C&K NuCo, LLC v. Expedited Freightways, LLC et al
Filing
59
MEMORANDUM Opinion and Order Signed by the Honorable Rebecca R. Pallmeyer on 9/30/2014: Mailed notice(etv, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
C&K NuCo, LLC,
Plaintiff,
v.
EXPEDITED FREIGHTWAYS, LLC,
and CHAD ROSENBERG,
Defendants.
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No. 13 C 4006
Judge Rebecca R. Pallmeyer
MEMORANDUM OPINION AND ORDER
Until January 25, 2013, Defendants Expedited Freightways, LLC ("Expedited") and Chad
Rosenberg were engaged in the business of providing trucking transportation services. On that
day, Plaintiff C&K NuCo, LLC ("NuCo") agreed to purchase a portion of Expedited's assets.
Three days later, on January 28, a truck driven by an independent contractor for Expedited was
involved in a fatal vehicle accident. Plaintiff alleges that it faces liability for the wrongful death
and other injuries related to the trucking accident. In this action, Plaintiff charges Defendants
with breach of contract (Count I) and fraud (Counts IV–V), and claims indemnity for litigation
costs arising from the accident.
In addition, Plaintiff seeks to recover from Defendants
payments for loads transported by Plaintiff after January 25, 2013 (Count I(e)).
Defendants have moved to dismiss, arguing that the indemnity issue is not ripe for
review, that Plaintiff lacks standing to litigate liability for the accident, that Plaintiff has failed to
state a claim for breach of contract, and that Plaintiff has failed to plead fraud with particularity
as required under Federal Rules of Civil Procedure 12(b)(6) and 9(b).
For the reasons
discussed below, Defendants' motion to dismiss [45] is granted in part and denied in part: the
court denies the motion to dismiss Count I(e) (breach of contract for failing to remit payments to
Plaintiff) as against Defendant Expedited, but dismisses that claim with prejudice as against
Defendant Rosenberg; Counts I(a)–(c) (failing to satisfy representations and warranties under
contract), and Count IV (fraudulent misrepresentation), Count V (fraudulent concealment), and
Count VI (seeking equitable rescission), Count I(d) (breach of contract for failing to indemnify
Plaintiff), Count II (seeking declaratory relief), and Count III (for indemnification) are dismissed
without prejudice as against both Defendants.
BACKGROUND
The following alleged facts are drawn from the Third Amended Complaint and attached
exhibits, and are set forth in a light most favorable to Plaintiff.
I.
Facts
Plaintiff NuCo was formed in order to acquire assets from Expedited, which was in the
business of "intermodal drayage and trucking services." (Third Am. Compl. [42] ¶¶ 1, 3.)
Defendant Rosenberg is beneficiary of a trust owned by Expedited (id. ¶ 5); the complaint does
not state whether Rosenberg also played a business role with Expedited.
A.
The Asset Purchase Agreement
On January 25, 2013, NuCo, Expedited, Rosenberg, and C & K Trucking, LLC, not a
party to this litigation, entered into an Asset Purchase Agreement ("APA"), in which Expedited
agreed to sell NuCo assets including "customer lists, certain assigned contracts, independent
contractor lease agreements with owner-operator drivers and qualification files and records
related thereto, office equipment, supplies, and furniture, and goodwill.” (Third Am. Compl. ¶ 32;
see Asset Purchase Agreement, Ex. 1 to Third Am. Compl., hereinafter "APA," §§ 1.01; 7.05.)
Section 5.03 of the APA apportions the revenue flowing from the assets. It provides that
Expedited is entitled to all revenue, and responsible for all expenses, "generated from . . . [and]
related to, loads transported or delivered by its drivers through the Closing Date, 1" and that
NuCo is entitled to and responsible for like revenue and expenses after the Closing Date. (APA
1
Section 3.01 provides that the "Closing Date" and time is January 25, 2013 at
11:59:59 p.m. central standard time. (APA § 3.01.)
2
§ 5.03.) Section 5.03 does not purport to resolve all questions regarding the parties' financial
entitlement and obligations; instead, the parties "acknowledge[d] that certain deliveries may be
split between services provided by both parties . . . ," "covenant[ed] to work in good faith to
timely account for and properly direct payments owing to the other . . . ," and "covenant[ed] that
all unified billing payments for split-move services shall be equitably adjusted among the
parties . . . ." (Id.) In Count I(e), Plaintiff alleges that the Defendants have refused to remit to
NuCo amounts received for loads transported and delivered after January 25, 2013, in violation
of this section, and that Defendants owe Plaintiff "at least $345,904.53" for these loads. (Third
Am. Compl. ¶¶ 35–36, ¶ 54(e).)
Defendant Expedited also made certain "representations and warranties" in Section 4.01
of the APA, assuring that it was in compliance under the law and had not concealed material
information:
(g)
Compliance/Governmental Authorizations. Expedited has complied in all
material respects with all material federal, state, local and foreign laws,
regulations, ordinances, judgments, decrees, injunctions, writs and orders
(collectively, "Laws") applicable to it and the Business, and no charges or, to
Expedited's Knowledge, investigations have been made alleging failure to comply
therewith. . . .
...
(j)
Labor Matters. . . . (iii) Expedited has complied with all laws, rules and
regulations relating to the hiring and retention of all employees, leased
employees and independent contractors relating to wages, hours, any employee
benefit plans, workers' compensation, unemployment, equal opportunity,
collective bargaining, and the payment of social security and other Taxes.
...
(l)
Misrepresentations. This Agreement and the schedules delivered
pursuant hereto do 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 in light of the circumstances in which they were made by
Expedited. There is no fact which Expedited has not disclosed to C&K in writing
which adversely affects Expedited's title and right in the Purchased Assets.
(APA § 4.01.)
In making these representations and warranties, Expedited's knowledge is
defined as "exclusively the actual knowledge of the Rosenberg [sic] and Jim Briles, an officer of
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Expedited, who would be reasonably expected to have knowledge regarding the accuracy of the
fact or matter in question." (Id.)
Finally, in the APA, Expedited and Rosenberg agreed to indemnify NuCo for "any breach
of any representation, warranty, covenant or agreement of Expedited or Rosenberg contained in
this Agreement . . . " and for "Expedited's use and/or ownership of the Purchased Assets and
the Business through the Closing Date." (APA § 6.01(a)(i)–(ii).)
Section 6.02 limits that
commitment, requiring Plaintiff's losses to exceed $25,000 before the indemnity obligation takes
effect, and capping indemnification at $600,000, excluding fraud or intentional misrepresentation
claims. (Id. § 6.02.) Section 6.03 outlines the indemnification procedure, and requires the seller
(Defendants) to pay the cost of litigation against Plaintiff by third parties. (Id. § 6.03 (providing
that any litigation covered in Section 6.01, the indemnity agreement, "shall . . . be
defended . . . by the Indemnifying Party."); see also id. § 6.01.)
The Federal Motor Carrier Safety Administration approved the change in operating
authority from Expedited to NuCo on January 30, 2013, effective February 4, 2013. (Third Am.
Compl. ¶ 33.)
B.
Affiliate Trucking and its Driver Arnold Williams
Among the "Purchased Assets" transferred to Plaintiff in the APA were contracts with
independent contractors that performed trucking operations on the business's behalf. (APA
§ 1.01(c).) One of these contracts was an agreement dated September 20, 2012 between
Expedited and Affiliate Trucking, an independent contractor fleet owner-operator. (Third Am.
Compl. ¶ 10.)
Around January 25, 2013, Plaintiff presented all independent contractors,
including Affiliate Trucking, with a "Notice of Assignment and Consent," which explained that "as
of January 26, 2013" the independent contractors' "contractual relationship with [Expedited] will
officially end and [their] contractual relationship with [NuCo] will officially begin." (Third Am.
Compl. ¶ 39; see Notice of Assignment & Consent, Ex. 5 to Third Am. Compl., hereinafter
"Indep. K Notice.") The Notice directed the independent contractors to execute and return the
4
Notice to NuCo in order to ensure that their contracts "properly reflect[ed] the new contractual
relationship," and announced that if the independent contractors failed to do so, then Expedited
would "process [their] final settlement within 15 days from the date of [the] notice." (Indep. K
Notice.) By its terms, the Notice called for the independent contractors to consent to both the
assignment of the contract and "the transfer of my qualification/driver file materials to
Purchaser." (Indep. K Notice.) Affiliate Trucking did not execute or return the Notice to NuCo.
(Third Am. Compl. ¶ 41.) As Plaintiff sees things, the independent contractors, who, like Affiliate
Trucking, did not return the executed Notice, "provided no post-closing services" to NuCo. (Id.
¶ 42.)
One of the drivers employed by Affiliate Trucking is Arnold Williams. (Third Am. Compl.
¶ 11.) As required by Department of Transportation ("DOT") regulations, Affiliate Trucking 2
administered random tests of its drivers for alcohol and controlled substances. See 49 C.F.R.
