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Medline Industries, Inc v. Ram Medical

August 30, 2012

MEDLINE INDUSTRIES, INC., PLAINTIFF,
v.
RAM MEDICAL, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Joan H. Lefkow

OPINION AND ORDER

Plaintiff Medline Industries, Inc. ("Medline") filed a six-count complaint*fn1 against Defendant Ram Medical, Inc. ("Ram") asserting claims for breach of an indemnity agreement (Count I), breach of the common law duty to indemnify (Count II), breach of express warranty (Count III), breach of warranty of fitness for a particular purpose (Count IV), breach of implied warranty of merchantability (Count V), and breach of promise to insure (Count VI).*fn2 Medline's claims arise out of a contract between Medline and Ram for the purchase and sale of medical products. Before the court are Ram's motions to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons below, Ram's motions [#19, 33] are granted in part and denied in part.

BACKGROUND*fn3

Ram is a supplier of medical products and Medline is a manufacturer and distributor of medical products. Ram approached Medline about becoming one of its suppliers and provided Medline with a copy of its "Quality Control Processes and Procedures" to assure Medline that Ram's products were of the quality required by Medline. As a condition to becoming one of Medline's suppliers, Ram also agreed to add Medline to its liability insurance policies covering the sale of products. Relying on Ram's representations, Medline accepted Ram as a supplier.

One of the medical products supplied by Ram was mesh manufactured by C.R. Bard, Inc., for use in surgical applications ("Bard mesh"). Medline placed its first order for Bard mesh on December 4, 2008 and continued purchasing Bard mesh from Ram until sometime in 2009. Medline ordered each shipment of Bard mesh using its standard purchase order. The purchase order is a one-page form that specifies the goods and quantity ordered, price per unit and net price, and delivery address. (Compl. Ex. A). The purchase order also includes the following disclaimer:

IMPORTANT: CONFIRMATION OF THIS PURCHASE ORDER IS REQUIRED. P.O. PRICE BINDING. USE MEDLINE PO# ON ALL INVOICES.

This purchase order is subject to Medline's Standard Terms and Conditions. Agreement previously executed by you, our vendor. (Id.)

Medline's standard terms and conditions are contained in a separate document that is not attached to the purchase order. They include the following indemnity and warranty provisions:

4. Seller warrants and agrees that it has complied with all applicable State, Federal, and local laws and governmental rules and regulations with respect to this order and also agrees to indemnify Medline, its successors, assigns, and customers, and users of the goods, from all costs and damages, whether direct or indirect, arising from patent infringements, property damage, personal injury or death arising out of the purchase and/or use of goods, materials or services. 7. Seller expressly warrants that the goods are merchantable within the meaning of the laws (Uniform Commercial Code and applicable State and Federal laws) in effect on the date of the purchase order. In addition to all warranties which may be prescribed by law, the goods shall conform to specifications, drawings, and other descriptions and shall be free from defects in materials and workmanship. Seller also warrants that to the extent the goods are not manufactured pursuant to detailed designs furnished by Buyer, that such goods will be free from defects in design. Such warranties, including warranties prescribed by law, shall run to Buyer, its customers, and to users of the goods, for a period of one (1) year after delivery unless otherwise stated.

23. Seller shall defend, indemnify and hold harmless Medline against any and all losses, costs, legal fees, judgments, settlements, and other liabilities of any kind, arising out of any claim of personal injury, injury to property or infringement relating to the use of products provided to Medline by the Seller. (Compl. Ex. B). The terms and conditions further provide that they are "an integral part" of all Medline purchase orders and that, together with any purchase order, they constitute the entire agreement between the parties. (Id. ¶¶ 18--19.) There is also an Illinois choice of law provision. (Id. ¶ 19.) At the bottom of the terms and conditions, there is a signature and date line for the seller's representative.

Medline does not allege that Ram received a copy of its standard terms and conditions. The example document that is attached to Medline's complaint is unsigned and undated and does not contain any reference to Ram or Bard mesh. (See id.)

In late January 2010, Bard informed Medline that some of the mesh that Medline had purchased from Ram was counterfeit. By June 2010, Ram had recalled all of surgical mesh that it sold to Medline as genuine Bard mesh. Ram stated that the recall was necessary because the FDA had issued a notice indicating that the mesh had not been manufactured by Bard. Medline, however, had already resold much of the mesh that it purchased from Ram. The mesh was then used in surgeries. As of December 2012, when Medline filed its complaint in this action, Medline was the defendant in two class action lawsuits and two individual actions that are based on allegations of physical injury to patients who were implanted with allegedly counterfeit Bard mesh sold by Ram. Counsel for one of the individual plaintiffs has advised Medline that he may file up to fifteen additional suits on the same grounds. Medline has expended large sums of money to defend itself in the pending actions and anticipates that some suits will result in the entry of adverse judgments against it. Medline has demanded that Ram defend it in the personal injury actions, and Ram has refused. Ram has not added Medline to its liability insurance policies.

LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) challenges a complaint for failure to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6); Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). In ruling on a 12(b)(6) motion, the court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. Dixon v. Page, 291 F.3d 485, 486 (7th Cir. 2002). In order to survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of the claim's basis, but must also establish that the requested relief is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009); see also Bell Atl. v. Twombly, 550 U.S. 544, ...


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