Alliance Laundry Systems LLC v. Eaton Corporation

Filing 16

ORDER signed by Judge J P Stadtmueller on 10/21/13: denying as moot #5 Defendant's Motion to Dismiss; granting in part and denying in part #10 Defendant's Motion to Dismiss; and, dismissing Claim II from #7 Plaintiff's Amended Complaint. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
ALLIANCE LAUNDRY SYSTEMS LLC,
Plaintiff,
v.

Case No. 13-CV-687-JPS

EATON CORPORATION,

ORDER
Defendant.
In June of this year, plaintiff Alliance Laundry Systems (“Alliance”)
initiated this lawsuit against defendant Eaton Corporation (“Eaton”).
(Docket #1). Alliance has since filed an amended complaint. (Docket #7).
Presently before the court is Eaton’s motion to dismiss Alliance’s amended
complaint. (Docket #10). The motion is fully briefed and ready for
adjudication.
1.

Background Facts
1.1

Corporate Transactions

In 1979, McGraw-Edison Company (“McGraw-Edison”) and Raytheon
Company (“Raytheon”) executed an Asset Purchase Agreement (“1979
Agreement”) whereby McGraw-Edison sold its Laundry Products and
Kitchen Appliance Divisions to Raytheon. (Am. Compl. ¶ 15). The 1979
Agreement provides that McGraw-Edison retains responsibility for “all
liabilities with respect to any claim for damages on account of alleged or
actual injury to person or property allegedly or actually resulting from the
possession or use of any products manufactured or sold by the Divisions”
“with respect to claims made for any such injury or loss occurring, or
allegedly occurring through [October 31, 1979].” (Docket #7-2 ¶ 7.7). The 1979
Agreement further obligated McGraw-Edison to “maintain in full force and

effect, all of the insurance, as in effect on June 30, 1979, on the assets,
property, and business of the Divisions, and for protection against any
liabilities of or claims against the Divisions, through [October 31, 1979].”
(Docket #7-2 ¶ 7.7). The 1979 Agreement also states that Raytheon does not
assume any of the “liabilities and obligations for which McGraw-Edison or
the Divisions for which McGraw-Edison is entitled to be reimbursed,
indemnified, or otherwise protected, in whole or in part, by insurance
underwritten by unrelated third party insurance carriers[.]” (Docket #7-2
¶ 2.2(g)).
Several corporate transactions have occurred since the 1979
Agreement. First, in 1985, Cooper Industries plc (“Cooper”)1 purchased
McGraw-Edison, thereby assuming McGraw-Edison’s contractual rights and
obligations to Raytheon. (Am. Compl. ¶ 15). In 1998, Alliance acquired
Raytheon’s commercial laundry business, thereby assuming Raytheon’s
contractual rights and obligations to Cooper. (Am. Compl. ¶ 16). Finally,
sometime before May 21, 2012, Eaton acquired Cooper. (Am. Compl. ¶ 19).
In a November 30, 2012 statement, Eaton stated that the transaction,
announced on May 21, 2012, “combines Eaton and Cooper into a new,
premier global power management company named Eaton Corporation plc.”
(Am. Compl. ¶ 19).

1

The parties acknowledge the existence of tens of Cooper-named
subsidiaries under Eaton. See e.g. Eaton Corporation plc 2012 Annual Report on
Form 10-K (Docket #12-4). Throughout this order the court refers to the entities as
the parties do, with the understanding that references to “Cooper” may be
imprecise at this early stage in the proceedings.