§ 382.305.
Plaintiff alleges, "[u]pon information and belief," that in November 2012, Williams
failed the random test "because [his] blood alcohol content exceeded the legal limit at the time
of the test." (Third Am. Compl. ¶ 12.) Drivers who have failed testing for alcohol and controlled
substances are prohibited from driving a commercial motor vehicle until the driver has
completed an evaluation and treatment process. 49 C.F.R. §§ 40.285; 382.503. Both the driver
and his or her employer may be subject to criminal or civil penalties for failing to comply with
DOT regulations concerning such testing. 49 C.F.R. § 382.507.
Plaintiff alleges, again on
"information and belief," that Williams was not qualified to drive a commercial motor vehicle on
January 25, 2013. (Third Am. Compl. ¶ 23.) Plaintiff asserts, further, that Defendants "failed to
disclose" and "concealed or otherwise [did] not ma[k]e" the results of Williams's test available to
Plaintiff before the parties executed the APA on January 25, 2013. (Id. ¶ 13; see also id. ¶ 76
2
Although Plaintiff has not explicitly so alleged, the court presumes that it was
Williams’s employer, Affiliate Trucking, who performed the test.
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("Defendants knowingly and intentionally concealed the fact that Williams failed an alcohol test
in November 2012").) Either because Williams failed the alcohol and controlled substances test
in November 2012 or because of his "conduct prior to, at, or after the January 28, 2013
accident," Plaintiff alleges that Defendants knew that certain representations and warranties that
they made in the APA were false. (Id. ¶ 69.)
C.
January 28, 2013 Accident and Subsequent Litigation
On Friday, January 25, 2013, "Expedited dispatched a load" to Williams. (Third Am.
Compl. ¶ 22.) Williams picked up the load before 4:00 p.m. on Friday, and "[u]pon information
and belief" drove the load to his home for the weekend, about 4.2 miles from the load's final
destination. (Id. ¶ 24.) Williams delivered the load on Monday, January 28, around 6:50 a.m.
(Id. ¶ 26.) While returning the empty truck container after making the delivery, Williams was
involved in an accident on I-526 in North Charleston, South Carolina. (Id. ¶ 27.) According to
the Traffic Collision Report Form, vehicles were stalled on the highway, and Williams, "traveling
too fast for conditions," was unable to brake in a timely manner. (Id. ¶¶ 27–28; see Traffic
Collision Rep. Form, Ex. 2 to Third Am. Compl., hereinafter "Accident Rep.," at 1.) As a result,
Williams collided with a motor vehicle in front of him, and caused a multiple vehicle accident,
which killed Lauren Baccari. (Id. ¶¶ 28, 31; Accident Rep. at 1.) After the accident, Williams
was observed disposing of beer cans, but a drug and alcohol test administered at a local
hospital after the accident was negative. (Third Am. Compl. ¶¶ 29–30.) Williams was charged
with reckless homicide. (Id. ¶ 30.)
Plaintiff maintains that Williams was acting as agent for Defendant Expedited at the time
of the accident. Williams both picked up and transported the load, at Expedited's direction,
before the closing on January 25, 2013. (Third Am. Compl. ¶ 38.)
Furthermore, because
Affiliate Trucking failed to execute and return the Notice, Plaintiff asserts that Williams, as
Affiliate Trucking's employee, "was not operating as a driver on behalf of or under the authority
of NuCo at the time of the January 28, 2013 accident." (Id. ¶ 42.) Rather, Plaintiff implies,
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Williams remained an agent of Expedited via Affiliate Trucking. Plaintiff notes, again "[u]pon
information and belief," that the door placard on Williams's truck contained DOT identifying
information for Expedited. (Id. ¶ 25.) Finally, Plaintiff alleges, Defendant Expedited "expressly
assumed . . . liability and responsibility [for the accident] pursuant to Section 5.03 of the [APA]."
(Id. ¶ 60.)
Within two weeks after the accident, on February 12, 2013, Plaintiff received a notice of
claim and a demand for preservation of evidence from Paul Dominick, an attorney representing
the Estate of Lauren Baccari. (Third Am. Compl. ¶ 31; see Letter from Dominick to Expedited
Freightways, LLC & Expedited Freightways, LLC – EFW of 2/12/13, Ex. 3 to Third Am. Compl.)
In their motion to dismiss, Defendants advised the court that the insurance carrier for both
Plaintiff NuCo and Defendant Expedited have agreed to a settlement with Baccari's Estate in a
"covenant not to enforce a judgment." (Br. in Supp. of Defs.' Mot. to Dismiss [48], hereinafter
"Defs.' Mot.," at 4 n.3.) Though Baccari's Estate may yet file suit against Plaintiff or Expedited,
Defendants argue that because of the agreement "neither [NuCo] nor Expedited will have any
liability beyond insurance coverage already paid." (Id.) Neither of the parties provided the court
with a copy of the settlement agreement, and Plaintiff has remained silent concerning the
agreement, even after Defendants directed the court's attention to it in their motion to dismiss.
Plaintiff filed this suit on May 30, 2013 (Compl. [1]), and the 9th Judicial District Court of
Charleston County approved the settlement on November 6, 2013. 3
3
In this agreement, the
The agreement can be located via a public case records search in Charleston
County.
(Visit
http://jcmsweb.charlestoncounty.org/publicindex/?AspxAutoDetect
CookieSupport=1; select case type "Common Pleas" and search for "Baccari."). See Order &
Covenant Not to Enforce J., Baccari v. FAF, Inc., No. 2013-CP-10-06182 (9th Jud. Cir. – S.C.
Nov. 6, 2013), hereinafter "Baccari Estate Settlement," http://imgweb.charlestoncounty.org/
CMSOBView/Service1.asmx/StreamDocAsPDF?viewertype=cms&ctagency=10002&casenumb
er=2013CP1006182&docseq=P1A4. Generally, the court, in considering a motion to dismiss, is
limited to the complaint and central attachments referred to in the complaint. Albany Bank &
Trust Co. v. Exxon Mobil Corp., 310 F.3d 969, 971 (7th Cir. 2002) (quoting Venture Assocs.
Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)). But here, the court may
look beyond the pleadings to determine whether there is subject matter jurisdiction, and
(continued . . . )
7
Insurance Company of the State of Pennsylvania ("ICSP") agreed to pay Baccari's Estate
$950,000 on behalf of both Plaintiff and Defendant Expedited (as well as other defendants).
(Baccari Estate Settlement at 2–3.) In exchange, Baccari's Estate agreed, in the event that it
sues Plaintiff or Defendant Expedited, to identify a liability insurance carrier (other than ISCP)
from whom it may reasonably enforce judgment, and to not enforce any judgment against the
personal, family or business assets of Plaintiff or Defendant Expedited. (Id. at 4–6.) Plaintiff
also represented, in the agreement, that its only insurer that would cover the accident was ISCP
(id. at 6), decreasing the likelihood that Plaintiff may be sued by the Baccari estate in the future.
(Baccari Estate Settlement.)
Plaintiff alleges that it has incurred litigation costs and expects to incur additional
expenses in relation to the January 28, 2013 accident. (Third Am. Compl. ¶ 48.) In opposition to
Defendants' motion to dismiss, Plaintiff notified the court that it was served with a second notice
of claim 4 on December 18, 2013 for alleged injuries from the January 28 accident. (Pl.'s Opp. to
Defs.' Mot. [52], hereinafter "Pl.'s Opp.," at 8 n.2.)
II.
Procedure
Plaintiff has invoked diversity jurisdiction under 28 U.S.C. § 1332.
The amount in
controversy exceeds $75,000, and it appears that Plaintiff is diverse in citizenship from both
Defendants.
Both Plaintiff and Defendant Expedited are limited liability companies, and
specifically whether the settlement agreement makes Plaintiff's claim for indemnification unripe
for review, or altogether moot. See Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440,
444 (7th Cir. 2009).
4
A public records search indicates that the second claimant, Joseph William
Hamilton III, has since filed suit. See Compl. in Hamilton v. C&YK NuCo LLC, No. 2014-CP-1000724 (9th Jud. Cir. – S.C.) (filed Feb. 5, 2014), available at http://imgweb.charlestoncounty.org/
CMSOBView/Service1.asmx/StreamDocAsPDF?viewertype=cms&ctagency=10002&casenumb
er=2014CP1000724&docseq=P1A1. The complaint alleges two negligence claims, and asserts
that Hamilton suffered head trauma, a broken nose, and "deep and severe lacerations to his
face" in the accident caused by Williams. (Id. ¶¶ 13, 19–23.) Like the covenant not to enforce
judgment, the second suit is relevant to the court's subject matter jurisdiction, specifically, in
considering whether Plaintiff's indemnification claim is ripe.
