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Mandel M S, Inc. v. Walker Group Holdings

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

June 26, 2015

MANDEL M S, INC., Plaintiff,


ROBERT M. DOW, Jr., District Judge.

This action involves a dispute arising from a series of contracts for the sale and purchase of aluminum sheet and plating between August and December of 2013. Plaintiff Mandel M s, Inc., the seller, ("Mandel") initiated the lawsuit on October 28, 2014, and Defendant Walker Group Holdings, the buyer, ("Walker Group") filed its amended answer, defenses, and counterclaim [25] thereafter on January 15, 2015. Currently pending before the Court are Mandel's motions to dismiss and strike Walker Group's amended counterclaim and affirmative defenses [31, 33].

For the reasons set forth below, the Court grants in part and denies in part the pending motions. Specifically, Mandel's motion to dismiss [31] is granted with respect to Counts I, II, III, and V, and denied with respect to Count IV. Mandel's motion to strike [33] is granted with the exception of the defenses set forth in paragraphs four, seven, and eight and Walker Group's answer. See [25], Defenses ¶¶ 4, 7, 8.

I. Background

The facts are drawn from Mandel's complaint [1] and Walker Group's amended counterclaim [25]. For purposes of deciding the pending motions, the Court assumes as true all well-pleaded allegations set forth in the counterclaim. See Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007). Mandel is an Illinois corporation headquartered in Franklin Park, Illinois, with additional locations in Dallas, Texas and Cleveland, Ohio. [1], Compl. ¶ 2. Mandel stocks, processes, and distributes industrial aluminum coil, sheet, and plate. Id. Walker Group consists of several subsidiaries and is itself a wholly owned subsidiary of Wabash National, a Delaware corporation headquartered in Lafayette, Indiana. Id. at ¶ 3; [25], Am. Counterclaim ¶ 3. Walker Group is headquartered in New Lisbon, Wisconsin and manufactures semi-trailers and liquid transportation tanks. See [1], Compl. ¶¶ 3, 5. Its products, which include aluminum tankers, are sold through several business divisions, including Walker Transport, Walker Engineered, Walker Stainless Equipment, and Walker Barrier Systems. See id. at ¶ 4.

Department of Transportation ("DOT") regulations require that aluminum tankers have a minimum thickness of 0.173 inches. [25], Am. Counterclaim ¶ 16. To ensure compliance, Walker Group uses aluminum with a minimum thickness of 0.177 inches to allow for "polishing and finishing [ ] before final manufacture" of the tankers. See id. at ¶ 26. Prior to the purchases at issue, Walker Group had ordered aluminum from Mandel that met its thickness requirement, and, on at least one occasion, had declined to order from Mandel when the aluminum did not meet that requirement. Id. at ¶¶ 17-18.

On August 28, 2013, Walker Group sent Mandel a request for a quote for aluminum "WG MIN Thickness Req'd" of 0.177, 0.190, and 0.235. [25], Am. Counterclaim ¶ 19. In response, Jayson Fetters of Mandel acknowledged via e-mail and in verbal communications that the requested aluminum was for "minimum thickness, " not "nominal thickness, " and further represented that Mandel had aluminum that would meet Walker Group's requirements. See id. at ¶¶ 21, 22, 23. Walker Group further alleges that Mandel had reason to know of Walker Group's purpose for the aluminum-the construction of DOT petroleum tankers-and that it "never would have ordered the materials [from Mandel] but for Mandel's representations" about the aluminum. Id. at ¶¶ 25, 78. Thereafter, during the months of August, September, October, November, and December of 2013, Walker Group placed several orders for aluminum (the "Purchase Orders"). See [32-1], Purchase Orders; see also [1], Compl. ¶¶ 10, 16, 20, 25, 27, 30, 33, 38, 40. The Purchase Orders specified that the aluminum have a thickness between 0.177 and 0.188, which is the industry standard for 0.177 minimum thickness. [25], Am. Counterclaim ¶ 27.

