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Citadel Group Limited v. Washington Regional Medical Center

May 13, 2009


The opinion of the court was delivered by: Marvin E. Aspen, District Judge


Plaintiff Citadel Group Limited ("Citadel") filed a four-count amended complaint against Defendant Washington Regional Medical Center ("WRMC") to recover costs it expended pursuant to its contractual agreement allegedly breached by WRMC, and lost profits based on WRMC's alleged breach of the agreement and of the duty to negotiate in good faith. (Am. Compl. ¶¶ 1-14; Citadel Resp. to Def. Mot. to Dismiss at 1 [hereinafter Citadel Resp.].) WRMC filed its answer, including its affirmative defenses and counterclaims alleging that Citadel breached their contract and the implied covenant of good faith and fair dealing and that WRMC is entitled to setoff certain amounts it has already paid to Citadel and other third parties. (Answer at 12.) The case is before us now on two pending motions: (1) a motion by Citadel to dismiss one of WRMC's counterclaims and to strike various affirmative defenses pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f) (Citadel Mot. ¶ 1, 10-12); and (2) WRMC's motion to dismiss two counts of Citadel's amended complaint (WRMC Mem. in Support of its Mot. to Dismiss at 1 [hereinafter WRMC's Mem.]). For the reasons set forth herein, we grant both motions in part.


In May 2005, WRMC issued Request for Proposals ("RFP") for the development and lease of a medical office building in West Springdale, Arkansas. (Am. Compl. at 1.) Citadel responded to the RFP and submitted a proposal to WRMC on May 13, 2005, suggesting a transaction in which Citadel would acquire a ground lease estate from WRMC, finance and construct a new medical office building on the land, and then lease this building back to WRMC. (Id. at 2.) Citadel's proposal letter included a preliminary leasing terms sheet, which included terms for leasing the space back to WRMC. (Id., Ex. B.) Although the original proposal expired on May 27, 2005, the two parties further communicated regarding the proposal. (Id., Ex. B.) For example, in June 2005, WRMC requested lease and operating rate summaries, which Citadel provided. (Id., Ex. C.) Finally, on August 24, 2005, at WRMC's request, Citadel re-sent its proposal letter, which was identical to the first proposal letter, but apparently without the attached preliminary leasing terms. (Id., Ex. E.)

The proposal letter contained a one-paragraph clause entitled Authorization to Proceed ("Authorization"). On September 15, 2005, WRMC's CEO, William Bradley accepted and signed the proposal letter containing the Authorization. (Id., Ex. F.) By agreeing to the Authorization, WRMC authorized Citadel "to proceed with Project development" under the terms specified by the agreement. (Id. at 2, Ex. F.) Pursuant to the Authorization, Citadel's fee for Project development was "four percent (4%) of project costs," to be paid according to two specifications. (Id.) WRMC was to pay Citadel a "1% good faith deposit upon execution of [the] proposal," and the remaining balance was to be paid from "Project funding." (Id.) Accordingly, WRMC sent Citadel a $40,000*fn1 good faith deposit. (Id.)

Pursuant to the Authorization, Citadel prepared for the completion of the transaction by retaining attorneys, accountants, banks, and other professionals. (Id. at 3.) Citadel continued Project development until May 2006, when WRMC informed Citadel that it would not complete the transaction. (Id.) Citadel further alleges that after WRMC withdrew from its agreement with Citadel, WRMC retained AMB Development Group ("AMB") and USI-Arkansas ("USI"), two companies with whom Citadel had negotiated during Project development, and, using Citadel's plans and work product that AMB and USI prepared for Citadel, built and occupied the building that Citadel designed for WRMC. (Id. at 3-4.)

In its answer, WRMC alleges that Citadel's proposal anticipated a transaction in which Citadel "would execute a 'ground lease' for the land owned by Washington Regional Medical Foundation," build a medical office building on the leased ground, and then lease part of the building to WRMC pursuant to a "space lease." (Answer at 9.) Although WRMC recognizes that the two parties had an agreement pursuant to the Authorization, it alleges that the Authorization did not finalize an agreement regarding the potential ground or space leases of the medical office building. (Id. at 10.) Accordingly, WRMC alleges that Citadel acted outside the scope of the Authorization when it incurred "unreasonable and excessive financing and other fees and expenses," despite the fact that the two parties had not come to an agreement on a ground lease. (Id. at 11.) WRMC asserts that Citadel breached their agreement and the covenant of good faith and fair dealing by incurring "unreasonable and exorbitant fees" before the parties executed a ground lease and by "failing to reduce WRMC's overall costs and expenses" as Citadel promised in its proposal letter, representations, and the Authorization. (Id. at 12.) Although WRMC admits that it "was not to have direct relationships with any of the other entities Citadel chose to hire" (id. at 11), it contracted with AMB and USI for the completion of the building after WRMC ended its transaction with Citadel. (Am. Compl. at 3; See Answer at 13.) Pursuant to WRMC's agreement with AMB and USI, it made payments to those companies. (Answer at 13.) Therefore, WRMC also alleged a claim of setoff, arguing that various costs it incurred -- including its payments to AMB and USI -- should be deducted from any amount it may owe Citadel. (Id. at 13-14.)