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therefore, have the citizenship of each of its members. Hukic v. Aurora Loan Servs., 588 F.3d
420, 427 (7th Cir. 2008). Plaintiff NuCo has single member, C & K Holdings Acquisition, LLC—
itself another limited liability company with eight individual members "residing in" Illinois and
Florida. (Third Am. Compl. ¶¶ 1–2.) Defendant Expedited also is a limited liability company with
one member, EF Services, LLC, a limited liability company which Plaintiff alleges "[u]pon
information and belief" has a single member—Defendant Rosenberg. (Id. ¶¶ 3–4.)
"Upon
information and belief," Plaintiff asserts, Defendant Rosenberg "resid[es]" 5 in Georgia. (Id. ¶ 5.)
On May 24, 2014, Plaintiff NuCo provided Defendants Expedited and Rosenberg with
written notice of its potential liability for the January 28 accident.
Defendants refused to
indemnify NuCo. (Third Am. Compl. ¶¶ 49–50.) On May 30, 2013, Plaintiff filed this lawsuit
raising claims for breach of contract and fraud, and seeking indemnification for the costs arising
from the January 28 accident and rescission of the APA. (Compl. [1].)
STANDARDS GOVERNING DEFENDANTS’ MOTION
Defendants have moved to dismiss on grounds that the court lacks subject matter
jurisdiction, that Plaintiff has failed to join an indispensable party, and that Plaintiff has failed to
state a claim. (Defs.' Mot. [45] at 1) (citing FED. R. CIV. P. 9(b); 12(b)(1); 12(b)(6); 12(b)(7).)
Before addressing those arguments, the court pauses to consider the standards governing
them.
I.
Rule 12(b)(1)
Article III § 2 of the United States Constitution "limits the exercise of the judicial power to
'cases' and 'controversies'." Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227,
239 (1937); Wernsing v. Thompson, 423 F.3d 732, 742–43 (7th Cir. 2005). Subject matter
5
Though "residence and citizenship are not synonyms and it is the latter that
matters for the purpose of diversity jurisdiction," Meyerson v. Harrah's E. Chi. Casino, 299 F.3d
616, 617 (7th Cir. 2002), for individuals, the terms are closely-related, and the court presumes
that the parties are diverse. However, the court directs Plaintiff to file an amended complaint or
joint stipulation, identifying all members of the LLC parties and their citizenship.
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jurisdiction "defines the court's authority to hear a given type of case; it represents the extent to
which a court can rule on the conduct of persons or the status of things." Carlsbad Tech., Inc. v.
HIF Bio, Inc., 556 U.S. 635, 639 (2009) (quotations and citations omitted).
It "cannot be
forfeited or waived and should be considered when fairly in doubt." Ashcroft v. Iqbal, 556 U.S.
662, 671 (2009). Under the Declaratory Judgment Act, federal courts "may declare the rights
and other legal relations of any interested party seeking declaration" where there is "a case of
actual controversy within its jurisdiction," 28 U.S.C. § 2201(a), but the DJA "does not dispense
with the Article III case or controversy requirement . . . nor does it supply the court with subject
matter jurisdiction." Nationwide Ins. v. Zavalis, 52 F.3d 689, 691–92 (7th Cir. 1995); see also
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126 (2007).
Standing and ripeness are two justiciability requirements. A plaintiff has standing to sue
when the plaintiff has suffered an "injury in fact" that is "fairly traceable" to the defendant, and
that is "likely" to be "redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S.
555, 560–61 (1992). Ripeness requires the court to consider "the fitness of the issues for
judicial decision" and "the hardship to the parties of withholding court consideration." Nat'l Park
Hospitality Ass'n v. Dep't of Interior, 538 U.S. 803, 808 (2003). The requirement is "drawn both
from Article III limitations on judicial power and from prudential reasons for refusing to exercise
jurisdiction," Nat'l Park Hospitality Ass'n, 538 U.S. at 808 (quotations omitted), and as such, may
be considered both as "part of the case-or-controversy requirement" and as a discretionary
"question of timing." Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 538 (7th Cir. 2006)
(quoting Reg'l Rail Reorganization Act Cases, 419 U.S. 102, 140 (1974)).
The appropriate vehicle for challenging standing or ripeness is a motion to dismiss for
lack of subject matter jurisdiction under Rule 12(b)(1). FED. R. CIV. P. 12(b)(1); see Apex
Digital., 572 F.3d at 443 (standing); Flying J Inc. v. City of New Haven, 549 F.3d 538, 544 (7th
Cir. 2008) (ripeness); but see Meridian Sec. Ins., 441 F.3d at 538 (characterizing ripeness as
"'peculiarly a question of timing' rather than a limit on subject matter jurisdiction") (citation
10
omitted). Similar to a 12(b)(6) motion, a facial challenge to subject matter jurisdiction under
Rule 12(b)(1) requires that the court assume all well-pleaded factual allegations to be true.
Apex Digital, 572 F.3d at 443 (emphasis in original). If the moving party denies or rebuts the
facts alleged in the complaint, however, arguing that "the complaint is formally sufficient
but . . . that there is in fact no subject matter jurisdiction" (a factual challenge), then the court
may consider facts outside the complaint to determine whether there is subject matter
jurisdiction. Id. at 444 (emphasis in original) (quoting United Phosphorus, Ltd. v. Angus Chem.
Co., 322 F.3d 942, 946 (7th Cir. 2003), overruled on other grounds in Minn-Chem, Inc. v.
Agrium, Inc., 683 F.3d 845 (7th Cir. 2012)). "The burden of proof on a 12(b)(1) issue is on the
party asserting jurisdiction." United Phosphorus, Ltd., 322 F.3d at 946, overruled on other
grounds in Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012).
II.
Rule 12(b)(7)
A motion under Rule 12(b)(7) asks the court to dismiss the suit for failure to join a
necessary party under Rule 19. FED. R. CIV. P. 12(b)(7). As it does in considering a 12(b)(6)
motion, the court accepts all well-pleaded allegations in the complaint as true, but also may
consider extrinsic evidence. Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477, 480 n.4 (7th Cir.
2001).
The moving party must demonstrate that, under Rule 19, the absent party is both
necessary and indispensable. See FED. R. CIV. P. 19; Ochs v. Hindman, No. 13 C 3098, 2013
WL 6184452 at *2 (N.D. Ill. Nov. 25, 2013).
III.
Rule 12(b)(6)
A motion to dismiss for failure to state a claim under Rule 12(b)(6) challenges the
sufficiency of the complaint's factual allegations. FED. R. CIV. P. 12(b)(6). The court assumes
all well-pleaded factual allegations to be true. Erickson v. Pardus, 551 U.S. 89, 93–94 (2007).
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 12(b)(6) motion, the complaint need only
contain sufficient facts to state a plausible claim, that is, "factual content that allows the court to
11
draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal,
556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2009)). Allegations of
fraud must satisfy a heightened pleading standard, "stat[ing] 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).
IV.
Choice of Law
Finally, a federal court exercising diversity jurisdiction generally applies the choice of law
principles of the jurisdiction in which it sits. In re Jafari, 569 F.3d 644, 647 (7th Cir. 2009) (citing
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). The court will apply Illinois'
choice of law rules to each of the claims.
DISCUSSION
Defendants move to dismiss Count I (breach of contract), and Counts IV–VI (fraud and
equitable rescission) for failure to state a claim, Count II (declaratory judgment) for lack of
standing, and Counts I(d) and III (indemnification) as unripe.
The court addresses those
arguments in reverse order, beginning with the question whether Plaintiff’s indemnification claim
is ripe.
I.
Count III: Indemnification
In Count III, Plaintiff alleges that under Section 6 of the APA, Defendants are jointly and
severally liable to Plaintiff for the costs of litigation arising from the January 28, 2013 accident
"[w]hether or not a judgment or judgments are ultimately rendered against NuCo." (Third Am.
Compl. ¶¶ 63–64.) Plaintiff seeks a declaratory judgment that Defendants must "indemnify and
hold NuCo harmless" and must reimburse Plaintiff for "all of its attorneys' fees and costs
[incurred] (or to be incurred) . . . and all expenses and other amounts incurred (or to be
incurred) arising out of the January 28, 2013 accident" as provided in Sections 6.01 and 6.02 of
the APA. (Id. ¶ 65.) Defendants contend that Plaintiff's indemnification claim is not ripe for
12
review because the underlying accident suit(s) have not been resolved. (Defs.' Mot. at 8–11.)
The court agrees.
Under Illinois law, where the claims alleged arise from a contract with a choice-of-law
provision, courts will honor the provision so long as the contract is valid. Kohler v. Leslie
Hindman, Inc., 80 F.3d 1181, 1185 (7th Cir. 1996).
