Rail World Locomotive Leasing, LLC v Massachusetts Bay Transportation Authority

Filing 44

Judge Denise J. Casper: ORDER entered. MEMORANDUM AND ORDER - The Court GRANTS in part and DENIES in part Rail World's motion to dismiss the MBTA's counterclaims, D. 26. Accordingly, the counterclaims for breach of the implied covenant of good faith and fair dealing (Count III) and conversion (Count VI) are dismissed, but the other counterclaims may proceed. (Hourihan, Lisa)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
)
Rail World Locomotive Leasing, LLC,
)
)
Plaintiff and Counterclaim Defendant,
)
)
v.
)
)
Civil Action No. 16-11541
Massachusetts Bay Transportation Authority, )
)
Defendant and Counterclaim Plaintiff.
)
__________________________________________)

MEMORANDUM AND ORDER
CASPER, J.
I.

May 9, 2017

Introduction
Plaintiff and Counterclaim Defendant Rail World Locomotive Leasing, LLC (“Rail

World”) has filed this lawsuit against Defendant and Counterclaim Plaintiff Massachusetts Bay
Transportation Authority (the “MBTA”), alleging breach of contract, unjust enrichment and
quantum meruit. D. 1. The MBTA has filed counterclaims against Rail World, alleging breach of
contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, quantum
meruit, conversion and promissory estoppel and also seeks a declaratory judgment. D. 17 at 1317. Rail World now moves to dismiss the MBTA’s counterclaims. D. 26. For the reasons stated
below, the Court GRANTS in part and DENIES in part Rail World’s motion, D. 26.
II.

Standard of Review
The Court will grant a Fed. R. Civ. P. 12(b)(6) motion to dismiss if a counterclaim fails to

plead sufficient facts to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). In considering a motion to dismiss, the Court is obligated to

1

“assume the truth of all well-plead[ed] facts and give the plaintiff the benefit of all reasonable
inferences therefrom.” Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir. 2007)
(citing Rogan v. Menino, 175 F.3d 75, 77 (1st Cir. 1999)). The Court, however, must distinguish
“the [counterclaim’s] factual allegations (which must be accepted as true) from its conclusory legal
allegations (which need not be credited).” Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st
Cir. 2012). “[N]o single allegation need [establish] . . . some necessary element [of the cause of
action], provided that, in sum, the allegations . . . make the claim as a whole at least plausible.”
Garayalde-Rijos v. Municipality of Carolina, 747 F.3d 15, 24 (1st Cir. 2014) (quoting OcasioHernández v. Fortuño-Burset, 640 F.3d 1, 14-15 (1st Cir. 2011)).
III.

Factual Background
Unless otherwise cited, the following summary is based upon the factual allegations in the

MBTA’s counterclaims, D. 17, which the Court must accept as true for the purposes of Rail
World’s motion to dismiss.
On or about February 23, 2015, the MBTA and Rail World entered into a Railroad
Locomotive Lease Agreement (the “Lease” or “Lease Agreement”). D. 17 at 10 ¶ 9; see D. 26-1.
Per the terms of the Lease, the MBTA agreed to lease seven locomotives from Rail World, each
for one calendar year beginning on the date the MBTA accepted the locomotive. D. 17 at 10 ¶¶
10-12. In exchange, the Lease obligated the MBTA to make quarterly rental payments, id. at 10 ¶
13, in addition to paying Rail World an advance deposit of $204,750 to secure the locomotives
pursuant to Section 7 of the Lease, id. at 11 ¶ 17. The MBTA alleges that it not only paid the
advance deposit in or about February 2015, id. at 11 ¶ 18, but it also paid all rental payments due
to Rail World under the Lease, id. at 10 ¶ 15.

