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CODEST ENG'G v. HYATT INT'L CORP.

December 12, 1996

CODEST ENGINEERING, an unincorporated joint venture of Compagnia Europea Appalti S.p.A, an Italian Corporation, and Rizzani De Eccher S.p.A., an Italian Corporation, Plaintiff,
v.
HYATT INTERNATIONAL CORPORATION, a Delaware Corporation, Defendant.



The opinion of the court was delivered by: COAR

 Before the court are two motions by plaintiff Codest Engineering ("Codest"). In its first motion, Codest moves to strike each of defendant Hyatt International Corporation's ("Hyatt") affirmative defenses, pursuant to Federal Rule of Civil Procedure 12(f). Codest also moves to dismiss Hyatt's counterclaim, pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, plaintiff's motion to strike defendant's affirmative defenses is granted in part and denied in part. Plaintiff's motion to dismiss defendant's counterclaim is granted in part and denied in part.

 I. Factual Background

 Codest's complaint contains the following allegations. Codest is a professional engineering firm and general contractor that submitted, at Hyatt's request, a proposal for the design, construction, and outfitting of a Hyatt hotel complex in Moscow, Russia. (Compl., PP 2, 7). Following this submission, Hyatt asked Codest to provide certain "pre-construction services" and to work with it to modify the project's design to reduce the projected construction costs. (Id. P 8). Because Codest needed to retain and pay outside design consultants and expected to incur substantial out-of-pocket expenses relating to these pre-construction services, it met with representatives of Hyatt at Hyatt's corporate headquarters in Chicago, Illinois, to negotiate an agreement governing the provision of and payment for those services. (Id. PP 9-10). As a result of these negotiations between Codest and persons who purportedly represented Hyatt, a letter of agreement ("Letter Agreement") was signed on June 1, 1990, by and between Codest, Hyatt, and Moscow International Hotels ("MIH"). (Id. PP 9-11). Codest contends that MIH was a shell corporation established by Hyatt, and was financially dependent upon and "dominated and controlled by" Hyatt's management. (Id. P 10). The June 1, 1990 Letter Agreement stated in pertinent part that MIH was the owner of the Moscow Hyatt hotel complex; that the "Owner has nominated Hyatt . . . to coordinate the appointment of a general contractor," (id. Exh. A, preface); and that the "Owner and Hyatt hereby appoint Codest Engineering as the general contractor for the Project," (id., Exh. A, P 1).

 In accordance with the terms of the Letter Agreement, Codest hired consultants and designers to prepare designs and documentation for the construction project. (Compl., P 12). In addition to these expenses, Codest incurred additional costs and expenses after Hyatt repeatedly changed and delayed its plans for the Moscow hotel complex. (Id. P 13). To remedy this situation, Codest and Hyatt executed an amendment ("Amendment") to the June 1, 1990 Letter Agreement on January 31, 1991. (Id. P 14). Under the terms of paragraph four ("P 4") of the Amendment, the "parties agreed that the outstanding cost due to Codest is U.S. $ 597,000." (Id., Exh. B, P 4). The Amendment also provided that Codest was to be paid $ 200,000 on or before March 1, 1991, and that the balance plus interest (11% per annum) was to be paid either with Codest's first project progress claim or "not later than 5 months from the expiration of [the Amendment]." (Id.). Paragraph nine of the Amendment ("P 9") further provided that Codest would incur $ 368,500 in additional pre-construction costs for services rendered after January 31, 1991. (Compl., P 14(b)). Codest actually incurred $ 271,000 in additional expenses such that a total of $ 869,400 was due and owing to Codest under the Amendment as of March 1, 1991. (Id. P 17). Several months after Codest and Hyatt executed the written amendment, Hyatt allegedly executed or caused to have the amendment executed by Volage, the successor to MIH. (Id. P 16).

 Hyatt failed to pay the $ 200,000 due on March 1, 1991; instead, it paid $ 100,000 in May 1991. (Compl., PP 18-19). Hyatt thereafter refused to pay any additional money to Codest on the grounds that Volage was developing the Moscow hotel complex and that Hyatt's role had been to provide limited technical advisory services to Volage. (Id.). Hyatt further advised Codest that Volage did not intend to proceed with the project. (Id. P 19). Codest contends, however, that Hyatt was the principal developer. To that end, Codest alleges that it always dealt with Hyatt officers who never identified themselves as agents or employees of Volage, that Hyatt conducted all contractual and technical negotiations with Codest, and that Hyatt signed all of the resulting agreements. (Id. P 21).