The relevant contract provision here,
Section 7.09, provides that the APA "shall be governed by and construed in accordance with the
laws of the state of Illinois . . . ." (APA § 7.09.) Neither party challenges the choice of law
provision or the validity of the APA. Plaintiff seeks indemnification under Section 6.01, in which
Defendants agree to "jointly and severally . . . indemnify" Plaintiff NuCo for costs arising from or
related to breach of certain representations and warranties, and Defendant "Expedited's use
and/or ownership of the Purchased Assets and the Business through the Closing Date." (APA
§ 6.01(a)(i)–(ii).) The court will apply Illinois law to Plaintiff's indemnification claim.
Plaintiff has not explicitly asserted that Defendants have a duty to defend, though it
suggests as much by insisting that the claim is ripe because Plaintiff has incurred and will
continue to incur litigation costs. (See Third Am. Compl. ¶¶ 47–48, 50, 54(a), 56, 64.) Absent a
claim that Defendants owe Plaintiff a duty to defend, however, this case is not ripe: a duty to
defend requires the obligor to cover the costs of litigation once an action is filed, and regardless
of the obligee's ultimate liability, while a promise to indemnify takes effect only after liability has
been determined, and may or may not cover the costs of litigation. See, e.g., Medline Industries,
Inc. v. Ram Medical, Inc., 892 F. Supp. 2d 957, 964–65 (N.D. Ill. 2012).
What the APA does impose is a mutual indemnification requirement. In Section 6.01(a),
Defendants agreed "to indemnify and hold [NuCo] . . . harmless from and against any out-ofpocket loss, liability, damage, assessment, or expense (including expenses of investigation and
defense and reasonable fees and expenses of counsel) of any nature whatsoever . . . for or on
account of or arising from or in connection with . . . " four categories of identified conduct or
actions, including breach of representations in the APA and Expedited's "use/and or ownership
13
of the Purchased Assets" through January 25, 2013. (APA § 6.01(a).) Likewise, in Section
6.01(b), Plaintiff agreed "to indemnify and hold Expedited . . . harmless from and against" the
same losses identified in Section 6.01(a) "for, on account of, or arising from or in connection
with . . ." two categories of conduct, including losses relating to "use and/or ownership of the
Purchased Assets" after January 25, 2013. (APA § 6.01(b).) The APA also appears to impose a
duty to defend, as well, but only in circumstances in which the party on whom such a duty is
imposed has agreed in writing that the indemnification provisions of Section 6.01 is triggered. 6
(APA § 6.03(b).)
The distinction between those duties is significant. Under Illinois law, in the insurance
context, a duty to defend arises where "the allegations in the complaint are even potentially
within the scope of the policy's coverage." Medmarc Cas. Ins. Co. v. Avent America, Inc., 612
F.3d 607, 613 (7th Cir. 2010). In determining whether there is a duty to defend, "the court
should not simply look to the particular legal theories pursued by the claimant, but must focus
on the allegedly tortious conduct on which the lawsuit was based." Medmarc Cas. Ins., 612 F.3d
at 613 (internal quotations omitted). In contrast, "[t]he duty to indemnify . . . will not be defined
until the adjudication of the very action which [the indemnitor] should have defended." Medline
Industries, Inc., 892 F. Supp. 2d at 965 (quoting Outboard Marine Corp. v. Liberty Mut. Ins. Co.,
154 Ill.2d 90, 127, 607 N.E.2d 1204, 1221 (1992)). As a result, "the obligation to indemnify
does not accrue until there has been an event that 'fixes' the liability of the indemnitee." Medline
Industries, Inc., 892 F. Supp. 2d at 965.
6
Section 6.03(b) states: "If any action, suit or proceeding is brought against the
Indemnified Party with respect to which the Indemnifying Party may have liability under the
indemnity agreement contained in Section 6.01, the action, suit or proceeding shall, under the
written agreement of the Indemnifying Party that it is obligated to indemnify under the indemnity
agreement contained in Section 6.01, be defended (including all proceedings on appeal or for
review which counsel for the defendant shall reasonably deem appropriate) by the Indemnifying
Party. . . ." (APA § 6.03(b).)
14
In light of the language of the APA, the "duty to defend" that either party owes to the
other is dependent on the liability determination for the January 28 accident itself (or on an
acknowledgement by one party that it bears that liability). The agreement therefore is better
interpreted as imposing, at this stage, an indemnification obligation only. See, e.g., Medline
Industries, Inc., 892 F. Supp. 2d at 964–65 (noting that the difference between the duties to
defend and indemnify are, in part, a matter of timing, where the duty to indemnify does not take
effect "until the adjudication of the very action which [the indemnitor] should have defended")
(internal citations omitted).
The question whether Plaintiff's claim is ripe for review is an issue of both justiciability
and judicial discretion, and "whether [the] dispute has reached the state at which declaratory
judgment . . . is appropriate," which "is a question of federal practice.” Lear Corp. v. Johnson
Elec. Holdings Ltd., 353 F.3d 580, 583 (7th Cir. 2003). The doctrine of ripeness is "drawn from
both the Article III limitations on judicial power and from prudential reasons for refusing to
exercise jurisdiction." Nat'l Park Hospitality Ass'n, 538 U.S. at 808 (quoting Reno v. Catholic
Soc. Servs., Inc., 509 U.S. 43, 57 n.18 (1993)). Courts ought not render decisions “’absent a
genuine need” to do so, and should refrain from resolving “hypothetical, speculative, or illusory
disputes . . . .” Wis. Cent., Ltd. v. Shannon, 539 F.3d 751, 759 (7th Cir. 2008) (citations
omitted). The ripeness inquiry is “more complicated” when, as in this case, a party is seeking
preemptive declaratory relief. Wis. Cent., 539 F.3d at 759. Yet "the question in each case," the
Supreme Court has instructed, "is whether the facts alleged, under all the circumstances, show
that there is substantial controversy, between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment." MedImmune, 549
U.S. at 127 (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
The general rule is that "a declaratory judgment seeking indemnification rights is not ripe
for adjudication until the underlying law suit has first determined and defined liability." Lear Corp.
v. Johnson Elec. Holdings, No. 02 C 6704, 2003 WL 21254253 at *3 (N.D. Ill. June 2, 2003),
15
aff'd 353 F.3d 580 (7th Cir. 2003) (collecting cases). Defendants urge the court to apply that
general rule here. (Defs.' Mot. at 8–9) (quoting Lear Corp., No. 02 C 6704, 2003 WL 21254253
at *3.) Because the indemnity issue depends on the determination of the "actual facts" of
underlying liability, Defendants note, it becomes ripe only after liability has been adjudicated.
See Doe v. City of Chicago, 360 F.3d 667, 672–73 (7th Cir. 2004) (holding that the district court
judge "had the power, but not the duty" to an enter indemnity judgment under Rule 54(b)
because there was "just reason for delay," specifically "the need to develop a factual basis for
determining how broad the City's . . . liability . . . should be").
Plaintiff here argues that this case falls into an exception to the general rule. (Pl.'s Opp.
at 13–14) (citing Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 680 (7th Cir. 1992)
and distinguishing Lear Corp., No. 02 C 6704, 2003 WL 21254253.) Plaintiff contends that
Count III (and Count II) 7 is ripe for review because the court can decide the case by reference
only to the APA’s provisions, even without a liability determination concerning the Florida
accident. (Pl.'s Opp. at 14–15.) Neither of the cases that Plaintiff cites, however, is factually
similar to this one. In Bankers Trust, the plaintiff had made a loan in reliance on an appraisal.
After the borrower defaulted, the bank sued the appraiser for negligence, and the appraiser’s
own excess insurance carrier sued, as well, seeking to rescind the excess insurance policy on
the ground that the appraiser had not notified the carrier about the bank’s lawsuit when it
purchased the excess policy. 959 F.2d at 679-80. When the appraiser settled with the insurer
for a sum well below the policy limit, id. at 680, the bank sued the insurer for a declaratory
judgment that the insurer was required to indemnity the appraiser for the full policy amount. The
7
The parties disagree about what Plaintiff seeks in Count II; while Defendants
argue that Count II seeks a declaratory judgment that Defendants (and not Plaintiff) are liable to
the Baccari Estate for the January 28 accident, Plaintiff responds that in Count II, like Count III,
it seeks indemnification from Defendants for costs related to the accident. To the extent that
Plaintiff seeks indemnification in Count II, then, Plaintiff appears to admit that this count is
duplicative of Count III. See infra Part II.
16
district court dismissed the bank’s claim as unripe, but the Seventh Circuit reversed, holding that
the possibility that that the bank might win a judgment in excess of the settlement was "relevant"
only "to the district judge's exercise of equitable discretion to grant or withhold declaratory relief
and to accelerate or retard his consideration of this suit in tandem with the [negligence] suit."