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Section 14 of the Lease allowed Rail World to “at any time assign its rights and obligations
hereunder to any of the [l]ocomotives” such that the “assignee shall have, to the extent provided
in the assignment, the rights, powers, privileges and remedies of [the] Lessor hereunder.” D. 261 at 7. Section 14 additionally required, however, that the Lessor “provide or cause to be provided
to Lessee written notification ten (10) days prior to any such assignment.” Id. Pursuant to Section
14 of the Lease, Rail World assigned the Lease to Rail Transportation Services Corporation
(“RTSC”) to the extent provided in the assignment agreement between Rail World and RTSC in a
purchase and sale agreement to which the MBTA was not a party on or about August 2015. D. 17
at 11 ¶¶ 20-21. The MBTA alleges that it did not receive written notification from Rail World ten
days prior to the assignment. Id. at 11 ¶ 22.
After the assignment, Rail World issued an invoice to the MBTA, “Invoice Number 744,”
seeking payment in the amount of $421,694.33. D. 1-2 at 2; D. 17 at 12 ¶ 28. Thereafter, the
MBTA paid Rail World $189,435.44 in connection with Invoice Number 744. D. 17 at 13 ¶ 33.
In addition, Rail World issued two credit memoranda to the MBTA, which reduced the amount
allegedly due first by $6,732.00 and then by $14,634.90. Id. at 12 ¶¶ 30-31. The MTBA alleges
that it is further entitled to a reduction of $6,141.99 due to erroneous charges in Invoice Number
744. Id. at 12 ¶ 32. Taken together, the remaining amount allegedly due to Rail World is $204,750,
which is the exact amount of the advance deposit that the MBTA provided to Rail World at the
start of the Lease. Id. at 11-13 ¶¶ 17-18, 28-33.
Because Rail World retained the advance deposit in lieu of transferring the deposit to
RTSC, id. at 11 ¶¶ 23-24, and the term of the Lease for each locomotive has ended, id. at 11 ¶ 25,
the MBTA now asserts that Rail World has improperly failed to credit, refund or pay the advanced
deposit to the MBTA, id. at 12 ¶ 26.

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IV.

Procedural History
On July 26, 2016, Rail World instituted this action against the MBTA. D. 1. On September

30, 2016, the MBTA filed its answer and counterclaims against Rail World. D. 17. Rail World
has now moved to dismiss the MBTA’s counterclaims. D. 26. The Court heard the parties on the
pending motion and took this matter under advisement. D. 39.
V.

Discussion
A.

The Court Considers the Purchase and Sale Agreements for Purposes of
Deciding
This
Motion
to
Dismiss

“Ordinarily, a court will not consider documents outside of the pleadings in a motion to
dismiss.” Facey v. Dickhaut, 892 F. Supp. 2d 347, 351 (D. Mass. 2012) (citations omitted).
Nevertheless, “the First Circuit makes a ‘narrow exception for documents the authenticity of which
[is] not disputed by the parties; for official public records; for documents central to plaintiffs’
claim; or for documents sufficiently referred to in the complaint.’” Id. (quoting Watterson v. Page,
987 F.2d 1, 3 (1st Cir. 1993)); see Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 17 (1st Cir.
1998). This is so even when a party fails to include a pertinent document as part of its pleadings;
instead, the opposing party “may introduce the exhibit as part of his motion attacking the
pleading.” Fudge v. Penthouse Int’l, Ltd., 840 F.2d 1012, 1015 (1st Cir. 1988).
In a footnote, the MBTA asserts that it “lacks knowledge or information sufficient to form
a belief as to the truth of Rail World’s assertions” with respect to the April 22, 2015 and August
25, 2015 purchase and sale agreements attached to its motion to dismiss. D. 28 at 4 n.2; see D.
26-2; D. 26-3. This bare assertion, without more, is not sufficient to challenge the authenticity of
these documents. The MBTA provides no reason to doubt the authenticity of the agreements,
particularly since the MBTA does not contend that the documents were in fact inaccurate or

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inauthentic.

Cf. Oliverio v. Allied Steel Buildings, Inc., No. 15-cv-13562-DJC, 2016 WL

1369331, at *3 (D. Mass. Apr. 6, 2016) (declining to examine purported contract because the
plaintiff argued it was inauthentic, invalid, inaccurate and that he never bargained for or agreed to
the terms listed within it and otherwise based his complaint upon a separate agreement with
different terms); Bagg v. HighBeam Research, Inc., 862 F. Supp. 2d 41, 44-45 (D. Mass. 2012)
(deciding not to rely upon a 2006 forum selection clause in the contract for a motion to dismiss
because the plaintiffs explained there was no guarantee that the 2006 contract was identical to the
contracts agreed to between the parties from 2007 to 2010). Here, the MBTA has relied upon the
assignment agreement between Rail World and RTSC in framing its own allegations within the
counterclaim. See, e.g., D. 17 at 11-12, 14 ¶¶ 20-22, 27, 41. Considering that the two agreements
are dated and signed by both Rail World and RTSC and the limits of the MBTA’s challenge, the
Court has considered these documents in resolving the motion to dismiss the MBTA’s
counterclaims.
B.

