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Marconi v. Indiana Municipal Power Agency, ISC, Inc.

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

August 30, 2016

JOE MARCONI, ADLINA MARCONI, RICHARD A. BENSON, LOUIS M. BENSON, DANIEL J. SOLIZ, MARGRET M. SOLIZ, MARY POPIEL, JOHN WULFF, and EMIL GOELLNER, individually and on behalf of others similarly situated, Plaintiffs,
v.
INDIANA MUNICIPAL POWER AGENCY, ISC, INC., RAJESHWAR G. RAO, SARGENT & LUNDY, LLC and SKELLY AND LOY, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          REBECCA R. PALLMEYER United States District Judge

         In 2006, the City of Batavia entered into an agreement (the "Power Sales Agreement") with the Northern Illinois Municipal Power Agency ("NIMPA"), a joint municipal power agency of which Batavia is a member, to purchase electricity generated by a facility in southern Illinois called the Prairie State Energy Campus ("PSEC"). Plaintiffs are electricity ratepayers from Batavia. They allege that when Batavia agreed to purchase PSEC power, the City relied on misrepresentations Defendants made, while the PSEC project was being developed, about the quality and cost of the energy the PSEC would generate. As a result, Plaintiffs say, they now pay too much for electricity. Defendants are the Indiana Municipal Power Agency ("IMPA"), an Indiana power agency and partial owner of PSEC that advised Batavia in its selection of a power supplier; ISC, Inc. ("ISC"), a subsidiary of IMPA that provided consulting services to Batavia as it searched for a power supplier; Rajeshwar G. Rao, President and CEO of IMPA and ISC; Skelly and Loy, Inc. ("Skelly and Loy"), an engineering and consulting firm that conducted a technical due diligence study of the PSEC coal mine for IMPA; and Sargent & Lundy, L.L.C., an engineering and consulting firm that conducted a technical due diligence study of the PSEC power plant for IMPA and other specified third parties.

         Plaintiffs brought this suit in Illinois state court, but Defendants IMPA and Rao removed the case to this court pursuant to the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d). In August 2015, this court denied Plaintiffs' motion to remand, concluding that none of CAFA's exceptions to federal jurisdiction apply here. In particular, the court rejected Plaintiffs' argument that Sargent & Lundy was a "significant defendant" under CAFA's "local controversy" exception because Plaintiffs had failed to state any claim against Sargent & Lundy and because Sargent & Lundy's conduct in the scheme Plaintiffs alleged was insignificant in comparison to that of other Defendants. The court also granted all Defendants' motions to dismiss for failure to state a claim for negligent misrepresentation, in large part because Plaintiffs had failed to allege that any of the Defendants owed a duty to Plaintiffs themselves, as opposed to the City of Batavia. The court granted Plaintiffs leave to amend their complaint, which they did in October 2015. Among other amendments, Plaintiffs have added allegations about a presentation Sargent & Lundy made to the City of Batavia's Public Utilities Commission in December 2004, about which Plaintiffs insist they only recently learned, as well as allegations that, had Defendants accurately represented the nature of the PSEC project, Plaintiffs could have petitioned for a ballot initiative to vote to express their disapproval of the City's agreement to purchase power from PSEC. Plaintiffs contend that these and other new allegations demonstrate that Sargent & Lundy qualifies as a "significant defendant" under the "local controversy" exception to CAFA jurisdiction, and they ask the court to reconsider its decision denying their motion to remand in light of these new facts. Defendants insist that it would be procedurally inappropriate for the court to reconsider its decision. If the court does entertain Plaintiffs' motion, Defendants urge, the court should conclude that the new allegations make no difference to the outcome. In addition, Defendants have each moved to dismiss Plaintiffs' second amended complaint, arguing that Plaintiffs have again failed to state a claim against them. For the reasons stated below, the court denies Plaintiffs' motion to reconsider [83] its denial of their motion to remand and grants Defendants' motions to dismiss [88, 91, 94].

         DISCUSSION

         I. Plaintiffs' Motion to Reconsider Order Denying Motion to Remand

         In denying Plaintiffs' motion to remand, the court provided two alternative grounds for its conclusion that Sargent & Lundy, the lone Illinois Defendant in the case, is not a "significant defendant" under the "local controversy" exception to CAFA jurisdiction. See Marconi v. Indiana Mun. Power Agency, No. 14 C 7291, 2015 WL 4778528, at *5-*7 (N.D. Ill. Aug. 13, 2015).[1]Under that exception, a district court must decline to exercise jurisdiction if, among other requirements, at least one defendant is a citizen of the state in which the plaintiffs file suit and its "alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class." 28 U.S.C. § 1442(d)(4)(A)(II)(bb). The court concluded that though Sargent & Lundy was a citizen of Illinois, where Plaintiffs filed suit, Plaintiffs failed to allege conduct that would support their claim against Sargent & Lundy under Illinois law. See Marconi, 2015 WL 4778528, at *5. Thus, Sargent & Lundy's "alleged conduct" could not form any basis, let alone a "significant basis, " for Plaintiffs' claims. Id.

