State Mechanical Services, LLC v. NES Equipment Services Corporation et al
Filing
48
MEMORANDUM Opinion and Order Signed by the Honorable John Robert Blakey on 5/14/2018. Mailed notice(gel, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
STATE MECHANICAL SERVICES, LLC,
Plaintiff,
Case No. 17-cv-5950
v.
NES EQUIPMENT SERVICES
CORPORATION d/b/a NES RENTALS, NES
RENTALS HOLDINGS, and UNITED RENTALS
(NORTH AMERICA), INC.,
Judge John Robert Blakey
Defendants.
MEMORANDUM OPINION AND ORDER
In this putative class action, Plaintiff Tartan Construction, LLC 1 alleges that
Defendants NES Rentals, NES Holdings, and United Rentals charged two
“illegitimate” fees as part of their standard rental agreements for heavy equipment.
[39] ¶ 3. Plaintiff claims that these fees breached the rental agreements, unjustly
enriched Defendants, and violated the Illinois Consumer Fraud and Deceptive
Trade Practices Act (ICFA). Id. Defendants moved to dismiss all claims under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. [26]. For the
reasons explained below, this Court grants Defendants’ motion.
I.
The Complaint’s Allegations
Defendants rent heavy equipment to industrial construction customers
through a standard rental agreement.
[39] ¶ 23.
Along with a rental fee,
Although Tartan did not ask to update the case caption, Tartan replaced State Mechanical
Services, LLC as Plaintiff when Tartan filed the second amended complaint in December 2017. [39].
In this opinion, “Plaintiff” refers to Tartan.
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Defendants charge two other fees: (1) an “environmental fee”; and (2) a fee for a
“limited damage waiver” (LDW). Id. ¶ 25. Defendants do not disclose to their
customers how they calculate the two additional fees. Id. ¶ 28.
Plaintiff says that Defendants misrepresent the environmental fee as a
means of recovering the costs of handling and disposing of waste fluids, when in
reality the amount of the environmental fee bears no relation to any such costs. Id.
¶ 34. The rental agreement describes the environmental fee as follows:
Customer acknowledges that it shall be charged a per item, per invoice
environmental fee for the handling and disposal of waste oil and other
fluids used in connection with the operation and/or cleaning of the
Equipment.
[39-1] § 18. Defendants charge a $10 per item environmental fee on every invoice
regardless of how much equipment a customer rented, which type of equipment the
customer rented, and whether Defendant actually had to dispose of any waste fluids
[39] ¶¶ 35–36. Plaintiff always timely paid the environmental fee. Id. ¶ 42.
The rental agreement does not contain the LDW. Id. ¶ 43. Instead, it refers
to the LDW as follows:
Customer acknowledges that the Company’s [LDW] policy was
explained at the time of entering into this Agreement. A copy of the
policy is available at all branches of the Company and is available
upon request. Customer acknowledges that it is responsible for the
Equipment and that any [LDW] entered into is not insurance.
[39-1] § 17.
Plaintiff alleges that, contrary to section 17’s representations,
Defendants do not explain anything about the LDW to customers when entering
into rental agreements and do not make copies of the LDW available because “no
such ‘policy’ exists.” [39] ¶ 44. Defendants charge 14% of total rental costs on each
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invoice for the LDW. Id. ¶ 45.
Although the LDW purportedly waives Defendants’ rights to recover from
renters for certain types of damage to equipment, Plaintiff says that the LDW
provides little or no value to customers. Id. ¶ 46. Even if customers pay for the
LDW, Defendants’ rental agreement still obligates customers to maintain liability
and property insurance for the equipment, and Defendants rarely or never waive
costs under the LDW. Id. ¶¶ 48, 51–52. Plaintiff alleges that Defendants deceive
customers into believing both that they must purchase the LDW and that the LDW
confers a meaningful benefit if equipment gets damaged. Id. ¶¶ 49, 57. Plaintiff
timely paid the 14% LDW fee on any applicable invoices from Defendants. Id. ¶ 61.
II.
