C&K NuCo, LLC v. Expedited Freightways, LLC et al
Filing
137
MEMORANDUM Opinion and Order Signed by the Honorable Rebecca R. Pallmeyer on 6/17/2016. Mailed notice. (etv, )
Draft
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
C&K NUCO, LLC,
Plaintiff,
v.
EXPEDITED FREIGHTWAYS, LLC,
Defendant.
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No. 13 CV 04006
Judge Rebecca R. Pallmeyer
MEMORANDUM OPINION AND ORDER
On January 25, 2013, C&K NuCo, LLC (“C&K”) purchased substantially all of the assets
of Defendant Expedited Freightways, LLC (“Expedited”). Three days later, a truck driver for the
business was involved in a fatal accident after failing to properly brake. Unbeknownst to C&K, a
few months prior to the accident, the driver of the truck had failed an alcohol test performed at
the direction of Expedited. Because of alleged damages suffered by C&K as a result of the
accident, C&K brought this action against Expedited alleging that Expedited engaged in
fraudulent misrepresentation (Count II) and breached provisions of the purchase agreement by
failing to satisfy its representations and warranties (Count I(a)-(c)), and seeking equitable
rescission of the purchase agreement (Count III). In addition, C&K alleges that Expedited failed
to remit post-closing revenue payable to C&K under the contract (Count I(d)).
In its
counterclaim, Expedited alleges that C&K also breached contract provisions requiring payment
to Expedited of additional sums based on C&K’s post-agreement earnings, and certain preclosing revenue. Expedited now moves to dismiss Counts I(a)-(c), II, and III of C&K’s complaint
[108], and moves for summary judgment on its counterclaims [86]. C&K moves for summary
judgment on Count I(d) of its complaint. [121] For the reasons explained below, Expedited’s
motion to dismiss and C&K’s motion for summary judgment are both granted. Expedited’s
motion for summary judgment is granted in part and denied in part.
BACKGROUND
C&K is an Illinois limited liability company with its principal place of business in Chicago
Ridge, Illinois, created for the sole purpose of acquiring Expedited’s assets. 1 (Expedited L.R.
56.1 Stmt. [87] ¶ 1.) Expedited is a Georgia limited liability company with its principal place of
business in Atlanta, Georgia. 2 (Id. ¶ 4.) Prior to selling its assets to C&K, Expedited was
engaged in the business of trucking services and “intermodal drayage,” i.e., transportation of
goods, throughout Georgia, Virginia, Michigan, and South Carolina.
(Asset Purchase
Agreement, hereinafter “APA,” at Preamble A.) As explained in the court’s prior order, the court
has jurisdiction over this case pursuant to 28 U.S.C. § 1332. C&K NuCo, LLC v. Expedited
Freightways, LLC, No. 13 C 4006, 2014 WL 4913446, at *5 (N.D. Ill. Sept. 30, 2014) (“The
amount in controversy exceeds $75,000, and . . . [C&K] is diverse in citizenship from
[Expedited].”).
I.
Asset Purchase Agreement
On January 25, 2013, C&K, C&K Trucking, LLC (C&K’s parent company), Expedited,
and Chad Rosenberg 3 (a principal of Expedited), entered into the APA, pursuant to which
Expedited agreed to sell C&K substantially all of its assets in exchange for $825,000, plus an
1
The sole member of C&K is C&K Holdings Acquisition, LLC, an Illinois limited
liability company. (Expedited L.R. 56.1 Stmt. ¶ 2.) The members of C&K Holdings are: Michael
Burton, an individual residing in Illinois; Arthur Zimmerly IV, an individual residing in Florida; Joe
Kendall, an individual residing in Illinois; Kevin Shaughnessy, an individual residing in Illinois;
Steve Wolf, an individual residing in Illinois; Robert Vladem, an individual residing in Illinois;
James Hardy, an individual residing in Illinois; and Michael Bifulco, an individual residing in
Florida. (Id. ¶ 3.)
2
EF Services, a Georgia limited liability company, is the sole member of
Expedited. (Id. ¶¶ 5-6.) EF Services is owned by the Rosenberg 2011 Trust and Rosenberg
Advisory Company, LLC. (Id. ¶ 7.) The Rosenberg 2011 Trust is an irrevocable trust whose
trustees are Chad Rosenberg, Chris Graham, and Jeff Peller, all of whom reside in Georgia.
(Id. ¶ 8.) Rosenberg Advisory Company, LLC, is a Florida limited liability company whose sole
member is CR Management Trust. (Id. ¶ 9.) The trustees of CR Management Trust are Chad
Rosenberg, Chris Graham, and Jeff Peller, all of whom reside in Georgia. (Id. ¶ 11.)
3
Rosenberg was originally a defendant in this lawsuit, but the court dismissed all
claims made against him. C&K NuCo, 2014 WL 4913446, at *16-17.
2
additional amount payable to Expedited if C&K achieved a profit in excess of $400,000 within
the first 100 days after the closing date. (Expedited L.R. 56.1 Stmt. ¶¶ 15-18; APA § 2.01.) The
assets purchased by C&K pursuant to the APA included Expedited’s customer lists; lease
agreements entered into between Expedited and independent contractors for the provision of
trucking services and equipment; and office equipment, supplies, and furniture. (APA § 1.01.)
A.
Purchase Price Adjustment
As noted, the APA included a provision for additional compensation to Expedited in the
event that C&K achieved an Aggregate Direct Profitin excess of $400,000 within the first 100
days after the closing date.
This additional compensation, called the Purchase Price
Adjustment, is described in Section 2.03, which provides that the Purchase Price Adjustment
will be calculated at approximately 71% of C&K’s Aggregate Direct Profit within the first 100
days after closing. 4 (Id.; APA §§ 2.03(a)(ii), 2.03(a)(v).) In order to avoid a dispute between the
parties over whether C&K had in fact achieved $400,000 in Aggregate Direct Profit, Section
2.03 requires C&K to provide Expedited with estimates of C&K’s Aggregate Direct Profit for
each month, as well as a “reconciled statement” estimating C&K’s Aggregate Direct Profit for
the entire 100-day period. (Id. § 2.03(b).) Should a dispute arise, the section provided that any
disputed amount(s) related to the financial statements provided by C&K would be determined by
a neutral accounting firm. (Id. § 2.03(c).)
C&K did not provide Expedited with any financial statements reflecting its Aggregate
Direct Profit during the 100-day period, and C&K did not pay Expedited a Purchase Price
Adjustment. C&K’s internal spreadsheets, however, show that the company had $2,162,826.37
in revenues and $1,698,204.22 in costs during the first 100 days following the closing date.
(Expedited L.R. 56.1 Stmt. ¶¶ 26-27; C&K Resp. to Expedited L.R. 56.1 Stmt. [112] ¶ 26.)
4
The APA defines Aggregate Direct Profit as the aggregate amount of C&K’s net
revenues generated from the purchased assets within the first 100 days after the closing date.
(Id. ¶¶ 20-21; APA §§ 2.03(a)(i), 2.03(a)(iv).) The Purchase Price Adjustment is calculated by
dividing that Aggregate Direct Profit figure by $600,000 and then multiplying it by $425,000.
The court takes judicial notice that $425,000 divided by $600,000 is .7083333.
3
Based on this information, in June 2013, C&K estimated its Aggregate Direct Profit was
$464,622.15 and that it owed Expedited a Purchase Price Adjustment of $329,107.36. 5
(Expedited L.R. 56.1 Stmt. ¶¶ 28, 30; C&K L.R. 56.1 Stmt. ¶ 9; Hardy Dep. at 29.)
