Advocate Health Care Network, et al. v. SpecWorks, Inc.

Opinion

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

ADVOCATE HEALTH CARE ) NETWORK, et al., ) ) Plaintiffs, ) Case No. 25-cv-2419 ) v. ) Hon. Steven C. Seeger ) SPECWORKS, INC., ) ) Defendants. ) ____________________________________)

MEMORANDUM OPINION AND ORDER Advocate Health Care Network is a hospital network that hawks products with its trademarks, including branded apparel, accessories, and other promotional items. The logo is a purple cross shaped like a “plus” sign, with a thin, white, crooked cross nestled inside. Imagine taking the Red Cross logo, painting it purple, and putting two slanted, criss-crossed toothpicks in the middle. That’s the logo.

In 2012, Advocate Health entered into an agreement with SpecWorks that allowed SpecWorks to sell products with Advocate Health’s trademarks on its website. It was a go-to spot for hospital merch. And apparently, the products flew off the shelves. Over the years, SpecWorks sold millions of dollars of swag with the Advocate Health logo.

The parties renewed the agreement several times over a span of a dozen years. But Advocate Health gave notice in October 2023 that it was terminating the relationship, effective at the end of the year. So the last contract expired at the end of 2023. Advocate Health started a relationship with another supplier.

Advocate Health later discovered that SpecWorks was continuing to offer products with Advocate Health’s trademarks on its website. SpecWorks also continued to send promotional emails and hold itself out as the official outlet for Advocate Health branded apparel.

Advocate Health responded by suing SpecWorks and its CEO. Advocate Health wheeled out the heavy artillery, shelling SpecWorks with 10 claims before it ran out of ammo.

SpecWorks then turned the tables and shot back with six counterclaims. Advocate Health, in turn, moved to dismiss the counterclaims.

For the reasons stated below, the motion to dismiss the counterclaims is granted in part and denied in part. Legal Standard

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. See Fed. R. Civ. P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well- pleaded facts in the complaint and draws all reasonable inferences from those facts in the plaintiff’s favor. See AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011).

The flipside is true for counterclaims. The Court accepts the facts as true and draws all reasonable inferences in defendant’s favor. The idea is that the inferences flow in favor of the claimant.

To survive a Rule 12(b)(6) motion, a complaint or a counterclaim must provide fair notice of the basis for the claim, and it must be facially plausible. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

Analysis

SpecWorks filed six counterclaims, including (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) tortious interference with business expectancy; (4) promissory estoppel; (5) unjust enrichment; and (6) fraudulent inducement.

Advocate Health moved to dismiss all six claims. This Court will take them up, one at a time.

I. Breach of Contract

The first counterclaim is breach of contract. The primary theory appears to be that Advocate Health violated an exclusivity provision in the agreement.

The contract remained in effect until it expired on December 31, 2023. According to SpecWorks, the agreement “contained a mutual exclusivity provision (Section 5.0: No Authorized Distributor) that specified SpecWorks would be the exclusive provider of promotional materials and merchandise to Advocate Health for the products covered by the Agreement.” See Counterclaims, at ¶ 7 (Dckt. No. 22).

SpecWorks alleges that Advocate Health breached that provision in October 2023, a few months before the agreement expired. For starters, Advocate Health inked a deal with Action Plus, a competitor of SpecWorks. Id. at ¶ 12. To make matters worse, Advocate Health notified its employees that SpecWorks was no longer a contracted brand provider. Id. at ¶ 21.

As SpecWorks sees things, Advocate Health pulled the plug in October 2023, “despite 80 days remaining on the contract term.” Id. at ¶ 15. The counterclaim rests on the notion that the agreement contained an exclusivity provision. SpecWorks makes that representation over and over again. Id. at ¶¶ 12, 69, 70–71, 96, 122.