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1.2

The Florida State Court Action

In August 2012, Julius D. Sanders (“Sanders”) and his spouse filed a
Third Amended Complaint against Alliance, as a successor in interest to
Speed Queen, and fifteen other defendants. (Docket #7-1). In the complaint,
it is alleged that Sanders repaired commercial washers and dryers from the
1950s through sometime in the 1980s, and that he contracted mesothelioma
as a result of exposure to asbestos from a variety of products he came into
contact with, including, allegedly, commercial dryers manufactured by
Speed Queen.
On November 14, 2012, Alliance, through its Vice President, Chief
Legal Officer, and Secretary, Scott L. Spiller (“Spiller”), demanded in writing
that Cooper assume all defense and indemnification obligations relating to
the Florida State Court Action. (Docket #7-1). On January 29, 2013, Cooper,
through Senior Counsel Mindy Harper (“Harper”), agreed “to assume the
defense and pay the indemnity (if any) only with respect to allegations
of exposure through October 31, 1979....” (Docket #7-4). Cooper engaged
the law firm of Fowler White Burnett, PA (“Fowler White”) to defend
against those claims. (Am. Compl. ¶ 24). The Florida State Court Action was
scheduled for a three-week jury trial commencing on June 13, 2013. (Am.
Compl. ¶ 24).
On June 11, 2013, Harper sent Spiller a letter regarding the Florida
State Court Action, stating that “[a]fter additional review and investigation,
[Cooper] denies your request to defend and indemnify [Alliance] in this
matter.” (Docket #7-5). The reason given is that Alliance is not a named party
to the 1979 Agreement and Cooper did not consent to assignment, as the 1979
Agreement requires. The letter states, “Cooper therefore will not continue

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defending Alliance in this matter, and its counsel will withdraw
immediately.” The letter is written on Eaton letterhead.
Spiller responded by letter on June 12, 2013, stating “Alliance hereby
rejects Cooper Industries’ attempted revocation of the tender acceptance,
agreement to defend and indemnify Alliance and all statements contained in
your June 11, 2013 letter.” (Docket #7-6). By e-mail June 12, 2013, Alliance’s
outside counsel was informed by Jennifer L. Green of DeHay & Elliston, LLP2
that Cooper determined it has no obligation with respect to the Florida State
Court Action, and that “Alliance should take whatever steps it believes it
should take to defend this case.” (Docket #7-7).
On June 13, 2013, jury selection began with Alliance (represented by
Fowler White) and one other defendant remaining in the case. (Am. Compl.
¶ 37). Opening statements commenced June 17, 2013, and that afternoon the
other remaining defendant settled. (Am. Compl. ¶ 37). Alliance, through
separate counsel, began direct settlement negotiations with the Sanders’
counsel; on June 21, 2013, a settlement was reached. (Am. Compl. ¶ 37).
1.3

Federal Litigation

Alliance filed its first complaint in this matter on June 16, 2013.
(Docket #1). Eaton moved to dismiss, alleging a failure to plead facts
establishing diversity jurisdiction.3 (Docket #5). Alliance filed its amended
complaint on July 26, 2013. (Docket #7). Eaton moved to dismiss the amended
complaint, which motion is currently before the court. (Docket #10).

2

The Amended Complaint refers to Ms. Green as “Eaton’s and/or Cooper’s
counsel.”
3

This motion will be denied as moot, as it seeks dismissal of the original
complaint which has been superceded by the amended complaint.

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Eaton’s motion proceeds as follows: first, Eaton maintains that the
complaint fails to state a claim because it fails to plead actions by Eaton. The
crux of Eaton’s argument is that the proper defendant to this action is
Cooper, Eaton’s wholly-owned subsidiary. Second, Eaton argues that it is
entitled to dismissal of each count of the complaint as a matter of law.
2.

Legal Standards
Eaton brings this motion to dismiss under Federal Civil Rule of

Procedure 12(b)(6). A motion to dismiss under Rule 12(b)(6) challenges the
sufficiency of the plaintiff’s complaint by asserting that the plaintiff failed to
state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6).
To survive a motion to dismiss under Rule 12(b)(6), Alliance’s complaint
must allege facts sufficient to “state a claim for relief that is plausible on its
face.” Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir. 2009) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The court construes the complaint
in the light most favorable to the plaintiff, accepts as true all well-pleaded
facts alleged, and draws all possible inferences in the plaintiff’s favor. Tamayo
v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
3.

