The opinion of the court was delivered by: Alesia, District Judge.
MEMORANDUM OPINION AND ORDER
Before the court is defendants' motion to dismiss counts III
and IV and to strike certain paragraphs of plaintiffs' second
amended complaint. For the following reasons, the court grants in
part and denies in part defendants' motion.
Plaintiffs WTM, Incorporated ("WTM") and Pentair, Incorporated
("Pentair") (collectively "plaintiffs") bring this action against
defendants William J. Henneck, Jr. ("Henneck") and Ernest C.
Payne ("Payne") (collectively "defendants"). Pentair is a
publicly traded company which manufactures and sells various
products, including electronics enclosures. WTM is a wholly-owned
subsidiary of Pentair. Defendants were the officers and directors
of several companies (collectively "WEB") which manufactured
metal enclosures for computers.
Plaintiffs claim that the purchase of WEB was made in reliance
on several representations made by defendants regarding their
current and future status with Compaq, WEB's largest customer.
According to plaintiffs, defendants represented that they had a
strong relationship with Compaq and that their business dealings
with Compaq were extensive. However, Compaq had withdrawn much of
its business from WEB and has refused to conduct any new,
substantial business with WEB. Plaintiffs argue that defendants
knew of the disintegrating relationship with Compaq prior to the
sale of WEB to plaintiffs but concealed that material information
from plaintiffs. Plaintiffs now allege that the value of WEB was
artificially inflated at the time of purchase and, consequently,
the purchase of WEB resulted in substantial loss to plaintiffs.
Any additional facts, the court will discuss in further detail
under the relevant claim.
As a result of this dispute, plaintiffs have filed a four-count
complaint against defendants. Count I is a claim for violation of
the federal securities law, alleging that defendants violated
various sections of the Securities Act and Rule 10b-5. Count II
is a claim for breach of contract, alleging that defendants
breached the warranties and representations made in the sale
agreement. Count III is a claim for violation of the Minnesota
Securities Act, alleging that defendants participated in a
fraudulent scheme and course of business. Count IV is a claim for
violations of the Illinois' common law on fraud, alleging that
defendants failed to disclose critical and significant material
facts which plaintiffs relied upon and were, consequently,
tricked by those omissions.
Defendant now brings a motion to dismiss pursuant to Federal
Rule of Civil Procedure 12(b)(6). Defendants argue that count III
should be dismissed because the sale agreement entered into
between the parties contained a choice-of-law provision which
clearly stated that Illinois law governs. Therefore, defendants
claim, plaintiffs cannot bring a claim under Minnesota law. Next,
defendants argue that count IV must be dismissed because the
Agreement contained an indemnification clause which serves as
plaintiffs' exclusive remedy. Finally, defendants argue that
certain paragraphs of the complaint must be stricken, pursuant to
Federal Rule of Civil Procedure 12(f), as immaterial and unduly
WTM is a Minnesota corporation with its principal place of
business in Minnesota. Pentair is a Minnesota corporation with
its principal place of business in Minnesota. Hennek is an
Illinois citizen. Payne is a Wisconsin citizen. The defendants'
companies are all Illinois corporations. Further, the amount in
controversy exceeds $75,000. Thus, plaintiffs correctly allege
that this court has jurisdiction based upon diversity of
citizenship under 28 U.S.C. § 1332. In addition, this court has
jurisdiction under 28 U.S.C. § 1331 as Count I arises under
A. Standard for Deciding a Rule 12(b)(6) Motion to Dismiss
In addressing the defendants' motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6), the court must accept
all factual allegations in the complaint as
true and draw all reasonable inferences in favor of plaintiffs.
Gomez v. Illinois State Bd. of Educ., 811 F.2d 1030, 1039 (7th
Cir. 1987); Cromley v. Board of Educ. of Lockport, 699 F. Supp. 1283,
1285 (N.D.Ill. 1988). If, when viewed in the light most
favorable to plaintiffs, the complaint fails to state a claim
upon which relief can be granted, the court must dismiss it.
See FED.R.CIV.P. 12(b)(6); Gomez, 811 F.2d at 1039. However,
the court may only dismiss the claim if it appears beyond doubt
that plaintiffs can prove no set of facts in support of their
claim that would entitle them to relief. See Conley v. Gibson,
355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
While the Federal Rules of Civil Procedure provide a liberal
notice pleading standard, the complaint must include either
direct or inferential allegations with respect to all material
elements of the claims asserted. ...