But that’s not what the agreement says at all. SpecWorks cites paragraph five of the agreement. After the heading “No Authorized Distributor,” the provision reads: “Any and all Products purchased hereunder shall be purchased directly from Vendor.” See Agreement, at ¶ 5.0 (Dckt. No. 9).

That provision does not prevent Advocate Health from signing a deal with another manufacturer. The first clue is the header. The provision is about a “distributor.” Buying from a “distributor” is not “authorized.”

Basically, the agreement prevents purchases from a middleman. Any products from SpecWorks must come from SpecWorks itself, not a distributor.

The text cements the point. The products “purchased hereunder shall be purchased directly from Vendor.” Id. The phrase “purchased hereunder” signifies that the provision is about products that come from SpecWorks. The word “directly” underscores the fact that Advocate Health cannot acquire products by buying from distributor, and thus indirectly getting its hands on products made by SpecWorks.

That provision does not prevent Advocate Health from signing a deal with another manufacturer to supply hospital swag. Shirts and hoodies made by another manufacturer would not be products “purchased hereunder.” Id. (emphasis added).

In short, the provision covers products made by SpecWorks. It prevented Advocate Health from buying SpecWorks’s goods from a distributor. It did not prevent Advocate Health from buying products elsewhere from somebody else.

In a similar vein, SpecWorks alleges that Advocate Health breached the contract by promoting the new supplier and by “advertising how to order through a new brand provider on big-screen electronic advertising boards throughout its facilities.” Id. at ¶ 23. But the contract did not prevent Advocate Health from encouraging its employees to buy from the new supplier.

SpecWorks also points to the fact that employees of Advocate Health cancelled orders. But the contract did not prevent the employees from cancelling orders.

Part of the counterclaim does survive. SpecWorks alleges that Advocate Health breached the contract by failing to pay invoices totaling at least $119,420.81. Id. at ¶ 86. That’s enough to state a claim.

The first counterclaim is dismissed, except for the alleged breach about a failure to pay. II. The Implied Covenant of Good Faith and Fair Dealing

The second counterclaim alleges a breach of the implied covenant of good faith and fair dealing.

A claim about the implied covenant of good faith cannot stand on its own two feet, separate and apart from the contract. There is no free-floating duty to be fair, even with a party’s contracting partners. See Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 438 (7th Cir. 1987) (“The element of good faith dealing implied in a contract ‘is not an enforceable legal duty to be nice or to behave decently in a general way.’ It is not a version of the Golden Rule, to regard the interests of one’s contracting partner the same way you regard your own.”) (citation omitted); Shed v. Bredemann, 2024 WL 1637544, at *3 (7th Cir. 2024) (“Under Illinois law, breach of the implied covenant is not a standalone cause of action to remedy the poor behavior of a contracting party.”).

The implied covenant of good faith “operates as a rule of construction (not a source of independent duties) under Illinois law.” See Wolf v. Riverpoint Ins. Co., 132 F.4th 515, 520 (7th Cir. 2025). “The implied covenant of good faith is a lens that courts use to interpret the language of a contract.” See National Experiential, LLC v. City of Chicago, 2024 WL 3757066, at *27 (N.D. Ill. 2024); see also In re Kmart Corp., 434 F.3d 536, 542 (7th Cir. 2006) (“[T]his covenant serves to guide construction of explicit terms of the agreement, particularly when gaps exist in the contract.”); Wilson v. Career Educ. Corp., 729 F.3d 665, 675 (7th Cir. 2013) (“[T]he implied covenant of good faith is used as a construction aid to assist the Court in determining whether the manner in which one party exercised its discretion under the contract violated the reasonable expectations of the parties when they entered into the contract.”).

The implied covenant comes into play when a contract vests one side with discretion. The party with discretion must “exercise that discretion reasonably, with proper motive and in a manner consistent with the reasonable expectations of the parties.” Id. (citation omitted). “The implied covenant of good faith and fair dealing applies when a party exercises discretion under a contract in a manner that was unexpected.” Brinley Holdings Inc. v. RSH Aviation, Inc., 580 F. Supp. 3d 520, 555 (N.D. Ill. 2022).