Despite its records, C&K now denies that it achieved an Aggregate Direct Profit of
$464,622.15 during the 100-day period after closing, and asserts that the $2,162,826.37 in
revenue reflected in its internal spreadsheets represents an approximation derived from the
company’s internal accounting reports. (C&K Resp. to Expedited L.R. 56.1 Stmt. ¶ 26; C&K
L.R. 56.1 Stmt. ¶ 9.) According to C&K, the revenue figure is overstated in that it includes
$433,560.10 in receivables collected by Expedited for loads delivered or transported after the
closing date. Those receivables, C&K urges, are still owed to C&K under Section 5.03 of the
APA. 6 (C&K L.R. 56.1 Stmt. ¶ 11.) Because C&K has not yet received these funds from
Expedited, C&K contends, it cannot determine the actual amount of its revenue or Aggregate
Direct Profit, or whether Expedited is entitled to a Purchase Price Adjustment. (C&K Resp. to
Expedited L.R. 56.1 Stmt. ¶¶ 28, 30; C&K L.R. 56.1 Stmt. ¶¶ 10-12.)
5
This Purchase Price Adjustment figure was calculated by C&K using the formula
from Section 2.03(b) of the APA: $464,622.15 divided by $600,000 multiplied by $425,000
equals $329,107.36. (Id. ¶ 30; Hardy Dep. at 33; APA § 2.03(b).) Expedited does not dispute
the Purchase Price Adjustment figure or these calculations. (Expedited L.R. 56.1 Stmt. ¶ 30.)
6
C&K also asserts that it is currently involved in a legal dispute with company,
American Global Logistics (“AGL”), over approximately $412,481.04 allegedly owed to C&K for
revenue generated within the first 100 days following the closing of the transaction. (Id. ¶ 11;
C&K Opp. to Expedited SJ Mot. at 2-3); see C&K Trucking LLC et al. v. American Global
Logistics, LLC, 14-cv-00298 (Doc # 1). In that case, which is unrelated to this dispute, C&K
alleges that ALG breached certain transportation services contracts entered into between C&K
and ALG by failing to compensate C&K for freight charges that it incurred during its
transportation of loads on behalf of ALG. (Id.) The court documents filed in that case, however,
show that American Global Logistics made an offer for judgment on the $412,481.04 requested
by C&K, which C&K declined. C&K Trucking LLC, 14-cv-00298 (Doc # 73-1). American Global
Logistics subsequently sent a check to C&K for this amount and asked C&K to cash it. Id.
4
B.
Load Revenue
Under Section 5.03 of the APA, the parties agreed that Expedited would be entitled to
revenue generated from, and be responsible for all expenses related to, loads transported or
delivered by its drivers prior to the closing date of the transaction, while C&K would be entitled
to revenue generated from, and responsible for all expenses related to, loads transported or
delivered by its drivers after the closing date. (APA § 5.03.) Acknowledging “that either party
may originally collect funds to which the other is entitled, whether because such payment is
misdirected or otherwise,” Section 5.03 provides that the parties will “work in good faith to timely
account for and properly direct payments owing to the other.” (Id.; Expedited L.R. 56.1 Stmt.
¶ 33.) This section further provides “that any funds collected on behalf of the other party shall
be held in trust in the interim until remitted to the other party.” (Id.)
Both parties appear to have collected load revenue to which the other party is entitled
under Section 5.03.
Expedited admits that it collected $356,839.50 in revenue from loads
transported or delivered after the closing date, and C&K admits that it collected $128,602.28 in
revenue from loads transported or delivered before the closing date. (Expedited Resp. to C&K
L.R. 56.1 Stmt. ¶ 4; Expedited L.R. 56.1 Stmt. ¶¶ 34-35.) Yet, each party disputes that the other
party is entitled to recovery. C&K asserts that the amount of post-closing revenue collected by
Expedited is greater than the amount of pre-closing revenue collected by C&K, and as a result,
C&K owes nothing to Expedited under Section 5.03. (C&K Resp. to Expedited L.R. 56.1 Stmt. ¶
35.)
Expedited, meanwhile, asserts that the $356,839.50 in post-closing revenue that it
received on behalf of C&K is less than the $457,709.64 that C&K owes to Expedited for the
Purchase Price Adjustment ($329,107.36) plus the pre-closing revenue collected by C&K
($128,602.28). (Expedited Resp. to C&K L.R. 56.1 Stmt. ¶ 4.) Because the net amount owed
by C&K under the APA is greater than the net amount that Expedited owes C&K, Expedited
5
asserts that it has no obligation to pay any post-closing revenue to C&K under Section 5.03.
(Id.)
C.
Representations and Warranties
Under Section 4.01, Expedited made a number of representations and warranties,
including that it had “complied in all material respects with all material federal, state, local and
foreign laws, regulations, [and] ordinances . . . applicable to it.” (APA § 4.01(g).) In addition to
its compliance with all laws and regulations, Expedited represented and warranted that, to
Expedited’s knowledge, there was no basis for any investigation, suit, or claim by any
governmental entity, which, “if determined adversely, would have a material adverse effect upon
the Purchased Assets.”
(Id. § 4.01(f).)
For purposes of this section, the APA defines
“Expedited’s knowledge” as “exclusively the actual knowledge of [Chad] Rosenberg and Jim
Briles, an officer of Expedited, who would reasonably be expected to have knowledge regarding
the accuracy of the fact or matter in question.” (Id. § 4.01.) Expedited further represented and
warranted that the APA does “not contain any untrue statement of a material fact or omit a
material fact necessary in order to make the information or statements herein or therein not
misleading.” (Id. § 4.01(l).)
D.
Indemnification & Attorney’s Fees
The parties also agreed to indemnify each other in the event that one of the parties
breached the APA or otherwise caused the other party to suffer losses.
(APA § 6.01.)
Expedited, for example, agreed to indemnify C&K for “any out-of-pocket loss, liability, damage,
assessment, or expense (including expenses of investigation and defense and reasonable fees
and expenses of counsel) of any nature whatsoever . . . sustained, suffered or incurred by C&K”
arising out of “any breach of any representation, warranty, covenant or agreement” contained in
the APA, or arising out of “Expedited’s use and/or ownership of the Purchased Assets and
Business through the Closing Date.” (APA § 6.01(a)(i)-(ii).) C&K similarly agreed to indemnify
Expedited and its affiliates for any losses or damages to Expedited arising out of C&K’s breach
6
of the APA or its operation of the purchased assets and business. (Id. § 6.01(b)(i)-(ii).) In the
event that one of the parties seeks indemnification under the APA, Section 6.02 limits that
party’s recovery to $600,000, except for claims arising out of fraud or intentional
misrepresentation.
(Id. § 6.02(a).)
This section also prohibits the parties from obtaining
indemnification for “punitive, consequential, special damages or lost profits except to the extent
it constitutes part of a third party claim.” (Id. § 6.02(c).)
Under Section 6.05 of the APA, entitled “Remedies Exclusive,” the parties further agreed
that:
[T]he rights of [C&K and Expedited] to indemnification relating to
this Agreement or the transactions hereby shall be strictly limited
to those contained in this Article VI, and such indemnification
rights shall be the sole and exclusive remedies of the parties
hereto . . . (other than claims of, or causes of action arising from,
fraud, gross negligence, intentional misconduct or intentional
misrepresentations or claims for equitable relief); provided,
however, the foregoing shall not limit the right of any [party] to
seek specific performance for a breach of any provision contained
in [the APA].