The Court Dismisses the MBTA’s Separate Claim for Breach of the Implied
Covenant
of
Good
Faith
and
Fair
Dealing
(Count
III)

Rail World moves to dismiss Count III, the MBTA’s counterclaim for breach of the implied
covenant of good faith and fair dealing. D. 26 at 8-9. Under Illinois law, the duty of good faith
and fair dealing is predicated on the existence of a contract.1 Mid-W. Energy Consultants, Inc. v.
Covenant Home, Inc., 352 Ill. App. 3d 160, 163 (2004). “To establish a breach of the implied duty
of good faith and fair dealing, a party must show ‘that the contract vested the opposing party with

1

In deciding this motion, the Court applies Illinois law in accordance with the choice of law
provision provided in the Lease Agreement. See D. 26-1 at 10; see also D. 26-2 at 7. The parties
do not dispute that Illinois law applies as to the state law claims. See D. 26; D. 28.
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discretion in performing an obligation under the contract and the opposing party exercised that
discretion in bad faith, unreasonably, or in a manner inconsistent with the reasonable expectations
of the parties.’” Ronald McDonald House Charities of Chicagoland v. Winning Charities Ill.,
LLC, No. 13-cv-1430, 2013 WL 5907668, at *5 (N.D. Ill. Nov. 4, 2013) (internal citation omitted).
In essence, the purpose of such an implied covenant is “to ensure that parties do not take advantage
of each other in a way that could not have been contemplated at the time the contract was drafted
or do anything that will destroy the other party’s right to receive the benefit of the contract.” RBS
Citizens, National Ass’n v. RTG-Oak Lawn, LLC, 407 Ill. App. 3d 183, 191 (2011) (citing Cramer
v. Insurance Exchange Agency, 174 Ill.2d 513, 523-24 (1996)).
Rail World urges the Court to dismiss the MBTA’s claim for breach of good faith and fair
dealing in Count III because it cannot stand as an independent cause of action. D. 26 at 8-9.
“Illinois does not recognize an independent cause of action for breach of the implied duty of good
faith and fair dealing.” LaSalle Bank Nat’l Assoc. v. Paramount Props., 588 F. Supp. 2d 840, 853
(N.D. Ill. 2008) (citations omitted); see LaScola v. U.S. Sprint Commc’ns, 946 F.2d 559, 565 (7th
Cir. 1991). Instead, the covenant merely guides the construction of the express terms in the
agreement. Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 792 (7th Cir. 1995);
LaSalle Bank, 588 F. Supp. 2d at 857-58. As such, the Court must grant Rail World’s motion to
dismiss as to Count III. The theory for recovery under the implied covenant of good faith and fair
dealing claim alleged by the MBTA, see D. 28 at 13-15, instead will be considered as one basis
for the breach of contract claim alleged in Count II. See LaSalle Bank, 588 F. Supp. 2d at 853
(dismissing the independent implied covenant claim and analyzing the theory for the breach of the
implied covenant as part of the breach of contract claim); Playboy Enters. Int’l, Inc. v. Smartitan
(Sing.) Pte Ltd., No. 10-cv-4811, 2011 WL 3839711, at *2-3 (N.D. Ill. Aug. 26, 2011) (explaining

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that “a claim for breach of the implied covenant of good faith and fair dealing can be subsumed
within a breach of contract claim”).
For the foregoing reasons, the Court ALLOWS the dismissal of Count III.
C.

The Court Declines to Dismiss the MBTA’s Counterclaims for Equitable
Relief (Counts IV, V and VII)

