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Kmart Corp. v. Footstar

December 1, 2009

KMART CORPORATION, A MICHIGAN CORPORATION, PLAINTIFF,
v.
FOOTSTAR, INC., A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Susan E. Cox United States Magistrate Judge

Magistrate Judge Susan E. Cox

MEMORANDUM OPINION AND ORDER

In July 2005, Judy Patrick was shopping at Kmart and while being assisted by an employee, was struck by a stroller that fell off a shelf. The employee helping Ms. Patrick was, allegedly, a defendant Footstar, Inc. ("Footstar") employee. Ms. Patrick sued Kmart Corporation ("Kmart") and in October 2008, Kmart settled the lawsuit paying $300,000 to Ms. Patrick and her husband. Now Kmart has filed suit against Footstar alleging that Footstar is required to reimburse and indemnify Kmart for the costs Kmart incurred in the defense and settlement of Ms. Patrick's case. Footstar, however, filed four affirmative defenses: the indemnity agreement Kmart relied upon is void, Kmart cannot seek reimbursement because it failed to notify Footstar in a reasonable time, Kmart breached its duty of reasonable notice, and, therefore, Kmart is estopped from seeking fees and costs. Before the Court is Kmart's motion to strike Footstar's affirmative defenses. That motion is granted in part and denied in part as stated below [dkt 32].

I. Facts

In June 1995, Kmart and Footstar entered into an agreement with respect to the operation of the footwear departments in various Kmart stores. Then, on August 24, 2005, Kmart and Footstar entered into another agreement that purportedly superseded the June 1995 agreement and remained in effect through December 31, 2008 (hereinafter the "Master Agreement"). The Master Agreement provided that Footstar would operate (by their partially and wholly owned subsidiaries) certain footwear departments in Kmart. This included Kmart store number 4296, where Ms. Patrick was injured.

II. Legal Standard

An affirmative defense is one that "rais[es] new facts and arguments that, if true, will defeat the plaintiff's or prosecution's claim, even if all allegations in the complaint are true."*fn1 Courts may "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter."*fn2 These motions are generally disfavored but may be used to "remove unnecessary clutter from the case."*fn3 It is only appropriate to strike an affirmative defense when it is facially insufficient.*fn4 Like pleadings, affirmative defenses must simply articulate "a plausible set of underlying facts."*fn5 So when complex issues are involved, a motion to strike should be denied.*fn6 For further guidance, a three part test is used to examine the sufficiency of affirmative defenses: (1) is the matter properly pleaded; (2) does the defense comply with Federal Rules of Civil Procedure 8 and 9; and (3) does the defense withstand a Rule 12(b)(6) challenge.*fn7

III. Analysis

Kmart attacks all of Footstar's affirmative defenses. Kmart does not, however, dispute that Footstar's affirmative defenses are properly pleaded or that they are in compliance with Rules 8 and 9. The only concern is with the third prong of the test, which is whether they sufficiently state claims under Rule 12(b)(6). The First Affirmative Defense - alleging that the indemnity agreement Kmart relies on is illegal - Kmart claims misconstrues the part of the Illinois Landlord and Tenant Act that is the basis for the defense. Kmart next argues that the Second Affirmative Defense should be stricken because though it claims waiver, an alleged delay in notifying Footstar of the underlying lawsuit is not a waiver of its indemnity rights. Kmart also asserts that the Third Affirmative Defense - claiming a failure to notify Footstar of the underlying case - is insufficient because any alleged breach of the notice provision in the Master Agreement would not affect Kmart's right to indemnity. As to the Fourth Affirmative Defense, Kmart claims, simply, that Footstar cannot establish all of the elements required for equitable estoppel.

A. First Affirmative Defense - Lease or License

Under this affirmative defense, Footstar claims that the Master Agreement, relied upon by Kmart, is a lease of real property and that the indemnity provision in the Master Agreement violates the Illinois Landlord and Tenant Act.*fn8 Specifically, section 18.1 of the Master Agreement requires Footstar, as the licensee, to reimburse, indemnify, defend and hold harmless Licensor and its subsidiaries and affiliates...from and against any and all damage, loss, cost, expense or penalty...by or on behalf of any person, arising out of Licensee's performance or failure to perform under this Agreement and/or the Existing Master Agreement...including, but not limited to, personal injury and death claims...*fn9

The Landlord and Tenant Act, however, provides for a liability exemption that states every agreement, in connection with or collateral to any lease of real property, exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his or her agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable.*fn10

So Footstar argues that because the Landlord and Tenant Act voids indemnity agreements contained in leases of real property, and because the Master Agreement was a lease of real property, its affirmative defense is sufficient. The question that follows, naturally, is whether the Master Agreement, in fact, constitutes a lease. Or whether, as Kmart argues, the Master Agreement is merely a licensing agreement whereby Kmart agreed to allow Footstar to operate footwear departments and sell licensed footwear in certain Kmart stores and, thus, it is not subject to the Landlord and Tenant Act.

To determine whether a contractual agreement is a lease or a license, courts look to the legal effect of the contract's provisions and the intent of the parties, not the language used in the contract.*fn11 Specifically, to be considered a lease there must be the following: "a definite agreement as to the extent and bounds of the property; a definite and agreed term; and a definite and agreed rental price and manner of payment."*fn12 Conversely, a license is "not assignable, and ...


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