959 F.2d at 680–81.
There remained "a real disagreement" concerning the validity of the
insurance policy, so the district court had jurisdiction over the case, but, the Seventh Circuit
noted, the district court retained discretion to determine "how swiftly to proceed with the case,"
including whether to "hold off resolving the dispute [between the bank and the insurer]until it is
clearer that the dispute will not become moot." Id. at 682. In other circumstances, as well, the
Seventh Circuit pointed out, a federal court may have jurisdiction over an indemnification-like
claim even where future events might render it moot. 8
In Lear Corp., similarly, the district court acknowledged that it could have jurisdiction
simply to interpret a contract in order to determine indemnity obligations:
“("[I]f [plaintiff’s]
interpretation is correct that the contract governs notwithstanding the facts, then no liability
determination in the [state court suit] would be necessary for this court to decide the
indemnification issue . . . . Lear Corp., No. 02 C 6704, 2003 WL 21254253 at **3–4. But the
Lear court concluded that the indemnification provisions involved in that case "do[] not give the
court the ability to determine indemnification rights based on the contract alone and regardless
of the underlying facts," and the duty to indemnify (including "which of the two" defendants must
indemnify, if at all) turns on resolution of liability in the underlying suit. Id. at *6. The Seventh
Circuit affirmed. Lear Corp., 353 F.3d at 585. The court did not address the distinction drawn
by Lear Corp. (and relied on by Plaintiff here), which characterized the Bankers Trust exception
8
For example, “suppose that the day after the accident in which the victim was
injured, and therefore long before he could feasibly bring a tort suit, let alone obtain a judgment,
the insurer declared the liability insurance policy void; and suppose the insured had no other
assets." Id. at 682. In those circumstances, the victim would have an interest in the insurance
policy even if he might not ultimately prove his tort claim.
17
as applicable where the indemnification issue turns solely on contractual interpretation and is
separate from underlying liability.
Rather, the Seventh Circuit reasoned that determining
indemnification obligations would become necessary only where the plaintiffs in the underlying
suit successfully established that the assets it had purchased from defendant contributed to
environmental contamination for which plaintiff had been sued, a scenario which the court noted
"has an advisory quality." Id. at 583–84.
In this case, the court is not satisfied that Plaintiff’s indemnification claim is ripe.
Plaintiff's Third Amended Complaint referred to only one possible claim that could be asserted
by the Baccari's Estate. No suit on that claim has yet been filed—and if it is, as Defendants
point out, Plaintiff, Defendant Expedited, and the insurer for both have entered into an
agreement with the Estate that protects both Plaintiff and Defendant from any personal liability,
insulating Plaintiff from the cost of defense or a judgment. See supra note 3. Since the filing of
this case, it appears that a second injury claim has been asserted, and that a lawsuit on that
claim was filed on February 5, 2014. See supra note 4. Whether Plaintiff can assert a claim for
indemnification in that lawsuit remains dependent, however, on whether Plaintiff or Defendants
are liable (if at all) for the January 28 accident.
Plaintiff maintains that whether Defendants are obligated to indemnify Plaintiff for the
costs related to the January 28 accident is a "purely contractual" issue, and thus ripe, "because
Defendants' joint and several indemnity obligations under the express terms of the APA
currently exist, and will continue to exist, independent of liability to the Baccari Estate." (Pl.'s
Opp. at 14) (emphasis added.) Plaintiff analogizes this situation to Bankers Trust, where the
Seventh Circuit acknowledged that a lawsuit seeking to establish the validity of the insurance
policy could be deemed ripe, so long as the insurer’s liability is not “intermingled with that of the
liability of the insured and with the assessment of damages.” 959 F.2d at 682 (citing Reagor v.
Travelers Ins. Co., 92 Ill. App. 3d 99, 103–04, 415 N.E.2d 512, 515 (Ill. App. 1st Dist. 1980). In
this court’s view, however, the case presented here is more like the situation descried in
18
Reagor. Plaintiff seeks indemnification from Defendants for the cost of litigation for the January
28 accident allegedly arising from Defendants' breaches of representations and from
"Expedited's use and/or ownership of the Purchased Assets and the Business through the
Closing Date." (Pl.'s Opp. at 14–15) (quoting APA § 6.01(a)(i)–(ii).) Some of these issues relate
solely to the agreement between NuCo and Expedited (such as which of the two companies
Williams was providing services for on the day of the accident); others relate to the liability of the
trucking company for the accident itself (such as whether Williams’ negligence caused the
accident) and still others may never be at issue (such as whether Williams’ failed controlled
substance test means Defendant should have removed him as a driver). The liability questions
are intermingled here with the contract dispute.
At a minimum, it makes sense to delay
resolution of Plaintiff’s claim for indemnity in this case until there is a liability determination in
any litigation brought by a victim of the accident. The fact that, as Plaintiff emphasizes, it is
incurring expense for the defense of that litigation does not change the analysis. (Pl.'s Opp. at
14–15) (citing City of Chicago v. Arvinmeritor, Inc., No. 05 C 6738, 2006 WL 3431910 at *5
(N.D. Ill. Nov. 28, 2006).) The plaintiff made a similar argument in Lear Corp., but the Seventh
Circuit rejected it, noting that there was no duty to defend at issue, and plaintiff’s argument was
“just an effort to create a defense obligation through the back door." 353 F.3d at 584. Plaintiff
NuCo has not suggested that Expedited as a duty to defend it, and "no duty to defend means no
duty to pay for the outlays of defense on a current basis." Id. at 584.
Count III is dismissed without prejudice.
II.
Count II: Declaratory Judgment
Plaintiff’s claim in Count II raises similar considerations, although they are presented
differently. In Count II, Plaintiff has alleged that "Defendants are primarily, fully, and directly
liable to the [Baccari] estate" and seeks a declaration that "Defendants are jointly and several
[sic] liable to NuCo for any and all damages, costs, expenses, or other amounts incurred (or to
be incurred) arising out of the January 28, 2013 accident." (Third Am. Compl. ¶¶ 60–61.)
19
Defendants argue that Plaintiff does not have standing to litigate liability for the January 28
accident, as the real party in interest is the Baccari Estate. (Defs.' Mot. at 11–14.) Standing
requires a showing that (1) the plaintiff has suffered an "injury in fact" that is both "concrete and
particularized" and "actual or imminent, not 'conjectural' or 'hypothetical'; (2) the injury must be
"fairly traceable to the challenged action of the defendant, and not . . . the result of the
independent action of some third party not before the court;" and (3) "it must be likely as
opposed to merely speculative that the injury will be redressed by a favorable decision." Lujan,
504 U.S. at 560–61 (citations and quotations omitted). Defendants argue that Plaintiff fails to
satisfy these requirements when adjudicating liability for the January 28 accident. They urge
that Plaintiff NuCo did not suffer actual injury and is not the real party in interest because it has
no legally protected interest in the life of the victim, Lauren Baccari, and that a favorable
decision will not redress Plaintiff's injury because Baccari's Estate will not be bound by the
decision unless it is joined as a party. (Defs.' Mot. at 12–13) (citing S.C. Code § 15-51-20,
which permits only the deceased's executor or administrator to bring a wrongful death suit.)
Plaintiff appears to acknowledge it has no standing to litigate Expedited’s liability to victims of
the January 28 accident, but argues that it does have standing to seek recovery for the costs of
litigation arising from the accident. (Pl.'s Opp. at 16.) .
The parties' standing dispute, then, derives from different characterizations of the
declaratory relief that Plaintiff is seeking in Count II. Defendants interpret Count II as a claim for
a declaration of liability for the underlying accident. (Defs.' Reply at 8–10 (discussing complaint
language that states that "Defendants are primarily, fully, and directly liable to the decedent's
estate"); see Third Am. Compl. ¶ 60.) Plaintiff portrays Count II as a claim for a declaration of
indemnity obligations. (Pl.'s Opp. at 12–18 (discussing Counts II and III together as
indemnification claims, and asserting that it has standing to sue for indemnification).) Plaintiff
identifies three circumstances that support its claim that Defendant is “liable” to Plaintiff for the
January 28 accident: (1) Williams's truck door placard contained DOT information for Defendant
20
Expedited; (2) Expedited assumed liability for "all expenses related to, loads transported or
delivered by its drivers through the Closing Date" in Section 5.03 of the APA; and (3) neither
Williams nor his employer Affiliate Trucking executed the Notice of Assignment and Consent
form sent by Plaintiff, and therefore, Williams was operating as a driver for Expedited on
January 28. (Third Am. Compl. ¶ 60.)
These matters are relevant to the question of which of the two companies, NuCo or
Expedited, is responsible for Williams’s driving. Count II is, in effect, duplicative of Count III.
Plaintiff is, of course, entitled to plead claims in the alternative, but to do so "must use a
formulation from which it can be reasonably inferred that this is what [Plaintiff is] doing." FED. R.
CIV. P. 8(d)(2); Holman v. Indiana, 211 F.3d 399, 407 (7th Cir. 2000). The court has discretion
to dismiss duplicative claims where they allege the same facts and the same injury. Barrow v.
