United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
REBECCA R. PALLMEYER, District Judge.
Until January 25, 2013, Defendants Expedited Freightways, LLC ("Expedited") and Chad Rosenberg were engaged in the business of providing trucking transportation services. On that day, Plaintiff C&K NuCo, LLC ("NuCo") agreed to purchase a portion of Expedited's assets. Three days later, on January 28, a truck driven by an independent contractor for Expedited was involved in a fatal vehicle accident. Plaintiff alleges that it faces liability for the wrongful death and other injuries related to the trucking accident. In this action, Plaintiff charges Defendants with breach of contract (Count I) and fraud (Counts IV-V), and claims indemnity for litigation costs arising from the accident. In addition, Plaintiff seeks to recover from Defendants payments for loads transported by Plaintiff after January 25, 2013 (Count I(e)).
Defendants have moved to dismiss, arguing that the indemnity issue is not ripe for review, that Plaintiff lacks standing to litigate liability for the accident, that Plaintiff has failed to state a claim for breach of contract, and that Plaintiff has failed to plead fraud with particularity as required under Federal Rules of Civil Procedure 12(b)(6) and 9(b). For the reasons discussed below, Defendants' motion to dismiss  is granted in part and denied in part: the court denies the motion to dismiss Count I(e) (breach of contract for failing to remit payments to Plaintiff) as against Defendant Expedited, but dismisses that claim with prejudice as against Defendant Rosenberg; Counts I(a)-(c) (failing to satisfy representations and warranties under contract), and Count IV (fraudulent misrepresentation), Count V (fraudulent concealment), and Count VI (seeking equitable rescission), Count I(d) (breach of contract for failing to indemnify Plaintiff), Count II (seeking declaratory relief), and Count III (for indemnification) are dismissed without prejudice as against both Defendants.
The following alleged facts are drawn from the Third Amended Complaint and attached exhibits, and are set forth in a light most favorable to Plaintiff.
Plaintiff NuCo was formed in order to acquire assets from Expedited, which was in the business of "intermodal drayage and trucking services." (Third Am. Compl.  ¶¶ 1, 3.) Defendant Rosenberg is beneficiary of a trust owned by Expedited ( id. ¶ 5); the complaint does not state whether Rosenberg also played a business role with Expedited.
A. The Asset Purchase Agreement
On January 25, 2013, NuCo, Expedited, Rosenberg, and C & K Trucking, LLC, not a party to this litigation, entered into an Asset Purchase Agreement ("APA"), in which Expedited agreed to sell NuCo assets including "customer lists, certain assigned contracts, independent contractor lease agreements with owner-operator drivers and qualification files and records related thereto, office equipment, supplies, and furniture, and goodwill." (Third Am. Compl. ¶ 32; see Asset Purchase Agreement, Ex. 1 to Third Am. Compl., hereinafter "APA, " §§ 1.01; 7.05.)
Section 5.03 of the APA apportions the revenue flowing from the assets. It provides that Expedited is entitled to all revenue, and responsible for all expenses, "generated from... [and] related to, loads transported or delivered by its drivers through the Closing Date, " and that NuCo is entitled to and responsible for like revenue and expenses after the Closing Date. (APA § 5.03.) Section 5.03 does not purport to resolve all questions regarding the parties' financial entitlement and obligations; instead, the parties "acknowledge[d] that certain deliveries may be split between services provided by both parties..., " "covenant[ed] to work in good faith to timely account for and properly direct payments owing to the other..., " and "covenant[ed] that all unified billing payments for split-move services shall be equitably adjusted among the parties...." ( Id. ) In Count I(e), Plaintiff alleges that the Defendants have refused to remit to NuCo amounts received for loads transported and delivered after January 25, 2013, in violation of this section, and that Defendants owe Plaintiff "at least $345, 904.53" for these loads. (Third Am. Compl. ¶¶ 35-36, ¶ 54(e).)
Defendant Expedited also made certain "representations and warranties" in Section 4.01 of the APA, assuring that it was in compliance under the law and had not concealed material information:
(g) Compliance/Governmental Authorizations. Expedited has complied in all material respects with all material federal, state, local and foreign laws, regulations, ordinances, judgments, decrees, injunctions, writs and orders (collectively, "Laws") applicable to it and the Business, and no charges or, to Expedited's Knowledge, investigations have been made alleging failure to comply therewith....
(j) Labor Matters.... (iii) Expedited has complied with all laws, rules and regulations relating to the hiring and retention of all employees, leased employees and independent contractors relating to wages, hours, any employee benefit plans, workers' compensation, unemployment, equal opportunity, collective bargaining, and the payment of social security and other Taxes.
