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MEDLINE INDUSTRIES INC. v. MAERSK MEDICAL LIMITED

November 14, 2002

MEDLINE INDUSTRIES INC., PLAINTIFF,
V.
MAERSK MEDICAL LIMITED, GILTECH LIMITED, "DOE" CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: James H. Alesia, United States District Judge

  MEMORANDUM OPINION AND ORDER

Before the court is defendant Maersk Medical Limited's motion to dismiss Counts II, III, and VI of plaintiffs complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"). For the following reasons, the court grants in part and denies in part defendant's motion to dismiss.

I. BACKGROUND

The following facts are taken from plaintiffs complaint, and are assumed to be true for the purposes of defendant Maersk's motion to dismiss. Plaintiff Medline Industries, Inc. ("Medline"), an Illinois corporation, is a manufacturer and distributor of healthcare supplies and services. Defendant Maersk Medical Limited ("Maersk") is an English corporation that develops, manufactures, and markets sterile single-use medical devices. Giltech Limited ("Giltech") is a Scottish corporation that designs, develops, and manufactures medical devices.

The parties' relationship centered on the silver polymer wound care products sold under the trademark ARGLAES. Giltech developed and owns the proprietary technology and the ARGLAES trademark. Giltech licensed the technology and trademark on an exclusive worldwide basis to Maersk, which has the right to grant sub-licenses. On December 1, 1997, Medline and Maersk entered an agreement ("the agreement") in which Maersk granted to Medline "the exclusive right, with a right to sub-license to any Affiliate, to market, sell and distribute in the [United States] [ARGLAES] Products manufactured by [Maersk]."*fn1 (Pl.'s Compl. Ex. 1 at 2.) In exchange, Medline paid more than $1,200,000 in license and royalty fees. The fourteen-year agreement expires on December 1, 2011.

Three of the provisions of the agreement are currently at issue: (1) the Choice-of-Law Clause, (2) the limitation of liability provision, and (3) Article 3. The Choice-of-Law Clause states, "[t]his agreement shall be subject to English Law and proceedings may be brought against either party in the Courts of England or the United States of America at the choice of the plaintiff. Both parties agree not to assert any defense to jurisdiction." ("Choice-of-Law Clause") (Pl.'s Compl. Ex. 1 at 20.) The limitation of liability provision provides, "either party to this Agreement is under no circumstances liable for any indirect or consequential loss of the other party." ("limitation of liability provision") (Pl.'s Compl. Ex. 1 at 6.) Article 3 of the agreement states, "[Maersk] represents that it holds an exclusive Supply Agreement for the supply to [Maersk] of the raw material necessary for the manufacturer [sic] by [Maersk] of [ARGLAES] Products and that said Supply Agreement is for the total duration of this Agreement and shall be maintained in full validity." ("Article 3") (Pl.'s Compl. Ex. 1 at 2.)

The agreement required Maersk to provide direct assurances from Giltech that Maersk had the ability to convey the rights stated in the agreement. Maersk provided Medline with a letter from Giltech's legal counsel which outlined two agreements, the exclusive supply agreement and the trademark license, between Giltech and Maersk regarding the ARGLAES products. First, under the exclusive supply agreement, Giltech "agreed to supply only to [Maersk] ARGLAES calcium phosphate glass and silver ("the Products") for use in wound management" and gave Maersk the authority to grant sub-licenses. (Pl.'s Compl. Ex. 2 at 1.) Second, under the trademark license, Giltech authorized Maersk "to grant sub-licenses in respect of the trademark ARGLAES." (Pl.'s Compl. Ex. 2 at 1.) Both agreements expire on December 31, 2013. Giltech further stated "[t]he rights granted to [Maersk] by Giltech in respect of Giltech's rights in the trademark ARGLAES and in respect of Giltech's patents and know-how relative to the Products in the Field are granted on a world-wide basis." (Pl.'s Compl. Ex. 2 at 2.)

Problems arose when Medline learned that Giltech had contracted with another company, Tyco Healthcare Co. ("Tyco"), to market products in the United States in competition with Medline's ARGLAES products.*fn2 On February 13, 2002, Medline filed a six-count complaint against Maersk, Giltech, and Tyco in the Circuit Court of Cook County. On April 18, 2002, the defendants removed the action to this court on the basis of diversity jurisdiction. Thus, the court has subject matter jurisdiction under 28 U.S.C. § 1332 (a). Count I seeks a declaratory judgment that the agreement is valid and enforceable. Count II is a breach of contract claim against Maersk. Count III is a fraudulent inducement claim against Maersk. Count IV is a fraudulent misrepresentation claim against Giltech. Count V is a tortious interference with contract claim against Giltech. Count VI is a tortious interference with prospective business advantage claim against Maersk, Giltech, and Tyco. Maersk now moves to dismiss Counts II, III, and VI of Medline's complaint.