Analysis
3.1

Eaton As Defendant

Eaton’s first argument in support of dismissal is that Alliance’s
amended complaint fails to state a claim because Eaton is neither a party to
the 1979 Agreement, nor a successor-in-interest to McGraw-Edison, the
contracting party. (Brief in Support at 9). Eaton further argues that none of
the conduct of which Alliance complains is Eaton’s; rather, Eaton argues,
the proper defendant is Cooper, Eaton’s wholly-owned subsidiary. (Brief
in Support at 9-10). In response, Alliance maintains that the allegations in
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the amended complaint are sufficient to satisfy notice pleading requirements.
(Response Brief at 9). More specifically, Alliance hangs its hat on
two allegations: first, the allegation that Eaton assumed Cooper’s and
McGraw-Edison’s obligations under the 1979 Agreement as a result of the
announced merger; and, second, the fact that the June 11, 2012 letter denying
indemnification was sent on Eaton letterhead. (Response Brief at 12).
To survive a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), a plaintiff must plead sufficient facts to state a claim for relief that
is “plausible on its face.” Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when
the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.”
Id.
Here, the “misconduct” Alliance alleges is the refusal to defend
and indemnify Alliance in the Florida State Court Action. The court
concludes that, at this early stage in the litigation, Alliance’s claim that Eaton
is responsible for this alleged misconduct is “plausible on its face.” Alliance
has shown that the communication declining to defend Alliance was written
on Eaton letterhead, indicating that Eaton may be responsible for that action.
Further, Alliance’s claims that Eaton assumed obligations under the 1979
Agreement are plausible, given that the communication discussing the
obligations under the 1979 Agreement appears on Eaton letterhead, and
given the press release that Eaton’s acquisition of Cooper “combines Eaton
and Cooper into a new, premier global power management company named
Eaton Corporation plc.” (Docket #7-3). Obviously, this press release is not
written with legal precision, but without the benefit of discovery, Alliance’s

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assertion that the companies had merged and that Eaton assumed
responsibilities of the 1979 Agreement are plausible.
Ultimate liability may not, in the end, fall on Eaton. And Eaton’s
corporate structure will, of course, be given its due in the adjudication of this
litigation on the merits. But the question of which Eaton corporate entity is
the true successor to the 1979 Agreement and the question of the adequacy
of Alliance’s pleading are different inquiries. Moving forward, the parties are
encouraged to communicate and cooperate in identifying the parties to the
relevant corporate transactions, and the court is confident that, if the
defendant to this case must be edited following further discovery, the Federal
Rules of Civil Procedure provide adequate avenues to make any necessary
changes.
3.2

Failure to State a Claim as a Matter of Law
3.2.1

Count I: Breach of Contract

The court turns now to the portion of Eaton’s motion to dismiss
addressing each count of Alliance’s complaint. Eaton first argues that the
1979 Agreement does not impose a duty to defend or indemnify; in Eaton’s
view, the 1979 Agreement merely reflects a division of responsibilities for
potential liability. Brief in Support at 14. Alliance maintains that the parties
intended the invoked section of the 1979 Agreement to ensure
indemnification, citing the section’s language and the requirement that
McGraw-Edison maintain insurance. Response at 15-17.
Eaton also argues that the parties’ letters regarding defense of the
Florida State Court Action did not create a contract. Brief in Support at 15.
Eaton maintains that the parties’ communications did not evince mirrorimage terms, as is required in contract formation. Brief in Support at 16.

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Eaton further argues that Alliance’s argument is inconsistent because
Alliance argues that a duty to defend existed from the 1979 Agreement, and
therefore there could be no consideration for any contract based upon the
parties’ exchange of letters in 2013. Brief in Support at 17-18. Alliance
responds that its claims are sufficient to withstand a 12(b)(6) motion.
Response at 18. Alliance acknowledges that the facts may eventually show
that the January 2013 letter may legally constitute a counter-offer instead of
an acceptance; but either way, Alliance maintains that its allegations “raise
a right to relief above the speculative level,” and are, therefore, adequate at
this stage in the proceedings. Response at 19 (quoting Twombly, 550 U.S. at
555).
The court concludes that Count I of Alliance’s complaint is sufficient
to defeat a 12(b)(6) motion. The parties agree that Delaware law governs the
substance of the breach of contract claim under the 1979 Agreement, due to
the 1979 Agreement’s choice of law provision. (Brief in Support at 8 n.5;
Response at 14). The elements of a breach of contract claim under Delaware
law are: “the existence of a contract, the breach of an obligation imposed by
that contract, and the resultant damage.” VLIW Tech., LLC v. Hewlitt-Packard
Co., 840 A.2d 606, 612 (Del. 2003).The parties’ briefing focuses primarily on
the first element: the existence of a contract. Construing all pleaded facts in
Alliance’s favor, it is at least plausible that a contractual obligation to defend
existed. The 1979 Agreement provides that McGraw-Edison is responsible for
certain liabilities, and requires McGraw-Edison to maintain insurance for
protection against claims upon those liabilities; it is at least plausible to read
those two provisions as evincing intent that McGraw-Edison (and successors)

