APS Express, Inc. v. Sears Holdings Corporation et al
Filing
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MEMORANDUM Opinion and Order Signed by the Honorable Sharon Johnson Coleman on 10/20/2015:Mailed notice(rth, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
APS EXPRESS, INC.
Plaintiff,
v.
SEARS HOLDINGS CORPORATION,
SEARS HOLDINGS MANAGEMENT
CORPORATION, and INNOVEL
SOLUTIONS, INC., formerly known as
SEARS LOGISTICS SERVICES, INC.,
Defendants.
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Case No. 15-cv-03275
Judge Sharon Johnson Coleman
MEMORANDUM OPINION AND ORDER
Plaintiff APS Express, Inc. (“APS”) filed a nine count complaint against Sears Holdings
Corporation (“Sears Holdings”) and its subsidiaries, Sears Holdings Management Corporation
(“Sears Management”) and Innovel Solutions, Inc., formerly known as Sears Logistics Services, Inc.
(“Sears Logistics”), collectively “Sears.” APS’s claims arise out of Sears’ alleged failure to prevent its
truck drivers from stealing and reselling appliances to which APS maintains it had a contractual
right. Sears moves to dismiss all the claims brought against it under Rule 12(b)(6). For the reasons
stated below, the Court grants the motion in part and denies in part.
Background
The following facts taken from the Complaint are accepted as true for purposes of ruling on the
motion to dismiss now before the Court. Sears is the owner of online and brick-and-mortar retail
stores that sell, among other goods, home appliances. Dkt. 5, ¶¶ 12-13. When a customer purchases
an appliance from Sears, Sears offers to remove the customer’s old appliance and dispose of it in
compliance with environmental safety regulations. Id., ¶¶ 14-15. While Sears itself effectuates the
removal of old appliances from customers’ homes (“haul-away services”), it retained to APS to
recycle or dispose of the appliances (“recycling services”). Id., ¶¶ 11, 21-28; Dkt. 28-2 at 5; 28-4 at 6.
In order to provide recycling services, APS placed trailers at Sears’ distribution centers for receipt of
the appliances collected from haul-away services. Dkt. 5, ¶ 22. APS periodically transported the
trailers to APS’s facilities and then recycled some of the appliances and sold others to wholesale
appliance dealers. Id., ¶¶ 23-26. Based on the fact that the profit APS made off of the resalable
appliances exceeded the cost of recycling the other appliances, APS paid Sears for each appliance
received from haul-away services. Id., ¶ 1.
APS had been providing Sears with recycling services since 1994. Id., ¶ 28. In 2011, Sears
decided to award contracts for providing recycling services via an online auction. Id., ¶ 29. In
advance of the online auction, Sears’ representatives provided APS with a Master Service Agreement
(“MSA”) and a Statement of Work (“SOW”) which together would constitute a contract for
recycling services awarded to APS upon a successful bid. Id., ¶ 31-34. APS interpreted this contract
as a guarantee that APS would receive all appliances generated by haul-away services if it provided
Sears with recycling services (“2011 Exclusivity Misrepresentation”). Id., ¶31. Sears representatives
also provided APS with a spreadsheet that listed each distribution center and the historical volume
of each type of appliance generated by haul-away services at that distribution center. Id.. APS alleges
the volume of appliance data was inaccurate and “substantially overstated” the amount of appliances
generated by haul-away services (“2011 Volume Misrepresentation”). Id. APS participated in the
auction and was awarded a contract to provide recycling services at 16 distribution centers around
the country (“2011 contract”). Id., ¶ 35.
APS participated in another online auction for a recycling services contract in 2014. Id., ¶¶ 39-47.