(Id. § 6.05.)
Additionally, the parties agreed that the prevailing party in any legal dispute would be
entitled to recover attorney’s fees:
Any party to this Agreement who is the prevailing party in any
legal or equitable proceeding against any other party brought
under or in connection with this Agreement shall be additionally
entitled to recover court costs and reasonable attorney’s fees from
the non-prevailing party. For the purposes of this Agreement, the
term ‘prevailing party’ shall include, without limitation, a party
obtaining substantially the relief sought, whether by compromise,
settlement or judgment.
(Id. § 7.14.)
II.
Facts Relating to the January 28, 2013 Accident
One of the assets purchased by C&K as part of its transaction with Expedited was a
September 2012 Independent Contractor Transportation Services Agreement (“ICTSA”)
between Expedited and Affiliate Trucking, a company that owned and operated its own trucking
7
fleet. (Expedited L.R. 56.1 Stmt. ¶ 43.) Arnold Williams (“Williams”), an employee of Affiliate
Trucking, drove a truck that Affiliate Trucking had leased to Expedited pursuant to the ICTSA.
(Id.; C&K L.R. 56.1 Stmt. ¶ 16.)
On November 30, 2012, Williams failed a random alcohol test performed by Concentra
Medical Center, a healthcare company that Expedited used to perform alcohol tests on its truck
drivers. (Expedited L.R. 56.1 Stmt. ¶ 71 (citing Burton Dep. at 53; Foster Decl. ¶ 5); C&K L.R.
56.1 Stmt. ¶ 17.) When an employee fails an alcohol test, Concentra’s internal procedures
require the technician who performed the test to contact the Designated Employer
Representative (“DER”) to communicate the results of the test. (C&K L.R. 56.1 Stmt. ¶ 19.)
Expedited’s DER at the time of Williams’s test was Jimmy Foster. (Id. ¶ 20.) Kaysinda Polite,
Concentra’s technician who performed Williams’s test, claims that she spoke to Foster on
November 30, 2012, and told him that Williams had tested in excess of the legal limit for bloodalcohol content. (C&K Resp. to Expedited L.R. 56.1 Stmt. ¶ 79; Polite Decl. ¶ 8.) Apart from
Polite’s declaration, there is no record of the conversation between Polite and Foster, and
Foster himself denies that he spoke with Polite or otherwise received notice of the failed test.
(Expedited L.R. 56.1 Stmt. ¶¶ 79, 81, 89 (citing Foster Decl. ¶ 12).) There is also no evidence
that Foster notified either of his supervisors, Chad Rosenberg or Jim Briles, Expedited’s Chief
Operating Officer, of the failed test result, and Rosenberg and Briles deny having received any
notice of the failed test. (Id. ¶¶ 80-81 (citing Rosenberg Decl. ¶¶ 2-3; Briles Decl. ¶¶ 3-4).)
After the failed test, Williams continued to work on behalf of Expedited as a driver. On
January 25, 2013, Williams picked up a load from Expedited and transported it to his home for
the weekend. (C&K L.R. 56.1 Stmt. ¶ 26.) Three days later, on January 28, 2013, Williams
delivered the load and then, on his return trip, was involved in a fatal vehicle collision.
(Expedited L.R. 56.1 Stmt. ¶ 49.) According to the police report, the accident occurred when
Williams, unable to timely brake, collided with another vehicle, resulting in a chain reaction
collision. (Fourth Am. Compl. [100], Ex. 4.) C&K alleges that, following the accident, Williams
8
was observed disposing of beer cans over a nearby bridge, but an alcohol test administered
immediately after the accident was negative.
(Fourth Am. Compl. ¶ 40.)
Williams was
subsequently arrested and charged with reckless homicide. (Id. ¶ 41.) In its complaint, C&K
alleges that a wrongful death action was brought against it by the estate of the victim, Lauren
Baccari, which has since been “resolved.” (Id. ¶ 42.) C&K’s president, Michael Burton, testified
in his deposition that this claim was ultimately settled and covered by C&K’s liability insurance.
(Expedited L.R. 56.1 Stmt. ¶ 50 (citing Burton Dep. at 66).) C&K also alleges that another
individual, Joseph Hamilton, filed a lawsuit against C&K asserting a claim for bodily injury. (Id.
¶ 51 (citing Burton Dep. at 66); Compl. ¶ 42.) According to Burton, this case is currently in the
discovery phase. (Expedited L.R. 56.1 Stmt. ¶ 51 (citing Burton Dep. at 66).)
Expedited did not inform C&K of Williams’s failed alcohol test before the parties entered
into the APA. Upon learning of Williams’s failed alcohol test, 7 C&K and Foster (who by then had
become C&K’s employee) searched for evidence that Expedited had been provided with notice
of the test.
(Expedited L.R. 56.1 Stmt. ¶ 76.)
Neither C&K nor Foster found any written
notification. (Id. ¶ 77.) During the due diligence period prior to executing the APA, C&K had the
opportunity to inspect the driver files of Expedited, including that of Williams. (Expedited L.R.
56.1 Stmt. ¶ 94.) There is no evidence, however, that reference to the failed alcohol test
appeared in Williams’s file. Expedited further asserts that, based on its due diligence, C&K
knew that Expedited had certain problems with its management and operations and could not
provide accurate financial records. (Expedited L.R. 56.1 Stmt. ¶¶ 101-02, 104.) Expedited
claims that C&K cited these problems in negotiating a 30% discount in the purchase price.
(Id. ¶ 104.)
C&K has not included the revenue from Williams’s January 28, 2013 load in its postclosing revenue calculations because it contends that Williams was operating under Expedited’s
7
In his deposition, Burton testified that C&K first learned of the failed test after
receiving quarterly results from Concorde of the random alcohol tests performed on behalf of
the business. (Burton Dep. at 54.)
9
authority at the time of the accident. Even though the ICTSA was one of the assets that C&K
purchased from Expedited on January 25, 2013, Expedited’s Department of Transportation
(“DOT”) information was displayed on a placard on the door of Williams’s truck, and the Federal
Motor Carrier Safety Administration did not authorize a change in operating authority from
Expedited to C&K until February 4, 2013. (C&K Resp. to Expedited L.R. 56.1 Stmt. ¶ 68; C&K
L.R. 56.1 Stmt. ¶¶ 29-30.)
Expedited, meanwhile, disputes that it had any authority over
Williams or his truck after the closing date of the transaction, and asserts that any load revenue
obtained from Williams’s delivery belongs to C&K. (Expedited L.R. 56.1 Stmt. ¶¶ 68, 111.)
III.
Procedural History
On May 20, 2013, C&K filed a complaint against Expedited and Chad Rosenberg,
alleging that Expedited and Rosenberg caused C&K to suffer damages and other costs incurred
as a result of the January 28, 2013 accident and asking for indemnity from Expedited and
Rosenberg for those costs. (Compl. [1] ¶¶ 38, 42.) C&K amended its complaint twice. In its
third amended complaint, C&K added claims for breach of contract, fraud, and equitable
rescission.
(Third Am. Compl. [42] ¶¶ 54, 73, 80, 88.)
