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Freesen, Inc. v. Boart Longyear Co.

October 7, 2008

FREESEN, INC., A NEVADA CORPORATION, PLAINTIFF,
v.
BOART LONGYEAR COMPANY, A UTAH CORPORATION, AND DIAMOND PRODUCTS LIMITED, AN OHIO LIMITED LIABILITY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Jeanne E. Scott United States District Judge

OPINION

JEANNE E. SCOTT, U.S. District Judge

This matter is before the Court on Defendant Boart Longyear Company's Motion to Dismiss Plaintiff Freesen, Inc.'s Amended Complaint (d/e 23) and Boart Longyear Company's Motion to Dismiss Defendant Diamond Products Limited's Second Amended Cross-claim (d/e 28). The instant case arises out of Freesen's purchase of a highway grinder. Freesen's three-count Amended Complaint (d/e 22) alleges breach of contract (Count I), breach of express warranty (Count II), and breach of the implied warranty of merchantability (Count III) claims against both Defendants arising out of the Grinder purchase. Defendant Diamond filed an Answer and Affirmative Defenses to Amended Complaint and Second Amended Cross-claim against Defendant Boart Longyear Company (d/e 24), alleging two breach of contact claims, a claim for contractual indemnity, and a breach of implied warranty of merchantability claim against Boart. Defendant Boart moves to dismiss Freesen's claims against it for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). Boart also asks the Court to dismiss Diamond's cross-claims for failure to state a claim. Id. For the reasons set forth below, Boart's Motions are denied.

BACKGROUND

In ruling on a motion to dismiss, the Court must accept as true all of the factual allegations contained in a claim for relief and draw all reasonable inferences in favor of the nonmoving party. Erickson v. Pardus, 127 S.Ct. 2197, 2200 (2007); United States v. Castle Construction Corp., 2002 WL 31163668, *3 (N.D. Ill. Sept. 30, 2002) (applying standard to crossclaims). The following facts are taken from the allegations of Freesen's Amended Complaint. On February 2, 2005, Freesen and Boart entered into an agreement for Freesen's purchase of a highway grinder from Boart for a net price of $553,000.00 with delivery on August 15, 2005, or sooner. During negotiations, Boart Sales Representative Reb Silay represented to Freesen that the new grinder would increase productivity by at least twenty percent over the grinder previously used by Freesen. Freesen made a down payment of $55,300.00 to Boart.

On or about April 29, 2005, Boart sold its grinding division to Diamond. Freesen received a final invoice dated July 25, 2005, for the grinder from Diamond. Amended Complaint, Ex. C. Freesen paid the balance due prior to the grinder being delivered to Freesen's Joplin, Missouri, field office on July 30, 2005. Shortly after delivery, Freesen began experiencing a number of mechanical problems with the grinder. Freesen notified Diamond of these defects, and Diamond agreed to repair the grinder to a functional level for temporary use and to manufacture a new grinder for delivery to Freesen. Freesen alleges that Boart possessed actual knowledge of the defects in the grinder as a result of communications with representatives of Diamond, its insurer, and/or Freesen.

Freesen received the repaired grinder on March 6, 2006, to use pending manufacture and delivery of a new grinder. Freesen continued to experience defective performance and slowed production levels with the repaired grinder. On September 18, 2006, Diamond delivered a new grinder to Freesen as a replacement for the defective grinder.

The following facts are taken from the allegations of Diamond's Answer and Affirmative Defenses to Amended Complaint and Second Amended Cross-claim. On April 29, 2005, Diamond entered into an Asset Purchase Agreement with Boart.*fn1 One of the assets that Diamond purchased from Boart was the Boart-Freesen Purchase Agreement for the grinder sale. Diamond also purchased Boart's entire inventory of its Product Line Business, including work-in-process. Nevertheless, Boart continued to manufacture the Freesen grinder and, upon completion, delivered it to Freesen in Joplin, Missouri. At no time between manufacture and delivery did Diamond take possession of, or exercise control over, the Freesen grinder. After Diamond learned of Freesen's claims that the grinder was defective, Diamond, Diamond's insurance carrier, and/or representatives of the insurance carrier notified Boart of Freesen's claims. According to Diamond, Boart is contractually obligated to indemnify it on Freesen's claims under the terms of the Boart-Diamond Asset Purchase Agreement.

Diamond asserts that it demanded indemnification on or about October 30, 2007.

Freesen initially filed this case in state court, and the matter was subsequently removed to this Court. Notice of Removal (d/e 1), Ex. 1, Complaint. Boart filed a Motion to Dismiss, which this Court allowed, in part. Opinion (d/e 21), dated May 28, 2008 (May 28th Opinion). The Court, however, granted Freesen's request for leave to file an amended complaint in an attempt to cure the deficiencies identified by Boart. Freesen has done so. Freesen's Amended Complaint alleges breach of contract (Count I), breach of express warranty (Count II), and breach of the implied warranty of merchantability (Count III) claims against both Defendants. Diamond then filed its Answer and Affirmative Defenses to Amended Complaint and Second Amended Cross-claim against Defendant Boart Longyear Company. Diamond alleges crossclaims against Boart for breach of contract for sale of the grinder (Count 1), breach of the Boart-Diamond Agreement (Count 2), contractual indemnification (Count 3), and breach of implied warranty of merchantability (Count 4). Boart seeks dismissal of all of these claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Specifically, Boart asserts that Freesen's Amended Complaint fails to adequately allege knowledge. Additionally, Boart contends that Diamond's Counts 1 and 4 fail to adequately allege timely notice and that Diamond's Counts 2 and 3 should be dismissed based on Diamond's failure to give prompt written notice of its demand for indemnification.

ANALYSIS

The federal notice-pleading system requires that a complaint contain a "short and plain statement of the claim . . . ." Fed. R. Civ. P. 8(a)(2). The Supreme Court has recently clarified that "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (citations omitted). Twombly did not signal a switch to fact-pleading in the federal courts, however. Soon after Twombly's release, the Court reiterated that under Rule 8, "[s]pecific facts are not necessary; the statement need only 'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.' " Erickson, 127 S.Ct. at 2200 (quoting Twombly, 127 S.Ct. at 1964). With these principles in mind, the Court turns its attention to the pending Motions to Dismiss.

A. FREESEN'S AMENDED COMPLAINT

All three counts of Freesen's Amended Complaint arise under the Illinois Uniform Commercial Code (Illinois UCC). See 810 ILCS 5/1-101, et seq. As the Court noted in its May 28, 2008 Opinion, ยง 2-607(3)(a) of the Illinois UCC imposes a requirement on a buyer who has accepted tender to notify the seller of breach or be barred from any remedy. See Opinion, dated May 28, 2008, p. 3. However, direct notice is not required when the seller has actual knowledge of the problem. See id. (citing Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d 584, 589 (1996)). In the May 28, 2008 Opinion, the Court determined that ...


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