“Where a contract specifically vests one of the parties with broad discretion in performing a term of the contract, the covenant of good faith and fair dealing requires that the discretion be exercised reasonably and with proper motive, not arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties.” Eckhardt v. Idea Factory, LLC, 193 N.E.3d 182, 194 (Ill. App. Ct. 2021) (quoting Mid-West Energy Consultants, Inc. v. Covenant Home, Inc., 815 N.E.2d 911, 916 (Ill. App. Ct. 2004)). “This principle ensures that parties do not try to take advantage of each other in a way that could not have been contemplated at the time the contract was drafted or to do anything that will destroy the other party’s right to receive the benefit of the contract.” Cramer, 675 N.E.2d at 903.

SpecWorks acknowledges that the implied covenant comes into play only when a contract vests a party with discretion. But SpecWorks thinks that Advocate Health abused its discretion by deciding not to renew the contract. And SpecWorks points to the fact that Advocate Health promoted the other supplier to its employees, and advertised its products.

That’s not enough to give rise to a claim. The implied covenant is about exercising a contractual right under a provision that gives a party discretion. A party cannot do so in a manner that departs from the reasonable expectations of the parties.

The contract did not include any provision that covered Advocate Health’s transition to another supplier, or communications with its employees. So the implied covenant does not come into play. In effect, SpecWorks’s theory would create a free-floating duty to treat a supplier fairly and in good faith before transitioning to someone else. That’s not the law.

In some sense, every company has “discretion” to end a business relationship and start a new one. But that’s not the type of discretion that the implied covenant has in mind.

The second counterclaim is dismissed.

III. Tortious Interference with Business Expectancy

The third counterclaim is tortious interference with business expectancy, which is sometimes called tortious interference with prospective economic advantage.

The counterclaim repeats now-familiar allegations. SpecWorks alleges that Advocate Health committed a tort by telling its employees that SpecWorks was “no longer a contracted brand provider.” See Counterclaims, at ¶ 57 (Dckt. No. 22). Advocate Health then promoted the products of its competitor.

The counterclaim rests on the notion that Advocate Health committed a breach of contract by violating the exclusivity provision. “AAH breached the contract with SpecWorks when they contracted with a new vendor, Action Plus, and began directing employees and facilities to purchase promotional materials and merchandise from this new vendor prior to the end of SpecWorks’ Sixth Amended Agreement.” Id. at ¶ 63; see also id. at ¶ 66 (“As a direct and proximate cause of AAH’s breach of the Agreement, AAH has been damaged in an amount to be proven at trial.”).

To prevail on a tortious interference claim in Illinois, a plaintiff must show “(1) a reasonable expectancy of entering into a valid business relationship, (2) the defendant’s knowledge of the expectancy, (3) an intentional and unjustified interference by the defendant that induced or caused a breach or termination of the expectancy, and (4) damages to the plaintiff resulting from the defendant’s interference.” Foster v. Principal Life Ins. Co., 806 F.3d 967, 971 (7th Cir. 2015); see also Grako v. Bill Walsh Chevrolet-Cadillac, Inc., 229 N.E.3d 869, 874–75 (Ill. App. Ct. 2023); Voyles v. Sandia Mortg. Co., 751 N.E.2d 1126, 1133 (Ill. 2001).

Advocate Health moved to dismiss on the ground that a party cannot tortiously interfere with its own contract. “[A] party cannot tortiously interfere with its own contract, ‘nor can it tortiously interfere with any business expectancies created by that contract.’” Heiman v. Bimbo Foods Bakeries Distribution Co., 902 F.3d 715, 720 (7th Cir. 2018) (citation omitted);

That principle stems from the fact that a breach of contract isn’t a tort. See Bass v. SMG, Inc., 765 N.E.2d 1079, 1089–90 (2002) (“As a plain matter of logic and law, just as a party cannot tortiously interfere with its own contract, likewise a party cannot tortiously interfere with the business expectancy that it created by that contract. Such an action is not a tort but a breach of contract. The tortfeasor must be a third party to the contractual or expectancy relationship. To allow such claims to be litigated would invite tort law to absorb contract law.”).

