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Safety Solutions, Inc., An Illinois Corporation, and Angelia Hopson, An Individual v. City of Chicago

August 18, 2011

SAFETY SOLUTIONS, INC., AN ILLINOIS CORPORATION, AND ANGELIA HOPSON, AN INDIVIDUAL, PLAINTIFFS,
v.
CITY OF CHICAGO, MARK LINSE, INDIVIDUALLY AND/OR IN HIS OFFICIAL CAPACITY AS DEPUTY CHIEF PARAMEDIC OF THE CHICAGO FIRE DEPARTMENT, EDWARD HIGGINS, INDIVIDUALLY AND/OR IN HIS OFFICIAL CAPACITY AS EQUIPMENT SPECIALIST OF THE CHICAGO FIRE DEPARTMENT, MOORE MEDICAL, LLC, A DELAWARE CORPORATION, EDWARDS MEDICAL SUPPLY, INC., AND EDWARD C. JAROSZ, JR., INDIVIDUALLY AND/OR IN HIS OFFICIAL CAPACITY AS PRESIDENT OF EDWARDS MEDICAL SUPPLY, INC., DEFENDANTS.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge:

MEMORANDUM OPINION AND ORDER

Before the Court are (i) Defendants City of Chicago, Mark Linse, and Edward Higgins's motion to dismiss Plaintiffs' Complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), and (ii) Defendants Moore Medical, LLC, Edwards Medical Supply, Inc., and Edward C. Jarosz, Jr.'s motions to dismiss Counts II and IV of Plaintiffs' Complaint under Rule 12(b)(6). For the reasons discussed below, the Court grants in part with prejudice, grants in part without prejudice, and denies in part Defendants' motions.

INTRODUCTION

On January 21, 2011, Plaintiffs Safety Solutions, Inc. ("Safety Solutions") and Angelia Hopson filed a complaint against Defendants City of Chicago ("City"), Mark Linse, Edward Higgins, Moore Medical, LLC ("Moore"), Edwards Medical Supply, Inc. ("Edwards"), and Edward C. Jarosz, Jr. (collectively, "Defendants") in the Circuit Court of Cook County. (R. 1-1, Compl.) Plaintiffs, a minority-owned business and its owner, generally allege that after the City contracted with them as part of a legislative initiative to support minority-owned and women-owned businesses, (i) the City failed to fulfill its contractual obligations to Plaintiffs, and (ii) Defendants conspired to interfere with Plaintiffs' business dealings with the City. Plaintiffs claim that racial discrimination motivated Defendants' misconduct. As a result of Defendants' intentional misconduct, Plaintiffs allege, Safety Solutions was forced to cease its operations and declare insolvency, causing Plaintiffs monetary damages. In their Complaint, Plaintiffs bring a breach of contract claim against the City (Count I), a tortious interference claim against Moore, Jarosz and Linse (Count II), a common law fraud claim against the City (Count III), a civil conspiracy claim against the City, Moore and Jarosz (Count IV), several violations of 42 U.S.C. §§ 1981 and 1983 against the City, Linse and Higgins (Counts V-VIII), and a claim under 42 U.S.C. § 1985 against the City, Moore and Jarosz (Count IX).

Plaintiffs served the City with the summons and a copy of the Complaint on January 28, 2011. On February 24, 2011, with their co-defendants' consent,*fn1 the City timely removed the case to this Court under 28 U.S.C. § 1441(b), which provides that "any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable." The City filed the contracts at issue in this dispute as exhibits to its notice of removal. (R. 1-2 through R. 1-7.) On April 6, 2011, Defendants City, Linse and Higgins*fn2 filed a motion to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (R. 19, City Mot.) That same day, Defendants Edwards and Moore filed a motion to dismiss Counts II and IV (the counts pertaining to them) pursuant to Rule 12(b)(6). (R. 21, Edwards & Moore Mot.) Defendant Jarosz moved to dismiss Counts II and IV on April 7, 2011, and joined Edwards and Moore's memorandum in support of their motion to dismiss. (R. 26, Jarosz Mot.)

LEGAL STANDARDS

I. Rule 12(b)(1)

"Federal courts are courts of limited jurisdiction and may only exercise jurisdiction where it is specifically authorized by federal statute." Evers v. Astrue, 536 F.3d 651, 657 (7th Cir. 2008) (citation and quotation marks omitted). As such, "[e]nsuring the existence of subject-matter jurisdiction is the court's first duty in every lawsuit." McCready v. White, 417 F.3d 700, 702 (7th Cir. 2005). As the Seventh Circuit explains, "[s]ubject matter jurisdiction is so central to the district court's power to issue any orders whatsoever that it may be inquired into at any time, with or without a motion, by any party or by the court itself." Craig v. Ontario Corp., 543 F.3d 872, 875 (7th Cir. 2008). Furthermore, the proponent of federal jurisdiction bears the burden of establishing subject matter jurisdiction. Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 540 (7th Cir. 2006) ("[The] party that chooses federal court [must] set out the basis of federal jurisdiction and prove any contested factual allegation."); see also Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009) ("The burden of proof on a 12(b)(1) issue is on the party asserting jurisdiction.").

II. Rule 12(b)(6)

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Pursuant to Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). As the Seventh Circuit has explained, this "[r]ule reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities[.]" Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002)). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L.Ed.2d 80 (1957)). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007); McGowan v. Hulick, 612 F.3d 636, 638 (7th Cir. 2010) (courts accept factual allegations as true and draw all reasonable inferences in plaintiff's favor). In ruling on a Rule 12(b)(6) motion, courts may consider exhibits attached to the pleadings if the complaint refers to the document at issue or if the document is central to the plaintiff's claims. See McCready v. eBay, Inc., 453 F.3d 768, 891 (7th Cir. 2006); Fed. R. Civ. P. 10(c).

