APS Express, Inc. v. Sears Holdings Corporation et al

Filing 74

MEMORANDUM Opinion and Order Signed by the Honorable Sharon Johnson Coleman on 5/3/2016: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 an amended complaint alleging a claim for quantum
meruit and three claims for fraud against Sears Holdings Corporation, Sears Holdings Management
Corporation, and Innovel Solutions, Inc., formerly known as Sears Logistics Services, Inc.
(collectively, “Sears”). APS alleges Sears provided APS false information about the profitability of an
arrangement whereby APS recycled or resold old appliances collected from Sears. APS also alleges
that Sears permitted its truck drivers to steal and resell the most valuable of those appliances,
thereby further undercutting the profitability of the endeavor. Sears moves to dismiss the quantum
meruit claim (Count I) and one of the fraud claims (Count IV). The Court denies in part and grants
in part the motion.
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. 63 ¶¶ 13-14. 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. ¶¶ 15-16. Sears itself removes the appliances
from customers’ homes (“haul-away services”) and it retained APS to process those appliances
(“recycling services”). Id. ¶¶ 16-25. APS had been providing Sears with recycling services since
1994. Id. ¶ 11-12. Prior to 2011, APS was able to offset the costs of providing recycling services and
turn a profit by selling the resalable appliances generated by haul-away services. Id. ¶ 29. APS paid
Sears for the appliances it obtained. Id. ¶ 38.
APS alleges that beginning in 2011, Sears stopped actively policing theft by delivery drivers of
the resalable appliances generated by haul-away services. Id. ¶ 30. According to APS, Sears turned a
blind eye to the routine practice of delivery drivers switching out resalable appliances for “junk”
appliances (that were not generated by haul-away services) so that the delivery drivers could
themselves profit from the resale. Id. ¶¶ 32-33. In March 2011 APS met with Sears to discuss
maximizing the revenue generated from Sears’ haul-away services. Id. ¶ 35. At that meeting, APS
raised concerns about theft of the resalable appliances. Id. ¶¶ 36-38. APS alleges that Sears
fraudulently represented it was enforcing a “zero-tolerance” policy regarding theft when in fact Sears
knew about widespread theft and was not taking any action to prevent it. Id. ¶¶ 39-40.
In 2011, Sears decided it would select its recycling services provider via an online auction. Id. ¶
42. In advance of the auction, Sears gave APS a Master Service Agreement (“MSA”) and a Statement
of Work (“SOW”) that APS was required to sign as a prerequisite for participating in the auction. Id.
¶ 45. Sears also tendered to APS 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. ¶ 48.
APS alleges the volume of appliance data was inaccurate and “substantially overstated” the amount
of appliances generated by haul-away services. Id. APS participated in the auction and was the
winning bidder with respect to 16 distribution centers around the country. Id. ¶ 50.

