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Srail v. Village of Lisle

March 24, 2008

SUSAN SRAIL, JEFFREY SRAIL, JANEEN BRZECZEK, AND RONALD BRZECZEK, INDIVIDUALLY AND ON BEHALF OF ALL PERSONS SIMILARLY SITUATED, AND IN THE CAPACITY AS PARENTS AND NEXT FRIENDS OF THEIR MINOR CHILDREN, RYAN SRAIL, DEREK SRAIL, AND HANNAH BRZECZEK, PLAINTIFFS,
v.
VILLAGE OF LISLE, ILLINOIS, DEFENDANT AND THIRD PARTY PLAINTIFF,
v.
ILLINOIS-AMERICAN WATER CO., THIRD PARTY DEFENDANT.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Susan Srail and three other plaintiffs have sued the Village of Lisle for an injunction and damages on behalf of a putative class, asserting claims relating to the water system in the areas of Lisle proper and unincorporated Lisle where they live. Plaintiffs allege the system does not deliver adequate water pressure. Lisle has a municipally-owned water system, but the plaintiffs are not served by that system. Rather, they are served by a system operated and maintained by Illinois-American Water Company (IAWC), with which Lisle has contracted to supply water to people living in the areas where plaintiffs reside. Plaintiffs contend that Lisle's decision not to connect them to the municipal water system is arbitrary and discriminatory and violates their rights under the Equal Protection Clause of the Fourteenth Amendment and constitutes common law negligence. Plaintiff have also asserted a "taking" claim against Lisle under the Illinois Constitution; they contend that Lisle took their property by authorizing IAWC to supply water through water mains that plaintiffs claim they own.

Plaintiffs originally sued IAWC too, but the Court dismissed those claims. After that ruling, Lisle asserted third party claims against IAWC, seeking indemnification and contribution in the event Lisle is found liable to plaintiffs. Lisle also filed a "counterclaim for interpleader or in the nature of interpleader" against IAWC and the plaintiffs, focusing on alleged conflicting claims to ownership of the water system that services the plaintiffs' homes. IAWC has moved for summary judgment on Lisle's indemnification and contribution claims and has moved to dismiss the interpleader claim. For the reasons stated below, the Court grants in part and denies in part IAWC's motion for summary judgment on the third party claims and grants its motion to dismiss the interpleader claim.

Discussion

A. IAWC's Motion For Summary Judgment As to Third Party Claims

1. Indemnification Claim (Count 1)

Lisle's indemnification claim is based on provisions in an agreement between Lisle and IAWC called the "wheeling agreement." Under section 8 of the wheeling agreement, IAWC has agreed to indemnify, save, and hold harmless the Village . . . from and against all claims, litigation, and liability, including legal defense costs and expenses and attorneys' fees, asserted against the Village . . . for any loss or damage to any real or personal property caused by, connected with, or in any way attributable to the installation, maintenance, or operation of the [water] System . . . .

IAWC Ex. O, § 8. IAWC has also agreed in section 8 to indemnify, save, and hold harmless the . . . Village . . . from and against all claims, litigation, and liability, including legal defense costs and expenses and attorneys' fees, asserted against [the Village] for injury to or the death of any person or persons whomsoever or for any loss or damage to any real or personal property caused by, connected with, or in any way attributable to any exercise by [IAWC] of any right or duty herein granted or any failure to [IAWC] to exercise any such right or duty, or to comply with any of the terms or conditions hereof.

Id.

IAWC earlier moved to dismissed the indemnification claim on the ground that plaintiffs' claims were not claims "for any loss or damage to any real or personal property" or "for injury to or the death of any person or persons" and thus were outside the scope of the indemnification provisions. The Court denied the motion because plaintiffs' complaint included a general claim for damage to property. See Srail v. Village of Lisle, No. 07 C 2617, Order of Jan. 22, 2008 at 2. IAWC has now asserted essentially the same argument in its motion for summary judgment. Because it has moved for summary judgment, IAWC is not now limited to the allegations in plaintiffs' complaint; rather, it relies on plaintiffs' statements, during discovery and otherwise, describing the relief they seek.

