrepresentation regarding the age of the Flavor Fresh label, in violation of IRCP 4.1(a).

A. March 8-28:  Negotiating the 89c1114 settlement contract.

As I was walking out of Judge Bua’s courtroom on March 8, attorney Stetler made a settlement proposal.  Within a day, we reached an agreement in principle.  Negotiating the details and memorializing the terms took several weeks; the settlement contract was executed as of March 28, 1990. 

Sections 1 through 15, below, summarize these negotiations.

1. The litigants’ asymmetrical information regarding the Everfresh entities.

As has been mentioned several times, Mr. Troy and I knew of only one Everfresh entity—the corporation domiciled in Michigan that had registered with the Illinois Secretary of State.  Of course, Stetler and his partners knew that there were two entities named Everfresh Inc.  This asymmetrical[1] information regarding the Everfresh entities was essential to the fraud that induced Grove Fresh to execute the 89c1114 settlement contract.  See discussion in §B, below.

Grove Fresh’s ignorance of the second Everfresh entity was not due to a negligent investigation by Grove Fresh; rather, the Canadian Everfresh Inc.’s failure to register with the Illinois Secretary of State, as required by law, made it practically impossible for anyone to discover that it existed.  Moreover, there were at least six occasions when candor in court papers,[2] or in conversations[3] or letters,[4] or in answering discovery,[5] would have revealed the existence of the second entity.

2. Stetler’s five-part proposal.

Stetler made a five-part settlement proposal that included dismissing the 89c1114 case immediately and creating a framework for resolving 89c1113 within the space of a few months.  Key to his proposal was the concept of the Overlapping Claims, i.e., the Flavor Fresh-brand products co-packed by Everfresh that were in issue in both 89c1113 and 89c1114. 

Stetler’s proposal was as follows:

3. The strategic decision to pursue discovery concessions rather than dollars. 

Stetler told me that the $70,000 was the maximum that Flavor Fresh could afford to pay to settle the 89c1114 claims that would be dismissed with prejudice. 

Stetler may have been bluffing, but Mr. Troy and I made a strategic decision to take him at his word.  Instead of demanding more money upfront, we would demand concessions in discovery in the 89c1113 case.  We believed that in the long run, having a particularized discovery program incorporated into an enforceable contract would be more valuable than the extra dollars that might be squeezed out of Flavor Fresh. 

4. Grove Fresh’s conditions.

Stetler’s proposal was an acceptable framework for negotiation, I told him, but Grove Fresh wanted some specific guarantees before it would bifurcate the 89c1114 claims and yield the leverage it had just gotten from Judge Bua’s rulings.  I set four conditions for Grove Fresh’s agreement to a bifurcation of the 89c1114 claims:

Stetler agreed on the spot to all four conditions. 

5. The pecuniary value of the agreements regarding the Rule 30(b)(6) depositions.

Everfresh’s agreement to produce Rule 30(b)(6) witnesses in Chicago had a pecuniary value to Grove Fresh.  In the aggregate, the notices required testimony on 14 different subjects.  Under Rule 30(b)(6), Everfresh had "a duty to prepare" the witnesses who agreed to testify so that they could "speak for the corporation” and provide Grove Fresh with “all discoverable information" on these 14 subjects. Federal Deposit Insurance Corp. v. Butcher. 116 F.R.D. 196, 201 (E.D. Tenn. 1986) [emphasis in the original]. 

In the aggregate, the 14 subjects encompassed all of the issues that Grove Fresh would have to cover in its case-in-chief on liability for compensatory and punitive damages.

If Everfresh were to honor this agreement, Grove Fresh would save the considerable sums that would have to be expended on a dozen or more out-of-town depositions. The economic benefit of this agreement weighed heavily in Grove Fresh's decision to settle 89c1114.

6. The implicit promise to forego a strategy of litigation by attrition. 

The defendants and their lawyers were on the plus side of enormous asymmetries in lawyers,[6] fee arrangements,[7] and financial resources.[8]  These asymmetries put them in a position to pursue a strategy of litigation by attrition, if they wished to do so. 