Legal Standard
To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide
a “short and plain statement of the claim” showing that the pleader merits relief,
Fed. R. Civ. P. 8(a)(2), so Defendants have “fair notice” of the claim “and the
grounds upon which it rests,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint must also contain
“sufficient factual matter” to state a facially plausible claim to relief—one that
“allows the court to draw the reasonable inference” that the defendant committed
the alleged misconduct.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 570). This plausibility standard “asks for more than a sheer
possibility that a defendant has acted unlawfully.” Williamson v. Curran, 714 F.3d
432, 436 (7th Cir. 2013). Thus, “threadbare recitals of the elements of a cause of
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action, supported by mere conclusory statements, do not suffice.” Limestone Dev.
Corp. v. Vill. of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).
In evaluating a complaint, this Court accepts all well-pleaded allegations as
true and draws all reasonable inferences in Plaintiffs’ favor. Iqbal, 556 U.S. at 678.
This Court does not, however, accept legal conclusions as true. Brooks v. Ross, 578
F.3d 574, 581 (7th Cir. 2009). On a motion to dismiss, this Court may consider the
complaint itself, documents attached to the complaint, documents central to the
complaint and to which the complaint refers, and information properly subject to
judicial notice. Williamson, 714 F.3d at 436.
Fraud claims under the ICFA must meet Federal Rule of Civil Procedure
9(b)’s heightened pleading requirements. Camasta v. Jos. A. Bank Clothiers, Inc.,
761 F.3d 732, 736 (7th Cir. 2014). Rule 9(b) demands that claimants alleging fraud
“state with particularity the circumstances constituting fraud.” To satisfy Rule 9(b),
a plaintiff “ordinarily must describe the who, what, when, where, and how of the
fraud—the first paragraph of any newspaper story.” Pirelli Armstrong Tire Corp.
Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441–42 (7th Cir. 2011)
(internal quotation marks omitted).
Ultimately, a plaintiff must always inject
“precision and some measure of substantiation” into fraud allegations.
United
States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 776 (7th
Cir. 2016) (internal quotation marks omitted).
III.
Analysis
As a preliminary matter, the rental agreement contains a choice-of-law
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provision requiring that Illinois law govern any disputes arising under the
agreement. [39-1] § 15. Under Illinois law, which this Court follows on choice-oflaw issues when sitting in diversity, courts honor a contract’s choice-of-law
provision as long as the parties have a valid contract and the chosen law does not
violate fundamental Illinois public policy. See Thomas v. Guardsmark, Inc., 381
F.3d 701, 705 (7th Cir. 2004). The latter requirement does not pose a hurdle here,
and the parties agree that they have a valid contract, see [31] at 4; [33] at 12, so
Illinois law controls.
Under Illinois law, this Court may interpret unambiguous contracts as a
matter of law. Avery v. State Farm Mut. Auto. Ins. Co., 835 N.E.2d 801, 821 (Ill.
2005). In construing a contract, this Court must focus on ascertaining and giving
effect to the parties’ intent. Highland Supply Corp. v. Ill. Power Co., 973 N.E.2d
551, 558 (Ill. App. Ct. 2012). Also, Illinois law instructs this Court to interpret
contract terms according to their “plain and ordinary meaning.” Barth v. State
Farm Fire & Cas. Co., 886 N.E.2d 976, 982 (Ill. 2008).
A.
Voluntary Payment Doctrine
Defendants argue that the voluntary payment doctrine bars all of Plaintiff’s
claims. In Illinois, a plaintiff cannot recover a payment by claiming illegality when
the plaintiff paid the money voluntarily, “with knowledge of the facts” and under
the payee’s “claim of right to the payment.” King v. First Capital Fin. Servs. Corp.,
828 N.E.2d 1155, 1170 (Ill. 2005). Defendants’ theory has several problems.
First, the voluntary payment doctrine is an affirmative defense.
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See La.