Bids were for the provision of statewide recycling services, rather than for servicing individual
distribution centers. Id., ¶40. Sears representatives again provided APS with a sample MSA and
SOW that would form an awarded recycling services contract (“2014 contract”) and with data
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regarding the volume of appliances historically generated at each distribution center. Id., ¶ 42. Sears
representatives also provided a list of each distribution center located in each state. Id. As with the
2011 contract, APS interpreted the 2014 contract as a guarantee that APS would receive all
appliances generated by haul-away services (“2014 Exclusivity Misrepresentation”). Id. APS alleges
the 2014 data, like the 2011 data, was inaccurate: the volume of appliances generated by haul-away
services was overstated (“2014 Volume Misrepresentation”), as was the number of distribution
centers in each state (“2014 Scope Misrepresentation”). Id.
During performance of the 2014 contract, APS noticed there were less resalable appliances
generated by haul-away services than expected, and investigated as to why this was the case. ¶¶48-49.
During this investigation, APS discovered that since at least 2011, some delivery truck drivers sold
some of the appliances removed from customers’ homes themselves for their own profit rather than
placing them in APS’s trailers. Id., ¶ 50-55. A manager and assistant manager at a distribution center
serviced by APS admitted to APS that Sears was aware of this practice. Id., ¶53. APS also spoke with
a former loss prevention manager for Sears who told APS that Sears instructed the loss prevention
department in 2011 to “stop policing” how delivery truck drivers handled haul-away appliances. Id.,
¶ 54. When APS confronted Sears about this practice, Sears terminated the 2014 contract. Id., ¶¶ 5964. Sears’ alleged willful disregard of its truck drivers’ theft and its termination of the 2014 contract
forms the basis of APS’s claims for breach of contract, tortious interference with a contract, fraud,
negligent misrepresentation, and quantum meruit.
Legal Standard
A complaint will survive a motion to dismiss under Rule 12(b)(6) if its allegations when accepted
as true and viewed in the light most favorable to the plaintiff state a plausible claim. Peters v. West,
692 F.3d 629, 632 (7th Cir. 2012). Facts alleged in a complaint are accepted as true except when
contradicted by an exhibit considered part of the pleadings. Bogie v. Rosenberg, 705 F.3d 603, 609 (7th
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Cir. 2013). Exhibits attached to a motion to dismiss are considered part of the pleadings if they are
referred to in the complaint and are central to the claims. Wright v. Associated Ins. Companies Inc., 29
F.3d 1244, 1248 (7th Cir. 1994).
Discussion
1. Breach of Contract and Tortious Interference with a Contract
Sears Logistics argues that the breach of contract claims brought against it must be dismissed for
three reasons. First, contrary to APS’s contentions, the contract does not guarantee that Sears
Logistics will give all haul-away appliances to APS. Second, APS failed to allege it substantially
performed on the contracts at issue. Third, because the contracts granted Sears an unfettered right
to terminate, termination of the 2014 contract was not a breach.
The Court must examine APS’s contract claims under Illinois law. The parties agreed in the 2011
and 2014 contracts that Illinois law would govern interpretation of the contracts and “all other
aspects of the business relationship between the parties.” Dkt. 28-1 at 14, 28-3 at 16. The validity of
a choice-of-law contract clause is determined by the rules of the forum state, here Illinois, and
Illinois law generally respects such clauses absent a claim that the contract is invalid or contrary to
public policy. Fulcrum Fin. Partners v. Meridian Leasing Corp., 230 F.3d 1004, 1011 (7th Cir. 2000).
Under Illinois law, the Court’s first task when interpreting a contract is to determine if the
language of the contract is ambiguous, which is determined as a matter of law. Lewitton v. ITA
Software, Inc., 585 F.3d 377, 379 (7th Cir. 2009). If the contract is ambiguous, it is appropriate to look
at extrinsic evidence to determine the parties’ intent, but if the language is unambiguous, the
contract should be enforced as it is written. Id. at 380. Contract language is not ambiguous simply
because the parties disagree as to its meaning, but only if it is “reasonably susceptible to different
constructions.” Kaplan v. Shure Bros., 266 F.3d 598, 605 (7th Cir. 2001). Additionally, contested
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language in a contract should not be looked at in isolation; rather the contract should be examined
as a whole. Bourke v. Dun & Bradstreet Corp., 159 F.3d 1032, 1038 (7th Cir. 1998).