Stetler’s settlement proposal, as fleshed out by Grove Fresh’s conditions and then memorialized in ¶¶9-10 of the settlement contract, implicitly promised that the defense would forego a strategy of litigation by attrition.  If the discovery program described in those paragraphs were followed, Grove Fresh would be able to complete its pre-trial investigations in a matter of months, with minimal out-of-pocket expenditures and a modest investment of attorney time.  Grove Fresh could then return to the bargaining table armed with sufficient information for negotiating a fair, arms-length settlement. 

These promises were material to Grove Fresh’s decision to execute the settlement contract.

7. Stetler’s fraudulent misrepresentation regarding the age of the Flavor Fresh label. 

As of March 8, the date Stetler made his settlement proposal, the only sales data Grove Fresh had received was for the years 1986 forward.  That day, Stetler acquiesced to my demand for sales data for the years 1983-85 for those products underlying the claims that would be compromised and released for a lump-sum payment. 

A day or two later Stetler told me that he had checked with his client, and that there was no data responsive to my demand.  According to Stetler, the “Flavor Fresh” label was first brought to market in 1986; prior to that, Flavor Fresh allegedly used a variety of other name brands to market its products. 

Stetler’s representation about the age of the "Flavor Fresh" label would prove to be false.  Six months after the settlement closed, Marshall would testify that the label had been in the marketplace since 1979.[9] 

Honoring my request for 1983-85 sales data would have required Stetler to give me information regarding products packed by Holiday Juice, since Holiday Juice was the only co-packer who made hot-packed products for Flavor Fresh in those years; Boden Products didn’t co-pack for Flavor Fresh until 1986.[10] 

Lying about the age of the Flavor Fresh label facilitated the defense’s deception regarding the existence of two Everfresh entities.

8. The March 20th discovery conference.

On March 20, 1990, I met with Stetler to resolve any and all objections to the interrogatories, document requests, and Rule 30(b)(6) notices that were to be part of the discovery program created by the settlement contract.  The agreements reached at this conference were memorialized in a three-page letter dated March 21, 1990. 

9. McDermott Will & Emery’s unambiguous concession that discovery regarding Holiday Juice was within the scope of the 89c1113 case.

As we discussed in §VI-A-3, above, one of the Rule 30(b)(6) notices served in the 89c1114 case included a subpoena served on the Michigan Everfresh Inc.  This subpoena was one of three Rule 30(b)(6) notices discussed at the March 20th discovery conference and later attached to the settlement contract. 

This Rule 30(b)(6) notice required the Michigan Everfresh Inc. to designate a person to testify “[w]hether orange juice products manufactured by [Holiday Juice] were adulterated and if so,…the period of time during which [it] manufactured and sold adulterated orange juice.”  The notice also required Everfresh to produce “[a]ll documents that refer or relate to the manufacture, distribution, or sale of adulterated orange juice products by [Holiday Juice].” 

At the settlement conference, Stetler objected to four of the 11 subjects listed in the notice to the Michigan Everfresh Inc.; he did not object to any of the above-quoted requests concerning Holiday Juice.  His agreement to comply with those requests was an unambiguous concession that discovery regarding Holiday Juice was within the scope of the 89c1113 case.

10. The recitals regarding the Overlapping Claims.

After the objections to discovery had been resolved, Stetler and I finalized the settlement contract. 

The recitals in the settlement contract spelled out Grove Fresh's willingness to settle so long as it could pursue the Overlapping Claims in the 89c1113 case before Judge Zagel:

WHEREAS, Grove Fresh is willing to settle that portion of [89c1114] that relates to “Flavor Fresh” orange juice packed by entities other than Everfresh, so long as: (a) Grove Fresh can pursue in ...the pending [89c1113] Case, all claims arising out of “Flavor Fresh” orange juice packed by Everfresh; and ...

WHEREAS, the orange juice packed by Everfresh under the “Flavor Fresh” label is also in issue in the [89c1113] Case;

Grove Fresh's right to pursue the Overlapping Claims was again spelled out in paragraph 2 of the body of the settlement agreement:

The dismissal of [89c1114] shall not bar Grove Fresh from pursuing in other litigation, including the pending [89c1113] Case, claims it may have against Everfresh arising out of the “Flavor Fresh” orange juice packed by Everfresh....

11. The recital regarding the age of the Flavor Fresh brand. 

Mr. Troy had a different recollection about the date the Flavor Fresh brand first came to market; he thought the label had been in the market for many years before 1986.  I told Stetler about Mr. Troy’s recollection, but Stetler stuck to his contention. 

