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Brennan v. Connors

November 10, 2010

EDWARD F. BRENNAN, PLAINTIFF,
v.
JAMES S. CONNORS, DEFENDANT.



The opinion of the court was delivered by: Murphy, District Judge.

MEMORANDUM AND ORDER

I. INTRODUCTION

This matter is before the Court on a motion to dismiss or, in the alternative, for summary judgment brought by Defendant James S. Connors (Doc. 10). This case is the successor to a long-running state court lawsuit between Connors and Edward F. Brennan. A little history is helpful. In 1992, Brennan, an attorney in partnership with attorneys Michael B. Constance and Judy L. Cates in the firm of Brennan, Cates & Constance, P.C. ("BCC"), in Belleville, Illinois, agreed to represent Connors, the internationally-known tennis star. In 1997, BCC dissolved. The following year Brennan brought suit against Connors in the Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois, claiming that Connors breached his representation agreement with him by failing to transfer to Brennan some 458,333 shares in the Argosy Gaming Company ("Argosy") worth approximately $65 million. In 2009, Connors settled Brennan's lawsuit for an unknown amount that Connors suggests was eight figures. The settlement agreement includes mutual promises to indemnify and hold the other harmless from certain claims (the exact terms of the indemnification agreement will be discussed in more detail presently).

Next, in 2010, Constance, Brennan's former law partner, sued Brennan in the St. Clair County circuit court, claiming that Connors had attempted to transfer the Argosy shares to Brennan in 1997 before the dissolution of BCC, but that Brennan deliberately refused to accept the shares in order to conceal the transaction from his law partners. He casts his claims as fraud and breach of fiduciary duty and seeks compensatory and punitive damages. The case, Constance v. Brennan, was then removed by Brennan to this Court, asserting subject matter jurisdiction on the basis of diversity of citizenship under 28 U.S.C. § 1332. Shortly after Constance v. Brennan was removed, this case was filed as a separate action in this Court also under the diversity jurisdiction.

Brennan asserts in this case that if he is held liable to Constance in Constance v. Brennan, he gets indemnification from Connors pursuant to their 2009 settlement agreement. Before this case was filed, the Court's staff was informed that Brennan's counsel wanted to file this indemnification case separate from Constance v. Brennan. Brennan was instructed to bring his claim for indemnity as a third-party claim in Constance v. Brennan as any separate suit would be consolidated with Constance v. Brennan. Unfortunately Brennan's counsel ignored these instructions and filed a separate indemnity action that was then consolidated with Constance v. Brennan. The Court realigned the parties according to their proper roles in the litigation, with Constance as plaintiff, Brennan as defendant and Connors as third-party defendant.

Following the consolidation, the Court remanded Constance v. Brennan to state court for lack of federal subject matter jurisdiction because there was not complete diversity of citizenship between Constance and BrennanSboth are Illinois citizens. At that time, this case was severed from Constance v. Brennan because there is complete diversity as to Brennan's claim for indemnity against Connors. Brennan was ordered to show cause why this case should not be dismissed pursuant to the familiar principle of Illinois law that contracts of indemnity for intentional misconduct are void as against public policy. Connors then filed a motion to dismiss or, in the alternative, for summary judgment. Brennan responded, the Court discharged the order to show cause, and Brennan responded to Connors's motion. Having considered the matter carefully, the Court rules as follows.

II. DISCUSSION

As an initial matter, the Court notes the standard under which it must evaluate a motion to dismiss for failure to state a claim upon which relief can be granted. In considering such a motion, the Court accepts all well-pleaded allegations in a plaintiff's complaint as true. See Fed. R. Civ. P. 12(b)(6); Cleveland v. Rotman, 297 F.3d 569, 571 (7th Cir. 2002); Whitwell v. Wal-Mart Stores, Inc., Civil No. 09-513-GPM, 2009 WL 4894575, at *2 (S.D. Ill. Dec. 11, 2009); S.C. Johnson & Son, Inc. v. Buske, Civil No. 09-286-GPM, 2009 WL 3010833, at *8 (S.D. Ill. Sept. 17, 2009). The purpose of a Rule 12(b)(6) motion is to decide the adequacy of the complaint, not to determine the merits of the case. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990); Morrison v. YTB Int'l, Inc., 641 F. Supp. 2d 768, 773 (S.D. Ill. 2009); Brown v. SBC Commc'ns, Inc., No. 05-cv-777-JPG, 2007 WL 684133, at *2 (S.D. Ill. Mar. 1, 2007). A complaint should not be dismissed unless it either fails to provide adequate noticeSas has been required consistently under Rule 8 of the Federal Rules of Civil Procedure--or does not contain "enough facts to state a claim to relief that is plausible on its face," that is, the claim has not been "nudged.across the line from conceivable to plausible[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). See also Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007). "While 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.entitlement to relief.requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do[.]" James v. Illinois Sexually Dangerous Persons Act, Civil No. 09-40-GPM, 2009 WL 2567910, at *2 (S.D. Ill. Aug. 19, 2009) (quoting Bell Atl. Corp., 550 U.S. at 555).