(l) Misrepresentations. This Agreement and the schedules delivered pursuant hereto do not contain any untrue statement of a material fact or omit a material fact necessary in order to make the information or statements herein or therein not misleading in light of the circumstances in which they were made by Expedited. There is no fact which Expedited has not disclosed to C&K in writing which adversely affects Expedited's title and right in the Purchased Assets.
(APA § 4.01.) In making these representations and warranties, Expedited's knowledge is defined as "exclusively the actual knowledge of the Rosenberg [sic] and Jim Briles, an officer of Expedited, who would be reasonably expected to have knowledge regarding the accuracy of the fact or matter in question." ( Id. )
Finally, in the APA, Expedited and Rosenberg agreed to indemnify NuCo for "any breach of any representation, warranty, covenant or agreement of Expedited or Rosenberg contained in this Agreement..." and for "Expedited's use and/or ownership of the Purchased Assets and the Business through the Closing Date." (APA § 6.01(a)(i)-(ii).) Section 6.02 limits that commitment, requiring Plaintiff's losses to exceed $25, 000 before the indemnity obligation takes effect, and capping indemnification at $600, 000, excluding fraud or intentional misrepresentation claims. ( Id. § 6.02.) Section 6.03 outlines the indemnification procedure, and requires the seller (Defendants) to pay the cost of litigation against Plaintiff by third parties. ( Id. § 6.03 (providing that any litigation covered in Section 6.01, the indemnity agreement, "shall... be defended... by the Indemnifying Party."); see also id. § 6.01.)
The Federal Motor Carrier Safety Administration approved the change in operating authority from Expedited to NuCo on January 30, 2013, effective February 4, 2013. (Third Am. Compl. ¶ 33.)
B. Affiliate Trucking and its Driver Arnold Williams
Among the "Purchased Assets" transferred to Plaintiff in the APA were contracts with independent contractors that performed trucking operations on the business's behalf. (APA § 1.01(c).) One of these contracts was an agreement dated September 20, 2012 between Expedited and Affiliate Trucking, an independent contractor fleet owner-operator. (Third Am. Compl. ¶ 10.) Around January 25, 2013, Plaintiff presented all independent contractors, including Affiliate Trucking, with a "Notice of Assignment and Consent, " which explained that "as of January 26, 2013" the independent contractors' "contractual relationship with [Expedited] will officially end and [their] contractual relationship with [NuCo] will officially begin." (Third Am. Compl. ¶ 39; see Notice of Assignment & Consent, Ex. 5 to Third Am. Compl., hereinafter "Indep. K Notice.") The Notice directed the independent contractors to execute and return the Notice to NuCo in order to ensure that their contracts "properly reflect[ed] the new contractual relationship, " and announced that if the independent contractors failed to do so, then Expedited would "process [their] final settlement within 15 days from the date of [the] notice." (Indep. K Notice.) By its terms, the Notice called for the independent contractors to consent to both the assignment of the contract and "the transfer of my qualification/driver file materials to Purchaser." (Indep. K Notice.) Affiliate Trucking did not execute or return the Notice to NuCo. (Third Am. Compl. ¶ 41.) As Plaintiff sees things, the independent contractors, who, like Affiliate Trucking, did not return the executed Notice, "provided no post-closing services" to NuCo. ( Id. ¶ 42.)
One of the drivers employed by Affiliate Trucking is Arnold Williams. (Third Am. Compl. ¶ 11.) As required by Department of Transportation ("DOT") regulations, Affiliate Trucking administered random tests of its drivers for alcohol and controlled substances. See 49 C.F.R. § 382.305. Plaintiff alleges, "[u]pon information and belief, " that in November 2012, Williams failed the random test "because [his] blood alcohol content exceeded the legal limit at the time of the test." (Third Am. Compl. ¶ 12.) Drivers who have failed testing for alcohol and controlled substances are prohibited from driving a commercial motor vehicle until the driver has completed an evaluation and treatment process. 49 C.F.R. §§ 40.285; 382.503. Both the driver and his or her employer may be subject to criminal or civil penalties for failing to comply with DOT regulations concerning such testing. 49 C.F.R. § 382.507. Plaintiff alleges, again on "information and belief, " that Williams was not qualified to drive a commercial motor vehicle on January 25, 2013. (Third Am. Compl. ¶ 23.) Plaintiff asserts, further, that Defendants "failed to disclose" and "concealed or otherwise [did] not ma[k]e" the results of Williams's test available to Plaintiff before the parties executed the APA on January 25, 2013. ( Id. ¶ 13; see also id. ¶ 76 ("Defendants knowingly and intentionally concealed the fact that Williams failed an alcohol test in November 2012").) Either because Williams failed the alcohol and controlled substances test in November 2012 or because of his "conduct prior to, at, or after the January 28, 2013 accident, " Plaintiff alleges that Defendants knew that certain representations and warranties that they made in the APA were false. ( Id. ¶ 69.)