To resolve this factual disagreement in a way that protected Grove Fresh, I insisted that the settlement contract memorialize Stetler’s contention in the following recital:

WHEREAS, the orange juice distributed by Flavor Fresh is marketed under a variety of labels, including, since 1986, the "Flavor Fresh” label;

12. The materiality of specific due dates for the discovery program. 

Because of all the delays and problems we had encountered over the prior five months, I insisted that the settlement contract fix concrete dates for the discovery the defendants were promising to provide.  Paragraphs 9 and 10 of the settlement agreement fixed the following dates:

13. The provisional agreement regarding a confidentiality order.

During the negotiations leading to the 89c1114 settlement contract, Stetler asked me to stipulate to the entry of a protective order governing discovery.  I told him that Grove Fresh did not need a protective order for the information it would be disclosing, but that it would nevertheless agree to the entry of an order that would protect the confidentiality of Everfresh’s “legitimate competitive information.” 

I suggested that Stetler draft a proposed form of order so that we could arrange for its entry on or before April 9, the due date for Everfresh’s supplemental answers to interrogatories.  In the event that we were unable to work out the terms of an order by April 9, I promised that I would “maintain the confidentiality of your answers up to April 26, the date of Mr. Powell's deposition.”[11] 

I made it clear that I would “not agree to an order that would treat information concerning or relating to tortious acts as confidential business information.”  I would, however, agree informally to maintain for a limited period of time the confidentiality of any interrogatory answers or deposition testimony that disclosed such information. My agreement was for the period ending on May 7, 1990, which was ten days after the agreed-upon date for Powell's deposition.[12] 

The settlement contract was executed as of March 28, 1990—eleven days before the date for production of documents.  Nearly three weeks passed before McDermott Will & Emery, on April 16, finally sent me a draft of a proposed confidentiality order.[13]

14. McDermott Will & Emery’s concession that the 89c1113 confidentiality order would not authorize or require the parties to file papers under seal. 

As of March 1990 Local Rule 10 governed the handling of documents that are “sealed” or “suppressed.”[14]  LR 10 was opaque—approximately 1300 words organized into 10 subsections and 19 sub-subsections.  In my experience, LR 10’s procedures for filing sealed papers were cumbersome and filled with traps for the unwary.

I told Stetler that I would not agree to an order of confidentiality that required the parties to file papers under seal merely because the paper referred to, or attached, a document that had been designated as confidential.  Any genuinely confidential information filed with the court could be sealed on an ad hoc basis, I told him.

Stetler acceded to my demand.  The order of confidentiality that his firm would later propose, and that Judge Zagel entered, did not include the magic language that would authorize the filing of papers under seal.[15] 

15. Mr. Troy’s reasons for accepting the 89c1114 settlement contract. 

Cecil Troy was Grove Fresh’s president and controlling shareholder.  As of March 1990 he was 76 years old and under a physician’s care for heart problems.  He knew that if he were to take the 89c1114 case to trial, he would have to work long hours preparing his testimony and assisting with other aspects of the pretrial and trial process. 

Health was not Mr. Troy’s only concern.  He had been funding the costs of litigation with loans to Grove Fresh from his retirement accounts.  He knew that if he were to take the 89c1114 case to trial, his retirement accounts would have to make more loans so that Grove Fresh could pay for last-minute depositions; pay Dr. Brause’s fees and expenses; and pay the fees of an as yet unidentified expert witness on damages. 

I discussed with Mr. Troy the amount of time needed to complete the discovery program outlined in the settlement contract (two months, in my estimation) and then to negotiate a settlement (two to three months more, depending on the pace of progress by the expert we would hire for advice on damages). 