Plaintiffs' equal protection and negligence claims are based not on any loss or damage to property, real or personal, but rather on Lisle's refusal to connect plaintiffs and others in their subdivisions to the municipal water system. Moreover, plaintiffs have stated that their compensatory damages are limited to the differential between the rates they have paid to IAWC and the rates they would have paid had they been connected to the Lisle water system. Indemnification agreements covering personal injury and property damage or loss do not cover claims for economic losses. See, e.g., Friedman, Alschuler & Sincere v. Arlington Structural Steel Co., 140 Ill. App. 3d 556, 559, 489 N.E.2d 308, 310 (1985); Ludwig Candy Co. v. Iowa Nat. Mut. Ins. Co., 78 Ill. App. 3d 306, 309-10, 396 N.E.2d 1329, 1331-32 (1979). As a result, the equal protection and negligence claims, and the damages plaintiffs seek on those claims, fall outside the scope of the indemnification provisions of the wheeling agreement.

The Court cannot say the same, however, regarding the plaintiffs' taking-of-property claim. In this claim, plaintiffs allege that Lisle allowed IAWC to take property (water mains) that belonged to plaintiffs. It is hard to see this as anything other than a claim involving "loss" of property, which the indemnification provisions specifically cover.

IAWC also argues that Lisle's indemnification claim is barred by Illinois public policy, specifically a purported public policy precluding a party from being indemnified against its own willful misconduct. In denying IAWC's motion to dismiss, the Court partially credited this argument, stating that "the Illinois Supreme Court has held that an agreement to indemnify a party against its willful misconduct 'would, as a general rule, be contrary to public policy and unenforceable though there were no statute to that effect.' Davis v. Commonwealth Edison Co., 61 Ill. 2d 494, 500-01, 336 N.E.2d 881, 885 (1975)." Srail, Order of Jan. 22, 2008 at 2. As Lisle has pointed out in its response to IAWC's summary judgment motion, however, the Illinois Supreme Court later stated that Davis involved an agreement "exempting a party from liability, and does not support a rule prohibiting an agreement by a third person to indemnify a party against liability in tort." Dixon Distrib. Co. v. Hanover Ins. Co., 161 Ill. 2d 433, 445-46, 641 N.E.2d 395, 401 (1994). In Dixon, the court went on to reject a contention that Illinois public policy prohibits insurance coverage -- a form of indemnification -- for liability for injuries resulting from the insured's intentional acts. Id. at 446-47, 641 N.E.2d at 401. See Chicago Housing Auth. v. Federal Security, Inc., 161 F.3d 485, 491 (7th Cir. 1998) (citing Dixon for this point). Based on Dixon, the Court cannot conclude that there is an Illinois public policy that precludes Lisle from obtaining indemnification on plaintiffs' taking-of-property claim.

IAWC's final argument regarding the indemnification claim is that it is not liable for any damages incurred before January 15, 2002, when it purchased the water system from its predecessor, Citizens Utility Company of Illinois. Under section 2.3.1 of the asset purchase agreement, IAWC assumed, "except as set forth in section 2.3.3(b), all liabilities and obligations of [Citizens Utility] in respect of the Contracts and Permits assigned or transferred to IAWC or Parent pursuant to this Agreement in accordance with the respective terms thereof, except that neither Parent nor IAWC shall assume any liabilities or obligations for any breach or default by, or payment obligations of, [Citizens Utility] under such Contracts and Permits occurring or arising or accruing on or prior to the Closing Date." IAWC Ex. P, § 2.3.1. The agreement that contains the indemnification provision upon which Lisle relies is one of the contracts assigned to IAWC pursuant to the asset purchase agreement.

Section 2.3.2 of the asset purchase agreement provides that any liabilities or obligations assumed by IAWC under section 2.3.1 are referred to as "Assumed Liabilities." Id. § 2.3.2. Section 2.3.3 says that IAWC does not assume any liabilities of Citizens Utility other than the Assumed Liabilities. Section 2.3.3 goes on to list "Retained Liabilities" -- those retained by Citizens Utility and not assumed by IAWC -- and includes Section 2.3.3(b), the exception to IAWC's assumption of Citizens Utility's obligations under the assigned contracts. Section 2.3.3(b) does not include as a Retained Liability the indemnification obligation or potential liability on claims like the plaintiffs' taking-of-property claim. In seeking summary judgment, IAWC relies on section 2.3.3(a) of the agreement, but that provision is not an express exception to IAWC's assumption of obligations under the assigned contracts, and in any event the types of liabilities section 2.3.3(a) includes among those retained by Citizens Utility -- "any product liability, toxic tort or similar claim for injury to person or property" -- do not cover the type of liability asserted in the plaintiffs' taking-of-property claim for which Lisle seeks indemnification.

In sum, the Court grants IAWC's motion for summary judgment on Lisle's indemnification claim (Count 1 of the third party complaint) to the extent it concerns the plaintiffs' underlying equal protection and negligence claims but denies the motion to ...


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