Although APS did not attach the contracts to its complaint and instead quoted the provisions it
considered relevant, the Court will consider the contracts in their entirety, as they were attached to
the motion to dismiss, are referred to in the complaint, and are central to APS’s claims. Wright, 29
F.3d at 1248. Under the contracts, Sears Logistics retained APS “for handling, recycling and
disposing of Materials” in accordance with a five step process outlined in the SOW. Dkt. 28-2 at 5;
28-4 at 6. “Materials” includes, among other things, “all materials that are generated in connection
with [Sears Holdings] Home Delivery operations.” Dkt. 28-2 at 9; 28-4 at 10. The parties have put
forth two different interpretations of the word “all” in the description of “Materials,” demonstrating
that the language is indeed susceptible to different constructions. The question for the Court thus
becomes whether both constructions are reasonable.
Sears Logistics asserts the description of “Materials” includes the word “all” in order to
exhaustively describe the types of items APS may not decline to handle, recycle, or dispose of. Put
differently, “all” is included in the description of Materials for Sears Logistics’ own protection, so
that APS does not refuse items whose disposal is particularly onerous or cumbersome. When viewed
in light of the contract as a whole, which is a contract by which Sears Logistics retained APS to
provide it recycling services, Sears Logistics’ construction of the term “all” is reasonable. It is further
bolstered by the provision at the end of the description of “Materials” which states that APS “will
not have the ability to ‘cherry pick’ items” and notes that some items may still contain hazardous
substances. Dkt. 28-2 at 10; 28-4 at 11.
In contrast, APS asserts the word “all” grants APS a contractual right to everything that Sears
removes from a customer’s home when performing haul-away services. The problem fatal to APS’s
interpretation is not the description of “Materials”, but the operative provision in which the term
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appears: “[Sears Logistics] retains [APS] for handling, recycling and disposing of Materials [which
includes ‘all materials that are generated in connection with Sears Holdings Home Delivery
operations’].” This provision does not grant APS a right, but rather creates an obligation: to handle,
recycle, and dispose of the items loaded onto its trailers so long as those items meet the description
of “Materials” in the contract. That APS has no particular right to any items until they are loaded on
its trailers and driven off of Sears’ property is further supported by the contract provision which
states that “[t]itle and ownership of the Materials passes to [APS] when Materials are removed from
Locations.” Dkt. 28-2 at 5; 28-4 at 7. The contracts define “Locations” as various stores and
distribution centers owned and operated by Sears. Dkt. 28-2 at 11, 28-4 at 12. Customers’ homes are
not included in the definition of Locations. Id. Accordingly, the Court agrees with Sears Logistics
that the theft of appliances by Sears’ truck drivers does not constitute a breach of contract.
The termination of the 2014 contract likewise cannot support a claim for breach because the
contract allows for termination without cause. Dkt. 28-3 at 3. Without any cognizable theory of
breach, APS cannot state a claim for tortious interference. APS’s breach of contract and tortious
interference with a contract claims are therefore dismissed with prejudice.
2. Fraud
Sears Holdings moves to dismiss the fraud claims brought against it on the grounds that (1) APS
has failed to establish that any alleged misrepresentations proximately caused it any injury and (2)
APS has failed to plead with sufficient particularity the circumstances of the fraud.
APS bases its claims for fraud on the 2011 and 2014 Exclusivity Misrepresentations, the 2011
and 2014 Volume Misrepresentations, and the 2014 Scope Misrepresentation. A fraudulent
misrepresentation claim based on the Exclusivity Misrepresentations fails for the same reason as the
breach of contract claims: the SOW cannot reasonably be understood as a representation by Sears
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that no materials removed from customers’ homes will be lost, damaged, or stolen before they are
loaded onto APS trailers.