BACKGROUND

From approximately 1990 to 2008, the City awarded commodities contracts for and purchased millions of dollars of Emergency, Health, Mass Casualty and Disaster Related Medical Equipment and Supplies annually. (R. 1-1, Compl. ¶ 13.) During that time, the City awarded the majority, if not all, of its contracts for such medical supplies and equipment to Defendant Edwards Medical Supply, Inc., an Illinois corporation. (Id. ¶¶ 9, 14.)*fn3 In or about 2008, the City implemented a "Target Market Program" with the stated goal of awarding certain percentages of the annual dollar value of all non-construction contracts to certified Minority Business Enterprises ("MBEs") and Women Business Enterprises ("WBEs"). (Id. ¶¶ 15, 16.) Under the Target Market Program, the City split its commodities contract for medical supplies and equipment into two separate contracts, one of which was limited to MBEs/WBEs. (Id. ¶ 17.) Edwards was neither an MBE nor a WBE. (Id. ¶ 9.)

Plaintiff Safety Solutions was an MBE and a WBE, certified with the City of Chicago. (Id. ¶ 3.) Plaintiff Angelia Hopson was its CEO and sole shareholder. (Id. ¶ 2.) In 2008, the City awarded Safety Solutions a three-year Target Market Program commodities contract for medical supplies and equipment. (Id. ¶ 18.) The contract supported various City departments, including the Chicago Department of Public Health, Chicago Fire Department, Chicago Police Department, and Chicago Office of Emergency Management and Communication. (Id. ¶ 20.) The contract listed over 350 specific items -- including, for example, different types of medical gloves, bandages, and masks, often specifying particular brands -- and set out the price for each item, as well as the estimated usage (i.e., how much of each item the City planned to order). (Id. ¶¶ 21, 23.) In accordance with the contract, once the City placed an order, Safety Solutions was obligated to obtain the ordered items, assemble the items pursuant to the City's orders, and deliver the items to the City department that placed the order. (Id. ¶ 22.) The estimated value of the contract, calculated by multiplying the City's expected usage by the items' designated prices, was just under $21 million over the three years, or approximately $7 million per year. (Id. ¶ 24.)

The City awarded the other (i.e. non-Target Market Program) commodities contract for medical supplies and equipment to Moore, its long-time supplier. (Id. ¶ 25.) Unlike the Safety Solutions contract, the Moore contract did not list specific items with set prices. (Id. ¶ 26.) Instead, it primarily listed catalogs from which the City could order medical supplies, and specified the discount the City would receive. (Id.)*fn4 The Moore contract covered the same three-year term as the Safety Solutions contract, but had a total estimated value of approximately $7.5 million, or approximately $2.5 million per year. (Id. ¶ 27.)

Based on the City's projected purchasing demands and the estimated value of the contract, Safety Solutions invested in warehousing facilities, delivery vehicles and additional personnel. (Id. ¶ 29.) During the first two years of the contract, however, the City only placed approximately $400,000 of orders with Safety Solutions. (Id. ¶ 30.) The City's total orders under its contract with Safety Solutions between 2008-2010 thus fell approximately $13.6 million short of the estimate set forth in the contract. (Id. ¶ 31.) Safety Solutions became insolvent and ceased its operations as a result of the extreme discrepancy between its expected and its actual demands from the City. (Id. ¶ 32.)

Plaintiffs subsequently discovered that one or more of the City departments, including the Chicago Department of Public Health, had placed orders with Moore for items that were listed on the City's contract with Safety Solutions. (Id. ¶ 33.) Plaintiffs allege that Safety Solutions's contract with the City requires the City -- including its departments -- to order all items listed on the contract from Safety Solutions, id. ¶ 34, and to order items from Moore only if they are not listed in the Safety Solutions contract, id. ¶ 35. Plaintiffs further allege that since 2008, the City has placed orders totaling millions of dollars with Moore for items that were listed in the City's contract with Safety Solutions. (Id. ¶ 36.) Plaintiffs claim the City should have ordered those items from Safety Solutions. (Id. ¶ 37.)

Plaintiffs specifically identify the Chicago Fire Department as violating the terms of the City's contract with Safety Solutions by inappropriately placing orders with Moore that it should have placed with Safety Solutions. (Id. ¶¶ 38-39.) Plaintiffs claim that beginning in or about June 2008, the Chicago Fire Department -- at the direction of, and through the actions of, Defendants Linse and Higgins -- would "expend inordinate amounts of time and effort to inspect the [] equipment and supplies" Safety Solutions had delivered, and would "write up complaints for perceived issues . . . no matter how immaterial." (Id. ¶ 40.) Plaintiffs allege that the Chicago Fire Department did not inspect deliveries from Moore in the same way during that time period. (Id. ¶ 41.) Plaintiffs also allege that beginning in or about June 2008, Chicago Fire Department personnel -- under the authority and control of Linse -- including Higgins, "would with Linse's knowledge, approval and acquiescence, frequently make racist comments concerning Safety Solutions and the fact that it was a MBE." (Id. ¶ 42.)

Finally, Plaintiffs allege that Defendants Linse, Moore and Jarosz*fn5 discouraged one or more manufacturers of some of the equipment and supplies listed in Safety Solutions's contract from selling their products to Safety Solutions. (Id. ΒΆΒΆ 43, 44.) Plaintiffs allege that this interference caused Safety Solutions to experience "extreme difficulty fulfilling certain orders ...


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