Blouin, No. 13-CV-8470, 2014 WL 1856835 at *2 (N.D. Ill. May 7, 2014); F.D.I.C. v. Saphir,
No. 10 C 7009, 2011 WL 3876918 at *9 (N.D. Ill. Sept. 1, 2011) (citing Pirelli Armstrong Tire
Corp. v. Walgreen Co., 631 F.3d 436, 448 (7th Cir. 2011)). In both Counts, Plaintiff has alleged
that Defendants have an obligation to indemnify Plaintiff for the costs of the January 28 accident
under the APA, and that Plaintiff has suffered injury because of Defendants' failure to do so.
Count II is dismissed as duplicative of Count III.
III.
Count I: Breach of Contract
All of Plaintiff's breach of contract claims, except for Count I(e), also appear to seek
indemnification or to hold Defendants otherwise liable for the January 28 accident.
First,
Plaintiff alleges that Defendants "[f]ail[ed] to satisfy or meet the representations and warranties"
provided in Section 4.01 of the APA when they (a) dispatched a load to Williams on January 25
after he had failed an alcohol and controlled substances test in violation of DOT regulations
(Third Am. Compl. ¶ 54(a) (citing APA § 4.01(g)); (b) "fail[ed] to comply with all applicable laws
in the retention, training, and supervision of their drivers," including Williams (id. ¶ 54(b) (citing
APA § 4.01(j)(iii)); and (c) failed to disclose to NuCo that had Williams failed an alcohol and
21
controlled substances test. (Id. ¶ 54(c) (citing APA § 4.01(l).)
In paragraph 54(d), Plaintiff
alleges explicitly that Defendants also breached Section 6.01 of the APA by refusing to
indemnify NuCo for liability arising from the January 28 accident. (Id. ¶ 54(d).) Finally, Plaintiff
alleges that Defendants breached Section 5.03 by "[f]ailing to remit to NuCo funds collected
and/or received with respect to loads transported and delivered after the Closing Date, or
collected because customers misdirected payment for loads transported and delivered after the
Closing Date." (Id. ¶ 54(e).) Defendants move to dismiss Count I, arguing that Count I(d) is not
ripe, and that Plaintiff has failed to state a claim for breach of contract. (Defs.' Mot. [45] at 2–4.)
Pursuant to Section 7.09 of the APA, Illinois law applies to Plaintiff's breach of contract
claim. In Illinois, to state a claim for breach of contract, Plaintiff must allege facts plausibly
demonstrating: "(1) the existence of a valid, enforceable contract; (2) performance of the
contract by the plaintiff; (3) a breach by the defendant; and (4) damages resulting from the
breach." Gore v. Ind. Ins. Co., 376 Ill. App. 3d 282, 286, 876 N.E.2d 156, 161 (Ill. App. 1st Dist.
2007). Plaintiff has alleged sufficient facts to show that the APA is valid, and that Plaintiff
performed on the agreement by purchasing substantially all of Expedited's assets in exchange
for valuable consideration. (Third Am. Compl. ¶ 32; APA §§ 1, 2.) The court considers whether
Plaintiff has alleged facts sufficient to state a breach.
A.
Count I(d): Indemnification Provision (APA § 6.01)
Count I(d) seeks indemnification under the APA, and therefore, is duplicative of Count
III. Both allege that Defendants owe Plaintiff an indemnity obligation under the APA, which
Defendants have failed to satisfy for the costs related to the accident, causing Plaintiff injury.
This court has found the issue of indemnification is not ripe, and Count I(d) is duplicative of
Count III. Count I(d), too, is dismissed. See Barrow, No. 13-CV-8470, 2014 WL 1856835 at *2;
Saphir, No. 10 C 7009, 2011 WL 3876918 at *9.
22
B.
Count I(e): Load Revenue Provision (APA § 5.03)
Plaintiff states a claim for breach of contract in Count I(e) by alleging that Defendants
failed to remit to Plaintiff amounts owed in violation of Section 5.03 of the APA. The court notes
that apart from a general challenge for failure to state a claim, Defendants do not specifically
move to dismiss Count I(e).
Section 5.03 provides that Expedited is entitled to revenue
generated from loads transported or delivered through January 25, 2013, and that Plaintiff is
entitled to the same after January 25, 2013. (APA § 5.03.) Anticipating that "certain deliveries
may be split between services provided by both parties," Plaintiff and Defendants agreed "to
work in good faith to timely account for and properly direct payments owing to the other" and to
"equitably adjust[]" revenues collected for split services. (Id.) Plaintiff alleges that Defendants
have failed to direct payments to it in violation of this section, causing Plaintiff "at least
$345,904.53" in damages. (Third Am. Compl. ¶¶ 35–36.) This is sufficient to state a claim for
breach of contract. Plaintiff's motion to dismiss is denied with respect to Count I(e).
C.
Counts I(a)–(c): Representations and Warranties (APA § 4.01)
The remaining three claims, Counts I(a)–(c), each allege that Defendants breached
Section 4.01 by failing to disclose that Williams failed the alcohol and controlled substances
test, and presumably, by continuing to employ him (through Affiliate Trucking) as a driver in
violation of DOT regulations. (Third Am. Compl. ¶¶ 54(a)–(c).)
In Section 4.01, Defendant
Expedited represented and warranted that: "Expedited has complied in all material respects with
all material federal, state, local and foreign laws, regulations, ordinances . . . applicable to it and
the Business . . ." (APA § 4.01(g)); "Expedited has complied with all laws, rules and regulations
related to the hiring and retention of all employees, leased employees and independent
contractors relating to wages, hours, any employee benefit plans, workers' compensation,
unemployment, equal opportunity, collective bargaining, and the payment of social security and
other Taxes" (APA § 4.01(j)(iii); and the APA (and other materials provided) "do not contain any
23
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 in light of the circumstances in which
they were made by Expedited." (APA § 4.01(l).)
Section 4.01 defines Expedited's "knowledge" in making the representations and
warranties as "exclusively the actual knowledge of the Rosenberg [sic] and Jim Briles, an officer
of Expedited, who would be reasonably expected to have knowledge regarding the accuracy of
the fact or matter in question." (APA § 4.01.) Section 4.01 explicitly provides that Defendant
Rosenberg, on behalf of Defendant Expedited, had knowledge about the representations and
warranties that Defendant Expedited made. Thus, to state a claim for breaching this section,
Plaintiff must allege that Rosenberg knew that Williams failed the alcohol and controlled
substances test, and/or that he remained employed as a driver for Affiliate Trucking in violation
of DOT regulations. Defendants argue that Plaintiff has failed to allege knowledge (Defs.' Mot.
at 20), and the court agrees.
Though knowledge may be pleaded generally, Plaintiff must at least plead sufficient
facts that would "allow[] the court to draw the reasonable inference" that Defendants knew that
Williams failed the alcohol and controlled substances test, and/or continued to employ him in
violation of DOT regulations. See Iqbal, 556 U.S. at 678. In this case, Plaintiff alleges that
Williams failed the "company-administered" alcohol and controlled substances test, and that
"Defendants failed to disclose the results" to Plaintiff, but Plaintiff
has not alleged that
Defendants knew that Williams failed the test. (Third Am. Compl. ¶¶ 12–13.) In Count IV, a
claim for fraudulent misrepresentation, similarly, Plaintiff alleges that that Defendants knew that
they misrepresented and/or failed to disclose the failed alcohol and controlled substances test in
the APA. (Id. ¶ 69.) But Defendants could only know that they were misrepresenting facts
about their compliance with DOT regulations if they also knew that Williams had failed the
controlled substances test, and Plaintiff only alleged the former. Finally, with respect to Count V
for fraudulent concealment, Plaintiff alleges that "Defendants knowingly and intentionally
24
concealed the fact that Williams failed an alcohol test in November 2012" when they had a duty
to disclose such information. (Id. ¶ 76.) Here, too, Plaintiff alleges that Defendants “knowingly”
concealed a fact, but has not alleged that Defendants actually knew that Williams failed the test
and remained employed. Plaintiff's assumption that Defendants knew that Williams failed the
alcohol and controlled substances screening is insufficient to allege knowledge, as defined in
Section 4.01.
Plaintiff correctly argues that a 12(b)(6) motion only tests the sufficiency of the
complaint, and that it is entitled to the inference that the facts alleged in the complaint are true.
(Id. at Pl.'s Opp. at 21–22.) Even the general pleading standard of Rule 8(b) does not save
Plaintiff from dismissal, however, where it has simply failed to allege the necessary facts to
plead a cause of action. See Iqbal, 556 U.S. at 678 (stating that a complaint still "must contain
sufficient factual matter, accepted as true, to state a claim" and survive a motion to dismiss, and
noting that "Rule 8 does not empower [the plaintiff] to plead the bare elements of his cause of
action, affix the label 'general allegation,' and expect his complaint to survive a motion to
dismiss") (emphasis added); Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 935
(7th Cir. 2012) ("The complaint must actually suggest that the plaintiff has a right to relief, by
providing allegations that raise a right to relief above the speculative level") (emphasis in
original) (quotations and citation omitted).