The MBTA also brings three claims for equitable relief in its counterclaims: a claim for
unjust enrichment (Count IV), a claim for quantum meruit (Count V) and a claim for promissory
estoppel (Count VII). Rail World moves to dismiss all three claims on the basis that an express
contract governs the obligations and duties between the parties. D. 26 at 9-12.
Unjust enrichment, quantum meruit and promissory estoppel all constitute claims in equity.
See Cohen v. Am. Sec. Ins. Co., 735 F.3d 601, 615 (7th Cir. 2013); Dugas-Filippi v. JP Morgan
Chase & Co., 971 F. Supp. 2d 802, 803 (N.D. Ill. 2013) (citing Newton Tractor Sales, Inc. v.
Kubota Tractor Corp., 233 Ill. 2d 46, 53, 58 (2009)); Song v. PIL, L.L.C., 640 F. Supp. 2d 1011,
1015-17 (N.D. Ill. 2009). Because each of the three claims provides an equitable remedy, each
claim is only available when there is no adequate remedy at law. Cohen, 735 F.3d at 615. That
is, each of the three claims is unavailable where the conduct at issue is the subject of an express
contract between the parties which may provide an adequate remedy at law. Id. Indeed, a party
“may not pursue a quasi-contractual claim where there is an enforceable, express contract between
the parties” because “‘[q]uasi-contract is not a means for shifting a risk one has assumed under a
contract.’” Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 397 (7th Cir. 2003)
(internal citations omitted).
As a basis for each of the three counts, the MBTA reasserts its allegations that it had a lease
with Rail World, D. 17 at 10 ¶¶ 9-13, that the terms of the Lease mandated that the MTBA provide
a monetary deposit that was to be credited to its account at the end of the lease’s term, id. at 11 ¶
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17, and that the MBTA did not receive the credit it was due, id. at 11-12 ¶¶ 23-24, 26. See id. at
14-15 ¶¶ 48, 54, 64. For instance, when alleging its claim for unjust enrichment, the MBTA
“realleges and incorporates each of the allegations set forth” earlier in the counterclaims, including
that it entered into the Lease Agreement with Rail World, that Section 7 of the Lease obligated
MBTA to pay a security deposit of $204,750 to Rail World which was to be credited at the end of
the Lease, that Rail World assigned its obligations under the Lease to a third party and that Rail
World retained that deposit without returning it to the MBTA even though it did not assign the
obligation to credit the deposit to the third party. Id. at 10-12, 14 ¶¶ 9, 17, 20-27, 48. The same
is true for its other equitable claims. Id. at 15-16 ¶¶ 54, 64. As a result, Rail World argues that
the MBTA relies upon the Lease Agreement and the obligations stemming from that agreement to
lodge its equitable claims and thus has not adequately alleged a breach that warrants equitable
relief. D. 26 at 9-10.
As the MBTA asserts, D. 28 at 16, 18-19, Fed. R. Civ. P. 8(d)(2) allows parties to plead
claims in the alternative. Likewise, Illinois law allows a plaintiff to plead claims for breach of
contract and equitable claims in the alternative. See Guinn v. Hoskins Chevrolet, 361 Ill. App. 3d
575, 604 (2005). Although perhaps imperfectly pled, see id., the MBTA acknowledges that its
counterclaims are in the alternative. D. 28 at 16, 18-19. Given this representation in conjunction
with applicable state law, the Court will allow these counterclaims to go forward.
Rail World additionally asserts that the unjust enrichment claim cannot stand as an
independent cause of action under Illinois law. D. 26 at 9. Illinois courts consider theories of
unjust enrichment and quantum meruit “generally synonymous causes of action,” Oncology
Therapeutics Network Joint Venture, L.P. v. Olympia Fields Internal Med. Assocs., S.C. (Inc.),
No. 01-cv-2079, 2003 WL 21087954, at *4–5 (N.D. Ill. May 13, 2003), amended, 2003 WL

8

22706845 (N.D. Ill. Nov. 14, 2003) (citation omitted), where “Illinois employs an almost identical
standard to test whether a plaintiff states a cause of action” for the two, Johnson v. Gudmundsson,
35 F.3d 1104, 1114 (7th Cir. 1994). Although there is lack of clarity among the lower courts in
Illinois as to whether unjust enrichment can lie as an independent cause of action when
unconnected from some underlying claim, the Illinois Supreme Court has previously recognized
unjust enrichment as an independent cause of action. See Cleary v. Philip Morris Inc., 656 F.3d
511, 516 (7th Cir. 2011) (citing Raintree Homes, Inc. v. Vill. of Long Grove, 209 Ill. 2d 2487, 257
(2004); Indep. Voters v. Ill. Commerce Comm’n, 117 Ill. 2d 90, 109 (1987)); GlaxoSmithKline
Biologicals, S.A. v. Hospira Worldwide, Inc., No. 13-cv-4346, 2016 WL 5720384, at *10 (N.D.
Ill. Sept. 30, 2016). For this reason, the Court does not grant dismissal of the unjust enrichment
counterclaim based upon this argument.
For all of these reasons, the Court DENIES the motion to dismiss Counts IV, V and VII.
D.

