The opinion of the court was delivered by: AMY J. ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff M. Block & Sons, Inc. ("Block") filed a seven-count
Amended Complaint against Defendant International Business
Machines Corporation ("IBM"). The Amended Complaint alleges
fraudulent inducement (Counts I and II), violation of the
Illinois Consumer Fraud and Deceptive Practices Act ("ICFA")
(Count III), breach of express warranties (Count IV), breach of
contract (Count V), and breach of implied warranties (Counts VI
and VII). IBM has moved to dismiss Counts I, II, III, VI, and VII
pursuant to Rule 12(b)(6). For the reasons stated herein,
Defendant's motion is granted in part and denied in part.
Block is an Illinois corporation that runs a wholesale
distribution business with a main warehouse operation in Illinois
and a secondary warehouse operation in California. (R. 8-1, Am.
Compl. ¶ 6.) IBM is a New York corporation. (Id. ¶ 2.) In the
year 2000, Block began to research the purchase or license of an
Enterprise Resource Planning ("ERP") computer system. (Id. ¶ 7.) Block focused on purchasing J.D. Edwards & Co.'s ERP
software and contacted IBM to discuss implementation of the J.D.
Edwards software. (Id. ¶¶ 7-9.) IBM represented that it was
skilled in the implementation of such software.
Block alleges that IBM made false representations of material
fact and further concealed the material facts during the
negotiations in order to induce Block to enter into a contract
(R. 8-1, Am. Compl. ¶¶ 33-48.) Namely, on or about November 17,
2000, representatives of Block and IBM met in Bedford Park,
Illinois, to discuss a proposal from IBM to implement J.D.
Edwards "OneWorld ERP Software." (Id. ¶ 9.) Block alleges that
IBM represented that it had a program "J.D. Edwards National
Practice" which focused on the implementation of J.D. Edwards
software. (Id. ¶ 9.) Block claims that at this meeting, Tracey
A. Ferguson of IBM made a misrepresentation to Block
representative Allen Drafke, Block's chief financial officer.
(Id. ¶¶ 11-14.) Specifically, Drafke asked Ferguson "whether
[IBM] ever had received any customer complaints that [IBM] had
failed to implement J.D. Edwards software successfully," and
Ferguson allegedly replied, "no." (Id. ¶ 12.) Ferguson added
that software at one installation site had required a second "go
live" before the system performed satisfactorily. (Id. ¶ 12.)
Block alleges that it justifiably relied on Ferguson's
representations. Block further alleges that in fact, IBM had at
least one failed implementation of J.D. Edwards OneWorld Software
as of November 2000. Block states that Evans Industries, Inc.
filed suit against IBM in September 2000 for breach of contract
and fraud following a failed implementation of J.D. Edwards
software. (Id. ¶ 14.)
Based on IBM's false representations, Block entered into a
contractual agreement with IBM in September and October of 2001.
(Id. ¶ 13.) Together, an "IBM Customer Agreement" and a
"Statement of Work for the implementation of JD Edwards OneWorld
ERP Software and ERP Bridge Data Collection" comprised the "IBM Contract." (Id.
¶ 13.) IBM agreed to implement the software purchased from J.D.
Edwards and provide data collection software to perform in
conjunction with the J.D. Edwards OneWorld software. IBM
represented that it was skilled in the implementation of such
software. (Id. ¶ 7.) Block alleges that if it had known of
IBM's alleged failed implementation of J.D. Edwards software, it
would not have entered the contract with IBM. (Id. ¶ 15.)
Block further alleges that IBM misrepresented that it had an
existing software product called ERP Bridge to act as a data
collection software in connection with J.D. Edwards One World
software. (Id. ¶ 116.) Block claims that Bryan Tipton of IBM
represented to Drafke that "ERP Bridge is an excellent solution
to complement the OneWorld Advanced Warehouse Module, and the
premier J.D. Edwards references for the Advanced Warehouse Module
are using ERP Bridge as the RF solution." (Id. ¶ 16.) Block
alleges that IBM also "represented that there was a long list of
`Standard Functions' in ERP Bridge Data collection, and that
there were various `Custom Functions' in ERP Bridge Collection."