Plaintiff contends its allegations of knowledge are adequate because the definition of
knowledge in the APA includes facts or matters that Defendants “would be reasonably
expected” to have. (Pl.'s Opp. at 23.; see APA § 4.01) (emphasis added.) The court is not at all
certain Defendants could reasonably be expected to have knowledge of its independent
contractors’ testing activities. In any event, Plaintiff has not distinguished between Defendants'
knowledge of the information represented and warranted in the APA (e.g. compliance with all
applicable laws) and their knowledge that Williams had failed an alcohol and controlled
substances test.
Section 4.01's definition of knowledge includes only the former.
25
That
Defendants could be expected to have knowledge that its own representations were accurate
does not support the conclusion that Defendants also knew that Williams had failed an alcohol
and controlled substances test and therefore should not have been employed as a driver of
Affiliate Trucking.
Counts I(a)–(c) fail for another reason; Plaintiff has failed to allege that it was injured by
Defendants' alleged breach of Section 4.01 (for failing to disclose the results of Williams' alcohol
and controlled substances test, and for retaining him as a driver).
The only harm Plaintiff
allegedly suffered is the possible liability for the January 28 accident, to the extent that it rests
on the driver's failure. If there is ultimately no liability attributed to the driver from the accident,
Plaintiff has suffered no harm.
Because Plaintiff failed to allege facts showing Defendants' knowledge that Williams
failed the alcohol and controlled substances test, and showing harm, Plaintiff cannot state a
claim for breach of contract, and Counts I(a)–(c) are dismissed without prejudice.
IV.
Counts IV-VI: Fraud and Equitable Rescission
Finally, similar to Plaintiff's breach of contract claims, Plaintiff alleges that Defendants
engaged in fraudulent misrepresentation (Count IV) and fraudulent concealment (Count V)
when they affirmatively misrepresented and failed to disclose that Williams had failed the
alcohol and controlled substances test, but nevertheless remained an employee of Affiliate
Trucking. (Third Am. Compl. ¶¶ 66–81.) As a result, Plaintiff urges that it is entitled to rescind
the APA. (Id. ¶¶ 82–88.)
Defendants argue that Plaintiff failed to satisfy the heightened
pleading standard for fraud under Federal Rule of Civil Procedure 9(b). (Defs.' Mot. at 5–7.)
Additionally, Defendants assert that Plaintiff's fraud claims suffer from the same failings as the
breach of contract claims—Plaintiff failed to allege that Defendants knew that Williams failed the
alcohol and controlled substances test and/or remained an employee of Affiliate Trucking, and
therefore, cannot state a claim for fraud. (Defs.' Reply at 3 n.2, 4.)
26
Though the APA contains a choice-of-law provision, under Illinois law, the court must
apply a two-part test to determine whether it also includes Plaintiffs' fraud claims.
Facility
Wizard Software, Inc. v. Southeastern. Technical Servs., LLC, 647 F. Supp. 2d 938, 943 (N.D.
Ill. 2009). Under this approach, the court first must examine "the breadth and language of the
choice-of-law provision to determine whether the parties intended the choice-of-law provision to
govern all claims between them," and then, "determine whether the tort claims are dependent
on the contract," considering whether "the claim alleges a wrong based on the construction and
interpretation of the contract," whether "the tort claim is closely related to the parties' contractual
relationship," or whether "the tort claim could not exist without the contract." Facility Wizard, 647
F. Supp. 2d at 943. If the tort claim is dependent on the contract, then the choice of law
provision applies regardless of its scope. Id.
That is the case here. Section 7.09 of the APA provides: "This Agreement shall be
governed by and construed in accordance with the laws of the state of Illinois, without regard to
the conflicts of laws principals [sic] thereof. Any legal action or proceeding with respect to this
Agreement shall be brought" in Illinois courts. (APA § 7.09.) Though the scope of the choice of
law provision is ambiguous, Plaintiff's fraud claims depend on the APA—Plaintiff alleges not
only that Defendants made fraudulent, affirmative misrepresentations in the APA, but also that
Defendants did so in order to induce Plaintiff to enter into the agreement, and that Plaintiff relied
Defendants' representations as material to discerning what assets to acquire in the agreement.
(Third Am. Compl. ¶¶ 67–68, 70–71, 78); see Medline Indus. Inc. v. Maersk Med. Ltd., 230 F.
Supp. 2d 857, 863 (N.D. Ill. 2002) ("[F]or choice of law purposes, a fraudulent inducement claim
is considered to be dependent upon the contract and, therefore, subject to the choice-of-law
clause, where the allegedly fraudulent statements were made in the contract."). As a result, the
court will apply Illinois law to Plaintiff's fraud claims.
To state a claim for fraudulent misrepresentation under Illinois law, Plaintiff must allege:
"(1) a false statement of material fact; (2) known or believed to be false by the person making it;
27
(3) an intent to induce the plaintiff to act; (4) action by the plaintiff in justifiable reliance on the
truth of the statement; and (4) damage resulting from such reliance." Doe v. Dilling, 228 Ill. 2d
324, 342–43, 888 N.E.2d 24, 35–36 (2008).
Similarly, to state a claim for fraudulent
concealment under Illinois law, Plaintiff must allege that "the defendant concealed a material
fact when he was under a duty to disclose that fact to plaintiff." Connick v. Suzuki Motor Co.,
Ltd., 174 Ill. 2d 482, 500, 675 N.E.2d 584, 593 (1996). The duty to disclose arises where there
is a confidential or fiduciary relationship between the parties, or where the defendant is "in a
position of influence and superiority over [the] plaintiff" because the plaintiff invests trust and
confidence in the defendant. Connick, 174 Ill. 2d at 500, 675 N.E.2d at 593.
Plaintiff's claims for fraudulent misrepresentation and fraudulent concealment appear to
be two sides of the same coin: Plaintiff alleges that Defendants affirmatively misrepresented,
and failed to disclose, the fact that Williams, a driver for Affiliate Trucking, failed a companyadministered alcohol and controlled substances test, and remained employed despite the
results.
Indeed, a claim for fraudulent misrepresentation may arise from an affirmative,
misrepresentation or a failure to disclose when the party had a duty to disclose. See, e.g.
Gillespie Cmty. Unit Sch. Dist. No. 7, Macoupin Cnty. v. Wight & Co., 378 Ill. Dec. 438, 442, 4
N.E.3d 37, 41 n.1 (Ill. 2014). Such a claim must satisfy the heightened pleading standard of
Federal Rule of Civil Procedure 9(b). See Ackerman v. Nw. Mut. Life Ins. Co., 172 F.3d 467,
470 (7th Cir. 1999) ("Rule 9(b) requires heightened pleading of fraud claims in all civil cases
brought in the federal courts, whether or not the applicable state or federal law requires a higher
standard of proving fraud . . . .") (citing Herman & McLean v. Huddleston, 459 U.S. 375, 387–89
(1983)). Finally, "rescission means the cancelling of a contract so as to restore the parties to
their initial status," and is appropriate as a remedy where the plaintiff may show "substantial
nonperformance or breach by the defendant" and "that the parties can be restored to the status
quo ante." Horwitz v. Sonnenschein Nath & Rosenthal LLP, 399 Ill. App. 3d 965, 973, 926
N.E.2d 934, 942 (Ill. App. 1st Dist. 2010). "[S]ubstantial nonperformance or breach of contract
28
warrants rescission where the matter, in respect to which the failure of performance occurs, is of
a nature and of such importance that the contract would not have been made without it."
Horwitz, 399 Ill. App. 3d at 974, 926 N.E.2d at 942.
Defendants take issue, in large part, with Plaintiff's reliance on allegations made "upon
information and belief." (Defs.' Mot. at 5–7; see Third Am. Compl. ¶ 12 ("[u]pon information and
belief, in November 2012, Williams failed a company-administered random drug and alcohol test
because Williams' blood alcohol content exceeded the legal limit at the time of the test")
(emphasis added).) Plaintiff’s fraud claim is insufficient, Defendants contend, because Plaintiff
has pleaded the fact constituting the fraud, Williams's failed test, "upon information and belief,"
which is insufficient to satisfy the heightened pleading standard of Rule 9(b). (Defs.' Mot. at 5–6
(citing Pirelli, 631 F.3d at 442 ("[A] plaintiff generally cannot satisfy the particularity requirement
of Rule 9(b) with a complaint that is filed on information and belief."); Defs.' Reply at 2–3.)