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must indemnify Raytheon (and successors) against claims relating to those
liabilities.
Alternatively, if further factual development disproves this reading
of the 1979 Agreement, it remains plausible that the parties’ communication
regarding defense of the Florida State Court Action constituted a contract for
Alliance’s defense. Eaton’s argument that this theory is inconsistent with
Alliance’s theory of liability under the 1979 Agreement does not warrant
dismissal; parties may plead alternative theories of liability. See Fed. R. Civ.
P. 8(e)(2) (“A party may set forth two or more statements of a claim or
defense alternately or hypothetically, either in one count or defense or in
separate counts or defenses.”). Eaton’s second argument regarding the
mirror-image rule is similarly unsuccessful; as Alliance argues, Eaton’s
January 2013 letter may be construed as a counter-offer which was, in turn,
accepted by Alliance. The facts alleged in the complaint, construed in
Alliance’s favor, show that it is plausible that the parties negotiated
regarding the scope of the defense and then conducted themselves as if they
had an agreement for Alliance’s defense, at least until two days before trial
was to start. Alliance has pleaded sufficient facts to show that relief is
plausible under this theory.
Whether the facts ultimately show that the 1979 Agreement bound
Eaton to defend Alliance, or that the parties formed a contract in their
exchange of letters about the defense, or neither, Alliance has pleaded the
existence of a contract, that Eaton had an obligation to defend, and that Eaton
injured Alliance when it failed to satisfy its obligation. Alliance’s allegations
“raise a right to relief above the speculative level,” Twombly, 550 U.S. at 555,
and the court will not dismiss Count I at this early juncture.

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3.2.2

Count II: Breach of the Implied Duty of Good Faith
and Fair Dealing

Eaton next contends that Count II fails because a plaintiff cannot claim
breach of an implied contractual provision where an express contractual
provision addresses the issue. Brief in Support at 18. Alliance responds that
“there is no contractual provision in either agreement at issue expressly
addressing the issue of Eaton’s obligations to act in good faith in connection
with its obligation to defend and indemnify Alliance.” Response at 20.
With Alliance’s response, it appears to the court that Count II is
founded on Alliance’s allegations of breach of the obligation to defend and
indemnify. There is some dispute regarding the choice of law that should
apply to this count, but the court concludes dismissal is warranted under
either, or both Wisconsin and Delaware law. Under Wisconsin law an
implied covenant “does not support an independent cause of action for
failure to act in good faith under a contract,” Hauer v. Union State Bank of
Wautoma, 532 N.W.2d 456, 464 (Wis. Ct. App. 1995), and under Delaware law
“the implied covenant of good faith and fair dealing is recognized only
where a contract is silent to the issue in dispute.” Boulden v. Albiorix, Inc.,
C.A. No. 7051-VCN, 2013 WL 396254 (De. Ch. Jan. 31, 2013). As Alliance’s
response states, Count II is founded on Eaton’s alleged acts of bad faith “in
connection with its obligation to defend and indemnify Alliance.” The court
concludes that this count is derivative of the allegations of breach in Count
I, and thus an independent cause of action does not lie.
Both parties cite the Boulden case, and it warrants brief discussion. In
his complaint in that case, plaintiff Boulden brought claims for breach of
contract and for breach of the covenant of good faith and fair dealing, among

