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GE CAPITAL, CORP. v. EQUIFAX SERVS.

July 30, 1992

GENERAL ELECTRIC CAPITAL, CORP., a New York Corporation, and GENERAL ELECTRIC CAPITAL COMMERCIAL AUTOMOTIVE FINANCE, INC., a Delaware Corporation, Plaintiffs,
v.
EQUIFAX SERVICES, INC., a Georgia Corporation, Defendant.


Alesia


The opinion of the court was delivered by: JAMES H. ALESIA

MEMORANDUM OPINION AND ORDER

 Before the court are the parties' cross-motions for summary judgment. Defendant, Equifax Services, Inc. ("Equifax"), moves for summary judgment on Counts II, III and IV of the complaint and for partial summary judgment limiting plaintiffs' potential recovery on Count I. Plaintiffs, General Electric Capital Corporation ("GECC") and General Electric Capital Commercial Automotive Finance, Inc. ("GECCAF"), have responded to Fquifax's motion and have also filed a cross-motion for summary judgment on Count I and requesting an order striking Equifax's First and Fifth Affirmative Defense. For the reasons discussed below, Equifax's motion for summary judgment on Count II is denied. Equifax's motion for summary judgment on Counts III and IV is granted. Equifax's motion for partial summary judgment on Count I is denied. GECC's motion for partial summary judgment on Count is granted. *fn1"

 I. FACTS *fn2"

 GECCAF is a Delaware corporation in the business of providing credit to automobile dealers for the purpose of purchasing motor vehicle inventories. On June 1, 1989, GECC acquired the outstanding stock and assets of Transamerica Automotive Finance Corporation ("Transamerica") from Transamerica Commercial Finance Corporation, I. GECC changed Transamerica's name to General Electric Capital Commercial Automotive Finance, Inc.

 Equifax is a Georgia corporation in the business of providing floor plan financing services and business information to lenders for inventory control and collection purposes. *fn3" GECC and Equifax entered into a contract in 1986, *fn4" under which Equifax would provide inspection services in connection with GECC's automobile dealer financing business. Under the contract, Equifax was to inspect automobile inventories by means of a visual examination of the vehicles. If a vehicle could not be visually examined; Equifax was to check the "Manufacturers Statement of Origin" to verify that the vehicle was part of the dealer's inventory.

 As part of GECC's acquisition of Transamerica, GECC requested Equifax to conduct a floor plan inspection at Dabelow Pontiac-Buick, Inc. (the "Dabelow dealership"), located in Cannon Falls, Minnesota. The Dabelow dealership was part of the Transamerica loan portfolio which GECC was acquiring. As part of the acquisition agreement between GECC and Transamerica, GECC had 30 days in which to inspect the loan portfolio. On June 23, 1989, Fquifax's field representative, Roger E. Knudtson, visited the Dabelow dealership and conducted a floor plan inspection. A written report details the results of that inspection. *fn5" Knudtson's inspection is at the heart of this lawsuit. GECC and GECCAF contend that Knudtson misreported a number of vehicles in his inspection report. On September 26, 1989, GECC made a written claim against Equifax regarding the accuracy of the Dabelow Pontiac floor plan inspection. In that letter, GECC complained that "nine vehicles, nearly [$ 130,000] in inventory, were possibly sold and delivered prior to the June inspection and not reported on the Equifax inspection." *fn6"

 GECC and GECCAF filed a complaint as a result of the above described inspection. In Count I of the complaint, GECC alleges that Equifax breached its contract with GECC by failing to conduct an adequate inspection of the Dabelow dealership on June 23, 1989. In Count II, GECC alleges that Equifax was negligent in providing business information and conducting the inventory inspection at the Dabelow dealership. In Count III, GECCAF alleges it is a third party beneficiary of the contract between Equifax and GECC, and thus, GECCAF is entitled to recover against Equifax for Equifax's alleged breach. In Count IV, GECCAF avers that it has been injured by reason of Equifax's allegedly negligent inspection of the Dabelow dealership.

 Equifax has moved for summary judgment in its favor and against plaintiffs on Counts II, III, and IV of the complaint and for partial summary judgment limiting plaintiff's recovery on Count I to $ 128,878. GECC and GECCAF responded by moving for an order granting partial summary judgment in their favor and striking Equifax's First Affirmative Defense and Fifth Affirmative Defense.

 II. DISCUSSION

 A. Standard of Review

 A motion for summary judgment must be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). A party opposing a motion for summary judgment must set forth specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989). A genuine issue of material fact exists only where there is sufficient evidence favoring the non-moving party to support a jury verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). All reasonable factual inferences must be viewed in favor of the non-moving party. Holland v. Jefferson Nat'l. Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989). If the evidence presented by the non-movant is merely colorable or is not sufficiently probative, summary judgment is appropriate. Wolf v. Fitchburg, 870 F.2d 1327, 1330 (7th Cir. 1989).

 B. Equifax's Motion for Summary Judgment

 In seeking to narrow the issues of this case, Equifax's motion for summary judgment states that this case is a straight-forward breach of contract claim. Unfortunately for Equifax, it is not. First, Equifax maintains that GECC may not maintain a negligence action against it for two reasons: (1) Equifax owes no extra-contractual tort duty to GECC and (2) GECC may not recover against Equifax in tort for purely economic damages. Hence, Equifax concludes judgment must be entered in its favor on Count II of the complaint. Next, Equifax argues that GECCAF is not a third-party beneficiary of the contract between GECC and Equifax. Equifax concludes, therefore, that judgment must be entered in its favor on Counts III and IV of GECCAF's complaint since GECCAF is not a proper party to the suit. last, Equifax claims that even if it is held to be liable to GECC and GECCAF, a specific provision of the contract between the parties limits Equifax's liability to the outstanding balance on the allegedly misreported vehicles.

