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City of Chicago v. Arvinmeritor Inc.

November 28, 2006

CITY OF CHICAGO, PLAINTIFF,
v.
ARVINMERITOR INC., NAILITE INTERNATIONAL, INC., GRAHAM PARTNERS, INC. AND COMMONWEALTH EDISON COMPANY DEFENDANTS.
NAILITE INTERNATIONAL, INC., THIRD-PARTY PLAINTIFF,
v.
THE ESTATE OF WILFRED E. DAVIS, ELIZABETH F. DAVIS, RICHARD A. DAVIS, DARYL A. BOYD, DIANE JOSEPH FELDMAN AND DALLAS M. CRICK, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Honorable David H. Coar

MEMORANDUM OPINION AND ORDER

Nailite International, Inc. ("Nailite") is being sued, along with several other corporate defendants (whose names are irrelevant for purposes of this decision), by the City of Chicago for alleged violations of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and various other pendent state law claims. In a third-party complaint, Nailite sued certain stockholders who sold the stock of a company that merged with another company that ultimately became Nailite. Nailite alleges that those certain stockholders have duties to indemnify and defend Nailite against suits and to pay, perform and discharge Nailite's obligations relating to a certain piece of real property that is the subject of the CERCLA litigation. Those stockholders have filed motions to dismiss Nailite's third-party complaint that are being consolidated for purposes of this Opinion and Order. Before this Court now are the consolidated motions to dismiss made pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure.

For the reasons stated in the opinion below, the motions to dismiss are DENIED.

BACKGROUND

Elizabeth Davis, Richard Davis, Wilfred Davis (deceased), Diane Feldman, Daryl Boyd and Dallas Crick (collectively, the "Sellers") were all stockholders of a company that was a predecessor of Nailite. That company owned a certain property (the "Amforge Property") that is the subject of the CERCLA litigation. In or around 1988 and pursuant to a stock-purchase agreement, the Sellers sold their stock in the predecessor company to a holding company that subsequently merged into the entity that is now Nailite. Nailite alleges in its third-party complaint that the Sellers contracted in that same stock purchase agreement to indemnify, defend and hold Nailite harmless against all claims relating to certain assets, including the Amforge Property. Nailite also alleges that the Sellers entered into an assumption of liabilities agreement, ancillary to the stock-purchase agreement, which provided for the Sellers to pay, perform and discharge any and all obligations of Nailite arising out of transactions prior to the closing date of that particular stock-purchase deal.

Nailite seeks a declaration that the Sellers are obligated to 1) indemnify, defend and hold harmless Nailite against all claims relating to Nailite's interest in the Amforge Property, 2) pay, perform and discharge any and all obligations of Nailite arising out its interest in the Amforge Property, and 3) any other relief this court may deem appropriate. The Sellers, along with the Estate of the deceased Wilfred Davis, now move this Court to dismiss Nailite's Third-Party Complaint because the claims asserted are not ripe for adjudication in this Court, the agreements do not impose a duty to defend upon the Sellers, and lastly, Nailite is barred by an Illinois statute of limitations from recovering any claim against the Estate of Wilfred Davis.

STANDARD OF REVIEW

The purpose of a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is to test the sufficiency of the complaint, not to decide the merits of the case. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990) (citation omitted). On a 12(b)(6) motion, the Court accepts all well-pleaded allegations in the plaintiff's complaint as true, Fed. R. Civ. P. (12)(b)(6), and views the allegations in the light most favorable to the plaintiff. Bontkowski v. First Nat'l Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). A court should not dismiss a complaint "unless it appears beyond all doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Upon a 12(b)(1) motion to dismiss though, a district court does not necessarily accept all factual allegations of the complaint as true. See Kolowitz v. United States, 1995 WL 32612 (N.D.Ill. 1995). A court may consider additional evidence that addresses the question of subject-matter jurisdiction. United Transp. Union v. Gateway W. Ry. Co., 78 F.3d 1208, 1210 (7th Cir. 1996).

ANALYSIS

The Duty to Defend

The obligation of the Sellers to defend Nailite against any claims relating to the Amforge Property is separate from their duty to indemnify Nailite, even though the two requests were contained within the same provision of the agreement and both are included in the prayer for relief. Obviously, a plaintiff who alleges that a defendant has a duty to defend him in a pending action is suffering a real and cognizable legal injury if that defendant fails to do so. In fact, it has been consistently held that under Illinois law, the duty to defend is broader than the duty to indemnify. Northland Ins. Co. v. Crane, 2006 WL 305877, *2 (N.D.Ill.). Therefore, federal jurisdiction over duty to defend claims is activated before jurisdiction in duty to indemnify claims. Id. at *3. Furthermore, in the insurance law context, claims over defense obligations are generally always regarded as ripe for adjudication during pending primary lawsuits, even when it is unclear whether the particular insurance policy contains a duty to defend. Union Tank Car Co. v. Aerojet-Gen. Corp., 2005 WL 2405802, *2 (N.D.Ill.).

Here, although the duty to defend arises within the context of a stock purchase agreement, not an insurance policy, the principles are the same. When the plaintiff in the primary suit filed a complaint naming Nailite as a defendant and referencing the Amforge property, the Sellers duty to defend Nailite may have been triggered, depending on the terms of the stock purchase agreement. The Sellers and Nailite have a concrete, definite dispute as to whether the Sellers must defend Nailite in the primary action filed by the City of Chicago. Nailite must provide a defense in the ongoing CERCLA litigation or run the risk of incurring a default judgment of liability.

Therefore, the Sellers' motions to dismiss are DENIED as to the issue of whether the Sellers have a duty to defend Nailite against any claims relating to the Amforge Property. Whether the Contract Imposes a Duty to Defend Pursuant to Rule 12(b)(6), Defendants Richard Davis, Boyd and Feldman move this court to dismiss Nailite's third-party complaint on the grounds that the contract (the stock purchase agreement) does not impose a duty to defend, rather it gives the Sellers a right to defend should they be so inclined. On a 12(b)(6) motion, the Court accepts all well-pleaded allegations in the plaintiff's complaint as true, Fed. R. Civ. P. 12(b)(6), and views the allegations in the light most favorable to the plaintiff. Bontkowski v. First Nat'l Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). Generally, a court will not look beyond the complaint, but Rule 10(c) of the Federal Rules of Civil Procedure states that "[a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes." See McCready v. eBay, Inc., 453 F.3d 882, 891 (7th Cir. 2006).

Turning to the stock purchase agreement, the interpretation of a contract is a question of law determined by the court. Florida East Coast Ry. Co. v. CSX Transp., Inc., 42 F.3d 1125, 1128 (7th Cir.1994). Furthermore, contract disputes not involving federal questions are governed by state law.*fn1 Illinois law provides that interpretation of a contract begins with the express language itself. Emergency Medical Care, Inc. v. Marion Memorial Hosp., 94 F.3d 1059, 1061 (7th Cir. 1996). Section 7.2(i) contains explicit language obligating the Sellers to defend Nailite against all claims and actions relating to the Amforge Property. Section 7.2(v) also contains language that the Sellers purport gives them the option, rather than the obligation, to defend Nailite against all claims and actions relating to the Amforge Property.*fn2 If the language of a contract unambiguously answers the question at issue, then the analysis ends. Emergency Medical Care, Inc., 94 F.3d at 1061. "A contract is intrinsically ambiguous if 'its language is reasonably and fairly susceptible to more than one meaning.'" Id. (citing CSX Transp. v. Chicago and North Western Transp., 62 F.3d 185, 189 (7th Cir. 1995)). That ...


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