II. DISCUSSION

A. Standard for Deciding a Rule 12(b)(6) Motion to Dismiss

In ruling on a motion to dismiss under Rule 12(b)(6), the court must accept as true all factual allegations contained in the complaint and draw all reasonable inferences in favor of the plaintiff Hickey v. O'Bannon, 287 F.3d 656, 657 (7th Cir. 2002). However, the court need not accept as true "conclusory statements of law or unsupported conclusions of fact." McLeod v. Arrow Marine Transp., 258 F.3d 608, 614 (7th Cir. 2001). The purpose of a motion to dismiss is not to decide the merits of the challenged claims but to test their sufficiency under the law. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In deciding a motion to dismiss, the court reads a complaint liberally, dismissing the complaint only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that entitles him to relief Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

The court is restricted in the consideration of a 12(b)(6) motion to the pleadings, which generally include the complaint, any exhibits attached thereto, and supporting briefs. Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). "A copy of any written instrument which is an exhibit to a pleading is part thereof for all purposes." FED. R. CIV. P. 10(c). The Seventh Circuit has interpreted "written instrument" as including contracts and correspondence between parties. N. Ind. Gun & Outdoor Shows v. City of South Bend, 163 F.3d 449, 453 (7th Cir. 1998). It is appropriate, therefore, for the court to consider the copy of the agreement that Medline attached to its complaint as Exhibit 1 and the letter from Giltech attached as Exhibit 2.*fn3

In support of the motion to dismiss, Maersk argues that Counts II, III, and VI are improperly and prematurely stated claims for breach of the agreement and are Medline's effort to avoid the Choice-of-Law Clause and limitation of liability provision. First, as a threshold matter, the court must conduct a Choice-of-Law analysis in order to determine the substantive law that applies to each claim. Second, the court will evaluate the breach of contract claim. Third, the court will review the fraudulent inducement claim. Fourth, the court will consider the tortious interference with prospective economic advantage claim.

B. Choice of Law

Before evaluating the merits of Maersk's motion, the court must determine what substantive law applies. A federal court exercising diversity jurisdiction must apply the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Midwest Grain Prods. of Ill., Inc. v. Productization, Inc. & CMI Corp., 228 F.3d 784, 787 (7th Cir. 2000). Thus, the court, sitting in Illinois, will apply Illinois choice-of-law rules. The court will conduct a choice-of-law analysis for each of Medline's claims, in turn.

1. Breach of Contract

Count II of Medline's complaint is a breach of contract claim. As already noted, supra Sect. I, the agreement between Medline and Maersk contained a Choice-of-Law clause. The Choice-of-Law Clause states: "This agreement shall be subject to English Law and proceedings may be brought against either party in the Courts of England or the United States of America at the choice of the plaintiff. Both parties agree not to assert any defense to jurisdiction." (Pl.'s Compl. Ex. 1 at 20.)

Under Illinois law, a court will apply a contract's Choice-of-Law clause to disputes that arise from that contract, so long as the contract is valid. Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1185 (7th Cir. 1996); see also Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177, 194 (Ill. 2002) ("Generally, choice of law provisions will be honored."). The parties do not contest the validity of the agreement and they agree that the Choice-of-Law Clause governs Count II.*fn4 Therefore, the court will apply English law to Medline's breach of contract claim.*fn5

2. Counts III and VI

The parties disagree, however, as to whether the Choice-of-Law Clause governs Counts III and VI. Count III alleges fraudulent inducement, and Count VI alleges tortious interference with prospective economic advantage. Maersk argues that these claims arise from the agreement and are governed by English law under the Choice-of-Law Clause. Medline responds that these are independent tort claims and, therefore, not subject to the Choice-of-Law Clause.

In applying a Choice-of-Law provision, courts first examine the breadth and language of the choice-of-law provision to determine whether the parties intended the choice-of-law provision to govern all claims between them. Precision Screen Machs. Inc. v. Elexon, Inc., No. 95 C 1730, 1996 WL 495564, at *2 (N.D. Ill. Aug. 28, 1996).

One can, it is true, find cases that say that contractual choice of law provisions govern only contractual disputes and not torts. But what the cases actually hold is that such a provision will not be construed to govern tort as well as contract disputes unless it is clear that this is what the parties intended. When it is clear the provision is enforced.

Kuehn v. Children's Hosp., Los Angeles, 119 F.3d 1296, 1302 (7th Cir. 1997) (citations omitted). In determining whether the parties intended the provision to govern tort as well as contract claims, courts look to whether the language of the provision encompasses all rights and liabilities arising out of the transaction or solely the construction of the contract. Chicago Printing Co. v. Heidelberg USA, Inc., No. 01 C 3521, 2001 WL 1134862, at *3 (N.D. Ill. Sept. 25, 2001). However, tort claims that are dependent upon the contract are subject to a contract's choice-of-law clause regardless of the breadth of the clause. Precision Screen Machs. Inc., 1996 WL 495564, at *3. In conducting this analysis, courts examine whether the action alleges a wrong based upon interpretation and construction of the contract, or whether the claim alleges elements constituting an independent tort. Am. Builders & Contractors Supply Co. v. Home Ins. Co., No. 96 C 5041, 1997 WL 43017, at *1 (N.D. Ill. Jan. 28, 1997). If a court determines that the Choice-of-Law provision does not apply, a federal court must consult the choice-of-law rules of the state in which it sits to determine which jurisdiction's substantive law applies. Chicago Printing Co., 2001 WL 1134862, at *4 (citing GATX Leasing Corp. v. Nat'l Union Fire Ins. Co., 64 F.3d 1112, 1114 (7th Cir. 1995)).

First, the court must examine the breadth and language of the Choice-of-Law Clause to determine whether the parties intended the Choice-of-Law Clause to govern all claims between them. Second, the court will determine whether the claims are dependent upon the agreement and therefore subject to the Choice-of-Law Clause. Third, in the event the Choice-of-Law Clause is not applicable to the ...


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