C&K alleged that Expedited and
Rosenberg fraudulently concealed Williams’s failed alcohol test and breached representations
and warranties in the APA that they had complied with all laws and had not concealed any
material facts. (Id. ¶ 54.) C&K also alleged that Expedited breached Section 5.03 of the APA
by failing to provide C&K with revenue collected by Expedited from loads transported or
delivered by C&K’s drivers after the closing date. (Id.) Expedited and Rosenberg moved to
dismiss the third amended complaint (First Mot. to Dismiss [108]), and Expedited filed a breach
of contract counterclaim against C&K, alleging that C&K itself breached the APA by failing to
provide Expedited with a Purchase Price Adjustment or financial statements of C&K’s
Aggregate Direct Profit as required under Section 2.03. (Expedited Ans. & Counterclaims [60]
¶¶ 18, 29.)
Expedited also alleges that C&K failed to provide Expedited with pre-closing
10
revenue from loads transported or delivered by Expedited’s drivers as required under Section
5.03. (Id. ¶¶ 40, 46.)
In an opinion dated September 30, 2014, the court granted Expedited and Rosenberg’s
motion to dismiss on all but one count. Left standing was C&K’s breach of contract claim
against Expedited for failing to remit post-closing payments owed to C&K under Section 5.03 of
the APA. C&K NuCo, 2014 WL 4913446, at *1. In dismissing C&K’s indemnification claim, the
court reasoned that C&K’s request for indemnification from Expedited for the January 28, 2013
accident depended on whether C&K had incurred any liability in lawsuits brought by victims of
the accident.
Id. at *9.
Because there had been no liability determination made in any
underlying lawsuit, the court determined that C&K’s indemnification claim was not ripe for
review. Id. at *9-11. For the same reasons, the court dismissed C&K’s breach of contract claim
against Expedited for its alleged failure to satisfy its representations and warranties: because
the only harm allegedly suffered by C&K as a result of Expedited’s breach was liability for the
January 28, 2013 accident, C&K had not yet suffered any harm. Id. at *14.
The court also dismissed C&K’s fraud claim on the grounds that C&K did not allege that
either Expedited or Rosenberg had knowledge of Williams’s failed alcohol test when they signed
the APA. Id. at *16. Because the complaint failed to state a claim for fraud, moreover, the court
held that C&K’s claim for equitable rescission of the APA based on the alleged fraud had to be
dismissed, as well. Id. As for C&K’s request for equitable rescission based upon Expedited’s
failure to provide C&K with post-closing revenue, the court dismissed this claim because C&K’s
complaint failed to allege that Expedited’s alleged nonperformance was significant enough to
warrant rescission. Id.
With respect to C&K’s claims against Rosenberg, the court explained that in order to
state a claim for breach of contract against Rosenberg, C&K “must allege facts that plausibly
demonstrate that Rosenberg individually breached the APA.” Id. at *17. The provisions of the
APA that Expedited and Rosenberg allegedly breached, however, did not apply to Rosenberg,
11
and thus Rosenberg could not be held liable to C&K for breach of contract. The court dismissed
C&K’s claims against Rosenberg with prejudice. Id.
After the court dismissed C&K’s third amended complaint, C&K filed a fourth amended
complaint against Expedited, re-asserting claims for breach of contract (Count I), fraudulent
misrepresentation (Count II), and equitable rescission (Count III). (Fourth Am. Compl. ¶¶ 6488.) In Count I(a)-(c), C&K alleges that Expedited breached its representations and warranties
under Section 4.01 of the APA by: (a) dispatching a load to Williams in violation of DOT
regulations, 49 C.F.R. §§ 382.501(b), 382.201, 382.503, 40.285; (b) failing to comply with
applicable laws in the retention, training, and supervision of its drivers; and (c) failing to disclose
Williams’s failed alcohol test. (Id. ¶ 67.) In Count I(d), C&K alleges that Expedited breached
Section 5.03 of the APA by failing to provide C&K with post-closing revenue that Expedited
collected for loads transported or delivered by C&K’s drivers. (Id.) In Count II, C&K alleges that
Expedited knew or should have known about Williams’s failed alcohol test, and that it made
false representations and/or concealed material information about the failed test. (Id. ¶¶ 73, 7577.) Because of Expedited’s fraudulent conduct, in Count III, C&K alleges that it is entitled to
equitable rescission of the parties’ agreement.
(Id. ¶¶ 87-88.)
C&K further alleges that
Expedited’s actions caused C&K to suffer harm in the form of expenses and liability exposure
related to lawsuits filed against C&K for the January 28, 2013 accident; damage to C&K’s
reputation and its ability to recruit drivers; and loss of customers, business, profits, and
“goodwill” it had acquired as a result the transaction. (Id. ¶¶ 58-59, 69.)
Expedited has moved to dismiss Counts I(a)-(c), II, and III of C&K’s fourth amended
complaint, and both parties have moved for summary judgment on their breach of contract
claims based on the other party’s failure to remit load revenues under Section 5.03 of the APA.
(Expedited SJ Mot. [86] at 1-2; C&K SJ Mot. [121] at 1.)
Expedited has also moved for
summary judgment on its breach of contract claim based on C&K’s failure to provide Expedited
12
with a Purchase Price Adjustment under the contract, and requests attorney’s fees based on its
alleged status as a “prevailing party” under the APA. (Expedited SJ Mot. at 1-2.)
DISCUSSION
I.
Expedited’s Motion to Dismiss
Generally, a complaint must contain a “short and plain statement of the claim showing
that the pleader is entitled to relief.” FED. R. CIV. P. 8(a). To survive a motion to dismiss for
failure to state claim under Rule 12(b)(6), the complaint need only contain sufficient facts to
state a plausible claim, that is, “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2009)).
The court
accepts all well-pleaded factual allegations contained in the complaint as true. Killingsworth v.
HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007). Allegations of fraud are subject
to a heightened pleading standard. Under Rule 9(b), “a party must state with particularity the
circumstances constituting fraud or mistake,” though “[m]alice, intent, knowledge, and other
conditions of a person’s mind may be alleged generally.” FED. R. CIV. P. 9(b).
In its motion, Expedited urges this court to dismiss C&K’s complaint under Rule 12(b)(6)
for the same reasons that the court dismissed C&K’s third amended complaint. Specifically,
Expedited argues that C&K’s breach of contract claim based on Expedited’s alleged failure to
satisfy its representations and warranties is not ripe for review because C&K is only entitled to
receive indemnification for the alleged breach and C&K has not been held liable in any lawsuits
relating to the January 28, 2013 accident. (Expedited Mot. to Dismiss at 1-2). With respect to
C&K’s claims for fraud and equitable rescission, Expedited asserts that these claims fail
because C&K has not alleged that Expedited had actual knowledge of Williams’s failed test
result, nor has C&K identified any damages that resulted from Expedited’s alleged fraudulent
conduct. (Id. at 2.) The court addresses each of Expedited’s arguments in turn.
13
A.
Breaches of Representations and Warranties under Section 4.01 (Count
I(a)-(c))
In its earlier ruling, this court concluded that C&K’s claim for indemnification for litigation
costs arising out of the January 28, 2013 accident was unripe because no liability determination
had been made in any lawsuits filed against C&K by victims of the accident. Expedited argues
that the court’s reasons for dismissing C&K’s indemnification claim apply with equal force to
C&K’s claim that Expedited breached its representations and warranties under Section 4.01 of
the APA.
(Expedited Mot. to Dismiss at 2.)