Firefighters’ Ret. Sys. v. N. Trust Invs., N.A., No. 09-cv-7203, 2015 WL 1281493, at
*5 n.3 (N.D. Ill. Mar. 17, 2015). The Federal Rules of Civil Procedure do not require
a complaint to anticipate or “plead around” all possible defenses, so this Court may
not dismiss the complaint for failing to address the voluntary payment doctrine.
Xechem, Inc. v. Bristol-Myers Squibb Co., 372 F.3d 899, 901 (7th Cir. 2004).
Second, Plaintiff alleges that Defendants misrepresented the true nature of
the fees they collected from Plaintiff and other customers. See [39] ¶¶ 87–100.
Thus, drawing inferences in Plaintiff’s favor, Iqbal, 556 U.S. at 678, Plaintiff lacked
“knowledge of the facts” when it paid the fees, rendering the voluntary payment
doctrine inapplicable at this stage, King, 828 N.E.2d at 1170.
B.
Count One: Breach of Contract
Plaintiff claims that NES Rentals and United Rentals breached their
contracts with Plaintiff and other proposed class members by: (1) charging an
“environmental fee” completely untethered to the actual costs of disposing of waste
fluids from rented equipment; and (2) charging a fee for the LDW when the fee
“bears no relation to the risk of loss or damage to the equipment” and the alleged
waiver does not offer any value to customers who pay for it. See [39] ¶¶ 62–68. To
state a breach of contract claim, Plaintiff must allege that: (1) the parties have a
valid and enforceable contract; (2) Plaintiff performed under the contract; (3)
Defendants failed to comply with a duty imposed by the contract; and (4) that
failure to comply injured Plaintiff. See Nielsen v. United Servs. Auto. Ass’n, 612
N.E.2d 526, 529 (Ill. App. Ct. 1993).
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1.
Environmental Fee
Defendants argue that Plaintiff’s claim fails as to the environmental fee
because the rental agreement does not say that the fee corresponds to their costs for
handling waste fluids. [27] at 6. This Court agrees.
Section 18 of the rental agreement defines the environmental fee, stating:
Customer acknowledges that it shall be charged a per item, per invoice
environmental fee for the handling and disposal of waste oil and other
fluids used in connection with the operation and/or cleaning of the
Equipment.
[39-1] § 18.
This Court finds section 18’s language unambiguous, and so must
interpret the terms according to their plain meaning. See Barth, 886 N.E.2d at 982.
That section simply says that Defendants charge a per item, per invoice fee for
handling waste fluids; it does not say that the environmental fee corresponds to
Defendants’ costs for handling waste fluids.
Indeed, the word “costs” does not
appear anywhere in section 18, and the fee’s “per item” description indicates that
Defendants charge a standard fee not tailored to the cost of individual clean-up
efforts.
Thus, even if the environmental fee has no connection to Defendants’
environmental costs, Defendants did not breach any contractual duty by charging
the fee. See Nielsen, 612 N.E.2d at 529. This Court dismisses Count One with
prejudice as to the environmental fee allegations.
2.
LDW Fee
Defendants argue that Plaintiff’s claim fails as to the LDW fee because
Plaintiff fails to allege any damages resulting from the alleged breach. [27] at 8.
This Court agrees that the claim fails, although for a different reason.
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The rental agreement’s only mention of the LDW says:
Customer acknowledges that the Company’s [LDW] policy was
explained at the time of entering into this Agreement. A copy of the
policy is available at all branches of the Company and is available
upon request. Customer acknowledges that it is responsible for the
Equipment and that any [LDW] entered into is not insurance.
[39-1] § 17. The rental agreement also contains an integration clause, titled “Entire
Agreement: Amendment and Waiver,” which provides:
This Agreement and all Exhibits attached hereto and incorporated
herein by reference . . . contain the entire agreement between the
parties with respect to the subject matter and supersede any previous
understandings or agreements, whether written or oral, with the
exception of any credit agreement between the Company and the
Customer.
[39-1] § 13.
An integration clause like section 13 demonstrates the parties’ intent to limit
their contractual agreement to the four corners of the contract.
