Harrow Industries LLC v. Nexus Corporation

Filing 15

OPINION: Defendant's Motion to Dismiss (d/e 9 ) is GRANTED. Plaintiff's request to conduct limited discovery is also GRANTED. The Court refers this matter to Magistrate Judge Tom Schanzle-Haskins to set a limited discovery schedule so t hat Plaintiff can determine how National Greenhouse Company passed from Old Nexus to Defendant. Judge Schanzle-Haskins shall also set a deadline for Plaintiff to file an amended complaint. (SEE WRITTEN OPINION.) Entered by Judge Sue E. Myerscough on 2/21/2018. (GL, ilcd)

E-FILED

Thursday, 22 February, 2018 02:10:04 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
HARROW INDUSTRIES LLC,
Plaintiff,
v.
NEXUS CORPORATION,
a Colorado Corporation,
Defendant.

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No. 3:17-cv-3222

OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
In October 2017, Plaintiff Harrow Industries LLC filed a twocount Complaint against Defendant Nexus Corporation, a Colorado
Corporation, based on a 1990 Asset Purchase Agreement for the
sale of National Greenhouse Company. Plaintiff alleges that
Defendant is liable to Plaintiff for damages and is required to
defend and indemnify Plaintiff in a pending state court lawsuit
alleging asbestos exposure attributable to National Greenhouse
Company.
Defendant has moved to dismiss Plaintiff’s Complaint,
asserting that it was not a party to the Agreement and the
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Complaint is devoid of any facts articulating a basis for holding
Defendant liable for claims based on the Agreement. Defendant
asks the Court to take judicial notice of corporate documents
showing that Defendant was not incorporated until 1994.
Because Plaintiff has not plausibly alleged that Defendant is
liable for claims based on the Agreement, the Motion is GRANTED.
Plaintiff is granted leave to conduct limited discovery and file an
amended complaint.
I. JURISDICTION
This Court has subject matter jurisdiction pursuant to 28
U.S.C. § 1332(a) because complete diversity exists between the
parties. Plaintiff is a Delaware limited liability company. The
citizenship of a limited liability company is the citizenship of each
of its members. Thomas v. Guardsmark, LLC, 487 F.3d 531, 534
(7th Cir. 2007). The Court requested, and Plaintiff provided, a
statement of citizenship of each member of Plaintiff. See
Statement (d/e 14).
Schlage Lock Company LLC (Schlage) is the only member of
Plaintiff. Schlage is a Delaware limited liability company. Allegion
S&S Lock Holding Company Inc. (Allegion S&S) and Allegion US
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Holding Company Inc. (Allegion US) are the only members of
Schlage. Allegion S&S is a Delaware corporation with its principal
place of business in Indiana. Allegion US is a Delaware
corporation with its principal place of business in Indiana.
Therefore, Plaintiff is a citizen of Delaware and Indiana.
Defendant is a citizen of Colorado. Complete diversity exists. In
addition, the amount in controversy exceeds $75,000 exclusive of
interest and costs. Therefore, this Court’s jurisdiction is
established.
II. LEGAL STANDARD
A motion under Rule 12(b)(6) challenges the sufficiency of the
complaint. Christensen v. Cnty. of Boone, Ill., 483 F.3d 454, 458
(7th Cir. 2007). To state a claim for relief, a plaintiff need only
provide a short and plain statement of the claim showing he is
entitled to relief and giving the defendant fair notice of the claims.
Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
When considering a motion to dismiss under Rule 12(b)(6),
the Court construes the complaint in the light most favorable to
the plaintiff, accepting all well-pleaded allegations as true and
construing all reasonable inferences in plaintiff’s favor. Id.
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However, the complaint must set forth facts that plausibly
demonstrate a claim for relief. Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 547 (2007). A plausible claim is one that alleges factual
content from which the Court can reasonably infer that the
defendant is liable for the misconduct alleged. Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). Merely reciting the elements of a cause
of action or supporting claims with conclusory statements is
insufficient to state a cause of action. Id. A court may take
judicial notice of documents in the public record when ruling on a
motion to dismiss under Rule 12(b)(6). Olson v. Champaign Cnty.,
Ill., 784 F.3d 1093, 1096 n.1 (7th Cir. 2015).
III. ALLEGATIONS IN THE COMPLAINT
Plaintiff’s claims are based on a 1990 Asset Purchase
Agreement involving the sale of National Greenhouse Company, a
company that designs and builds greenhouses and sells products
for the use in greenhouses. Plaintiff alleges that Harrow Products,
Inc. (Harrow) sold National Greenhouse Company to Defendant
pursuant to an Asset Purchase Agreement dated November 14,
1990. Compl. ¶¶ 9, 12, 14 (d/e 1). Harrow is now a division of
Plaintiff’s corporate structure. Id. ¶ 11.
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The Agreement identifies the seller as National Greenhouse
Company and the purchaser as Nexus Corporation (which is the
same name as Defendant). Compl., Ex. A, Agreement (d/e 1-1).
Harrow is identified as the owner of 100% of the stock of the seller.
Id., Recitals (A).
The Agreement contains a provision providing that the
purchaser assumes certain liabilities of the seller and also
providing that, “[e]xcept as provided herein, Purchaser shall be
liable for all claims arising after the Closing date from events
occurring after the Closing date.” Id. ¶ 1.3 (vii); Compl. ¶ 13. The
purchaser also agreed to indemnify the seller for certain claims,
losses, and liabilities. Id. ¶ 10.2; Compl. ¶ 32.
In 2016, Plaintiff and Defendant were named as defendants
in Robert M. Amling and Deborah Amling v. Burnham, LLC et al.,
Madison County, Illinois, Case No. 2016-L-000111 (the Amling
case). Compl. ¶ 15. In that underlying lawsuit, the Amlings allege
that Robert Amling was exposed to asbestos fibers emanating from
products designed, manufactured, sold, delivered, distributed,
processed, applied, specified, or installed by the various named
defendants in that action, including Plaintiff and Defendant as
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successors-in-interest to National Greenhouse Company. Compl.
¶ 16. The Amlings further allege that this exposure caused
Robert’s mesothelioma, which was diagnosed on October 7, 2015.
Compl. ¶¶ 17, 18.
In the Complaint at issue herein, Plaintiff asserts that
Defendant is liable for damages arising out of the Amling case.
Specifically, in Count I, Plaintiff alleges that, based on the
Agreement, Defendant is liable for any damages related to National
Greenhouse Company in the Amling case because the Amlings’
claims arose after the closing date of the Agreement from an event
that occurred after the closing date of the Agreement. Plaintiff
requests a declaratory judgment that Defendant is liable for all
amounts expended by Plaintiff regarding National Greenhouse
Company in the Amling case.
In Count II, Plaintiff alleges that Defendant owes Plaintiff a
contractual duty to defend and indemnify Plaintiff against any
claims arising after the closing date of the Agreement. Defendant
has purportedly breached its contractual obligations by failing to
defend and indemnify Plaintiff against the Amlings’ claims.

