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Custom Foam Works, Inc v. Hydrotech Systems

March 23, 2011

CUSTOM FOAM WORKS, INC., PLAINTIFF,
v.
HYDROTECH SYSTEMS, LTD., AND AQUATIC DEVELOPMENT GROUP, DEFENDANTS; HYDROTECH SYSTEMS, LTD., COUNTERCLAIM PLAINTIFF,
v.
CUSTOM FOAM WORKS, INC., AND DANE TIPPETT, COUNTERCLAIM DEFENDANT.



The opinion of the court was delivered by: Michael J. Reagan United States District Judge

MEMORANDUM AND ORDER REAGAN, District Judge:

I. Introduction In January 2005, Custom Foam Works, Inc., (CFW) entered into a contract with Hydrotech Systems, Ltd., and Aquatic Development (collectively, Defendants), under which CFW agreed to fabricate and deliver 32,232 square feet of architectural foam wall paneling to Hydrotech's indoor/outdoor water park construction project at the Massanutten Resort in Virginia.

On July 13, 2005, Defendants rejected a shipment of panels and terminated the contract. In September, 2009, CFW commenced this action, alleging common law fraud and breach of contract against Defendants. On June 11, 2010, the Court consolidated into this action the later- filed action Hydrotech Systems, Ltd. v. Tippett, Case No. 10-cv-0239-MJR.

Defendants Hydrotech and Aquatic move for partial summary judgment on CFW's fraud claims, Counts I and III of the first amended complaint (Doc. 57). The motion is fully briefed, and the Court now rules as follows.

II. Analysis

Summary judgment is appropriate where the pleadings, discovery materials, and any affidavits show that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. Turner v. The Saloon, Ltd., 595 F.3d 679, 683 (7th Cir. 2010); Durable Mfg. Co. v. U.S. Department of Labor, 578 F.3d 497, 501 (7th Cir. 2009) (citing FED. R.CIV.P.56(c)). AccordAlabama v. North Carolina, -- U.S. --, 130 S. Ct. 2295, 2308 (2010); Levy v. Minnesota Life Ins. Co., 517 F.3d 519 (7th Cir. 2008); Breneisen v. Motorola, Inc., 512 F.3d 972 (7th Cir. 2008)(citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).

In ruling on a summary judgment motion, the district court must construe all facts in the light most favorable to, draw all legitimate inferences in favor of, and resolve all doubts in favor of the non-moving party. National Athletic Sportswear, Inc. v. Westfield Ins. Co., 528 F.3d 508, 512 (7th Cir. 2008). Accord Reget v. City of La Crosse, 595 F.3d 691 (7th Cir. 2010); TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 630 (7th Cir. 2007).

What the undersigned may not do in deciding a summary judgment motion is evaluate the weight of the evidence, judge the credibility of witnesses or determine the truth of the matter. The court's only role is to determine whether there is a genuine issue of triable fact. National Athletic, 528 F.3d at 512 (citing Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir. 1994)).

A factual dispute is genuine "only if a reasonable jury could find for either party," and disputed facts must be outcome-determinative to be "material" and preclude summary judgment. Montgomery v. American Airlines, Inc., 626 F.3d 382, 389 (7th Cir. 2010). See also Van Antwerp v. City of Peoria, Illinois, 627 F.3d 295, 297 (7th Cir. 2010). But, as very recently reiterated by the Seventh Circuit Court of Appeals, in assessing the record before him, the undersigned Judge bears in mind that "the party opposing the motion gets the benefit of all facts that a reasonable jury might find." Loudermilk v. Best Pallet Co., LLC., -- F.3d --, 2011 WL 563765, *2 (7th Cir. Feb. 18, 2011).

In the instant case, the first question the Court must decide is whether CFW's fraud claim is governed by New York law or Illinois law. The parties dispute whether New York law governs both the contractual and the fraud claims or whether Illinois law must be applied to the fraud claims.

A federal court hearing a case under diversity jurisdiction must apply the substantive law of the state in which it sits. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). If the laws of more than one jurisdiction might apply, Erie principles require a federal court to apply the forum state's choice of law rules. Midwest Grain Prods. of Il.., Inc. v. Productization, Inc., 228 F.3d 784, 787 (7th Cir. 2000). Accordingly, this Court will apply Illinois choice of law rules to determine which state's substantive law applies to the claims at issue.

Generally, contractual choice of law provisions will be honored under Illinois law. Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177, 194 (Ill. 2002). To determine whether a choice of laws provision is intended to govern all disputes between the parties, the Court engages in a two-part analysis. The Court first examines the contract's language. Kuehn v. Children's Hosp. of Los Angeles, 119 F.3d 1296, 1302 (7th Cir. 1997) (a contractual choice of law provision "will not be construed to govern tort as well as contract disputes unless it is clear that is what the parties intended"). Second, the Court must determine whether the claims at issue are dependent on the contract, because if the claims are dependent on the contract, they are governed by the contract's choice of law provision. Medeline Indus. Inc. v. Maersk Med. Ltd., 230 F.Supp.2d 857, 863 (N.D.Ill. 2002). "Claims involving fraud in the formation of the contract are subject to that contract's choice of law provisions." Platinum Community Bank v. Marshall Investments Corp., 2008 WL 4866343, *4 (N.D.Ill. 2008) (citing Doty v. Stoecker, 697 F.Supp. 1016, 1020 (N.D.Ill.1988)).

The Subcontract Agreement states, "The Subcontract Documents shall be governed and interpreted in accordance with the laws of the State of New York" (Subcontract Agreement § 1). The Court finds nothing in this clause that indicates the parties' clear intent to apply New York law to all disputes between them. See, e.g., Precision Screen Machines, Inc. v. Exelon, Inc., 1996 WL 495564, *2 (N.D.Ill. 1996). A plain language reading of the contract's choice of law provision evinces the parties' intent that New York law apply to interpretation and enforcement of the contract. Other matters, such as claims of fraud, are not governed by the contract's choice of law provision. So, the Court proceeds to the second prong of the analysis -- whether the fraud claims are dependent on the contract.

To make this determination, the Court must ascertain whether "(1) the claim alleges a wrong based on the construction and interpretation of the contract; (2) the tort claim is closely related to the parties' contractual relationship; or (3) the tort claim could not exist without the contract." Facility Wizard Software, Inc., v. ...


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