See Highland
Supply, 973 N.E.2d at 558. The unambiguous language of section 17 bolsters that
conclusion. Section 17 merely acknowledges that the LDW policy exists; it does not
demonstrate any intent to incorporate that policy into the contract. See, e.g., Kogan
v. Scandinavian Airlines Sys., 253 F. Supp. 3d 1022, 1025 (N.D. Ill. 2017)
(explaining that incorporation must be “clear and specific” and merely referring to
another document does not suffice to incorporate it into the contract).
Essentially, Plaintiff alleges that Defendants agreed to provide a meaningful
benefit through the LDW, and instead offered a sham product that never relieved
customers of liability. [39] ¶ 50. Maybe so, but the rental contract that Plaintiff
provided to this Court does not express any such agreement.
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Under the parol
evidence rule, because the rental agreement contains an integration clause,
Plaintiff may not base a breach of contract claim upon a separate agreement that
the parties allegedly reached during contract negotiations but ultimately did not
include in the contract itself. See PharMerica Chi., Inc. v. Meisels, 772 F. Supp. 2d
938, 951 (N.D. Ill. 2011) (citing Vigortone AG Prods., Inc. v. PM AG Prods., Inc., 316
F.3d 641, 644 (7th Cir. 2002)).
At most, section 17 creates a duty for Defendants to make the LDW policy
available at their branch locations. Even if Defendants breached that duty by not
making the policy available, Plaintiff does not allege any damages arising from that
specific breach. See generally [39]. Without alleging an injury, Plaintiff fails to
state a claim for breach of contract. See Nielsen, 612 N.E.2d at 529. This Court
dismisses Count One without prejudice as to the LDW fee allegations.
C.
Counts Two and Three: Unjust Enrichment
Plaintiff, on behalf of a proposed class, claims that NES Rentals and United
Rentals unjustly enriched themselves by collecting the LDW fee (Count Two), and
that NES Holdings and United Rentals unjustly enriched themselves by collecting
the environmental fee and LDW fee (Count Three). [39] ¶¶ 69–86. To state a claim
for unjust enrichment, Plaintiff must allege that Defendants “unjustly retained a
benefit” to Plaintiff’s detriment, and that Defendants violate “fundamental
principles of justice, equity, and good conscience” by keeping the benefit. Saletech,
LLC v. E. Balt, Inc., 20 N.E.3d 796, 808 (Ill. App. Ct. 2014).
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1.
Environmental Fee
Under Illinois law, an unjust enrichment claim fails when “the claim rests on
the breach of an express contract.” Shaw v. Hyatt Int’l Corp., 461 F.3d 899, 902 (7th
Cir. 2006) (citing Guinn v. Hoskins Chevrolet, 826 N.E.2d 681, 704 (Ill. 2005)).
Plaintiff runs squarely into this roadblock on the environmental-fee theory.
Plaintiff alleges the breach of an express contract containing the environmental fee
in Count One, cites the contract throughout the complaint, and attaches a copy of
the contract to the complaint. See [39]; [39-1].
Plaintiff argues that, because it offers Count Three “in the alternative,” the
claim must go forward at the motion-to-dismiss stage. [31] at 12. Of course, Rule 8
allows inconsistent pleadings. See Peterson v. McGladrey & Pullen, LLP, 676 F.3d
594, 597 (7th Cir. 2012). But if the parties do not dispute a contract’s existence, “a
claim for unjust enrichment necessarily fails” and a plaintiff cannot offer it in the
alternative. Hickman v. Wells Fargo Bank N.A., 683 F. Supp. 2d 779, 797 (N.D. Ill.
2010) (applying Illinois law and dismissing a similar claim with prejudice).
Plaintiff admits that “a valid, enforceable agreement exists” between Plaintiff
and NES Rentals. [31] at 4. United Rentals bought NES Rentals in January 2017,
and so could only be liable on this claim as NES Rentals’ successor. See [39] ¶¶ 1,
10 (“Plaintiff makes no claims on behalf of itself or others for rental directly from
United Rentals.”). Where an unjust enrichment claim against NES Rentals would
“necessarily” fail because a valid contract exists, Hickman, 683 F. Supp. 2d at 797, a
successor-liability claim against United Rentals necessarily fails too, see Chi. Truck
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Drivers, Helpers & Warehouse Workers Union (Indep.) Pension Fund v. Tasemkin,
Inc., 59 F.3d 48, 49 (7th Cir. 1995).