Taking all of these factors into account, Mr. Troy believed that the certainty of a settlement contract was a better alternative than the unpredictability of a trial for the following reasons:

B. The fraud that induced Grove Fresh to execute the settlement contract. 

“[C]ourts…find a duty of disclosure in cases where the defendant has special knowledge, or means of knowledge, not open to the plaintiff, and is aware that the plaintiff is acting under a misapprehension as to facts which would be of importance to him, and would probably affect his decision.”[16]

Here, the defendants had special knowledge that there were not one, but two Everfresh entities.  This knowledge was not open to Grove Fresh because the second Everfresh had not registered with the Illinois Secretary of State.  The 89c1113 defendants knew that Grove Fresh, in agreeing to the 89c1114 settlement contract, was acting under the misapprehension that there was only one Everfresh.  Consequently, they had a duty to disclose the true facts to Grove Fresh, but they deliberately failed to do so.  Their failure to disclose the true facts fraudulently induced Grove Fresh to execute the 89c1114 settlement contract.

1. The defense’s duty to disclose the existence of the Canadian Everfresh Inc. to avoid confusing or deceiving the public.

When the Canadian Everfresh Inc. moved its headquarters to Franklin Park, it had a legal duty to ask the Illinois Secretary of State for authority to transact business in the state,[17] but it never did.  If it had applied as required, its application would have been denied unless it agreed to use a name that would “be distinguishable upon the records in the office of the Secretary of State from the name or assumed name of any [other] domestic [or foreign] corporation…authorized to transact business in this State.”[18] 

The Canadian Everfresh Inc. knew or should have known that by failing to register, and by using the same fictional name as an affiliate that had previously registered here,[19] it might confuse third parties into mistaking it for the Michigan Everfresh Inc., or it might deceive third parties into believing that the Michigan Everfresh Inc. was the only corporation with that name doing business in Illinois.[20] 

Accordingly, whenever the Canadian Everfresh Inc. had dealings with a third party who mistook it for the Michigan Everfresh Inc., and was making a decision based on that mistake, it had a duty to disclose the true facts. [21] 

Similarly, whenever the Canadian Everfresh Inc. had dealings with a third party who was under the misapprehension that only one Everfresh Inc. was doing business in Illinois, and was making a decision based on that misapprehension, the Canadian Everfresh Inc. had a duty to disclose the true facts. [22]

2. Hugo Powell’s fraudulent failure to disclose the existence of the Canadian Everfresh Inc.

Hugo Powell was the president of both of the Everfresh entities as of the date that Grove Fresh executed the 89c1114 settlement contract.  He knew that Grove Fresh was under the misapprehension that that there was only one Everfresh Inc. doing business in Illinois; he also knew that Grove Fresh’s decision to execute the 891114 settlement contract rested on this misapprehension.  Under the circumstances, Powell had a duty to disclose that there was a second corporation named Everfresh Inc.; that this second corporation was domiciled in Canada; and that, in so far as the defense was concerned, the 89c1114 settlement contract was not binding on the Canadian Everfresh Inc.

Powell failed to disclose the true facts to Grove Fresh.  His failure to do so fraudulently induced[23] Grove Fresh to execute the 89c1114 settlement contract. 

3. McDermott Will & Emery’s fraudulent failure to disclose the existence of the Canadian Everfresh Inc., in violation of IRCP 4.1(b).

Rule 4.1(b) of the Illinois Rules of Professional Conduct provides:

In the course of representing a client a lawyer shall not: ...(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

McDermott Will & Emery assisted Everfresh’s fraudulent inducement of the 89c1114 settlement contract, and violated IRCP 4.1(b), when it negotiated that contract without disclosing that there were two, Labatt-owned corporations named Everfresh Inc. doing business in Illinois, and that in so far as the defense was concerned, the 89c1114 settlement contract was binding on only one of those corporations. 

4. McDermott Will & Emery’s fraudulent misrepresentation regarding the age of the Flavor Fresh label, in violation of IRCP 4.1(a).

During the settlement negotiations Stetler falsely represented that the “Flavor Fresh” label was first brought to market in 1986.  In fact, Flavor Fresh had been using the “Flavor Fresh” brand on its orange juice products since 1979.  Stetler lied about the age of the Flavor Fresh label to further the scheme to deceive Grove Fresh about the existence of a second corporation named Everfresh Inc.[24] 

Stetler’s false statement violated IRCP 4.1(a), which provides:

In the course of representing a client a lawyer shall not:(a) make a statement of material fact or law to a third person which statement the lawyer knows or reasonably should know is false….

[1] In economics, an asymmetry is an absence of balance or equivalence between two things that are otherwise comparable. 

[2] See §§VIII-D, F.