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other claims. Id. at *1. As part of their motion to dismiss, defendants argued
that the implied covenant claim should be dismissed as duplicative of the
breach claim; Boulden responded that the implied covenant claim is based
upon the defendants’ unreasonable conduct after the formation of their
contract. Id. at *14-15. The court dismissed the implied covenant claim,
reasoning that Boulden had not made any specific allegations showing
defendants’ conduct to be unreasonable; the allegations he made to support
the implied covenant claim failed “to distinguish Boulden’s breach of
contract claim from his implied covenant claim because the breach is the
same.” Id. at *15. The court explained, “there is no legal difference between
breaches of contract made in bad faith and breaches of contract not made in
bad faith. Both are simply breaches of the express terms of the contract.” Id.
(citation omitted). Similarly here, the facts asserted in Alliance’s complaint
in support of Claim II are the same facts Alliance asserts to constitute breach
of contract in Claim I: that Eaton reneged on its defense and indemnity
obligations less than two days before trial, withdrew settlement authority
from counsel, and refused to supervise the Florida State Court Action.
Alliance’s claim of breach of the implied duty of good faith and fair dealing
thus appears to be premised on Eaton’s breach of contract; Claim II will be
dismissed, and any relief available to Alliance will be had under Claim I.
3.2.3

Count III: Promissory Estoppel

Eaton next contends that the promissory estoppel claim fails as a
matter of law due to a pleading error: Alliance incorporated facts asserting
the existence of an express contract into this count, and the existence of a
contract precludes a claim for promissory estoppel. Brief in Support at 18.
Alliance responds that pleading in the alternative is permitted, and that the
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promissory estoppel claim is particularly appropriate here, where Eaton may
contest the existence and validity of the pleaded contract. Response at 22-23.
Alliance further argues the court should not dismiss the claim due to its
incorporation of facts asserting the express contracts because such a dismissal
would be without prejudice to re-filing, and Alliance would simply file an
amended complaint stating a claim for promissory estoppel without
incorporating those facts. Response at 22-23.
The court will not dismiss Alliance’s claim for promissory estoppel at
this time, for two reasons. First, it is true that dismissal at this juncture would
merely result in a re-do, as Alliance could simply file another amended
complaint omitting the incorporation of facts asserting the existence of an
express contract. The court is eager to assist the parties in an expeditious
resolution of their conflict, and sees dismissal followed by inevitable re-filing
as an unnecessary obstacle to that resolution. Second, in contrast to the case
cited by both parties, Harley Marine Services, Inc. v. Manitowoc Marine Group,
LLC, here the existence of a contract is very much in dispute. In that case, my
colleague Chief Judge William Griesbach dismissed plaintiffs’ claims for
equitable relief because the parties did not dispute the existence or validity
of the underlying contract, so relief would be had under the contract. 759
F.Supp.2d 1059, 1063 (E.D. Wis. 2010) Here, the facts may show that no
contract exists under either of Alliance’s theories under Claim I; in that case,
Alliance’s claim for equitable relief will become its principal claim for relief.
Given the prospective validity of the claim, and the fact that dismissal would
just yield re-filing to cure the pleading mistake, the court will not dismiss
Alliance’s promissory estoppel claim.

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3.2.4

Count IV: Declaratory Judgment

Finally, Eaton argues that Count IV, seeking a declaratory judgment,
must fail because it is derivative of Counts I-III. Brief in Support at 19.
Because the court will not dismiss Counts I and III, the premise to Eaton’s
argument is invalid, and the court will permit Count IV to proceed.
Accordingly,
IT IS ORDERED that Eaton’s motion to dismiss (Docket #5) be and
the same is hereby DENIED as moot;
IT IS FURTHER ORDERED that Eaton’s motion to dismiss (Docket
#10) be and the same is hereby GRANTED in part and DENIED in part; and
IT IS FURTHER ORDERED that Claim II from Alliance’s amended
complaint (Docket #7) be and the same is hereby DISMISSED.
Dated at Milwaukee, Wisconsin, this 21st day of October 21, 2013.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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