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Energy Labs, Inc. v. Edwards Engineering, Inc.

United States District Court, N.D. Illinois, Eastern Division

June 2, 2015

ENERGY LABS, INC. Plaintiff,


MARVIN E. ASPEN, District Court Judge

This action arises from an alleged breach of a manufacturing contract. Plaintiff Energy Labs, Inc. (“ELI”) brings its complaint against Defendants Edwards Engineering, Inc. (“Edwards”) and W.E. Bishop & Co. (“Bishop”), alleging breach of contract, quantum meruit, and promissory estoppel. Presently before us is Defendants’ motion to dismiss the complaint. For the reasons discussed below, we deny Defendants’ motion to dismiss in full.


ELI is a California corporation that manufactures custom air-cooling and heating systems for commercial use. (Compl. ¶¶ 1, 7.) Edwards, an Illinois corporation, contracted with the Chicago Transit Authority (“CTA”) to rehabilitate the air conditioning and heating systems at the CTA’s 103rd Street repair facility (“CTA Project”). (Id. ¶¶ 12, 16.) Edwards also entered into a contract with Bishop relating to the CTA Project, although Bishop’s role is unclear. (Id. ¶ 30.) ELI alleges that Bishop was Edwards’ alter ego and merely acted as a “pass through, ” “performing no work” and “providing no services” for the CTA Project. (Id. ¶ 36.)

ELI alleges that Defendants certified to the CTA that any subcontractor they utilized for the CTA Project would comply with the Buy America Act (“BAA”). (Compl. ¶ 14.) The BAA mandates that certain components used to construct transportation systems funded by the federal government be manufactured in the United States. 49 U.S.C. § 5323(j); 49 C.F.R. § 661, et seq. After certifying that it would comply with the BAA, Defendants subcontracted with ELI to manufacture and deliver thirteen custom air conditioning units for the CTA Project and sent two purchase orders to ELI for that purpose. (Compl. ¶¶ 2, 16, 25-26.) According to ELI, the purchase orders do not reference the BAA. (Resp. at 9.) After receiving the purchase orders, ELI designed the air conditioning units, submitted those designs to Defendants and the CTA for approval, and started manufacturing the units in Tijuana, Mexico. (Compl. ¶ 17.)

On March 3, 2014, Edwards’ Executive Vice President of Engineering toured the facility in Mexico where ELI was manufacturing the air conditioning units. (Id. ¶ 39.) At the time, Edwards’ Vice President did not mention that the BAA prevented Edwards from using air conditioning units manufactured in Mexico for the CTA Project. (Id. ¶ 40.) Following this inspection, ELI was notified that the BAA governed the CTA Project. [1](Id. ¶ 42.) ELI and Edwards then sought guidance from the Federal Transit Administration (“FTA”) to determine whether the BAA precluded Defendants from using ELI’s air conditioning units for the CTA Project. (Id.) The FTA found that it did, reasoning that the units were “components, ” rather than “subcomponents” as the parties originally argued. (Id. ¶ 43; Mot., Ex. B.) Under the BAA and its corresponding federal regulations, components must be manufactured in the United States, whereas subcomponents may be manufactured abroad. See 49 C.F.R. § 661.5(d)(2). (Compl. ¶¶ 43-44; see Mot., Ex. B at 3.) Since ELI’s air conditioning units were “components, ” they had to be manufactured in the United States if Defendants were to use them for the CTA Project. (Compl. ¶¶ 43-44; see Mot., Ex. B at 4.) Defendants then cancelled their purchase orders with ELI and retained a different manufacturer to produce the air conditioning units in the United States. (Compl. ¶¶ 45, 62.)

ELI filed a complaint with this court asserting breach of contract, quantum meriut, and promissory estoppel. It seeks damages totaling $952, 415 for work it completed pursuant to the purchase orders from Defendants. (Id. ¶¶ 54, 64, 76, 82.) In their motion to dismiss, Defendants argue that the parties’ contract cannot be enforced because it was contrary to the BAA and therefore illegal. (Mot. at 1.) Similarly, Defendants contend that ELI cannot recover in quantum meruit or promissory estoppel because a party cannot recover in equity on an illegal contract. (Id.) ELI disputes that the contract is illegal. (Resp. at 2.)


A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is meant to “test the sufficiency of the complaint, not to decide the merits of the case.” Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). In evaluating a motion to dismiss, we must accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in the plaintiff’s favor. Thompson v. Ill. Dep’t of Prof’l Regulation, 300 F.3d 750, 753 (7th Cir. 2002).

A court may grant a Rule 12(b)(6) motion to dismiss only if the complaint lacks enough facts “to state a claim [for] relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949–50 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007)); Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618–19 (7th Cir. 2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949. While a facially plausible complaint need not contain “detailed factual allegations, ” it must allege facts sufficient “to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. at 1964–65. On the other hand, a claim is not plausible if the plaintiff has “ple[d] herself out of court [by including] in her complaint facts that establish an impenetrable defense to her claims.” Vinson v. Vermilion Cnty., Ill., 776 F.3d 924, 929 (7th Cir. 2015); accord Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th Cir. 2008). These requirements ensure that the defendant receives “fair notice of what the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555, 127 S.Ct. at 1964.


Defendants argue that ELI’s breach of contract complaint should be dismissed because ELI’s allegations demonstrate that the contract is illegal and thus unenforceable, and that ELI’s equitable claims must likewise be dismissed because ELI cannot recover in equity on an illegal contract. We first address Defendants’ illegality of contract arguments, and deny their motion to dismiss the breach of contract claim on that basis. Next, in light of our disposition on the breach of contract claim, we deny their motion to dismiss the equitable claims as well.

I. Breach of Contract Claim

Defendants argue that ELI has pled itself out of court by alleging facts that establish their contract with ELI is illegal under the BAA. (Mot. at 1.) Principally, they contend that the BAA’s strong public policy to “buy American” prevents enforcement of the contract. (Id. at 6– 7.) ELI responds that the BAA does not apply ...

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