Part of the counterclaim does run aground on that shoal. SpecWorks alleges that Advocate Health committed tortious interference by breaching an exclusivity provision. But a breach of contract can’t give rise to a tort claim. The simple reality is that it wasn’t a breach of contract for Advocate Health to sign a deal with a competitor. And it wasn’t a tort, either.

But part of the counterclaim does survive (for now, anyway). SpecWorks alleges that “Advocate Health notified its employees that Defendants/Counterclaimants were no longer a contracted brand provider despite the Agreement not ending until December 31, 2023.” See Counterclaims, at ¶ 57 (Dckt. No. 22).

SpecWorks could have had a reasonable business expectancy with the employees of Advocate Health (not Advocate Health itself). Read liberally, the counterclaim could allege that Advocate Health lied to its employees by representing that SpecWorks was not an authorized supplier of hospital merch, even though SpecWorks remained an authorized supplier until the end of the year.

That’s enough to allege a claim of tortious interference with business expectancy. The idea is that SpecWorks received orders from employees, but they later cancelled their orders based on misrepresentations from Advocate Health. That’s enough to state a claim.

The counterclaim of tortious interference with business expectancy survives to the limited extent that it rests on any misrepresentations by Advocate Health to its employees about the status of SpecWorks as an authorized supplier.1 The rest of the counterclaim is dismissed.

IV. Promissory Estoppel

The fourth counterclaim is promissory estoppel.

1 This Court assumes that the employees placed orders directly with SpecWorks, instead of submitting orders to Advocate Health, who then aggregated the individual orders and placed larger orders with SpecWorks. That said, it is hard to know what to make of the allegation that “AAH employees cancelled orders, including a significant order worth approximately $1.5 million as confirmed by an Advocate Health HR employee, and stopped placing new orders with SpecWorks.” See Counterclaims, at ¶ 22 (Dckt. No. 22). One wonders who ordered $1.5 million in hospital swag. In any event, if necessary, the parties can sort it out at summary judgment. Promissory estoppel requires a plaintiff to allege that “(1) defendants made an unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiffs [sic] reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to its detriment.” Dumas v. Infinity Broad. Corp., 416 F.3d 671, 676–77 (7th Cir. 2005) (citing Quake Constr., Inc. v. American Airlines, Inc., 565 N.E.2d 990, 1004 (Ill. 1990)).

“Promissory estoppel is meant for cases in which a promise, not being supported by consideration, would be unenforceable under conventional principles of contract law. When there is an express contract governing the relationship out of which the promise emerged, and no issue of consideration, there is no gap in the remedial system for promissory estoppel to fill.” All-Tech Telecom, Inc. v. Amway Corp., 174 F.3d 862, 869 (7th Cir. 1999).

Promissory estoppel comes into play when the parties have not entered into an enforceable agreement. When the parties do have a contract, that contract governs their relationship. Promissory estoppel has no seat at the table when the parties have an enforceable contract.

“This rule applies because promissory estoppel is intended as a means to enforce gratuitous promises and is not designed to provide a party to a negotiated bargain a ‘second bite at the apple’ if it fails to prove breach of contract.” Matthews v. Chi. Trans. Auth., 2016 IL 117638, ¶ 92 (citations omitted); see also Prentice v. UDC Advisory Servs., Inc., 271 Ill. App. 3d 505, 512 (1st Dist. 1995).

“Once it is established, either by an admission of a party or by a judicial finding, that there is in fact an enforceable contract between the parties and therefore consideration exists, then a party may no longer recover under the theory of promissory estoppel.” First Mercury Ins. Co. v. Ciolino, 2018 IL App (1st) 171532, ¶ 50 (citation modified) (quoting Prentice v. UDC Advisory Servs., Inc., 271 Ill. App. 3d 505, 512 (1995)).

