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ZippySack LLC v. Ontel Prods. Corp. - 182 F. Supp. 3d 867 (N.D. Ill. 2016)

Rule:

The defense of unilateral mistake is available under Illinois law where the aggrieved party "shows by clear and convincing evidence that (1) the mistake is of a material nature; (2) the mistake is of such consequence that enforcement is unconscionable; (3) the mistake occurred notwithstanding the exercise of due care by the party seeking rescission; and (4) rescission can place the other party in status quo.

Facts:

ZippySack filed the present suit in January 2016, arguing that Ontel breached the settlement agreement. The Complaint also includes a claim for patent infringement, which is essentially the same infringement claim that ZippySack brought in 2015. As part of the settlement, Ontel agreed to cease producing ZipIt Friends, and ZippySack in turn relinquished all relevant legal claims against Ontel. Ontel also agreed that it would sell no more than its existing inventory of ZipIt Friends, which at the time it believed numbered at 80,000. The agreement required Ontel to report monthly on the status of its effort to sell off the remaining inventory. Ontel reports that it has 119,432 ZipIt Friends units remaining in inventory. Ontel, according to plaintiff, continued to dispose of its inventory of almost 119,432 ZipIt Friends in supposed contravention of the settlement agreement.

Issue:

Was plaintiff ZippySack entitled to relief for the Court to declare the settlement agreement valid and enforceable against defendant Ontel?

Answer:

Yes

Conclusion:

The settlement is fairly straightforward. The parties relinquished all relevant legal claims, subject to compliance with the other terms of the agreement. This included Ontel's promise that it would not challenge the validity of the underlying ZippySack patent.  It clearly defines "Inventory" to mean "no more than approximately 80,000" units. Thus, Ontel cannot sell more than that number, and the word "approximately" cannot be read reasonably to include thousands of additional units. Ontel's only discernable defense against enforcement is unilateral mistake of fact. It thought it had only 80,000 remaining ZipIt Friends, and then later learned it had neglected its mail-order inventory; now the number is significantly higher. The defense of unilateral mistake is available under Illinois law where the aggrieved party "shows by clear and convincing evidence that (1) the mistake is of a material nature; (2) the mistake is of such consequence that enforcement is unconscionable; (3) the mistake occurred notwithstanding the exercise of due care by the party seeking rescission; and (4) rescission can place the other party in status quo. Ontel's mistake does not invalidate this contract, because enforcement on these terms is not unconscionable.

The Court holds that the settlement is valid and enforceable against both parties. The term calculating Ontel's inventory at 80,000 stands; unless ZippySack consents, the agreement forbids Ontel from selling more units after exhausting that 80,000. Ontel's representation that ZippySack must not unreasonably withhold consent for it to sell more units finds no support in the contract or in any other evidence before the Court. Ontel is stuck with the terms of the contract that it negotiated and signed.

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