Because, as noted, the purpose of a motion to dismiss for failure to state a claim upon which relief can be granted is merely to test the legal sufficiency of the allegations of a complaint, a court may not consider matters outside the pleadings in evaluating such a motion without converting the motion to one for summary judgment. See Fed. R. Civ. P. 12(d); 188 LLC v. Trinity Indus., Inc., 300 F.3d 730, 735 (7th Cir. 2002); Cynthia L. Holmes, P.C. v. Back Doctors, Ltd., Civil No. 09-540-GPM, 2009 WL 2930634, at *1 (S.D. Ill. Sept. 10, 2009). However, in deciding a Rule 12(b)(6) motion, the Court can treat as part of the pleadings documents that are "referred to in the plaintiff's complaint and are central to [the plaintiff's] claim." Wright v. Associated Ins. Cos., 29 F.3d 1244, 1248 (7th Cir. 1994). See also Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir. 2002); Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993). Additionally, it is well settled that in deciding a Rule 12(b)(6) motion a court may take judicial notice of matters of public record, including court documents. See 4901 Corp. v. Town of Cicero, 220 F.3d 522, 527 n.4 (7th Cir. 2000); Anderson v. Simon, 217 F.3d 472, 474-75 (7th Cir. 2000); General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080-81 (7th Cir. 1997); Henson v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994). In this instance, the indemnification agreement between Brennan and Connors is, in addition to being referred to in Brennan's complaint and central to his claim, attached to his complaint and therefore properly within the scope of review on a motion to dismiss. See Fed. R. Civ. P. 10; Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002) (citing Beanstalk Group, Inc. v. AM Gen. Corp., 283 F.3d 856, 858 (7th Cir. 2002)). Also, the Court can judicially notice the history of previous litigation between Brennan and Connors, as well as the related litigation between Constance and Brennan (indeed, as already has been discussed, the lawsuit between Constance and Brennan was for a time pending before the undersigned district judge on removal). Accordingly, it is unnecessary to construe Connors's motion as a motion for summary judgment, and the Court will instead treat Connors's motion as a motion to dismiss for failure to state a claim upon which relief can be granted, brought pursuant to Rule 12(b)(6). With the foregoing standard for evaluating a Rule 12(b)(6) motion in mind, then, the Court turns to consideration of Connors's motion to dismiss.

Brennan seeks indemnification from Connors pursuant to a clause in their 2009 settlement agreement. The provision at issue, which is the fifth paragraph of the settlement agreement, entitled "Indemnity-Hold Harmless," provides in relevant part:

The Plaintiffs further declare that they will hold harmless and indemnify the Defendants from any and all costs, fees, liabilities and losses which might be incurred by Defendant indemnitees as a result of any outstanding liens, or any other claims by any other party, including, but not limited to, claims by former partners or shareholders or any current partner or shareholder regarding the contract referenced in the Complaint or rights of reimbursements arising out of the allegations in Plaintiffs' Complaint. Defendants further declare that they will hold harmless and indemnify the Plaintiffs from any and all costs, fees, including any liabilities and losses which might be incurred by Plaintiff indemnitees as a result of any outstanding liens, or any other claims by any other party, including, but not limited to, claims by former partners or shareholders or any current partner or shareholder, regarding the contract referenced in the Complaint or rights of reimbursement arising out of Defendants' Counterclaims or Affirmative Defenses.

Doc. 2-2 at 3 ¶ 5. In the first prolix sentence above, Brennan promises to indemnify Connors for "any other claims by any other party.claims by former partners" In the second equally prolix sentence, Connors promises the same cover to Brennan. The two sentences together are marvelously ineffectual and leave the parties where they started. The second sentence seems to authorize Brennan's indemnity actionSbut Brennan promised in the first sentence to hold Connors harmless from all claims or rights of reimbursement arising out of the allegations in Plaintiffs complaint (Brennan v. Connors). So, Connors and Brennan, insofar as indemnity is concerned, are locked in an infinitely repeating loop: Constance sues Brennan; Brennan, (under the second sentence) sues Conners; Conners (under the first sentence) must be held harmless by Brennan for claims by Brennan and Constance. The indemnity provision itself is impotent and a non-starter. And there is another problem with this claim for indemnity.

The Illinois decisions are adamant that parties may not contract to indemnify intentional misconduct, although Illinois law does not prohibit agreements to insure for harm caused by intentional misconduct if the beneficiary of such an agreement is not the actual wrongdoer. See Dixon Distrib. Co. v. Hanover Ins. Co., 641 N.E.2d 395, 401 (Ill. 1994) (citing University of Ill. v. Continental Cas. Co., 599 N.E.2d 1338, 1351 (Ill. App. Ct. 1992)).

This Court is a federal court sitting in diversity jurisdiction. Because a federal court lacks constitutional authority to fashion a broad body of common law, it is constrained to apply the law of the state where it sits as pronounced by that state's highest courts as the rule of decision in all cases save those where a countervailing federal interest mandates the application of federal law. See Commissioner v. Estate of Bosh, 387 U.S. 456 (1967). Brennan clearly is asserting a right to be indemnified for deliberate and intentional breaches of the fiduciary ...


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