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IV. DEFENDANT’S MOTION TO DISMISS
In December 2017, Defendant filed a motion to dismiss and
asked the Court to take judicial notice of certain documents,
including filings with the Colorado Secretary of State.
The Court may take judicial notice of matters of public record
without converting a motion to dismiss into a motion for summary
judgment. Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128
F.3d 1074, 1080–81 (7th Cir. 1997) (noting that this allows “courts
to avoid unnecessary proceedings when an undisputed fact in the
public record establishes that the plaintiff cannot satisfy the
12(b)(6) standard”). The Colorado Secretary of State documents
are matters of public record, and the Court will take judicial notice
of those documents. See, e.g., Diaz v. Legion Personnel, Inc., No.
10 C 1500, 2010 WL 3732768, at *2 (N.D. Ill. Sept. 15, 2010)
(taking judicial notice of a corporate record maintained by the
Illinois Secretary of State).
The Colorado Secretary of State documents show that, on
January 12, 1994, Nexus Corporation (Old Nexus) changed its
name to Leroy Greenhouse Corporation (Leroy). On February 8,
1994, Defendant was formed when it filed Articles of Incorporation.
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On September 30, 2004, the State of Colorado administratively
dissolved Leroy.1
Defendant argues that it was not a party to the 1990
Agreement on which the Complaint is based, as Defendant was not
even incorporated until 1994. Defendant also argues that Plaintiff
fails to plausibly allege any basis for holding Defendant liable for
claims based entirely on the 1990 Agreement.
In response, Plaintiff asserts that Defendant is a proper party
because Defendant owns and operates National Greenhouse
Company, and it is a reasonable inference that the entity currently
operating National Greenhouse Company is a successor to any
liability of the entity that bought National Greenhouse Company
from Harrow in 1990. Alternatively, Plaintiff asserts that it should
be allowed discovery to determine how National Greenhouse
Company passed from Old Nexus to Defendant.