The APA, Expedited urges, provides for
indemnification as the exclusive remedy for claims brought by the parties relating to the
contract, so C&K’s claim that Expedited breached Section 4.01 is tantamount to a claim for
indemnification. (Id.) In response, C&K asserts that indemnification is not its sole and exclusive
remedy for a breach of a representation or warranty contained in the APA, and contends that it
is entitled to receive damages for Expedited’s breach, as well. (C&K Opp. to Expedited Mot. to
Dismiss [120] at 12.)
Illinois law allows parties to limit their contractual rights and remedies by express
agreement. See Lake County Trust Co. v. Two Bar B, Inc., 182 Ill. App. 3d 186, 192, 537
N.E.2d 1015, 1019 (Ill. App. Ct. 1st Dist. 1989). When construing these agreements, courts
look to “whether a reasonable construction of the contract indicates that the parties intended for
a limited remedy to be exclusive.” CogniTest Corp. v. Riverside Pub. Co., 107 F.3d 493, 498
(7th Cir. 1997). Unless it is clear that the parties intended to limit their remedies, the court must
read the contract to allow cumulative rather than exclusive remedies. Cordiant MN, Inc. v.
David Cravit & Assoc., Ltd., 96 C 4276, 1997 WL 534308, at *8 (N.D. Ill. Aug. 19, 1997) (citing
Nitrin, Inc. v. Bethlehem Steel Corp., 35 Ill. App. 3d 596, 607, 342 N.E.2d 79, 86 (Ill. App. Ct. 1st
Dist. 1976)).
In this case, Section 6.05 of the APA states that the parties’ indemnification rights “shall
be strictly limited to those contained in this Article VI, and such indemnification rights shall be
14
the sole and exclusive remedies of the parties.”
(APA § 6.05 (emphasis added).)
nevertheless insists that Section 6.05 is not an exclusive remedy provision.
C&K
Rather, C&K
contends, Section 6.05 merely clarifies that the parties may only seek indemnification to the
extent such indemnification rights are expressly permitted under the contract. (C&K Opp. to
Expedited Mot. to Dismiss [120] at 13.) The court disagrees. C&K’s reading of Section 6.05
appropriately characterizes the first part of the provision, but it ignores the remaining language,
which provides that indemnification is the “sole and exclusive” remedy of the parties. If this
language itself is not clear enough, the fact that Section 6.05 is entitled “Remedies Exclusive”
further indicates the parties intended for indemnification to be their exclusive remedy under the
contract. That interpretation is bolstered by the parties’ decision to spell out exceptions to this
limitation; namely, Section 6.05 provides that indemnification is not the parties’ sole and
exclusive remedy for claims arising out of fraud, gross negligence, intentional misconduct,
intentional misrepresentation; claims for equitable relief; and claims seeking specific
performance of the contract. 8
Because indemnification is the only available remedy for Expedited’s alleged breach of
its representations and warranties under the APA, C&K’s claim is essentially one for
indemnification. And as the court explained in its prior order, C&K may not seek indemnification
from Expedited for litigation costs arising out of the January 28, 2013 accident until liability
determinations have been made in those underlying cases. C&K NuCo, 2014 WL 4913446, at
*7 (“[A] promise to indemnify takes effect only after liability has been determined, and may or
may not cover the costs of litigation.” (citing Medline Indus., Inc. v. Ram Medical, Inc., 892 F.
Supp. 2d 957, 964-65 (N.D. Ill. 2012))). In its complaint, C&K alleges that two lawsuits have
8
C&K argues that if Section 6.05 were an exclusive remedy provision, this would
defeat Expedited’s breach of contract claim seeking recovery of the Purchase Price Adjustment
and pre-closing revenue owed to Expedited under Section 5.03 of the APA. (C&K Opp. to
Expedited Mot. to Dismiss at 13.) Expedited seeks specific performance for C&K’s alleged
breaches, however—a remedy expressly permitted under Section 6.05.
15
been filed against it arising out of the January 28, 2013 accident, but it does not allege that it
has been held liable or that it has been required to pay damages in these cases. C&K, for
example, alleges that that the lawsuit brought against it by the estate of accident-victim Lauren
Baccari was “resolved,” but it does not allege any other facts about the outcome of the case,
such as whether it was found liable. 9
An allegation that an underlying lawsuit has been
“resolved,” without more, is not sufficient to state a claim for indemnification. C&K’s complaint
also alleges that the lawsuit filed against it by Joseph Hamilton, who was injured in the accident,
is currently ongoing. While it is possible that C&K may face liability for Hamilton’s injuries at
some point in the future, C&K must wait until this future date to seek recovery from Expedited.
C&K further alleges that, as a result of Expedited’s breach of its representations and
warranties under Section 4.01, as well as the January 28, 2013 accident, C&K lost profits,
customers, and the “goodwill” it had acquired from the purchase of Expedited. C&K’s ability to
recruit truck drivers has also been damaged, C&K alleges. It is unclear from the complaint
whether C&K seeks indemnification from Expedited for these losses. To the extent C&K seeks
damages, C&K’s claim is barred for the reasons explained above—C&K can only seek
indemnification for Expedited’s alleged breach of its representations and warranties. To the
extent C&K seeks indemnification, the APA prohibits the parties from obtaining indemnification
for consequential or special damages, including lost profits, and there is no question that the
losses alleged by C&K in its complaint would fall under the category of consequential or special
damages. (APA § 6.02); see, e.g., Metavante Corp. v. Emigrant Savings Bank, No. 05-CV-
9
Although the court has only considered the allegations contained in C&K’s
complaint for purposes of Expedited’s motion to dismiss, the court notes that C&K’s president,
Michael Burton, testified in his deposition that the claim brought by the Baccari estate was
settled and covered by C&K’s liability insurance at no cost to C&K. A party seeking
indemnification for a settled claim with no underlying finding of liability must allege that it paid a
settlement, and that this payment was made “in reasonable anticipation of personal liability.”
Commonwealth Edison Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., 323 Ill. App. 3d 970,
978, 752 N.E.2d 555, 561 (Ill. App. Ct. 1st Dist. 2001); Medline Indus., Inc. v. Ram Med., Inc.,
892 F. Supp. 2d 957, 966 (N.D. Ill. 2012).
16
1221, 2008 WL 5099619, at *3 (E.D. Wis. Nov. 26, 2008) (parties did not dispute that plaintiff’s
claims for loss of goodwill, injury to reputation, lost employee hours, and loss of potential
customers as a result of defendant’s breach were claims for consequential damages); Cloverhill
Pastry–Vend Corp. v. Cont'l Carbonics Prods., Inc., 214 Ill. App. 3d 526, 530, 574 N.E.2d 80, 83
(Ill. App. Ct. 1st Dist. 1991) (describing “lost profits, lost business, and damage to reputation and
goodwill” as consequential damages).
Lastly, Expedited asserts that C&K fails to state a claim that Expedited breached Section
4.01 because the APA conditions Expedited’s representations and warranties on the “actual
knowledge” of Rosenberg and Briles, and C&K has failed to allege that either of these
individuals had actual knowledge of Williams’s failed alcohol test. (Expedited Mot. to Dismiss at
3.) The court need not address this argument, however, because it has determined that C&K’s
claim for breach of Section 4.01 must be dismissed for the reasons already mentioned; unless
C&K alleges that it has been held liable, or is otherwise entitled to indemnification from
Expedited, in lawsuits arising out of the January 28, 2013 accident, Plaintiff cannot state a claim
against Expedited for breach of its representations and warranties.
B.