With respect to the Volume Misrepresentations and the Scope Misrepresentation, Sears
Holdings argues that even if APS relied on false data in constructing its bids for the contracts, APS
cannot show that it would have been awarded the contracts if it had placed a different bid with
pricing based on accurate data. Dkt. 28 at 11. While this may be true, it does not defeat APS’s fraud
claim. While APS might not have been awarded the contract had it placed a lower bid, it also would
not have expended the costs it did in preparing for and performing on the contract. Furthermore, it
would have been free to pursue other more lucrative business opportunities. These injuries can
reasonably be inferred from APS’s allegations that it relied to its detriment on the misrepresentations
by entering into the contracts and incurring operational expenses. See Dkt. 5, ¶¶ 111, 133.
APS pleaded its fraud claims based on the Volume Misrepresentations and the Scope
Misrepresentation with sufficient particularity. APS identifies the Sears Holdings employees that
provided the false information by name. Dkt. 5, ¶ 107, 129. It also identifies the substance of the
misrepresentation (inaccurate data about the historical volume of haul-away appliances and number
of distribution centers), the manner in which it was delivered to APS (in spreadsheets and in
writing), and the time period in which it occurred (immediately preceding the auctions in July and
August 2011 and June and July 2014). Id. This is sufficient to meet the requirements of Rule 9(b).
3. Negligent Misrepresentation
Sears Holdings argues that APS’s negligent misrepresentation claims are barred by the Moorman
doctrine, which provides that a plaintiff seeking to recover solely economic losses under a theory of
negligent misrepresentation must show that the defendant “is in the business of supplying
information for the guidance of others in their business transactions.” Moorman Mfg. Co. v. Nat'l Tank
Co., 435 N.E.2d 443, 452 (Ill. 1982). APS asserts Sears Holdings falls under the exception because
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part of its business was providing information during the bidding process that guided APS in its
business dealings. Dkt. 29 at 8-9.
When determining if a defendant is “in the business of supplying information,” courts must
focus on the “ultimate result” of the defendant’s work. Fireman's Fund Ins. Co. v. SEC Donohue, Inc.,
679 N.E.2d 1197, 1201 (Ill. 1997). If “the information that is supplied is merely ancillary to the sale
or in connection with the sale of merchandise,” the exception does not apply. Id. Here, Sears
Holdings’ ultimate goal is to sell retail goods. Dkt. 5, ¶12. Any information supplied to APS in
connection with the bidding process was for the ancillary purpose of securing a contractor to
provide recycling services in furtherance of Sears’ retail operations. The exception therefore does
not apply, and APS’s negligent misrepresentation claims are dismissed.
4. Quantum Meruit
To state a claim for quantum meruit, APS must allege (1) it performed a service that benefitted
defendants; (2) it performed the service non-gratuitously; (3) defendants accepted the service; and
(4) no contract existed to prescribe payment for the service. Owen Wagener & Co. v. U.S. Bank, 697
N.E.2d 902, 908 (Ill. App. 1998). A plaintiff may plead a claim for quantum meruit as an alternative
to its breach of contract claim in order to recover the value of its work even if it is ultimately
determined that compensation for the work was not covered by the contract at issue. Patrick Eng'g,
Inc. v. City of Naperville, 955 N.E.2d 1273, 1289 (Ill. App. 2011), rev'd on other grounds, 976 N.E.2d 318
(Ill. 2012).
Here, APS’s claim for quantum meruit fails because APS did not allege that the contracts at issue
failed to prescribe payment for the recycling services provided. Instead, APS merely states that Sears
has not “fully compensated APS for the services it has provided.” Dkt. 5, ¶150. Nonetheless, a
review of the contracts themselves reveals there was indeed no explicit provision for payment to
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APS. Accordingly, this claim is dismissed without prejudice and with leave to refile a properly
pleaded quantum meruit claim.
Conclusion
For the foregoing reasons, Defendants’ motion to dismiss is granted as to Counts I, II, III, IV,
VI, VIII, and IX and denied with respect to Counts V and VII. Counts I, II, III, IV, VI, and VIII
are dismissed with prejudice and Count IX is dismissed without prejudice and with leave to re-plead.
IT IS SO ORDERED.
_____________________________
SHARON JOHNSON COLEMAN
United States District Judge
DATED: October 20, 2015
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