(Id. ¶ 19.) According to Block, IBM promised and "sought to
create the false belief" that ERP Bridge, later renamed "DC
Connect," was a product that already existed and contained
standard functions that would be modified in a limited manner for
Block's use. (Id. ¶ 20.) Block claims that IBM made these
representations to induce Block to enter the IBM Contract and
that IBM had "superior and unique means of knowledge" as to the
actual status of ERP Bridge as an existing product. (Id. ¶ 20.)
During the implementation of the software, Block alleges that
neither a standard ERP Bridge nor DC Connect product existed and
that the entire system "would have to be custom-programmed from
the ground up." Furthermore, IBM informed Block in late 2002 that
"all the initial work on DC Connect was useless and had to be
redone." (Id. ¶ 25.) Block alleges that numerous attempts were necessary to go "live
at Block's California operation." (R. 8-1, Am. Compl. ¶ 26.)
Block contends that the repeated problems with the system have
cost Block about $1.5 million in excess of the original amount
that IBM claimed the project would cost. (Id. ¶ 29.) Block
further alleges that the remainder of the contract cannot be
executed because the "disastrous performance for the system in
the California operation" means that Block cannot risk attempting
to install the software at the Illinois operation. (Id. ¶ 29.)
On February 24, 2004, Block filed a seven-count Amended
Complaint. In Count I, Block alleges that IBM fraudulently
induced Block to enter into the IBM Contract by making
misrepresentations as to prior failed implementations of J.D.
Edwards software. In Count II, Block claims that IBM fraudulently
induced Block to enter the contract also by concealing "the fact
that Defendant had never been involved in a failed implementation
of J.D. Edwards software."*fn1
In Count III, Block claims that it is entitled to relief under
the ICFA. Block claims that IBM violated the ICFA by stating that
it had never been involved in a failed implementation of J.D.
Edwards software, by representing that ERP Bridge and DC Connect
were existing products, and by failing to disclose that ERP
Bridge and DC Connect needed to be "virtually custom-programmed
from the ground up." (Id. ¶ 52.)
In Count IV, Block alleges that IBM materially breached express
warranties that were incorporated in the integrated IBM Contract.
In Count V, Block alleges that IBM made material breaches of
contract by not providing "functional and operative products," by
failing to "provide products that performed in accordance with
warranties," and by failing to provide products that "performed in accordance with Defendant's representations and
warranties." (Id. ¶ 65.) In Count VI, Block claims that there
was also a breach of implied warranty of merchantability. (Id.
¶¶ 67-73.) Block alleges that the disclaimers are not enforceable
because they were not sufficiently conspicuous and they do not
apply to the products that failed to perform. (Id. ¶ 69.) Block
also alleges that the circumstances of the case make enforcement
of the implied warranty disclaimers unconscionable. (Id. ¶ 69.)
In Count VII, Block alleges that IBM breached the implied
warranty of fitness for a particular purpose. Block argues that
the disclaimers and limitations on implied warranties do not
apply to the products that actually failed to perform. (Id. ¶
76.) Block alleges that the disclaimers were not sufficiently
conspicuous and that the enforcement of them would be
unconscionable under the circumstances. (Id. ¶ 77.) Block
requests that the limited damages contract clause be set aside in
reference to Counts III, IV, V, VI, and VII.
IBM has moved to dismiss Counts I, II, III, VI, and VII of
Block's Amended Compliant. IBM also moves to dismiss Block's
claims for consequential damages in Counts III, IV, V, VI, and
VII, arguing that the limitation of liability provision in the
contract precludes these damages.
A Rule 12(b)(6) motion tests the sufficiency of the complaint,
it is not designed to resolve the case on the merits. Petri v.
Gatlin, 997 F. Supp. 956, 963 (N.D. Ill. 1997) (citing 5A Charles
A. Wright and Arthur R. Miller, Federal Practice and Procedure §
1356, at 294 (2d ed. 1990)). When determining whether to grant a
12(b)(6) motion to dismiss, a court must accept all factual
allegations in the complaint as true. Jang v. A.M. Miller &
Assocs., 122 F.3d 480, 483 (7th Cir. 1997). A court must
also draw all reasonable inferences in the plaintiff's favor.
Id. The court should dismiss a complaint under Rule 12(b)(6)
only if "it is clear that no relief could be granted ...