Fraud and Equitable Rescission (Counts II and III)
In Section 4.01 of the APA, Expedited represented and warranted that it had complied
with all laws and regulations, had lawfully retained its independent contractors, and had not
omitted any material facts from the APA. (APA § 4.01.) In Count II of its complaint, C&K
alleges that all of these representations were fraudulent because Expedited failed to disclose to
C&K that, after Williams had failed his alcohol test, Expedited continued to allow Williams to
operate a truck for the company, an operation that C&K characterizes as unlawful. Under
Illinois law, the elements of fraud are: (1) a false statement of material fact; (2) defendant’s
knowledge that the statement was false; (3) defendant’s intent that the statement induce the
plaintiff to act; (4) plaintiff’s reliance upon the truth of the statement; and (5) plaintiff’s damages
resulting from its reliance on the statement. Massuda v. Panda Express, Inc., 759 F.3d 779,
17
783 (7th Cir. 2014). C&K’s complaint, therefore, must contain sufficient factual allegations to
satisfy each of these five elements.
In its motion to dismiss, Expedited argues that C&K’s fraud claim should be dismissed
because C&K does not allege that Briles or Rosenberg, who signed the APA on Expedited’s
behalf, knew about Williams’s failed test, and consequently, had knowledge that the
representations made by Expedited were false. (Expedited Mot. to Dismiss at 2; Expedited
Reply in Support of Mot. to Dismiss [127] at 2.) In response, C&K points to its allegations that
Expedited employee Jimmy Foster was aware of the test results, and asserts that Foster’s
knowledge can be imputed to Expedited for purposes of C&K’s fraud claim. (C&K Opp. to
Expedited Mot. to Dismiss at 10-11.) With respect to the knowledge of Briles and Rosenberg,
C&K maintains that Briles and Rosenberg had a “non-delegable duty” to know the results of the
test. (Fourth Am. Compl. ¶ 21.) Thus, C&K asserts, “whether or not Jimmy Foster followed
Expedited’s chain-of-command and notified Mr. Briles and/or Mr. Rosenberg of Williams’s failed
random alcohol test is of no consequence.” (Id.)
The court first addresses whether C&K’s allegations that Foster was aware of the test
results are sufficient to support an inference that Expedited itself had knowledge of this
information. Under principles of agency law, the knowledge of a corporate agent acting within
the scope of his or her agency is imputed to the corporation if the knowledge relates to a matter
within the scope of the agent’s authority. Campen v. Exec. House Hotel, Inc., 105 Ill. App. 3d
576, 586, 434 N.E.2d 511, 517 (Ill. App. Ct. 1st Dist. 1982). Here, accepting the allegations
contained in C&K’s complaint as true, Foster was acting within the scope of his employment
when he received the results of Williams’s alcohol test on behalf of Expedited. Further, the test
was a matter directly related to Foster’s employment. The court thus finds that Foster’s alleged
knowledge of the failed test may be imputed to Expedited.
In addition to alleging that a defendant acted with the requisite knowledge, however, a
plaintiff must also sufficiently plead that the defendant acted with the requisite intent, or scienter,
18
to commit fraud.
“Although Rule 9(b) does not require ‘particularity’ with respect to the
[defendant’s] mental state, the complaint must still afford a basis for believe that [the plaintiff]
could prove scienter.” DiLeo v. Ernst & Young, 901 F.2d 624, 629 (7th Cir. 1990). C&K’s
complaint fails in this regard because it does not allege that Foster ever relayed the test results
to either Briles or Rosenberg, who made the alleged misstatements on Expedited’s behalf. In
other words, taking the allegations contained in C&K’s complaint as true, C&K’s complaint offers
no reason to infer that Expedited intentionally concealed the failed alcohol test from C&K.
Nor will the court infer that Expedited had the requisite intent based on the collective
actions of its employees, none of which individually could have committed the fraud. The court
has not found any Illinois court or Seventh Circuit cases applying the concept of collective
corporate intent to cases involving common-law fraud.
Notably, however, the concept of
collective corporate intent has been explicitly rejected by the Seventh Circuit as a basis for
corporate liability in securities fraud cases. See Makor Issues & Rights, Ltd. v. Tellabs Inc., 513
F.3d 702, 707 (7th Cir. 2008) (noting that if an employee accidentally overstated company’s
earnings, and those overstatements were reported in good faith up the line to senior
management, there would be no corporate scienter); see also Southland Sec. Corp. v. INSpire
Ins. Solutions, Inc., 365 F.3d 353, 366 (5th Cir. 2004) (to establish securities fraud, a court must
“look to the state of mind of the individual corporate official or officials who make or issue the
statement . . . rather than generally to the collective knowledge of all the corporation’s officers
and employees acquired in the course of their employment” (footnote omitted)).
In Makor Issues & Rights, the Seventh Circuit explained that the reason for not applying
the concept of collective intent to securities fraud cases stems from the hierarchical and
differentiated structure of a company, which “makes it quite plausible that a fraud, though
ordinarily a deliberate act, could be the result of a series of acts none of which was . . . done
with scienter.” 513 F.3d at 707-08. The Seventh Circuit’s reasons for rejecting the concept of
collective intent in securities fraud cases supports rejecting collective intent in common-law
19
fraud cases, as well. Thus, in this case, C&K’s allegations that Jimmy Foster knew of the failed
alcohol test are not enough to state a plausible claim that Expedited itself fraudulently
concealed the test results without allegations that Briles and Rosenberg, the Expedited agents
who made the alleged misrepresentations on Expedited’s behalf, were also aware of this
information.
This brings the court to C&K’s next argument—that it does not need to allege that
Rosenberg or Briles knew that Williams had failed the alcohol test so long as these individuals
had a “non-delegable duty” to know this information. Whether Briles or Rosenberg had an
obligation to know the result of Williams’s failed test, however, has no bearing on whether either
Rosenberg or Briles actually knew of the failed test, and C&K must allege that Briles or
Rosenberg actually knew that the representations contained in the APA were false in order to
claim that Expedited fraudulently concealed this information. See Perkins Dairy Farm, Inc. v.
Celotex Corp., No. 89 C 20245, 1991 WL 169369, at *4 (N.D. Ill. Feb. 11, 1991) (“For fraudulent
concealment . . . Plaintiffs must allege that [Defendant] actually knew that the representations
were false.” (emphasis original)); see also Bank of N. Illinois v. Nugent, 223 Ill. App. 3d 1, 11,
584 N.E.2d 948, 954 (Ill. App. Ct. 2d Dist. 1991) (“knew or should have known” allegations are
not sufficient to plead scienter and intent).
In sum, because C&K’s complaint does not allege that Briles or Rosenberg actually
knew that Williams had failed the alcohol test, Count II of C&K’s complaint is dismissed. For the
same reasons, the court also dismisses Count II, which claims that C&K is entitled to equitable
rescission of the contract based on Expedited’s allegedly fraudulent misrepresentations.
II.
Motions for Summary Judgment
Summary judgment under Rule 56 is proper if “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a
matter of law.” FED. R. CIV. P. 56(c); J.S. Sweet Co. v. Sika Chem. Corp., 400 F.3d 1028, 1032
20
(7th Cir. 2005). In determining whether a genuine issue of material fact exists, the court will
construe all facts and draw all reasonable and justifiable inferences in the light most favorable to
the non-moving party. J.S. Sweet, 400 F.3d at 1032 (citation omitted). On cross-motions for
summary judgment, the standard is the same as that for individual motions for summary
judgment, and the court must consider each motion independent of the other. See Cont'l Cas.
Co. v. Nw. Nat'l Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005).
