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Premium Allied Tool, Inc. v. Zenith Electronics Corp.

February 17, 2009


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


The Court previously dismissed, for failure to state a claim, the complaint of plaintiff Premium Allied Tool, Inc. (PAT) against defendants Zenith Electronics Corporation and Zenith Electronics Corporation of Texas (collectively Zenith). Premium Allied Tool, Inc. v. Zenith Elec. Corp., No. 08 C 2527, 2008 WL 5170853 (N.D. Ill. Dec. 10, 2008). PAT has now filed an amended complaint against Zenith, including claims for breach of contract (count one), declaratory judgment and specific performance regarding the same contract (count two), and two additional claims of declaratory judgment (counts three and four).

Zenith has moved to dismiss the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the Court grants Zenith's motion in part and denies it in part.


When considering a motion to dismiss, the Court accepts as true the complaint's factual allegations and draws reasonable inferences in favor of the plaintiff. See, e.g., Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 617 (7th Cir. 2007). The Court treats exhibits to a complaint as part of the complaint. Fed. R. Civ. P. 10(c). The Court is not bound by PAT's characterizations of the exhibits attached to its complaint and can independently examine those exhibits for inconsistencies between them and PAT's allegations. See, e.g., 188 LLC v. Trinity Indus., Inc., 300 F.3d 730, 735 (7th Cir. 2002); Rosenblum v., Ltd., 299 F.3d 657, 661 (7th Cir. 2002).

PAT purchased from Zenith certain production facilities located in Matamoros, Mexico. As part of this purchase, which PAT completed on February 26, 1999, the parties executed a stock purchase agreement and an indemnification and escrow agreement. Zenith then established four escrow accounts, each for the purpose of covering specific types of indemnification claims. The escrow accounts are controlled and administered by an escrow agent appointed by the parties in the indemnification and escrow agreement.

One of the escrow accounts was created to cover any custom duties or taxes imposed as a result of "open pedimentos." A pedimento is a customs declaration associated with items shipped to and from Mexico. An open pedimento exists when raw materials are shipped to Mexico but no finished goods associated with the raw materials are shipped back to the United States. When an open pedimento exists, a customs duty is assessed. At the time the parties executed their contracts, a large number of pedimentos were open. After the sale to PAT, Zenith personnel worked to help PAT close the open pedimentos. Those efforts, however, were unsuccessful, and Zenith abandoned its efforts without resolving the open pedimentos. PAT worked to close the pedimentos unsuccessfully for several years until it hired additional personnel. PAT closed all outstanding pedimentos by early 2007.

Section 2(a) of the indemnification agreement reads, in relevant part, as follows: Subject to the limitations hereinafter set forth in this Section 2, during the Indemnification Period (as hereinafter defined), [Zenith] shall, jointly and severally, protect, defend, hold harmless and indemnify [PAT], and its officers, directors, stockholders, and employees and agents, and its successors and assigns from, and against and in respect of any and all losses, liabilities, deficiencies, penalties, fines, costs, damages and expenses whatsoever (including, without limitation, reasonable professional fees and costs of investigation, litigation, settlement, judgment and interest) (collectively "Losses") actually suffered or incurred by [PAT] arising from or by reason of any material breach of any of the representations, warranties, or covenants made by [Zenith] in the Stock Purchase Agreement, including, without limitation, the following:

(i) any custom duties or taxes owed by Electropartes de Matamoros S.A. de C.V. ("Electropartes") relating to periods prior to the Closing Date (the "Customs Duties") in connection with or arising from any Open Pedimentos (as defined in Section 2(d) below) . . . .

Am. Compl., Ex. B § 2(a). That contract also provided that Zenith's indemnification obligations expired two years after execution, except for particular specified claims that continued to exist for "an indefinite period of time." Id. Custom duties and taxes resulting from open pedimentos were not subject to the two-year limitation. The indemnification agreement provided that the escrow account relating to custom duties and taxes "shall terminate upon the earlier to occur of (A) the payoff or resolution of any outstanding liability with respect to the Customs Duties . . . ." Id. § 7(a)(i). Upon expiration of an escrow account, the escrow agent must pay unused funds to Zenith, but "shall continue to retain in the Escrow Funds all such amounts under unresolved or unsettled claims then outstanding . . . ." Id. § 7(b).

On November 1, 2007, PAT submitted an indemnification claim to Zenith in the amount of $1,423,900. The claim involved expenses PAT incurred in attempting to close open pedimentos. It was not a claim for payment of custom duties or taxes. On December 11, 2007, Zenith notified PAT that it disputed the escrow claim. PAT then filed this lawsuit.

In count one of the amended complaint, PAT asks the Court to find Zenith liable for breach of the indemnification agreement. In count two, PAT asks the Court to declare that PAT is entitled to indemnification and to direct the escrow agent to disburse monies in the escrow account to PAT in an amount sufficient to cover its claim. Count two is based on the same alleged contractual breaches detailed in count one. Count three seeks a declaration that funds currently deposited in one of the escrow accounts must remain there until 2012. Count four seeks a declaration that Zenith Electronics Corporation does not have a right to claim any funds deposited in the escrow accounts.


The Seventh Circuit has emphasized that even after the Supreme Court's ruling in Bell Atlantic Corp. v. Twombly, --- U.S. ---, 127 S.Ct. 1955 (2007), federal courts continue to adhere to a notice-pleading standard. E.g., Tamayo v. Blagojevich, 526 F.3d 1074, 1083-83 (7th Cir. 2008). "A plaintiff must still provide only enough detail to give the defendant fair notice of ...

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