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ADAMS LABORATORIES, INC. v. JACOBS ENGINEERING CO.

January 16, 1980

ADAMS LABORATORIES, INC., PLAINTIFF,
v.
JACOBS ENGINEERING COMPANY AND PENNWALT CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Aspen, District Judge.

  MEMORANDUM OPINION AND ORDER

This action arises from the alleged misconduct of the defendants in the construction of a custom-built chemical plant for plaintiff Adams Laboratories. Counts I, III, and IV allege that defendants improperly induced the plaintiff to enter into the construction contract, setting forth the alternative theories of fraudulent, negligent, and innocent misrepresentation. Count II alleges negligence on the part of the defendants in the construction of the chemical plant. Counts V through IX seek damages for alleged breaches of the contract between Jacobs and Adams.

Defendant Jacobs has moved for summary judgment on two grounds. First, Jacobs asserts that there are no material issues now in dispute, and that as a matter of law it is entitled to judgment. Second, Jacobs argues that because Adams entered into an agreement to dismiss the litigation as to Pennwalt without an express reservation of its right to proceed against Jacobs, Adams has forfeited its cause of action against Jacobs.*fn1

The Seventh Circuit has observed that "[w]ith the ever increasing burden upon the judiciary, persuasive reasons exist for the utilization of summary judgment procedure whenever appropriate." Kirk v. Home Indemnity Co., 431 F.2d 554, 560 (7th Cir. 1970). Nonetheless, it is not within the province of the Court to resolve issues of disputed fact in a trial by affidavit. Moutoux v. Gulling Auto Electric, Inc., 295 F.2d 573, 576 (7th Cir. 1961). The basic mission of the summary judgment procedure is to allow the Court to determine whether there are any factual disputes which require resolution by trial. "[The] party moving for summary judgment has the burden of clearly establishing the non-existence of any genuine issue of fact that is material to a judgment in his favor." Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir. 1979). Any doubts as to the existence of material issues of fact must be resolved against the moving party. Moutoux, 295 F.2d at 576. It is in light of these governing principles that the Court must assess Jacobs' motions for summary judgment.

The Misrepresentation Claims

In Counts I, III, and IV, Adams alleges that it was induced to enter into the contractual relationship with Jacobs on the basis of Jacobs' misrepresentations as to its qualifications and expertise. Specifically, Adams alleges that Jacobs claimed to have fifty years of experience in designing the type of chemical plant desired by Adams, and that it had successfully designed several such plants at locations throughout the world. In addition, Adams asserts that Jacobs represented that a particular site was appropriate for construction of the plant and that the proposed plant would cause no environmental problems. Adams claims that these representations were false when made, and that its assent to the contract therefore was improperly induced.

Illinois law clearly recognizes a cause of action for misrepresentations which induce a party to enter into a contractual relationship which he otherwise would have foregone. Eisenberg v. Goldstein, 29 Ill.2d 617, 195 N.E.2d 184, 186, cert. denied, 377 U.S. 964, 84 S.Ct. 1645, 12 L.Ed.2d 735 (1964). This is the case irrespective of whether the misrepresentation is fraudulent. Lake City Corp. v. Michigan Avenue National Bank of Chicago, 33 Ill.App.3d 100, 337 N.E.2d 251, 255 (1st Dist. 1975). Jacobs, however, argues that Adams waived its misrepresentation claims by continuing to adhere to the contractual relationship between the parties even after it learned of the alleged misrepresentation. Eisenberg, 195 N.E.2d at 186-187; Bulley & Andrews, Inc. v. Symons Corp., 25 Ill.App.3d 696, 323 N.E.2d 806, 811 (1st Dist. 1975).