Walker Group alleges that all of its suppliers, including Mandel, are required to comply with certain terms and conditions (the "Terms and Conditions"). [25], Am. Counterclaim ¶ 6. The Terms and Conditions are not expressly set forth in the Purchase Order forms, however; the Purchase Order forms also state that, "Acceptance and Acknowledgement * * * is expressly limited to the terms and conditions stated herein." [32-1], Purchase Orders at 37-74. Nonetheless, Walker Group alleges that the Terms and Conditions were incorporated by reference into the Purchase Orders via web-hosted documents, oral communications, and e-mail exchanges between the parties; Walker Group further alleges that Mandel had actual knowledge of the Terms and Conditions. [25], Am. Counterclaim ¶ 9. In addition, the last four Purchase Orders at issue (of eight total) reference the Terms and Conditions in a provision that states:


[32-1], Purchase Orders at 46-74 (emphasis and ellipses in original). As noted, Walker Group is a subsidiary of Wabash National; Walker Group alleges that it uses Wabash National's various forms, including purchase order forms. [25], Am. Counterclaim ¶ 1.

Several provisions of the Terms and Conditions are relevant here. First, the Terms and Conditions provide that: "In case of any defect or noncompliance with any provision of this Purchase Order, Buyer shall have the right to reject, at any time, any goods covered by this Purchase Order." [25], Am. Counterclaim ¶ 12 (emphasis added). They further require the seller to:

[I]ndemnify, assume the defense of, and hold harmless Buyer as set forth in the Defend, Indemnify & Hold Harmless Agreement provided by Buyer to Seller, the terms of which are specifically and fully incorporated by reference into these Purchase Order Terms.

Id. at ¶ 14. Finally, they state that, "Seller's Acknowledgement of Buyer's Purchase Order implies acceptance of the[ ] [Terms and Conditions]." [32-1], Purchase Order Terms & Conditions at 35.

In its counterclaim, Walker Group alleges that the aluminum that it ordered based on Mandel's August 28, 2013 representations did not conform to the agreed 0.177 minimum thickness. [25], Am. Counterclaim ¶ 33. Walker Group alleges that it did not learn that the aluminum was too thin until after Wabash National had fully manufactured ten, and partially manufactured three, tankers using the sub-standard aluminum. Id. at ¶ 35. When Walker Group learned of the defects, it allegedly "reject[ed] the non-conforming goods and notif[ied] Mandel[.]" Id. at ¶ 36. In particular, Wabash National sent a letter on January 31, 2014 to Mandel, following prior e-mail and verbal communications, reiterating its rejection of the goods and explaining the deficiencies in the aluminum. Id. at ¶ 38. Mandel issued a credit to Walker Group for some of the material but also sent a letter on February 21, 2014, claiming that the aluminum was ordered only at "nominal thickness." Id. at ¶¶ 37, 43.

In its complaint, Mandel alleges that it fully performed under the Purchase Orders and that Walker Group has not paid for all of the aluminum that it ordered. According to Mandel, Walker Group still owes more than $92, 000 for the aluminum that it ordered. Walker Group brings five counterclaims against Mandel, including breach of contract, rescission of the Purchase Orders, fraud, breach of implied warranty of fitness for a particular use, and breach of an express warranty.

II. Legal Standard

Mandel moves to dismiss Walker Group's counterclaims under Federal Rule of Civil Procedure 12(b)(6). The purpose of a motion to dismiss is not to decide the merits of the case, but instead to test the sufficiency of the complaint. See Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). As noted, when reviewing a motion to dismiss under Rule 12(b)(6), the Court takes as true all factual allegations in the counterclaim and draws all reasonable inferences in the non-movant's favor. Killingsworth, 507 F.3d at 618.