Defendant and Plaintiff also submitted documents from a lawsuit filed in
this Court by Harrow Products Inc.—the entity that is now a division within
Plaintiff’s corporate structure—against Leroy, Case No. 94-1524. Defendant
submits the documents to show that Plaintiff was aware that Old Nexus had
“become Leroy.” Def. Mem. at 2. Plaintiff submits documents from that
lawsuit to show that Defendant is connected to Old Nexus/Leroy and the
National Greenhouse Company. Because the Court does not find that the
1994 case significantly advances either party’s positions, the Court will not
consider the documents at this time.
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V. ANALYSIS
Plaintiff’s Complaint alleges that Defendant was a party to the
Agreement. Compl. ¶ 10 (alleging that Defendant has owned and
operated National Greenhouse Company since its acquisition via
the Agreement); Id. ¶ 13 (alleging that Defendant agreed it would
be liable for claims arising after the closing date of the Agreement);
Id. ¶ 23 (alleging that Plaintiff and Defendant entered into a valid
and enforceable contract); Id. ¶ 31 (alleging that Defendant owes
Plaintiff a contractual duty under the Agreement). The State of
Colorado documents, of which this Court takes judicial notice,
demonstrate that Defendant was not a party to the Agreement
because Defendant was not incorporated until several years after
the Agreement was executed.
Plaintiff may be able to allege successor liability, but the
Complaint currently contains no allegations from which this Court
can reasonably infer that Defendant is liable under the Agreement
on a successor-liability theory. Plaintiff argues that the allegation
that Defendant owns and operates National Greenhouse Company
(Compl. ¶ 10) is sufficient to plausibly allege successor liability.
However, even if the Court infers that Defendant purchased
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National Greenhouse Company at some point, the general rule is
that a corporation that purchases the assets of another
corporation is not liable for the latter corporation’s debts or
liabilities. See Vernon v. Schuster, 179 Ill. 2d 338, 344-45 (1997)
(Illinois law); Bd. of Cnty. Comm’ns of Cnty. of Park v. Park Cnty.
Sportsmen’s Ranch, LLP, 271 P.3d 562, 572 (Colo. App. 2011).
While exceptions to this general rule exist, Plaintiff has not alleged
any facts from which the Court could infer that any of those
exceptions apply. Vernon, 179 Ill. 2d at 345 (corporation that
purchases the assets of another is liable for that corporation’s
debts and liabilities where the purchasing corporation explicitly or
implicitly assumes the debts and liabilities; the transaction
amounts to a consolidation or merger; the purchaser is merely a
continuation of the seller; or the transaction is for the fraudulent
purpose of escaping liability for the seller’s obligations); Park Cnty.,
271 P.3d at 572 (same). Because Plaintiff has not plausibly alleged
that Defendant is liable under the Agreement, the Motion to
Dismiss is granted.

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VI. CONCLUSION
Defendant’s Motion to Dismiss (d/e 9) is GRANTED.
Plaintiff’s request to conduct limited discovery is also GRANTED.
The Court refers this matter to Magistrate Judge Tom SchanzleHaskins to set a limited discovery schedule so that Plaintiff can
determine how National Greenhouse Company passed from Old
Nexus to Defendant. Judge Schanzle-Haskins shall also set a
deadline for Plaintiff to file an amended complaint.
ENTERED: February 21, 2018
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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