Both parties in this case have moved for summary judgment on their nearly-identical
claims for breach of contract based on the other party’s alleged failure to remit load revenues
pursuant to Section 5.03 of the APA. Expedited also seeks summary judgment on its claim for
breach of contract based on C&K’s failure to provide Expedited with a Purchase Price
Adjustment, as well as its request for attorney’s fees under APA Section 7.14.
A.
C&K’s Breach of Contract Claim for Post-closing Load Revenue
C&K requests summary judgment on its claim that Expedited failed to pay C&K postclosing revenue owed to C&K under Section 5.03 of the APA. (C&K SJ Mot. at 1.) Expedited
concedes it has collected $356,839.50 in post-closing revenues from loads transported or
delivered by C&K’s drivers; C&K asserts it is entitled to this amount, plus pre-judgment interest.
(Id.) The court agrees that there is no genuine issue of disputed material fact as to C&K’s
entitlement to this amount. Expedited argues that the court should deny C&K’s motion for
summary judgment because, even if Expedited provides C&K with these funds, Expedited is
entitled to a net recovery from C&K for the Purchase Price Adjustment and pre-closing revenues
owed to Expedited under Section 5.03. As explained below, whether Expedited is entitled to a
Purchase Price Adjustment under the contract cannot be determined at this time, and the
$356,839.50 in post-closing revenue owed by Expedited is greater than the $128,608.28 in preclosing revenue owed by C&K. For these reasons, the court declines to award Expedited an
offset at this time, and C&K’s summary judgment motion is granted.
21
B.
Expedited’s Breach of Contract Claims for Pre-closing Load Revenue and
Purchase Price Adjustment
Expedited similarly requests summary judgment on its claim against C&K for breach of
contract based on C&K’s failure to provide Expedited with pre-closing revenue owed to
Expedited under Section 5.03 of the APA. (Expedited SJ Mot. at 2.) Specifically, Expedited
argues that because C&K collected $128,608.28 in pre-closing receivables from loads
transported or delivered by Expedited’s drivers, Expedited is entitled to this amount, plus prejudgment interest. (Id.) C&K does not dispute that it collected $128,608.28 in pre-closing
receivables.
Instead, C&K contends that Expedited is not entitled to this money because
Expedited itself breached the contract by failing to provide C&K with revenues owed to C&K
under Section 5.03. (C&K Opp. to Expedited SJ Mot. at 13.)
Under Illinois law, a material breach of a contract will excuse subsequent performance
by the other party. Costello v. Grundon, 651 F.3d 614, 640 (7th Cir. 2011). To determine
whether a breach is material, a court applying Illinois law must ask “whether ‘the matter, in
respect to which the failure of performance occurs, is of such a nature and of such importance
that the contract would not have been made without it.’” Arrow Master, Inc. v. Unique Forming
Ltd., 12 F.3d 709, 715 (7th Cir. 1993) (quoting Haisma v. Edgar, 218 Ill. App. 3d 78, 86, 578
N.E.2d 163, 168 (Ill. App. Ct. 1st Dist. 1991)). Additionally, courts must “take into account the
totality of the circumstances and focus on the inherent justice of the matter,” such as “whether
the breach defeated the bargained-for objective of the parties; whether the non-breaching party
suffered disproportionate prejudice; and whether undue economic inefficiency and waste, or an
unreasonable or unfair advantage would inure to the non-breaching party.” Arrow Master, 12
F.3d at 715. In this case, no reasonable fact finder could find that Expedited’s failure to provide
C&K with post-closing revenues under Section 5.03 was a material breach that excused C&K’s
performance. Notably, C&K is not an innocent party; both parties breached Section 5.03, and
neither party can excuse its performance under this section by pointing to the other party’s non22
performance. Further, because the court has now ordered Expedited to pay the pre-closing
revenues to C&K, there would be no injustice in requiring C&K to pay the funds that its owes to
Expedited under the same provision. Expedited’s motion for summary judgment on its breach
of contract claim for C&K’s failure to remit post-closing revenues is granted.
On the other hand, the court denies Expedited’s request for summary judgment on its
breach of contract claim for C&K’s failure to provide Expedited with a Purchase Price
Adjustment under Section 2.03 of the APA. Expedited’s claim that it is entitled to a Purchase
Price Adjustment of $329,107.36 is based on C&K’s internal spreadsheets, which show that
C&K received $2,162,826.37 in revenues and achieved an Aggregate Direct Profit of
$464,622.15 during the 100-day period after closing.
C&K arrived at the estimated
$2,162,826.37 in revenue, however, based on its belief that Expedited had collected
$433,560.10 in post-closing load revenue that was owed to C&K under Section 5.03 of the APA.
As the court already mentioned, Expedited admits to receiving $356,839.50 in post-closing
revenue. Assuming that C&K would have to adjust its revenue downward accordingly, C&K’s
revenues for the 100-day period following the closing date would be $2,086,105.77, and its
Aggregate Direct Profit just $387,901.55. 10
It is, of course, possible that C&K’s gross revenues will be greater than $2,086,105.77
once C&K accounts for the revenue generated from Williams’s January 28, 2013 delivery. C&K
contends that this revenue is properly credited to Expedited because Williams was operating
under Expedited’s DOT operating authority at the time of the accident. The court disagrees. As
part of the transaction, C&K purchased substantially all of Expedited’s assets, including the
contract pursuant to which Williams was hired. Once the transaction closed on January 25,
2013, Williams became C&K’s driver, and C&K became entitled to the revenue generated from
10
The court arrived at $2,086,105.77 in revenues by subtracting $76,720.60 (the
difference between $433,560.10 and $356,839.50) from $2,162,826.37. The court then
calculated $387,901.55 in Aggregate Direct Profit by subtracting C&K’s revenues by the
$1,698,204.22 in costs reflected in its internal spreadsheets.
23
him. Further, the APA provides that Expedited is only entitled to revenue generated through the
closing date, not (as C&K appears to believe) any revenue generated prior to the change in
DOT operating authority. Because the amount of revenue generated from Williams’s January
28, 2013 delivery is not in the record, however, the court cannot determine its effect on C&K’s
revenues within the 100-day period following the closing date.
These numbers are significant because Section 5.03 of the APA only requires C&K to
provide Expedited with a Purchase Price Adjustment if its Aggregate Direct Profit exceeded
$400,000 within the 100-day period following the closing.
(APA § 2.03.)
Thus, if C&K’s
Aggregate Direct Profit was only $387,901.55, C&K was under no obligation to provide
Expedited with a Purchase Price Adjustment under the contract. If the revenue generated from
Williams’s January 28, 2013 delivery increased C&K’s Aggregate Direct Profit above $400,000,
however, Expedited would be entitled to recover a Purchase Price Adjustment.
C.
C&K’s Affirmative Defenses
Finally, the court turns to C&K’s affirmative defenses that: (a) C&K’s performance was
excused because of Expedited’s prior material breaches, (b) Expedited caused its own
damages, (c) Expedited failed to mitigate its damages, and (d) Expedited made fraudulent
misrepresentations to induce C&K to enter into the transaction. Expedited contends that it is
entitled to summary judgment on each of these defenses, and the court agrees. (Expedited SJ
Mot. at 2.)
With respect to C&K’s first affirmative defense, the court has already rejected C&K’s
assertion that it was not required to perform under the APA because Expedited had breached
the contract by failing to provide C&K with post-closing revenue under Section 5.03. As for
C&K’s argument that its performance was excused because Expedited had failed to satisfy its
representations and warranties, any such failure would not excuse C&K’s performance under
either Section 2.03 (Purchase Price Adjustment) or Section 5.03 (Load Revenues).