 Codest makes the following claims in its complaint. In Count I, Codest alleges that Hyatt failed to pay Codest both the P 4 agreed payment and the P 9 payment obligation. In Count II, Codest alleges that Hyatt failed to provide funding for Volage to pay the P 4 agreed payment and the P 9 payment obligation. Count III alleges that Hyatt failed to exercise its best efforts to secure financing for the Hyatt Moscow complex. In Count IV, Codest claims an account stated in the amount of $ 847,612.50 as of December 1994, consisting of the P 4 agreed payment of $ 597,500 and interest at the agreed rate of 11%. Finally, Count V advances a claim in the alternative that Volage is Hyatt's alter ego and/or agent and that Hyatt is liable for Volage's debt to Codest under the Amendment.

 II. Plaintiff's Motion to Strike Affirmative Defenses

 A. Legal Standard for Motions to Strike Affirmative Defenses

 Motions to strike affirmative defenses are governed by Rule 12(f) of the Federal Rules of Civil Procedure, which provides:

 
Upon motion made by a party before responding to a pleading or, if no responsive pleading is permitted by these rules, upon motion made by a party within 20 days after the service of the pleading upon the party or upon the court's own initiative at any time, the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.

 Fed. R. Civ. P. 12(f).

 Courts have consistently disfavored motions to strike affirmative defenses. Williams v. Jader Fuel Co., Inc., 944 F.2d 1388, 1400 (7th Cir. 1991); Wilson v. City of Chicago, 900 F. Supp. 1015, 1023 (N.D. Ill. 1995). Generally, such motions will only be granted if the affirmative defenses are "patently defective and could not succeed under any circumstances." Mobley v. Kelly Kean Nissan, Inc., 864 F. Supp. 726, 732 (N.D. Ill. 1993); see also Williams, 944 F.2d at 1400 (7th Cir. 1991) (stating that court will not grant motion to strike affirmative defenses unless it finds that defense is insufficient on face of pleadings, and "it appears to a certainty that plaintiff would succeed despite any state of the facts which could be proved in support of the defense and are inferable from the pleadings") (citations omitted). Before a motion to strike can be granted, the court must "be convinced that there are no questions of fact, that any questions of law are clear and not in dispute, and that under no set of circumstances could the defense succeed." Lirtzman v. Spiegel, Inc., 493 F. Supp. 1029, 1031 (N.D. Ill. 1980) (citation omitted).

 Affirmative defenses are pleadings and are therefore subject to all pleading requirements of the Federal Rules of Civil Procedure. Heller Financial, Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989); Flasza v. TNT Holland Motor Express, Inc., 155 F.R.D. 612, 613 (N.D. Ill. 1994). Whether or not a defense fulfills the Rule 12(b)(6) standard depends on whether it would be impossible for the defendant to prove a set of facts in support of the affirmative defense that would defeat the complaint. Bobbitt v. Victorian House, Inc., 532 F. Supp. 734, 737 (N.D. Ill. 1982). Thus, affirmative defenses must set forth a "short and plain statement" of the defense. If an affirmative defense is insufficient on its face or comprises no more than "bare bones conclusory allegations," it must be stricken. Heller, 883 F.2d at 1294-95; Flasza, 155 F.R.D. at 613-14. Under this standard, generally pleaded defenses have been held sufficient, and invulnerable to a motion to strike, as long as the pleading gives the plaintiff fair notice of the nature of the defense. Mobley, 864 F. Supp. at 732; 5 Wright & Miller, Federal Practice & Procedure: Civil 2d, ยง 1274.

 1. First and Second Affirmative Defenses

 In its first affirmative defense, defendant asserts that the contractual obligations alleged in the complaint are the exclusive responsibility of Volage; in its second affirmative defense, Defendant asserts that if it is liable in this case, Volage and Perestroika Joint Venture ("PJV") *fn2" are jointly liable and are indispensable parties. Plaintiff argues that, as to Counts I through IV, the first and second affirmative defenses are legally insufficient because they are barred by the law of the case. This argument is based on this court's order of November 6, 1995, denying defendant's motion to dismiss pursuant to Rule 12(b)(7) and Rule 19. In that order, the court found that Hyatt was Volage's agent only for the limited purpose of "'coordinating the appointment of a general contractor. . . . Any duties assigned to Hyatt under the [Letter] Agreement that did not relate to its coordination of the appointment of a general contractor were contractual obligations that Hyatt agreed to perform in its individual capacity.'" Codest Eng'g v. Hyatt Int'l Corp., 1995 U.S. Dist. LEXIS 17276, No. 94 C ...


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