The purpose of a motion to dismiss under 12(b)(6) is to test the sufficiency of the complaint, not to decide the merits of the case. Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). Accordingly, a court may grant a motion to dismiss under Federal Rule of Procedure 12(b)(6) only if a complaint lacks "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007); see Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618-19 (7th Cir. 2007); EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776-77 (7th Cir. 2007). A sufficient complaint need not give "detailed factual allegations," but it must provide more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555, 127 S.Ct. at 1964-65 (2007); Killingsworth, 507 F.3d at 618-19. These requirements ensure that the defendant receives "fair notice of what the . . . claim is and the grounds upon which it rests." Twombly, 550 U.S. at 555, 127 S.Ct. at 1964 (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 102 (1957)); see also Fed. R. Civ. P. 8(a). In evaluating a motion to dismiss, we must accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Thompson v. Ill. Dep't of Prof'l Reg., 300 F.3d 750, 753 (7th Cir. 2002).

Furthermore, Rule 8(c) requires parties to set forth any affirmative defenses in their responsive pleadings and specifically lists nineteen defenses that must be pled "affirmatively." Fed. R. Civ. P. 8(c). A motion to strike pursuant to Rule 12(f) is the appropriate means of removing "impertinent or redundant matter in any pleading and is the primary procedure for objecting to an insufficient defense." Van Schouwen v. Connaught Corp., 782 F. Supp. 1240, 1245 (N.D. Ill. 1991); Fed. R. Civ. P. 12(f). Motions to strike affirmative defenses are generally disfavored because of their potential to delay proceedings. United States v. 416.81 Acres of Land, 514 F.2d 627, 631 (7th Cir. 1975) (citations omitted); Carpenter v. Ford Motor Co., 761 F. Supp. 62, 65 (N.D. Ill. 1991). Such a motion should therefore not be granted unless the defense is "patently defective" on the face of the pleadings. Bobbitt v. Victorian House, Inc., 532 F. Supp. 734, 736 (N.D. Ill. 1982). Defenses generally "will not be struck if they are sufficient as a matter of law or if they present questions of law or fact." Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989); see also Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991). Nonetheless, a motion to strike can be a useful means of removing "unnecessary clutter" from a case. Heller Fin., Inc., 883 F.2d at 1294.

A three-step analysis is required when assessing the sufficiency of an affirmative defense. Reis Robotics USA, Inc. v. Concept Indus., Inc., 462 F. Supp. 2d 897, 905 (N.D. Ill. 2006); Renalds v. S.R.G. Rest. Group, 119 F. Supp. 2d 800, 802-03 (N.D. Ill. 2000); Van Schouwen, 782 F. Supp. at 1245. First, we determine whether the matter is appropriately pled as an affirmative defense. "Only matters that deserve a clear 'no' answer will be stricken to make the pleadings more concise." Bobbitt, 532 F. Supp. at 737. Second, we consider whether the defense has been adequately pled pursuant to the requirements of Federal Rules of Civil Procedure 8 and 9. Id.; Reis Robotics, 462 F. Supp. 2d at 905. Finally, we evaluate the sufficiency of the defense pursuant to the standard followed in assessing Rule 12(b)(6) motions. Reis Robotics, 462 F. Supp. 2d at 905; Bobbitt, 532 F. Supp. at 737. Ultimately, a defense should be stricken only if the defendant cannot prove any set of facts in support of the defense that would defeat the complaint. Reis Robotics, 462 F. Supp. 2d at 905; Bobbitt, 532 F. Supp. at 737.


I. Citadel's Motion

Citadel moves to dismiss Count II of WRMC's counterclaim and to strike WRMC's second, fifth, ninth, and tenth affirmative defenses. ...

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