The essential premise of this argument is that Adams learned of the alleged misrepresentations by early 1975, prior to the time at which Adams sought Jacobs' assistance in attempting to remedy the deficiencies in the chemical plant. This premise is based on the assumption that because Adams knew and complained of deficiencies in the performance of the plant, it also knew of the misrepresentations as to Jacobs' qualifications and expertise with respect to the construction of such a plant.*fn2 In Eisenberg, the plaintiffs alleged that the defendant had induced their contractual relationship by misrepresenting the condition of the building that was the subject of the contract. In that case, the court held that upon taking possession of the building and learning of the numerous building code violations, the plaintiffs should have been aware that the building was not in "first rate physical condition" as had been claimed by the defendant. Id., 195 N.E.2d at 186. Similarly, in Symons Corp., the defendant allegedly had induced plaintiff's agreement to a contract by misrepresenting the true cost of a particular concrete forming process. The court observed that once the plaintiff became aware of the true cost of the process, it could be charged with awareness of any alleged misrepresentation. Id., 323 N.E.2d at 811.

Eisenberg and Symons Corp., however, are distinguishable. In the instant case, the relationship between the alleged misrepresentation as to qualifications and the deficiencies in the plant's performance is less direct. As a result, plaintiff's dissatisfaction with the performance of the plant does not necessarily suggest awareness of the alleged misrepresentations as to Jacobs' expertise and qualifications. The Court concludes that Jacobs has failed to satisfy its burden of establishing the nonexistence of dispute as to the critical factual issue of when Adams learned of the alleged misrepresentations. Accordingly, its motion for summary judgment as to Counts I, III, and IV is denied.*fn3

The Negligence Claims

In Count II, Adams seeks to recover damages for Jacobs' alleged negligence in the construction of the chemical plant. According to the plaintiff, the chemical plant built by Jacobs was to convert raw soapstock into specified quantities of fatty acids, glycerin, and inorganic salts by a process called saponification and acidulation. Due to the alleged negligence in the design of the plant, however, Adams claims that inadequate amounts of fatty acids, and no glycerin or inorganic salts, were recovered. Jacobs moves for summary judgment on this claim on the grounds that tort theories of liability do not permit recovery "for solely `economic losses' absent property damage or personal injury from the use of the product." Alfred N. Koplin & Co. v. Chrysler Corp., 49 Ill.App.3d 194, 7 Ill.Dec. 113, 120, 364 N.E.2d 100, 107 (2d Dist. 1977). Adams counters that since there was damage to the raw soapstock that is used in the saponification process, it is entitled to state a claim for negligence.

In Koplin, the court defined economic loss as damages for inadequate value, repair, and replacement of the defective good, loss of profits, and diminution in the value of the product. Id., 7 Ill.Dec. at 116, 364 N.E.2d at 103. Since the complaint alleged no damage to person or property, the court found that an action in tort could not lie. Id., 7 Ill.Dec. at 120, 364 N.E.2d at 107. This case, however, presents a more subtle question of the dividing line between economic and property damage. The plaintiff's primary grievance in Count II concerns the plant's failure to perform up to expectations, and the resultant economic loss. However, the plaintiff also alleges that the imperfections in the process caused damage to its property — the raw soapstock used in the saponification process. This is not diminution in the value of the product sold by Jacobs to Adams, one of the definitions of economic loss. Rather, it is diminution in the value of a separate piece of property that is used in the process. In this sense, the instant case is more analogous to Admiral Oasis Hotel v. Home Gas Industries, 68 Ill.App.2d 297, 216 N.E.2d 282 (1st Dist. 1965), wherein the court permitted an action in negligence for the faulty construction of an air conditioning unit when there also was damage to carpeting and furniture from the malfunctioning unit. This alleged loss is sufficient to state a claim for property damage as required to sustain a negligence count under Koplin.*fn4 Accordingly, the motion for summary judgment on Count II is denied.

Consequential Damages

In Counts V through IX of the Amended Complaint, Adams seeks the recovery of damages stemming from the alleged breach of several provisions of the contract between the parties. Jacobs seeks a judgment in its favor on this issue of ...


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