The Court Denies Rail World’s Motion to Dismiss the MBTA’s Breach of
Contract
Counterclaim
(Count
II)
1.

The MBTA Has Adequately Pled that Rail World Is Liable for Breach of
Section 7 of the Lease Agreement

Rail World also argues that the MBTA’s breach of contract claim cannot survive. It asserts
that the basis for the MBTA’s breach of contract counterclaim is founded upon the incorrect
premise that Rail World is obligated to credit, refund or pay the $204,750 deposit to the MBTA.
D. 26 at 5-8.
To allege a colorable breach of contract claim under Illinois law, a plaintiff must assert:
“(1) the existence of a valid and enforceable contract; (2) substantial performance by the plaintiff;
(3) a breach by the defendant; and (4) resultant damages.” W.W. Vincent & Co. v. First Colony
Life Ins. Co., 814 N.E.2d 960, 967 (Ill. App. 2004). The Court must “construe contracts by giving
9

their unambiguous terms clear and ordinary meaning in an effort to determine the parties’ intent.”
Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 764 (7th Cir. 2010), as amended (Dec. 16,
2010) (internal citations omitted).
First, the MBTA has alleged the existence of a written lease between the parties as well as
the terms of that lease and Rail World does not dispute the same. That is, the parties agree that the
Lease provided that “[t]hree month’s advance deposit for seven (7) [l]ocomotives in the amount
of [$204,750] is due to secure the [l]ocomotives.” D. 26-1 at 3. That provision further provides
that “[t]he deposit will be held and credited at the end of the lease or any lease extension.” Id. In
addition, the counterclaim alleges—and Rail World has raised no contention—that the MBTA paid
this deposit at the start of the Lease. D. 17 at 11 ¶ 18. Instead, the dispute between the parties
arises as to whether Rail World remains liable for the MBTA never receiving a credit or refund
for the previously submitted deposit.
Here, Rail World first contends that the MBTA has not adequately pled that Rail World
breached the Lease as Rail World was not obligated to credit the MBTA at the end of the Lease
because it assigned the Lease Agreement to RTSC. D. 26 at 5-6. As alleged and as shown in the
purchase and sale agreements, Rail World assigned the lease to RTSC. D. 17 at 11 ¶ 20. The
purchase and sale agreements provide that, RTSC “fully assumes and becomes liable for, and [Rail
World] is hereby released from and ceases to have any responsibility for any and all liabilities
relating to or connected with the [locomotives] arising after the Closing Date” provided that Rail
World “agrees to indemnify, defend and save harmless [RTSC] . . . from and against any and all
costs, expenses, losses, taxes, penalties, damages, claims actions or other liabilities . . . relating to
. . . (i) any breach by [Rail World] of any of its agreements, representations, warranties or

10

covenants contained in this Agreement or any agreements collateral thereto.” D. 26-2 at 4; D. 263 at 5.
In response, the MBTA first argues that Rail World did not expressly assign RTSC with
the specific obligation to credit or pay the $204,750 deposit to the MBTA such that Rail World
cannot argue that it is free from liability. D. 28 at 9-11, 11 n.4. Under Illinois law, “[a]n assignee
does not become liable on an executory contract of the assignor unless by his contract he assumes
such liability.” Quest v. Robertson, 71 Ill. App. 3d 678, 681 (1979). That is, “an assignee’s
acceptance of an assignment of a contract, without any express assumption of the obligation of the
contract, does not bind the assignee merely because the contract provided that it was binding upon
the assigns of the respective parties.” Id. Under Illinois law, this is considered a “naked
assignment.” Id. Conversely, “an assignment which is not ‘naked’—i.e., one by which the
assignee accepts obligations to perform duties under the contract”—may expose an assignee to
liability under the contract. Pelz v. Streator Nat. Bank, 145 Ill. App. 3d 946, 952 (1986). In this
case, the assignments to RTSC were not naked. That is, RTSC expressly undertook the obligations
due under the Lease Agreement when RTSC “fully assume[d] and [became] liable for . . . any
responsibility for any and all liabilities relating to or connected with the [locomotives] arising after
the Closing Date.” D. 26-2 at 4; D. 26-3 at 5. Unlike Quest v. Robertson, where neither of the
pertinent documents contained any express language to indicate that assignees were assuming the
underlying obligations, Quest, 71 Ill. App. 3d at 680-81, the language here provides that RTSC
assumes all arising liabilities, D. 26-2 at 4; D. 26-3 at 5. Thus, as Rail World asserts, there may
have been no need to single out or specify the obligation as to the advance deposit because Rail
World assigned all of its liabilities to RTSC. D. 34-1 at 4.

