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SEARS ROEBUCK & CO. v. EMERSON ELECTRIC CO.

September 2, 2003

SEARS ROEBUCK & CO., PLAINTIFF, VS. EMERSON ELECTRIC CO., DEFENDANT


The opinion of the court was delivered by: Joan H. Lefkow, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Sears Roebuck & Co. ("Sears"), filed this action against defendant, Emerson Electric Co, ("Emerson"), seeking both damages and declaratory relief for Emerson's failure to defend and indemnify Sears pursuant to a contract entered into between the parties. Before the court are the parties' cross motions for summary judgment. Sears is a New York corporation with its principal place of business in Hoffman Estates, Illinois. Emerson is a Missouri corporation with its principal place of business in St. Louis, Missouri, The amount in controversy exceeds $75,000. The court, therefore, has diversity jurisdiction over the claims under 28 U.S.C. § 1332(a)(1), For the reasons set forth below, Sears's motion for partial summary judgment is granted while Emerson's motion for summary judgment is denied.

SUMMARY JUDGMENT STANDARDS

Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). To determine whether any genuine fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and Page 2 affidavits that are part of the record. Fed R, Civ. P. 56(c) Advisory Committee's notes. The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the non-moving party cannot rest on bare pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be outcome determinative under the governing law. Insolia, 216 F.3d at 598-99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most favorable to the non-moving party as well as view all reasonable inferences in that party's favor, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). On cross-motions for summary judgment, the: court must consider the merits of each motion and assess the burden of proof that each party would hear on an issue at trial. Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997).

FACTS*fn1

On April 6, 1968, Emerson and Sears entered into an agreement (the "Supply Agreement") whereby Emerson agreed to sell certain tools to Sears, including 8-¼", 9", 10" and 12" radial arms saws, (PI L.R. 56.1 ¶ 6.) Sears then sold these tools under its "Craftsman" name at its stores. (PI. L.R. 56, 1 ¶ 7.) As part of the Supply Agreement, Emerson agreed to

protect, defend, hold harmless and indemnify Sears from and against any and all liability and expenses resulting from any alleged or claimed defect in product, Page 3 whether latent or patent, including allegedly improper construction and design, or from the failure of product to comply with specifications or with any express or implied warranties of [Emerson] or arising out of the alleged violation byproduct or in its manufacture or sale of any statute, ordinance or administrative order rule or regulation.
(PL L.R. 56.1 ¶ 9.)

The parties amended the agreement on January 1, 1985 (the "1985 Amendment") and agreed that Emerson would "have the same obligations of defense and indemnity with respect to [Sears] as those of an insurance carrier under the law of Illinois." (PI. L.R. 56, 1 ¶ 10.) As part of the 1985 Amendment the parties further agreed that

[Emersion] shall be obligated to defend, protect, hold harmless and indemnify, in accordance with the Indemnity Provision [in the Supply Agreement] and this Agreement, the entirety of any claim, action, liability, loss, judgment, settlement, cost or expense, so long as it involves, contains or includes, in whole or part, any allegation as described in the Indemnity Provision [in the Supply Agreement] or this Agreement and said obligations shall continue until such time, if any, as the claim, action, liability, judgment, settlement, loss, cost or expense is limited solely to matters other than those described in the Indemnity Provision [in the Supply Agreement] or this Agreement. Nothing contained in the Contract of Purchase of this Agreement shall be construed to require [Emerson] to hold harmless or indemnify [Sears] for product liability claims arising from matters excluded by the following: (a) any express warranty unauthorized by [Emerson]; (b) bodily injury or property damage arising out of: (i) any physical or chemical change in the form of the products sold by [Emerson] to [Sears] made intentionally by [Sears], (ii) repacking, unless repacked solely for the purpose of inspection, demonstration, testing or the substitution of parts under instruction from the manufacturer and then repacking in the original container, (iii) demonstration, installation, servicing or repair operations, except such operations performed at [Sear's] premises in connection with the sale of said products, or (iv) products which after distribution or sale by [Emerson] have been labeled or relabeled or used as a container, part or ingredient of any other things or substance by or for [Sears]. Page 4
(PL L.R. 56.1 ¶ 11.)

Beginning in January 1993, all of the radial arm saws manufactured by Emerson and sold by Sears (with the exception of the 12" saws) did not contain a "Lower Blade Guard" as part of its guarding system, (Def, "LR, 56.1 ¶ 26.) Instead, these radial arm saws contained a "Metzger Guard," which was designed to address injuries suffered by users in the "rip-cut method," (Id) As part of Emerson and Sears's joint defense in law suits involving their saws, both parties represented tint the decision not to offer a Lower Blade Guard as standard equipment was reasonable and made in good faith. (Def, L.R. 56.1 ¶ 19.) Sears's witnesses have also testified, relying on representations by Emerson, that the presence of a Lower Blade Guard on Emerson radial arm saws may, under certain circumstances, introduce additional hazards to the operator. (PI. Reap, to Def. L.R. 56.1 ¶ 19.)

In 1997 Scars decided to put its power tool business, including the Craftsman line formerly assigned to Emerson, out for bid, (Def. L.R, 56.1 ¶ 35.) Emerson was invited to participate in the bidding process as were other companies, including Ryobi North America ("Ryobi"). (Def. L.R. 56.1 ¶ 35.) With respect to its radial arm saw product line, Sears ultimately decided to buy the product from Ryobi beginning in September 1998. (Def. L.R. 56.1 ¶ 36.) Thus, on June 30, 1997, Sears terminated the Supply Agreement with Emerson, (PI. L.R. 56.1 ¶ 12.)

On October 31, 1997, Sears and Emerson entered into an agreement that was intended to resolve issues arising out of the termination by Sears, effective September 30, 199S (the "Termination Agreement"), (Id.) As part of the Termination Agreement, both parties agreed that certain obligations of the Supply Agreement would survive the Termination Agreement and Page 5 continue past September 30, 1998, including Emerson's indemnity and duty to defend obligations, (Id.)

In December 1998 Sears began offering for sale, under the Craftsman name, Ryobi-manufactured 10" radial arm saws that came equipped with Lower Blade Guards.*fn2 (PI. L.R. 56.1 ¶ 13; Def. L.R, 56.1 ¶ 47.) After Sears began offering the Ryobi products with the Lower Blade Guard, the litigation strategies of Emerson and Sears in law suits involving the Metzger Guard (i.e., that the saws without a Lower Blade Guard were not unreasonably dangerous and the Metzger Guard provided more safety) were attacked in injury law suits as being a sham. (Def. L.R. 56.1 ¶ 53.)

Emerson, facing a dilemma of how to defend these law suits in the face of Sears's abandonment of the Metzger Guard, shortly thereafter advised Sears that it believed Sears's conduct in offering a Lower Blade Guard on the Ryobi products was in irreconcilable conflict with the joint defense of Emerson and Scars in cases involving the safety of the Metzger guard. Emerson further advised Sears that its actions had breached Sears's duty of good faith and fair dealing, breached Sears's duty lo cooperate, and materially increased Emerson's risk as an indemnitor. (Def. Resp. to PI. L.R. 56.1 ΒΆ 14.) Emerson informed Sears that it would no longer defend or indemnify Sears with respect to those radial arm saw cases where the Lower Blade Guard was at issue. (Id.) Emerson also advised Sears that because, in Emerson's view, it has ...


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