Plaintiff responds that it was only the date of the test (November 2012) and not the fact of
Williams’s failed test, that was alleged on information and belief. (Pl.'s Opp. at 12.) Moreover,
Plaintiff asserts, the failed test did not "constitut[e] the fraud"; instead, the fraud consisted of
Defendants' representation that Expedited was not in violation of the law (see APA §§ 4.01(g),
(j)(iii)) and that the APA did not contain untrue statements of material fact or misrepresent
material facts (see id. § 4.01(l).) (Pl.'s Opp. at 11–12) (quoting Pirelli, 631 F.3d at 442.) Finally,
Plaintiff argues that its fraud allegation satisfies an exception to the general rule that fraud
claims may not be pleaded upon information and belief because the information is "exclusively
in the possession of third parties." (Pl.'s Opp. at 12); see Pirelli, 631 F.3d at 443 (fraud may be
pleaded on information and belief where " (1) the facts constituting the fraud are not accessible
to the plaintiff and (2) the plaintiff provides the 'grounds for his suspicions'.") (quoting
Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 924 (7th Cir. 1992)).
The court concludes that Plaintiff's fraud allegations suffer from the same failings as the
breach of contract claims in Count I(a)–(c): Plaintiff has not alleged that Defendants knew that
29
Williams failed the alcohol and controlled substances screening, or that Plaintiff was harmed as
a result. Though Plaintiff must satisfy Rule 9(b)'s heightened pleading standard in alleging
fraud, Plaintiff need only generally allege Defendants' mental state. See FED. R. CIV. P. 9(b).
That Plaintiff failed to satisfy even this standard for Counts I(a)–(c), compels the same result
here. Absent an allegation that Defendants knew that Williams failed the test, Plaintiff has not
pleaded facts sufficient to draw a reasonable inference that Defendants "knew or believed" that
Defendant Expedited's representations to Plaintiff were false, or that they otherwise intended to
defraud Plaintiff by concealing this material fact. Nor has Plaintiff alleged that it was harmed by
Defendants' alleged misrepresentations or concealment. Again, the only alleged harm suffered
is the potential liability for the January 28 accident. Plaintiff has failed to state a claim for fraud,
and Counts IV, and V are dismissed without prejudice.
For the same reasons, the court is not satisfied that Plaintiff has pleaded a claim for
equitable rescission. The only breach of contract claim Plaintiff has successfully alleged is
Count I(e), which alleges that Defendants failed to remit payments that it received for loads
transported or delivered after January 25, 2013 in violation of Section 5.03 of the APA. (See
supra Section VII.B.) Plaintiff has not alleged that this act of nonperformance was so significant
that it requires rescission. See Horwitz, 399 Ill. App. 3d at 974, 926 N.E.2d at 942. And
because
Counts
I(a)–(c),
IV,
and
VI,
alleging
reliance
on
Defendants’
purported
misrepresentations and concealment, are insufficient, Plaintiff has not alleged a “substantial
breach.” Count VI, for equitable rescission, is dismissed without prejudice.
V.
Defendant Rosenberg
Finally, Defendants argue that Plaintiff failed to allege any claims against Rosenberg
individually, or a claim to pierce the corporate veil for Count II, because, excluding the
indemnification provision, "Rosenberg had no personal involvement in the facts" alleged. (Defs.'
Mot. at 25–25; Defs.' Reply at 15.) Plaintiff disagrees, urging that Rosenberg is covered under
the APA. (Pl.'s Opp. at 26) (citing APA § 6.01(a).)
30
Defendant Rosenberg is indeed a party to the APA, and Section 6.01(a) of the APA
provides that "Expedited and Rosenberg . . . jointly and severally agree to indemnify and hold
[NuCo] . . . harmless from and against any out-of-pocket loss . . . ” for certain identified events.
(APA § 6.01(a).) Under the common law doctrine of joint and several liability, "when two or
more individuals tortiously contribute to the same, indivisible injury, each individual may be held
jointly and severally liable for the entire injury." Woods v. Cole, 181 Ill. 2d 512, 518, 693 N.E.2d
333, 336 (1998). Such liability may arise out of contractual agreement, as here, and enable a
tortfeasor to seek indemnification from another party. See Frazer v. A.F. Munsterman, Inc., 123
Ill. 2d 245, 254–55, 527 N.E.2d 1248, 1251 (1988).
To the extent that Plaintiff seeks
indemnification under the APA from both Defendants, Plaintiff states a claim against Defendant
Rosenberg pursuant to this Section, because Rosenberg individually is named as jointly and
severally liable to Plaintiff for certain breaches of the APA. (See Third Am. Compl. Count I(d)
(breach of § 6.01(a)); Count II (only insofar as this claim, like Count III, seeks indemnification,
see Pl.'s Opp. at 16–18); Count III (indemnification).)
But, Plaintiff may not use the indemnification provision (Section 6.01) to bootstrap
Rosenberg's liability for other breaches. Plaintiff has failed to allege that Defendant Rosenberg
is individually liable for breach of the representations and warranties made by Expedited
(Counts I(a)–(c)), for failing to remit to Plaintiff amounts owed under Section 5.03 (Count I(e)), or
for fraud (Counts IV–VI), nor has Plaintiff made allegations sufficient to pierce Expedited's
corporate veil. See, e.g. Peetoom v. Swanson, 334 Ill. App. 3d 523, 526–27, 778 N.E.2d 291,
294–95 (2d Dist. – 2002) ("A corporation is a legal entity that exists separately and distinctly
from its shareholders, officers, and directors, who are not generally liable for the corporation's
debts. . . . Limited liability will ordinarily exist even though the corporation is closely held or has
a single shareholder."). To state a claim for breach of contract against Defendant Rosenberg,
therefore, Plaintiff must allege facts that plausibly demonstrate that Rosenberg individually
breached the APA. See Gore, 376 Ill. App. 3d at 286, 876 N.E.2d at 161. Similarly, Plaintiff's
31
claims for fraudulent misrepresentation and concealment must allege that Rosenberg,
individually, knew or believed the representations that made to be false, and either made
affirmative misrepresentations or concealed the truth. See Dilling, 228 Ill. 2d at 342–43, 888
N.E.2d at 35–36 (fraudulent misrepresentation); Connick, 174 Ill. 2d at 500, 675 N.E.2d at 593
(fraudulent concealment).
The complaint does not meet this test.
Representations and warranties outlined in
Section 4.01 were made by Expedited alone.
Section 4.01 is titled "Representations and
Warranties of Expedited." (APA § 4.01.) Rosenberg is mentioned only in the Section's definition
of knowledge, which provides that "Expedited's 'Knowledge' shall mean exclusively the actual
knowledge of the Rosenberg [sic] 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.)
Other language confirms that the warranties are those of Expedited, not Rosenberg individually.
(Id.) ("Expedited hereby warrants and represents to [NuCo] as follows."). Plaintiff's claims for
fraud and equitable rescission, Counts IV–VI, rely on the same representations (and failure to
disclose) made by Expedited in Section 4.01 of the APA, and as a result, similarly fail to allege
that Rosenberg individually represented or failed to disclose information which he knew or
believed to be false. (See Third Am. Compl. ¶¶ 67, 76, 78.)
Section 5.03, which Plaintiff alleges both Defendants breached in Count I(e), similarly
excludes Rosenberg. This Section outlines the terms for apportioning revenue and expenses
between Defendant Expedited and NuCo. (APA § 5.03.) Though the section does use the
phrase "the parties," implying that it may cover all four parties to the agreement (NuCo,
Expedited, C&K Trucking, and Rosenberg), a closer reading demonstrates that only Expedited
and NuCo are understood as parties. (See id.) ("The parties acknowledge that certain deliveries
may be split between services provided by both parties, and that such split-moves may be billed
to either Expedited or C&K . . . ."; "[T]he parties acknowledge the possibility that either party
may originally collect funds to which the other is entitled . . . ."; "[T]he parties covenant to work
32
in good faith to timely account for and properly direct payments owing to the other, and agree
that any funds collected on behalf of the other party shall be held in trust in the interim until
remitted to the other party.") (emphasis added.)
Rosenberg has no obligations under this
Section.
To the extent that Plaintiff is able to state a claim, and recover on any of these claims
from Defendant Expedited, Expedited may, under Section 6.01(a), choose to seek contribution
from Rosenberg. The court dismisses Counts I(a)–(c), (e) and Counts IV–VI against Rosenberg
with prejudice. Plaintiff alleges a cause of action against Rosenberg for Count I(d); Count II
(indemnification only); and Count III, but for reasons explained earlier, those counts have been
dismissed.
CONCLUSION
Defendants' motion to dismiss [45] is granted in part and denied in part. Count I(e) for
breach of Section 5.03 of the Agreement survives as against Defendant Expedited only, and is
dismissed with prejudice as against Defendant Rosenberg. Defendants' motion to dismiss all
other counts is granted, and all remaining counts are dismissed without prejudice.
ENTER:
Dated: September 30, 2014
_________________________________________
REBECCA R. PALLMEYER
United States District Judge
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