Similarly, the claim against NES Holdings—NES Rental’s parent company—
fails because Plaintiff makes no specific allegations of unjust enrichment against
NES Holdings. In other words, Plaintiff seeks to make NES Holdings liable as NES
Rental’s parent corporation. A parent corporation may be liable for a subsidiary’s
actions if the parent exercises enough control and direction over the subsidiary that
a court may properly pierce the parent’s corporate veil. See IDS Life Ins. Co. v.
SunAmerica Life Ins. Co., 136 F.3d 537, 540 (7th Cir. 1998) (collecting cases). But
when the subsidiary has no liability, the parent also has no liability.
See id.
Accordingly, this Court dismisses Count Three with prejudice to the extent
Plaintiff’s theory of liability depends upon the environmental fee.
2.
LDW Fee
On the record before this Court, the parties’ express contract does not
incorporate the LDW policy, as discussed above. Thus, no express contract governs
the parties’ relationship as to the LDW, cf. Guinn, 826 N.E.2d at 704, so an unjust
enrichment claim regarding the LDW fee does not “necessarily” fail, Hickman, 683
F. Supp. 2d at 797.
That said, Plaintiff’s LDW unjust enrichment claim fails here in tandem with
its ICFA claim (discussed below).
Illinois law reflects some uncertainty over
whether unjust enrichment can be an independent cause of action.
Compare
Raintree Homes, Inc. v. Village of Long Grove, 807 N.E.2d 439, 445 (Ill. 2004)
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(“Here, plaintiffs have no substantive claim grounded in tort, contract, or statute;
therefore, the only substantive basis for the claim is restitution to prevent unjust
enrichment.”), and Peddinghaus v. Peddinghaus, 692 N.E.2d 1221, 1225 (Ill. App.
Ct. 1998) (disagreeing with the contention that “Illinois does not recognize an
independent cause of action for unjust enrichment”), with Martis v. Grinnell Mut.
Reinsurance Co., 905 N.E.2d 920, 928 (Ill. App. Ct. 2012) (“Unjust enrichment is not
a separate cause of action that, standing alone,” justifies an action for recovery.).
Faced with ostensibly conflicting precedents, the Seventh Circuit suggested
this approach:
Unjust enrichment is a common-law theory of recovery or restitution
that arises when the defendant is retaining a benefit to the plaintiff's
detriment, and this retention is unjust. What makes the retention of
the benefit unjust is often due to some improper conduct by the
defendant. And usually this improper conduct will form the basis of
another claim against the defendant in tort, contract, or statute. So, if
an unjust enrichment claim rests on the same improper conduct
alleged in another claim, then the unjust enrichment claim will be tied
to this related claim—and, of course, unjust enrichment will stand or
fall with the related claim.
Cleary v. Philip Morris Inc., 656 F.3d 511, 517 (7th Cir. 2011) (emphasis added).
Naturally, other courts in this district follow Cleary.
See, e.g., Muir v.
Nature’s Bounty, Inc., No. 15-cv-9835, 2017 WL 4310650, at *6 (N.D. Ill. Sept. 28,
2017) (allowing an unjust enrichment claim to survive because the related ICFA
claim survived); Stevens v. Interactive Fin. Advisors, Inc., No. 11-cv-2223, 2015 WL
791384, at *16 (N.D. Ill. Feb. 24, 2015) (explaining that the plaintiff’s unjust
enrichment claim “stands only to the extent his underlying tort and contract claims
stand”); Reid v. Unilever U.S., Inc., 964 F. Supp. 2d 893, 924 (N.D. Ill. 2013)
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(holding that an unjust enrichment claim remained viable because the underlying
ICFA claim survived a motion to dismiss). Here, Plaintiff’s unjust enrichment claim
depends upon the same conduct that forms the basis of its ICFA claim: the
misrepresentations that allegedly deceived Plaintiff as to the true nature of the fees
and made it unjust for Defendants to retain the money they collected for those fees.