 1. Count II -- Equifax's Tort Liability to GECC

 Equifax asserts in its First Affirmative Defense that Count II the negligence count, fails to state a claim because Equifax owes no independent, extra-contractual duty to GECC. In addition, Equifax asserts that Count II also fails to state a claim because GECC is not entitled to collect for economic losses arising out of tort. We address each issue separately. *fn7"

 a. Equifax's assertion that it owes no duty to GECC

 According to Equifax, a claim for negligent misrepresentation must be supported by an independent, extra-contractual duty. The existence of a legal duty is a question of law to be determined by the court. Roe v. Catholic Charities of the Diocese of Springfield, 225 Ill. App. 3d 519, 588 N.E.2d 354, 363, 167 Ill. Dec. 713 (Ill. App. 1992); cf. Garris v. Schwartz, 551 F.2d 156, 162 (7th Cir. 1977). Equifax's argument raises a complicated issue involving the interrelationship between Illinois' Moorman doctrine on economic loss and the tort of negligent misrepresentation by one in the business of providing information to others. Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443, 61 Ill. Dec. 746 (Ill. 1982). Adding to the intricacy of the issue is the apparent conflict among several courts as to whether a duty independent of a contract is necessary to maintain an action for negligent misrepresentation between contracting parties.

 The Seventh Circuit Court of Appeals has addressed the issue of contractual duties in the tort of negligent misrepresentation by an information provider. See Rankow v. First Chicago Corp., 870 F.2d 356, 366 & n.13 (7th Cir. 1989). In Rankow, the plaintiffs, who were owners of common stock in First Chicago Corporation ("First Chicago"), were participants in a dividend reinvestment and stock purchase plan. Under the plan, plaintiffs were entitled to reinvest their dividends and make optional cash payments toward the purchase of additional common stock at below the prevailing market rate. Plaintiffs allegedly participated in the plan so that they could immediately resell the shares purchased under the plan for a profit. Therefore, it was crucial that the plaintiffs have reliable information about the pricing dates at which time the additional common stock would be priced at the below market rate. The rules regarding the pricing dates were contained in the plan prospectus, which embodied the contract between the parties. Defendant First Chicago, a bank, negligently provided plaintiffs with the wrong pricing date. Rankow, 870 F.2d at 356. As a results plaintiffs allegedly incurred a loss upon reselling the common stock purchased. Plaintiffs sued the bank alleging breach of contract and negligent misrepresentation. Plaintiffs alleged a contractual duty on the part of the bank to use due care in providing accurate information about the pricing dates of certain stocks. The Rankow court found that the defendant owed a clear duty to the plaintiffs by virtue of their contractual relationship. Rankow, 870 F.2d at 366. The court stated:

 Although First Chicago correctly concludes that the existence of a duty is an issue of law . . ., there is no real issue regarding the existence of a duty in this case. First Chicago owed a clear duty by virtue of its contractual relationship with the plaintiffs; there is no question involving third parties or extra-contractual dealings of the kind found in the Illinois cases in which existence of a duty has been deemed problematic.

 * * *

 We conclude that, at least as a matter of pleading, this case involves a defendant part of whose business seems to be to provide information and financial services to its stockholders, to whom it owes a duty. The plaintiff has therefore made a sufficient allegation to state a claim under a negligent misrepresentation theory.

 Rankow, 870 F.2d at 366 (second and third emphasis added) (footnote and citation omitted). The Rankow court explicitly found that the duty to provide accurate information originated from the contract itself: "Plaintiffs allege a contractual duty to use due care in providing accurate information about the Plan and its pricing dates, and that seems to fall squarely within the bounds of the existing contract." Rankow, 870 F.2d at 366 n.13.

 Citing to a line of Illinois cases, the Rankow court noted that the simple existence of a contract does not automatically give rise to a tort duty. Rankow, 870 F.2d at 366 n.13. In Ferentchak v. Village of Frankfort, 105 Ill. 2d 474, 475 N.E.2d 822, 86 Ill. Dec. 443 (Ill. 1985), the Illinois Supreme Court considered whether a civil engineer could be held liable for failure to establish minimum foundation grade levels for the plaintiff's home when the engineer designed surface water plans for the plaintiff's subdivision at the request of the developer and not the plaintiffs. Plaintiffs contended that the contract between the engineer and the developer created a duty to the plaintiffs. The court disagreed: "The evidence indicates that [the engineer] was not asked by [the developer] to set the foundation grade levels. On the contrary, [the developer] retained control of what was built on the individual lots by providing, in the recorded 'declaration of covenants, conditions, restrictions, reservations, equitable servitudes, grants and easements' submitted to the village, that an architectural committee would oversee this work." Ferentchak, 475 N.E.2d at 825. One such covenant provided that the architectural committee had sole authority to review plans setting the finished ground elevation for foundations. The court concluded that the obligation to set foundation grade levels fell upon the developer and the committee, rather than upon the engineer. Hence, the court concluded that the contract imposed no duty on the engineer with respect to the plaintiff homeowners. Perhaps the true lesson of Rankow and Ferentchak is that ...


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