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The MBTA next asserts that Rail World’s contention it is entitled to dismissal pursuant to
the assignment to RTSC when the MBTA was not a party to and had no involvement in the
assignment is untenable. D. 28 at 9. Even if a party is free to assign its rights and responsibilities
under a contract, “the effect of that assignment would ordinarily make both parties [the assignor
and the assignee] liable on the contracts.” Grabianski v. Bally Total Fitness Holding Corp., 891
F. Supp. 2d 1036, 1044 n.4 (N.D. Ill. 2012); see Prime Northgate Plaza Ltd. P’ship v. Lifecare
Acquisitions Corp., 985 F. Supp. 815, 817-18 (N.D. Ill. 1997); Gen. Elec. Railcar Leasing Servs.
Corp. v. Carlson Mktg. Grp., Inc., No. 91 C 5345, 1992 WL 14175 (N.D. Ill. Jan. 16, 1992).
Applying this rule here, even accepting that Rail World assigned the entirety of the obligations
under the Lease to RTSC, this does not eliminate all of Rail World’s potential liability. Thus, even
though Rail World argues that it cannot be liable to the MBTA because it was no longer the lessor
of the locomotives at the end of the Lease and it had assigned that right to RTSC, D. 26 at 6-8, the
fact that there was a valid assignment does not absolve Rail World from all potential liability
arising from a breach of the contract.
2.

The MBTA Has Sufficiently Pled That Rail World Breached Section 14 of
the Lease Agreement

In its counterclaim, the MBTA asserts a breach of contract cause of action for Rail World’s
failure to adhere to Section 14 of the Lease Agreement. D. 17 at 11, 14 ¶¶ 19, 22, 41. Section 14
of the Lease Agreement states that “the Lessor shall provide or cause to be provided to Lessee
written notification ten (10) days prior to any such assignment.” Id. at 11 ¶ 19; D. 26-1 at 7. In
its counterclaim, the MBTA alleges that Rail World failed to provide the MBTA with written
notification ten or more days prior to assigning the Lease Agreement to RTSC via the purchase
and sale of the leased locomotives. D. 17 at 11 ¶ 22. Although Rail World moves to dismiss the
entirety of the MBTA’s breach of contract count, D. 26 at 5-8, Rail World makes no argument as
12

to the insufficiency of this claim, D. 26; D. 34-1. Instead, Rail World’s motion to dismiss appears
to support the MBTA’s factual assertions: Rail World states that it entered into a purchase and
sale agreement with RTSC in which RTSC owned all of the locomotives subject to the Lease
Agreement with the MBTA by August 25, 2015, D. 26 at 3 (citing attached exhibits), but that it
was not until September 18, 2015 that Rail World and RTSC jointly notified MBTA of the
assignment. Id.
3.

The MBTA Has Adequately Pled that Rail World Breached the Implied
Covenant of Good Faith and Fair Dealing

As explained above, pursuant to Illinois law, the Court considers the MBTA’s claim for
breach of the implied covenant of good faith and fair dealing as one basis for its breach of contract
claim. See LaSalle Bank, 588 F. Supp. 2d at 853; Playboy Enters., 2011 WL 3839711, at *2-3.
“An obligation to deal in good faith is implied in all Illinois contracts.” LaScola, 946 F.2d
at 565. The duty of good faith and fair dealing imposes a limit on the exercise of discretion by
requiring a party vested with such discretion to exercise it in a reasonable manner consistent with
the parties’ reasonable expectations. LaSalle Bank, 588 F. Supp. 2d at 857; Fox, 313 Ill. App. 3d
at 42-43.
As stated in its counterclaim, the MBTA contends that Rail World breached the implied
covenant by failing to credit, refund or pay the deposit back to the MBTA after providing the
reasonable expectation that it would do so. D. 17 at 14 ¶¶ 43-47. These allegations state a
plausible, alternative basis for the breach of contract claim premised on a breach of the implied
covenant of good faith and fair dealing.
For all of the foregoing reasons, the Court DENIES the motion to dismiss Count II.
E.