[3] See §§V-E-2, 4; VII-D.

[4] See §§VII-E

[5] See §§II-C.

[6] As of March 1990, the defendants in 89c1113 and 89c1114 had at least six lawyers at their disposal—five from McDermott Will & Emery (Appler, Stetler, Weitzman, Raynal, and Chiron) and at least one from Burditt Bowles & Radzius (Kowal).  Grove Fresh had just one.

[7] I was working for a straight contingent fee.  I had an incentive to work as quickly and efficiently as possible, since I would not get paid unless and until the litigation was successfully concluded. 

The defense lawyers, on the other hand, charged hourly fees and collected their fees monthly.  This steady cash flow enabled them to work slowly and deliberately, raising every conceivable objection to Grove Fresh’s claims regardless of merit.

[8] Grove Fresh was insolvent; Mr. Troy was financing its litigation costs with loans to the company from his retirement accounts. 

Labatt was paying Everfresh’s and Flavor Fresh’s costs and attorney’s fees.  With assets in the billions of dollars and annual revenues in the hundreds of millions, Labatt could painlessly pay these costs and fees from current revenues.

[9] Marshall Dep. 26, 79-80 (1990).

[10] Stetler’s misrepresentation eliminated at least three years' worth of sales information from the calculations Grove Fresh made when it evaluated the adequacy of the $70,000 lump-sum offer.  Instead of bargaining for a settlement payment on the basis of seven years of sales data, Grove Fresh bargained on the basis of only four years of sales data. As a result, Grove Fresh accepted a smaller settlement payment than it would have, had it known the true facts. See Conerly v. Flower, 410 F.2d 941, 943 (8th Cir. 1969) (personal injury plaintiff settled claim based on representation that maximum insurance coverage available was $20,000; judgment later vacated after defense counsel admitted that the amount of insurance coverage had been understated)

[11] Letter to David Stetler (March 21, 1990).

[12] Id.

[13] See discussion below in §XI-G. 

[14] Local Rule 10 governed the filing of sealed papers.  A copy of Local Rule 10 as of March 1990 is attached as Appendix W.

[15] See §XI-G-1, below.

[16] W. Prosser, Handbook of the Law of Torts 697 (4th ed. 1971)

[17] Section 13.05 of the Illinois Business Corporation Act, 805 ILCS 5/13.05, provides that “a foreign corporation organized for profit, before it transacts business in this State, shall procure authority so to do from the Secretary of State.” 

[18] Section 4.05(a)(3) of the Act, 805 ILCS 5/4.05(a)(3), provides in pertinent part: “The corporate name of a domestic corporation or of a foreign corporation organized, existing or subject to the provisions of this Act:…. Shall be distinguishable upon the records in the office of the Secretary of State from the name or assumed name of any domestic corporation…or of the name or assumed name of any foreign corporation…authorized to transact business in this State….”

[19] Like many other states, Illinois regulates the registered and assumed names of corporations doing business within the state.  805 ILCS 5/4.15(c).  The purpose of such regulations is to avoid confusing and deceiving the public.  Northwest Suburban Congregation v. Rosen, 103 Ill. App. 3d 1137, 432 N.E.2d 335,338 (2d Dist. 1982).  See also J.J. Anzalone v. Durschlag, 1 Ill. App. 3d 125, 273 N.E.2d 752, 754 (1st Dist. 1971) (“In Illinois a corporation has no legal right to use any name other than that under which it was organized, and use by a corporation of a name different from its legal corporate name is against the public policy of the state.”)

[20] See Hulbert Oil & G. Co. v. Hulbert Oil & G. Co., 371 F.2d 251(7th Cir. 1966) (finding fraud in defendant’s organizing a domestic corporation by the same name as that already known to be used in the state by an unregistered foreign corporation).

[21] W. Prosser, Handbook of the Law of Torts 697 (4th ed. 1971) (“courts…find a duty of disclosure in cases where the defendant has special knowledge, or means of knowledge, not open to the plaintiff, and is aware that the plaintiff is acting under a misapprehension as to facts which would be of importance to him, and would probably affect his decision.”).

[22] Id.

[23] Fraud in the inducement is “when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved.” Black’s Law Dictionary 686 (8th ed. 2004).

[24] See §A-7, above.