The promissory estoppel claim by SpecWorks isn’t long for this world. Over and over again, SpecWorks alleges that the parties entered into a valid, enforceable contract. The existence of a contract spells doom for any promissory estoppel theory.

SpecWorks alleges that there was no consideration because Advocate Health didn’t pay an invoice for delivered goods. See Brf., at 7 (Dckt. No. 50). That sound like a breach of contract, not a broken promise outside the parameters of a contract.

SpecWorks also alleges that, “throughout the 12-year relationship,” Advocate Health “made clear promises that SpecWorks would be its exclusive promotional merchandise vendor.” Id. at 8. That’s a non-starter. Promissory estoppel is not a vehicle to add commitments that do not appear in an enforceable contract.

True, the Federal Rules do allow a party to plead in the alternative. So, for example, a plaintiff could hedge its bets and allege that (1) there is a contract, but if there isn’t a contract, then (2) promissory estoppel applies. Pleading Claim A or Claim B is permissible. That is, it is acceptable to allege promissory estoppel as a backup, in case there is no contract. But that’s not the situation here. SpecWorks wants to bring a promissory estoppel claim and a breach of contract claim. That’s not a thing. The Federal Rules allow a party to plead either/or, but not both. See LiiON, LLC v. Vertiv Group Corp., 2021 WL 4963610, at *13 (N.D. Ill. 2021). If there was a contract – and both parties agree that there was – then there is no room for promissory estoppel.

Alleging breach of contract or promissory estoppel is acceptable. Alleging breach of contract and promissory estoppel is not (unless the promissory estoppel is about something completely different). A party cannot have its contract and eat it too.

SpecWorks alleges that it entered into an enforceable contract with Advocate Health, so the promissory estoppel counterclaim is dismissed.

V. Unjust Enrichment

The fifth counterclaim is unjust enrichment.2 It stumbles over the same hurdle as the promissory estoppel counterclaim.

To state a claim for unjust enrichment under Illinois law, “a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff’s detriment, and that defendant’s retention of the benefit violates the fundamental principles of justice, equity, and good conscience.” HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672 (Ill. 1989).

“A plaintiff may not recover under an unjust enrichment theory if there is an enforceable contract that governs the relevant subject matter.” See Hernandez v. Illinois Institute of Tech., 63 F.4th 661, 671 (7th Cir. 2023); see also Prima Tek II, L.L.C. v. Klerk’s Plastic Indus., B.V., 525 F.3d 533, 541 (7th Cir. 2008) (citation omitted) (“Illinois law is again clear: damages for unjust enrichment are not awardable when, as here, there is a contract between the parties on the subject in dispute.”); Util. Audit, Inc. v. Horace Mann Serv. Corp., 383 F.3d 683, 688–89 (7th Cir. 2004) (“When two parties’ relationship is governed by contract, they may not bring a claim of unjust enrichment unless the claim falls outside the contract.”); Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 397 (7th Cir. 2003) (“[I]n Illinois, quasi-contractual relief is available only where there is no express contract between the parties.”).

SpecWorks alleges that it conferred a benefit on Advocate Health “by maintaining substantial inventory of approximately $250,000 to meet Advocate Health employees’ substantial demand for merchandise.” See Brf., at 9 (Dckt. No. 50). That argument goes nowhere fast. The contract covers the supply of merchandise, so unjust enrichment has no void to fill.

2 There is some uncertainty in the case law about whether Illinois law recognizes unjust enrichment as a freestanding claim. See Cleary v. Philip Morris Inc., 656 F.3d 511, 516–18 (7th Cir. 2011). For now, this Court will put that issue to one side. All too often, an unjust enrichment claim involves wrongful conduct. “Unjust enrichment is a common-law theory of recovery or restitution that arises when the defendant is retaining a benefit to the plaintiff’s detriment, and this retention is unjust. What makes the retention of the benefit unjust is often due to some improper conduct by the defendant.” Cleary v. Philip Morris Inc., 656 F.3d 511, 517 (7th Cir. 2011).