The Court Denies Dismissal as to the MBTA’s Declaratory Judgment
Counterclaim (Count I)

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As to the declaratory judgment counterclaim brought by the MBTA, Rail World claims it
has no liability to the MBTA because it was no longer the lessor at the end of the Lease’s term.
See D. 26 at 7 n.7. As explained above, however, Rail World has not shown that, as a matter of
law, it is not liable to the MBTA due to the assignment. Because Rail World uses this same line
of reasoning to advance its argument for dismissal of the declaratory judgment counterclaim, the
Court DENIES Rail World’s motion as to this claim.
F.

The Court Dismisses the MBTA’s Conversion Counterclaim (Count VI)

Rail World asserts that the MBTA’s conversion counterclaim must be dismissed. D. 26 at
7 n.7. To plead a claim for conversion in Illinois, a plaintiff must demonstrate that “(1) he has a
right to the property; (2) he has an absolute and unconditional right to the immediate possession
of the property; (3) he made a demand for possession; and (4) the defendant wrongfully and
without authorization assumed control, dominion, or ownership over the property.” Cirrincione v.
Johnson, 184 Ill. 2d 109, 114 (1998) (citing W. States Ins. Co. v. Louis E. Olivero & Assoc., 283
Ill.App.3d 307, 310 (1996)).
Rail World argues for dismissal upon the basis that the advanced deposit under the Lease
was not a specified res but instead a sum of money that was required to be credited toward rent at
the Lease’s end; Rail World asserts that this renders the MBTA’s allegations deficient for pleading
a conversion claim. D. 28 at 7 n.7. “Under Illinois law, the subject of a conversion claim must be
an identifiable object of property.” Song, 640 F. Supp. 2d at 1017. Money or funds can qualify
as an identifiable item of property if said money is “capable of being described as a specific
chattel” and if “the money claimed belonged to [the counterclaimant] at all times and that [the
counterclaim defendant] converted the money to its own use.” Id. (citations omitted). The money
does not need to be specifically earmarked to qualify but cannot be an indeterminate sum, Roderick

14

Dev. Inv. Co. v. Cmty. Bank of Edgewater, 282 Ill. App. 3d 1052, 1058–59 (1996), or some kind
of general debt or obligation, Nat’l Acc. Ins. Underwriters, Inc. v. Citibank, F.S.B., 533 F. Supp.
2d 784, 787 (N.D. Ill. 2007).
Here, the MBTA identifies a specified sum of money that is capable of being connected to
something tangible (the advance deposit in the amount of $204,750 provided at the start of the
Lease); however, the MBTA fails to allege facts that “the money claimed belonged to the
[counterclaimant] at all times,” Song, 640 F. Supp. 2d. at 1017, because here the allegations assert
that the sum was once in Rail World’s lawful possession. D. 17 at 16 ¶¶ 60-63. Moreover, “an
action for the conversion of funds may not be maintained to satisfy a mere obligation to pay
money,” In re Thebus, 108 Ill. 2d at 260; VW Credit, Inc. v. Friedman & Wexler, LLC, No. 09cv-2832, 2010 WL 2330364, at *3 (N.D. Ill. June 7, 2010), and the MBTA has not explained how
the allegations amount to more than such obligation. In sum, the allegations amount to the MBTA
asserting that it is owed $204,750, which was once lawfully in the possession of Rail World but is
now due back to the MBTA under the terms of the Lease Agreement. D. 17 at 16 ¶¶ 60-63. At
base, this is a “breach of contract claim improperly dressed as a conversion claim.” Song, 640 F.
Supp. 2d at 1017. The Court thus dismisses the MBTA’s conversion counterclaim.
VI.

Conclusion
For the foregoing reasons, the Court GRANTS in part and DENIES in part Rail World’s

motion to dismiss the MBTA’s counterclaims, D. 26. Accordingly, the counterclaims for breach
of the implied covenant of good faith and fair dealing (Count III) and conversion (Count VI) are
dismissed, but the other counterclaims may proceed.
So Ordered.
/s/ Denise J. Casper
United States District Judge
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