C. January 28, 2013 Accident and Subsequent Litigation
On Friday, January 25, 2013, "Expedited dispatched a load" to Williams. (Third Am. Compl. ¶ 22.) Williams picked up the load before 4:00 p.m. on Friday, and "[u]pon information and belief" drove the load to his home for the weekend, about 4.2 miles from the load's final destination. ( Id. ¶ 24.) Williams delivered the load on Monday, January 28, around 6:50 a.m. ( Id. ¶ 26.) While returning the empty truck container after making the delivery, Williams was involved in an accident on I-526 in North Charleston, South Carolina. ( Id. ¶ 27.) According to the Traffic Collision Report Form, vehicles were stalled on the highway, and Williams, "traveling too fast for conditions, " was unable to brake in a timely manner. ( Id. ¶¶ 27-28; see Traffic Collision Rep. Form, Ex. 2 to Third Am. Compl., hereinafter "Accident Rep., " at 1.) As a result, Williams collided with a motor vehicle in front of him, and caused a multiple vehicle accident, which killed Lauren Baccari. ( Id. ¶¶ 28, 31; Accident Rep. at 1.) After the accident, Williams was observed disposing of beer cans, but a drug and alcohol test administered at a local hospital after the accident was negative. (Third Am. Compl. ¶¶ 29-30.) Williams was charged with reckless homicide. ( Id. ¶ 30.)
Plaintiff maintains that Williams was acting as agent for Defendant Expedited at the time of the accident. Williams both picked up and transported the load, at Expedited's direction, before the closing on January 25, 2013. (Third Am. Compl. ¶ 38.) Furthermore, because Affiliate Trucking failed to execute and return the Notice, Plaintiff asserts that Williams, as Affiliate Trucking's employee, "was not operating as a driver on behalf of or under the authority of NuCo at the time of the January 28, 2013 accident." ( Id. ¶ 42.) Rather, Plaintiff implies, Williams remained an agent of Expedited via Affiliate Trucking. Plaintiff notes, again "[u]pon information and belief, " that the door placard on Williams's truck contained DOT identifying information for Expedited. ( Id. ¶ 25.) Finally, Plaintiff alleges, Defendant Expedited "expressly assumed... liability and responsibility [for the accident] pursuant to Section 5.03 of the [APA]." ( Id. ¶ 60.)
Within two weeks after the accident, on February 12, 2013, Plaintiff received a notice of claim and a demand for preservation of evidence from Paul Dominick, an attorney representing the Estate of Lauren Baccari. (Third Am. Compl. ¶ 31; see Letter from Dominick to Expedited Freightways, LLC & Expedited Freightways, LLC - EFW of 2/12/13, Ex. 3 to Third Am. Compl.) In their motion to dismiss, Defendants advised the court that the insurance carrier for both Plaintiff NuCo and Defendant Expedited have agreed to a settlement with Baccari's Estate in a "covenant not to enforce a judgment." (Br. in Supp. of Defs.' Mot. to Dismiss , hereinafter "Defs.' Mot., " at 4 n.3.) Though Baccari's Estate may yet file suit against Plaintiff or Expedited, Defendants argue that because of the agreement "neither [NuCo] nor Expedited will have any liability beyond insurance coverage already paid." ( Id. ) Neither of the parties provided the court with a copy of the settlement agreement, and Plaintiff has remained silent concerning the agreement, even after Defendants directed the court's attention to it in their motion to dismiss. Plaintiff filed this suit on May 30, 2013 (Compl. ), and the 9th Judicial District Court of Charleston County approved the settlement on November 6, 2013. In this agreement, the Insurance Company of the State of Pennsylvania ("ICSP") agreed to pay Baccari's Estate $950, 000 on behalf of both Plaintiff and Defendant Expedited (as well as other defendants). (Baccari Estate Settlement at 2-3.) In exchange, Baccari's Estate agreed, in the event that it sues Plaintiff or Defendant Expedited, to identify a liability insurance carrier (other than ISCP) from whom it may reasonably enforce judgment, and to not enforce any judgment against the personal, family or business assets of Plaintiff or Defendant Expedited. (Id. at 4-6.) Plaintiff also represented, in the agreement, that its only insurer that would cover the accident was ISCP (id. at 6), decreasing the likelihood that Plaintiff may be sued by the Baccari estate in the future. (Baccari Estate Settlement.)
Plaintiff alleges that it has incurred litigation costs and expects to incur additional expenses in relation to the January 28, 2013 accident. (Third Am. Compl. ¶ 48.) In opposition to Defendants' motion to dismiss, Plaintiff notified the court that it was served with a second notice of claim on December 18, 2013 for alleged injuries from the ...