But wrongful conduct isn’t the only path for an unjust enrichment claim. Other possibilities include a “benefit mistakenly conferred,” or “a benefit to which plaintiff has a better claim than the defendant for some other reason.” See In re Sears, Roebuck & Co. Tools Mktg. and Sales Prac. Litig., 2006 WL 3754823, at *4 (N.D. Ill. 2006); see also Nat’l Amer. Ins. Co. v. Indiana Lumbermens Mut. Ins. Co., 2000 WL 975176, at *2 (7th Cir. 2000) (“As to the ‘unjustness’ of the enrichment, in cases where a third party transferred a benefit to the defendant, to show that the retention of the benefit constitutes unjust enrichment the plaintiffs must initially show that: (1) the benefit should have been given to the plaintiffs but the third party mistakenly gave it to the defendants; (2) the defendants procured it from the third party by some type of wrongful conduct; or (3) the plaintiffs for some reason have a better claim to the benefit than the defendants.”); HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill. 2d 145, 161 (1989).

SpecWorks doesn’t allege wrongful conduct or any other basis for unjust enrichment. The underlying issue is that Advocate Health switched suppliers. That’s not wrongful conduct. That’s the free enterprise system at work.

Frankly, SpecWorks doesn’t even allege that Advocate Health encouraged or coaxed SpecWorks to build a mountain of inventory. Maybe having that much inventory on hand was helpful to Advocate Health. But SpecWorks doesn’t have a claim simply because it has pallets of shirts and hoodies with nowhere to go.

Unjust enrichment doesn’t come into play simply because something seems unfair. SpecWorks may believe that it did things that benefited Advocate Health, like having a large supply of inventory on hand. That’s not enough to state a claim of unjust enrichment.

The unjust enrichment counterclaim is dismissed.

VI. Fraudulent Inducement

The sixth and final counterclaim is fraudulent inducement.

To prove fraudulent inducement under Illinois law, a plaintiff must show: “(1) a false statement of material fact; (2) known or believed to be false by the person making it; (3) an intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance.” See Hoseman v. Weinschneider, 322 F.3d 468, 476 (7th Cir. 2003); see also Smart Oil, LLC v. DW Mazel, LLC, 970 F.3d 856, 866 (7th Cir. 2020); Avon Hardware Co. v. Ace Hardware Corp., 998 N.E.2d 1281, 1287 (Ill. App. Ct. 2013). At trial, a plaintiff must prove fraudulent inducement by clear and convincing evidence. Id. But at the pleading stage, a plaintiff must overcome the hurdle of Rule 9(b), which requires pleading with particularity. SpecWorks’s theory seems to be that Advocate Health promised that it would be the exclusive supplier of branded products. That theory is hard to square with the contract itself, which doesn’t guarantee exclusivity to SpecWorks at all. Fraudulent inducement is about fraud during contract formation. It’s not an avenue to redo the deal or rewrite the contract into something more favorable. SpecWorks does not allege any fraud leading up to contract formation, let alone allege fraud with particularity under Rule 9(b). The fraudulent inducement counterclaim is dismissed. Conclusion For the foregoing reasons, Advocate Health’s motion to dismiss the counterclaims is granted in part and denied in part. All of the counterclaims are dismissed, with two exceptions. First, the counterclaim for breach of contract survives to the extent that SpecWorks alleges a failure to pay invoices. Second, the counterclaim for tortious interference with prospective economic advantage survives to the limited extent that it involves misrepresentations to the employees about whether SpecWorks was an authorized source for authentic merchandise.

Date: September 1, 2026 : Cy V Steven C. Seeger United States District Judge