To survive a Rule 12(b)(6) motion, the claim first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief" (Fed. R. Civ. P. 8(a)(2)), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The factual allegations also must be sufficient to raise the possibility of relief above the "speculative level, " assuming that all of the allegations are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "A pleading that offers labels and conclusions' or a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). However, "[s]pecific facts are not necessary; the statement need only give the defendant fair notice of what the * * * claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly, 550 U.S. at 555) (ellipsis in original). The Court reads the complaint and assesses its plausibility as a whole. See Atkins v. City of Chi., 631 F.3d 823, 832 (7th Cir. 2011).

Mandel also moves to strike Walker Group's affirmative defenses. Under Federal Rule of Civil Procedure 12(f), "the court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Motions to strike affirmative defenses may be used to expedite a case by "remov[ing] unnecessary clutter from the case." Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989); Man Roland, Inc. v. Quantum Color Corp., 57 F.Supp.2d 576, 578 (N.D. Ill. 1999); Codest Eng'g v. Hyatt Int'l Corp., 954 F.Supp. 1224, 1228 (N.D. Ill. 1996). "Ordinarily, defenses will not be struck if they are sufficient as a matter of law or if they present questions of law or fact. Affirmative defenses are pleadings and, therefore, are subject to all pleading requirements of the Federal Rules of Civil Procedure." Heller Fin., Inc, 883 F.2d at 1294. As such, defenses must set forth a "short and plain statement, " of the defense. Id. (citing Fed.R.Civ.P. 8(a)). The Court construes the defenses in a liberal manner.

III. Mandel's Motion to Dismiss the Amended Counterclaim [31]

The Court first addresses the motion to dismiss Walker Group's amended counterclaim, which contains five counts, including breach of contract, rescission, fraud, breach of express warranty, and breach of implied warranty of fitness for a particular purpose. In support of its motion, Mandel relies on Illinois law and argues that Illinois law should apply because the state of Illinois is most closely connected to the facts giving rise to the dispute. See [32], Mem. at 3. Mandel argues that Wisconsin law also could apply, because Walker Group negotiated and entered into the Purchase Orders in Wisconsin, the aluminum was shipped to Wisconsin, and the aluminum was used to manufacture the tankers in Wisconsin. See id. Mandel contends that the law is substantially similar in both states, however, and that regardless of which state's law governs, the result is the same. See id. In its response, Walker Group argues that Indiana law also may apply-as the Terms and Conditions call for the application of Indiana law-but agrees that there are no conflicts among the laws of the potentially relevant jurisdictions (Indiana, Illinois, and Wisconsin). [44], Resp. at 8, n.2. Because (1) the parties have not fully engaged in a choice-of-law analysis, (2) they agree that there are no significant conflicts among the laws of the potentially relevant states, and (3) they both have cited primarily to Illinois law in their briefs, the Court will apply Illinois law for present purposes, including the Uniform Commercial Code (the "UCC") as adopted in Illinois. See Barron v. Ford Motor Co., 965 F.2d 195, 197 (7th Cir. 1992) ("[B]efore entangling itself in messy issues of conflict of law a court ought to satisfy itself that there actually is a difference between the relevant laws of the different states."); In re Air Crash Disaster, 526 F.Supp. 226, 228 (N.D. Ill. 1981) (observing that there is no need to make a choice-of-law determination when the result is the same under the potentially relevant bodies of law). The Court will engage in a complete choice-of-law analysis at a later time, if one is necessary.

A. Breach of Contract

In Count I, Walker Group brings a breach of contract claim that is premised, in part, on Mandel's alleged breach of the Terms and Conditions that allegedly were incorporated into the Purchase Orders. Under the Terms and Conditions, Walker Group has the right to reject goods "at any time, " and Mandel must indemnify Walker Group for any losses caused by a breach of the Terms and Conditions. See [25], Am. Counterclaim ¶¶ 12-14. Mandel argues that the Terms and Conditions were not incorporated into any of the Purchase Orders and that the breach of contract claim therefore should be dismissed. For the reasons explained below, the Court concludes that Walker Group has not sufficiently alleged ...

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