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Following its winning bid, APS encountered difficulties making a profit off of the resalable
appliances. Id. ¶ 53. It again communicated its concerns to Sears about possible theft, and APS
alleges Sears again knowingly overstated its efforts to prevent theft. Id. ¶¶ 53-57.
In 2014, Sears held another online auction to select its recycling services provider. Id. ¶ 64.
Vendors were selected to provide services on a statewide basis instead of by individual distribution
center. Id. ¶ 58. Sears representatives again gave APS a sample MSA and SOW and data regarding
the volume of appliances historically generated at each distribution center. Id. ¶ 60, 63. Sears
representatives also supplied APS with a list of each distribution center located in each state. Id. ¶ 60.
APS alleges that the 2014 data, like the 2011 data, was inaccurate: the volume of appliances
generated by haul-away services was overstated, as was the number of distribution centers in each
state. Id. APS also alleges Sears made additional misrepresentations during a pre-auction conference
call, and after the auction continued to overstate Sears’ efforts to curb theft. Id. ¶¶ 66-72.
In March 2015, a former loss prevention manager told APS that since 2011 Sears had instructed
the loss prevention department to “stop policing” how delivery truck drivers handled haul-away
appliances. Id. ¶ 75. When APS confronted Sears about this practice, Sears terminated APS as its
recycling services provider. Id. ¶ 76.
Legal Standard
A complaint will survive a motion to dismiss under Rule 12(b)(6) if its well-pleaded facts when
accepted as true and viewed in the light most favorable to the plaintiff state a plausible claim for
which relief can be granted. Vesely v. Armslist LLC, 762 F.3d 661, 664 (7th Cir. 2014). 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 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).
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Discussion
Count I - Quantum Meruit
Sears argues that APS’ claim for quantum meruit fails because (1) APS cannot contradict the
position taken in its earlier complaints by now arguing that there was no valid and enforceable
contract; and (2) APS cannot pursue a quantum meruit claim because the MSAs and SOWs were
valid contracts that covered payment for the work APS performed.
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). In its third amended complaint (the operative complaint for
purposes of this motion to dismiss) APS alleges that the MSAs and SOWs do not form valid
contracts because they lack consideration, and that even if they are valid contracts, payment for the
services APS provided is not covered by those contracts. Sears asserts that this argument cannot be
entertained by the Court because it contradicts APS’ breach of contract claims in its earlier
complaints. Sears is incorrect. “[W]here the original complaint and an amended complaint contain
contradictory or mutually exclusive claims, only the claims in the amended complaint are considered;
the contradicted claims in the original complaint are knocked out.” Scott v. Chuhak & Tecson, P.C.,
725 F.3d 772, 783 (7th Cir. 2013). Sears’ reliance on Help At Home Inc. v. Med. Capital, L.L.C., 260
F.3d 748 (7th Cir. 2001) is misplaced. Help At Home concerns a situation where a plaintiff pressed an
argument in opposing a motion to dismiss that was contradicted by its characterization of a
transaction in the operative complaint. 260 F.3d at 753. Here, APS’ use of the word “contract” to
describe the agreements in the operative complaint does not prevent APS from arguing the
agreements were not valid contracts. Landry v. E.G. Shinner & Co., 344 Ill. 579, 584 (1931) (“where
the word ‘contract’ is used, it does not necessarily mean ‘valid contract.’”).
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The Court need go no further to find that APS’ quantum meruit claim survives the motion to
dismiss. Determining whether the purported contracts are valid and if valid, whether they cover
payment for all the services APS provided would require this Court to interpret the purported
contracts. Because the MSAs and SOWs are on the matter of payment ambiguous at best, the
correct interpretation of them is a question of fact which cannot properly be determined at this stage
in the proceedings. Quake Const., Inc. v. Am. Airlines, Inc., 141 Ill. 2d 281, 288 (1990).
2. Count IV - Fraud
Sears asserts that APS’ fraud claim articulated in Count IV fails because reliance on the alleged
misrepresentations was unreasonable as a matter of law and because APS has not pled when the
misrepresentations occurred with sufficient particularity.
Count IV of the complaint identifies five different time periods, with varying degrees of
specificity, during which misrepresentations were allegedly made: (a) on March 18, 2011; (b) between
March 18, 2011 and the summer of 2011; (c) between September 2011 and August 2014 (d) “leading
up to an auction in 2014”; and (e) between September 2014 and April 2015. Sears asserts that
specific dates must be provided and that alleging misrepresentations occurred throughout a period
of months or years does not satisfy Rule 9(b). It relies primarily on Clark v. Robert W. Baird Co., 142
F. Supp. 2d 1065, 1072 (N.D. Ill. 2001)(Bucklo, J.) to support that proposition. In contrast, APS
asserts that a date range is sufficient when the description of the misrepresentations is otherwise
specific enough to assure the Court that the plaintiff’s accusation of fraud is “responsible and
supported, rather than defamatory and extortionate.” Ray v. Citigroup Glob. Markets, Inc., No. 03 C
3157, 2003 WL 22757761, at *3 (N.D. Ill. Nov. 20, 2003) (Kennelly, J.).
The degree of specificity needed with regard to the who, what, where, when, and why of a fraud
claim should not be determined by reference to a bright line rule; the level of particularity required
depends on the facts of each case. Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir.
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2014). Here, APS identified at least one specific date, March 18, 2011, on which the relevant
misrepresentations were made. Additionally, in the paragraph describing the misrepresentations
made between March 18, 2011 and the summer of 2011, APS provides an example tied to a specific
date. Dkt. 63 ¶ 42 (a misrepresentation was made “in an email, dated August 19, 2011.”). This is
sufficient under Rule 9(b). However the Court agrees that the other broad date ranges,
unaccompanied by specific examples, do not satisfy the particularity requirement. Therefore Count
IV may only proceed with respect to misrepresentations made between March 18, 2011 and the
2011 auction. 1
Regarding reliance, the Illinois Supreme Court has stated that “one is justified in relying upon
the representations of another, without independent investigation, where the person to whom the
representations are made does not have the same ability to discover the truth as the person making
the representations.” Gerill Corp. v. Jack L. Hargrove Builders, Inc., 128 Ill.2d 179, 195 (1989). Whether
a plaintiff’s reliance was reasonable is ordinarily a question of fact. Siegel Dev., LLC v. Peak Const.
LLC, 373 Ill.Dec. 501 (Ill. App. 2013). But a court may determine that reliance was unreasonable as
a matter of law “when no trier of fact could find that it was reasonable to rely on the alleged
statements or when only one conclusion can be drawn.” Tirapelli v. Advanced Equities, Inc., 351
Ill.App.3d 450, 456 (2004) (internal quotations omitted). Viewing the alleged facts in the light most
favorable to APS, it cannot be said that its reliance on the alleged misrepresentations was
unreasonable as a matter of law. First, access to the truth was skewed in Sears’ favor. Second,
although APS suspected theft was occurring and knew that it was struggling to turn a profit, it was
arguably reasonable under the circumstances to continue to provide Sears recycling services. APS
may reasonably have thought it better to not sour its relationship with Sears by terminating its
A court may deny leave to re-plead a claim where the plaintiff has demonstrated “repeated failure to cure deficiencies
by amendments previously allowed.” Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663, 666 (7th Cir.
2007). Given that this is APS’ third amended complaint, the dismissed portions of Count IV will be dismissed with
prejudice.
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services while it waited for Sears to root out completely the theft problem. It might be the case that
the point at which APS’ eyes were finally opened came later than it reasonably should have. But
determining at what point APS’ continued reliance became unreasonable is better left to a stage in
the proceedings when the Court or a jury is presented with a more thorough factual record.
Defendants’ motion to dismiss [66] is granted with prejudice as to the portion of Count IV
based on misrepresentations made after the 2011 auction, and it is denied in all other respects.

IT IS SO ORDERED.
_____________________________
SHARON JOHNSON COLEMAN
United States District Judge
DATED: May 3, 2016

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