As
discussed above, Section 6.05 of the APA provides that indemnification is C&K’s exclusive
24
remedy for Expedited’s breach of its representations and warranties under Section 4.01. This
exclusive remedy provision shows that the parties did not intend to provide C&K with the right to
discontinue its performance and invalidate the agreement based on a breach of the
representations and warranties provision. If C&K were permitted to do so, the indemnification
clause provided in the APA would become a meaningless limitation.
Nor is the court persuaded by C&K’s defenses that Expedited caused its own damages
and failed to mitigate its damages by refusing to provide C&K with post-closing revenue owed to
C&K under Section 5.03 of the APA. (C&K Opp. to Expedited SJ Mot. at 22-23.) C&K contends
that if Expedited had paid C&K the $433,560.10 in post-closing revenue, C&K would have been
able to realize the actual amount of its revenues for the 100-day period following the closing
date, thus making it possible that C&K could have achieved an Aggregate Direct Profit in excess
of $400,000 and also could have provided Expedited with a Purchase Price Adjustment under
the contract. (Id. at 23.) Expedited, however, is not requesting damages; rather, Expedited is
requesting specific performance of the parties’ agreement. C&K’s claim that Expedited caused
its own damages or failed to mitigate its damages does not apply to this case. Here, both
parties breached the APA by failing to provide each other with load revenues under Section
5.03, and both parties are entitled to specific performance under this provision.
In its final affirmative defense, C&K asserts that Expedited is not entitled to recover from
C&K for C&K’s alleged breach of the APA because Expedited made fraudulent
misrepresentations by failing to disclose Williams’s failed alcohol test and that Expedited
illegally continued to keep Williams as a truck driver after the failed test. As discussed earlier, in
order to show that Expedited acted with the requisite intent to commit fraud, C&K must provide
the court with factual allegations or evidence that either Rosenberg or Briles knew of Williams’s
failed alcohol test when they signed the APA. There is no evidence in the record that either
Rosenberg or Briles had knowledge of Williams’s failed test, and as a result, C&K cannot use
this as a basis for precluding Expedited’s recovery under the contract.
25
D.
Expedited’s Claim for Attorney’s Fees
Because Section 7.14 of the APA defines “prevailing party” as “a party obtaining
substantially the relief sought, whether by compromise, settlement or judgment,” Expedited
contends that it became a prevailing party under the contract when it obtained a favorable
judgment on its motion to dismiss C&K’s third amended complaint.
Counterclaim at 41-42.)
(Expedited Ans. &
Based on this dismissal, Expedited alleges that it is entitled to
attorney’s fees for all claims on which it prevailed and seeks summary judgment on this claim.
(Id.) The court dismissed C&K’s claims against Expedited without prejudice, however, and a
dismissal without prejudice generally does not render a defendant a prevailing party for
purposes of obtaining attorney’s fees because there is still a chance that the plaintiff may
ultimately prevail. See, e.g., Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073, 1077
(7th Cir. 1987), cert. dismissed, 485 U.S. 901 (1988) (explaining that while a defendant remains
at risk when a case has been dismissed without prejudiced, a dismissal with prejudice “enables
the defendant to say that he has ‘prevailed’”). Here, because it is possible that C&K may
ultimately prevail on the claims contained in its third amended complaint (which now appear in
C&K’s fourth amended complaint), the court cannot yet determine whether C&K or Expedited is
the “prevailing party” under the contract.
Although C&K may ultimately prevail on its amended claims, Expedited nonetheless
contends that it is a prevailing party under the APA because Section 7.14 does not expressly
require a final judgment in the prevailing party’s favor. (Expedited Reply in Support of SJ Mot.
[117] at 14.) The term “judgment” itself, however, suggests a final, as opposed to preliminary,
judgment. See, e.g., FED. R. CIV. P. 54(a) (“‘Judgment’ as used in these rules includes a decree
and any order from which an appeal lies.”). Further, Section 7.14 provides that the prevailing
party must prevail in a “legal or equitable proceeding.” (APA § 7.14.) The proceedings brought
by C&K against Expedited are still ongoing because the court has not dismissed any of C&K’s
26
claims against Expedited with prejudice. Accordingly, at this time, Expedited is not a prevailing
party under the APA.
In its summary judgment motion, Expedited also requests the court to grant Rosenberg
leave to file a petition for attorney’s fees within 30 days of the court’s order on Expedited’s
motion. (Expedited SJ Mot. at 4.) Rosenberg, unlike Expedited, is a prevailing party under the
APA because the court dismissed C&K’s claims against Rosenberg with prejudice, and as a
result, C&K cannot re-assert its claims against him. See Mostly Memories, Inc. v. For Your
Ease Only, Inc., 526 F.3d 1093, 1099 (7th Cir. 2008) (“There is no question that a dismissal with
prejudice makes the defendant the prevailing party for purposes of an award of attorney’s fees
under [the Copyright Act].”)
C&K argues that Rosenberg is not entitled to attorney’s fees
because he is no longer a party to this lawsuit, but a party is permitted to petition for attorney’s
fees even after an entry of judgment has been made against it. (C&K Opp. to Expedited SJ
Mot. at 14-15); see FED. CIV. R. P. 54(d)(2)(B) (providing that a claim for attorney’s fees must be
made within 14 days after the entry of judgment). C&K also argues that Rosenberg is not
entitled to attorney’s fees because Section 7.14 does not apply to him. Section 7.14, however,
provides a right to attorney’s fees for “[a]ny party to this Agreement,” and Rosenberg is a party
to the APA.
Though C&K’s arguments are not persuasive, the court is nevertheless not willing to
award fees to Rosenberg in this context. Rosenberg was represented by the same attorneys
who represent Expedited and therefore does not appear to have incurred any attorney’s fees in
this case. Perhaps Rosenberg actually paid Expedited’s counsel from his own pocket (which
seems unlikely); if so, the court would expect counsel to distinguish the time and effort devoted
to representing Rosenberg from the time and effort devoted to defending Expedited. Upon final
judgment, the court will award attorney’s fees to any party who has incurred them and is entitled
to recovery. At this stage in the proceedings, however, the court denies Expedited’s request for
attorney’s fees on behalf of Rosenberg.
27
Lastly, Expedited requests attorney’s fees to the extent that it prevails on the rest of its
summary judgment motion. (Expedited SJ Mot. at 3-4.) Expedited has only succeeded in
obtaining summary judgment on its breach of contract claim for C&K’s failure to remit preclosing revenue collected by C&K under Section 5.03 of the APA and on C&K’s affirmative
defenses.
C&K prevailed on its equivalent breach of contract claim against Expedited for
Expedited’s failure to remit post-closing revenue under Section 5.03. The court has ordered
Expedited to provide C&K with $356,839.50, and it has ordered C&K to provide Expedited with
$128,608.28. Neither C&K nor Expedited can be considered a “prevailing party” entitled to
attorney’s fees for their equally-successful breach of contract claims.
CONCLUSION
For the reasons explained above, Expedited’s motion to dismiss is granted. [108]
Expedited’s motion for summary judgment is granted in part and denied in part. [86] C&K’s
motion for summary judgment is also granted. [121]
ENTER:
Dated: June 17, 2016
_________________________________________
REBECCA R. PALLMEYER
United States District Judge
28
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