See [39] ¶¶ 69, 78, 87 (incorporating identical factual allegations to support Counts
Two, Three, and Four). Considering Cleary and its progeny, this Court likewise ties
the fate of Plaintiff’s unjust enrichment claim to Plaintiff’s ICFA claim. Thus, this
Court dismisses Count Two, and dismisses Count Three as to the LDW fee.
D.
Count Four: ICFA
Plaintiff claims that Defendants violated the ICFA by deceiving customers as
to the true nature of both the environmental fee and the LDW fee. [39] ¶¶ 87–100.
To state a claim under the IFCA, Plaintiff must allege—with enough specificity to
satisfy Rule 9(b)—that: (1) the defendant carried out deceptive business practices;
(2) the defendant intended that Plaintiff rely on its deception; (3) the deception
occurred in commerce; (4) Plaintiff suffered actual damage; and (5) the defendant’s
deception proximally caused Plaintiff’s damage. Aliano v. Louisville Distilling Co.,
LLC, 115 F. Supp. 3d 921, 929 (N.D. Ill. 2015) (citing Avery, 835 N.E.2d at 850).
Here, Plaintiff’s ICFA claim fails because Plaintiff does not allege the “who,
what, when, where, and how of the fraud” with the requisite particularity. Pirelli,
631 F.3d at 441–42 (internal quotation marks omitted).
Plaintiff alleges that
Defendants made numerous “misrepresentations” about the environmental and
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LDW fees, [39] ¶ 96, but each allegation implicates “Defendants” as a group, see,
e.g., id. ¶ 97. To satisfy Rule 9(b) in this case (which alleges a fraud based upon a
misrepresentation theory), Plaintiff would need to specifically allege who made “the
misrepresentation, the time, place, and content of the misrepresentation,” and how
a defendant communicated the misrepresentation. United States ex rel. Grenadyor
v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014). Under that
standard, Plaintiff’s generalized assertions about “Defendants” paint with such a
broad brush that they cannot sustain Plaintiff’s ICFA claim. Indeed, any allegation
that “lumps all defendants together” and lacks “any detail” about who did what
fraudulent activity necessarily fails to satisfy Rule 9(b). Sears v. Likens, 912 F.2d
889, 893 (7th Cir. 1990).
Plaintiff argues that its allegations about “unfair” behavior do not need to
satisfy Rule 9(b). [31] at 10 n.10. True in theory, but not true here. See Camasta,
761 F.3d at 737.
Although Plaintiff adds “language of unfairness” to a few
allegations, that language does not change the fact that Count Four rests upon a
foundation “entirely grounded in fraud under the ICFA.” Id. Plaintiff challenges
Defendants’ various alleged misrepresentations about the fees not because those
misrepresentations were unfair, but because they deceived and defrauded Plaintiff
as to the true nature of the fees.
Thus, Rule 9(b) applies to Count Four, and
Plaintiff fails to meet its requirements. This Court dismisses Count Four.
IV.
Conclusion
This Court grants Defendants’ motion to dismiss [26]. This Court grants the
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motion with prejudice as to the environmental fee portions of Counts One and
Three. This Court grants the motion without prejudice as to the other portions of
Counts One and Three, and as to Counts Two and Four. Plaintiff may replead the
claims dismissed without prejudice if it can do so consistent with its obligations
under Federal Rule of Civil Procedure 11; failure to correct the deficiencies
identified here may result in dismissal with prejudice.
The Clerk is directed to correct the case caption by removing State
Mechanical Services, LLC and adding Tartan Construction, LLC as Plaintiff. The
case remains set for a status hearing on 5/22/2018 at 9:45 a.m. in Courtroom 1203.
Dated: May 14, 2018
Entered:
____________________________________
John Robert Blakey
United States District Judge
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