         The court concluded, further, that Plaintiffs' allegations were inadequate to state claims for negligent misrepresentation against any of the Defendants, in part because Plaintiffs did not allege the existence of any relationship between Plaintiffs and Defendants that would give rise to a duty to convey accurate information. See Id. at *9-*11. Plaintiffs failed to allege, for example, that it was foreseeable to Defendants that Batavia's ratepayers would rely on any of Defendants' statements or that any of Batavia's ratepayers actually received any communication from Defendants or took any action in reliance upon such communication. The court noted that the alleged relationship between Plaintiffs and Sargent & Lundy was "particularly attenuated, " and thus Sargent & Lundy in particular could not be considered a "significant defendant" under CAFA's local controversy exception. Id. at *6. Plaintiffs' allegations against Sargent & Lundy were, thus, even less compelling than the allegations against IMPA, Rao, and ISC. In contrast, those Defendants, for example, are alleged to have made direct representations to the City of Batavia (if not to individual ratepayers). But Sargent & Lundy's and Skelly and Loy's due diligence reports, which contained their alleged misrepresentations, were prepared specifically for IMPA or other specified third parties-not for Plaintiffs or even for the City itself. Thus, if Plaintiffs failed to allege the kind of relationship giving rise to a duty between themselves and IMPA, Rao, and ISC, as the court concluded, the relationship between Plaintiffs and Sargent & Lundy was yet another step removed.

         In the alternative to its conclusion that Sargent & Lundy could not be a significant defendant because Plaintiffs failed to state a claim against it, the court determined that Sargent & Lundy did not qualify as a "significant defendant" because its alleged conduct was not significant in comparison to the alleged conduct of the other defendants. As explained above,, Sargent & Lundy's relationship with Plaintiffs was "particularly attenuated, " and Plaintiffs' complaint devoted considerably more space to allegations concerning the conduct of IMPA, ISC, and Rao than it did to discussing Sargent & Lundy or Skelly and Loy. See Id. Thus Sargent & Lundy's alleged conduct did not form a "significant basis" for Plaintiffs' claims under the "comparison approach, " which most other courts have adopted, providing the court with an alternative ground to conclude that the "local controversy" exception did not apply. Id.

         In their second amended complaint, Plaintiffs have included new allegations concerning Sargent & Lundy's conduct (see, e.g., Pls.' Second Am. Class Action Compl. [78], hereinafter "SAC, " ¶¶ 68-74, 82-86), and they urge the court to reconsider its denial of their motion to remand in light of these new allegations. Specifically, Plaintiffs now allege that in addition to preparing a due diligence report about the Prairie State Energy Campus for IMPA, Sargent & Lundy attended a meeting held by the City of Batavia Public Utilities Committee on December 16, 2004 and made a presentation about its evaluation of the PSEC project. (Id. ¶¶ 68-69.) In its presentation, Sargent & Lundy allegedly stated that the design of the PSEC plant at that time was "acceptable without coal washing" and failed to include in its detailed tabulation of the project's risks any discussion of the financial or operational risks associated with the use of "unconditioned coal" at the plant. (Id. ¶¶ 70-74.) According to Plaintiffs, the poor quality of the plant's unwashed coal has led to shutdowns and reduced operational capacity, and "it was known at [the time of Sargent & Lundy's presentation]" that use of the unwashed coal would have these effects. (Id. ¶¶ 82-83.) Plaintiffs also allege that Sargent & Lundy's presentation was made at a time when Batavia's investment in the project was minimal. Subsequent to Sargent & Lundy's presentation, Batavia made greater financial commitments to the project's development, Plaintiffs allege. (See Id. ¶¶ 64, 88, 92.) Thus, Plaintiffs assert, these new allegations show that Sargent & Lundy made misrepresentations about the PSEC project's most critical flaw at the critical time period and therefore must be considered a "significant defendant." Plaintiffs' account of Sargent & Lundy's 2004 presentation, however, appears to be misleading. They do not attach the presentation slides to their complaint, but Sargent & Lundy has attached them to its motion to dismiss, and because the Plaintiffs have referred to this presentation in their complaint, the court may properly consider them. 188 LLC v. Trinity Indus. Inc., 300 F.3d 730, 735 (7th Cir. 2002). A review of those slides reveals that Sargent & Lundy did not take such a strong stance in favor of unwashed coal, the project's purported "critical flaw." To the contrary, Sargent & Lundy listed costs and benefits of coal washing and stated that a "[d]etailed review of coal is required to determine if washing is beneficial, " that the "[e]conomics of coal washing requires a station specific review for the coal used, " that "[d]etailed system by system reviews generally show that coal washing is economical for high ash coals, " and that Peabody was "currently considered coal washing." Sargent & Lundy's Prairie State Project Review Presentation, Ex. B to Def. Sargent & Lundy's Mem. in Supp. of Mot. to Dismiss [89-2], at 30-32.

         In their motion to reconsider the court's order denying remand, Plaintiffs challenge both grounds underlying the court's conclusion that Sargent & Lundy was not a "significant defendant." They first argue that the court erred when it considered the arguments from Defendants' motions to dismiss on the merits of Plaintiffs' claims in ruling on their motion to remand. They contend that in doing so, the court improperly "assumed jurisdiction" before deciding the merits. (Pls.' Mot. for Reconsideration [83] 4-7.) As explained in the earlier opinion, in the context of in deciding whether they have subject matter jurisdiction. Marconi, 2015 WL 4778528, at *6. Plaintiffs point out, however, that courts will only dismiss a defendant as fraudulently joined if they determine that the claims against that defendant are "utterly groundless, " and that this court made no such determination about Plaintiffs' claim against Sargent & Lundy. In their reply, Plaintiffs also argue that even if it were proper for the court to consider the merits of their claim at this stage, the allegations included in their amended complaint are now sufficient to state a claim against Sargent & Lundy. Regarding the court's conclusion that Sargent & Lundy's conduct did not form a significant basis for Plaintiff's claims in comparison with the other Defendants, Plaintiffs contend that the "comparison approach" was not the correct test to apply, and that even if it were, the new allegations in the amended complaint demonstrate that Sargent & Lundy's conduct did in fact form a significant basis for Plaintiffs' claims.

         In response, Defendants offer both procedural and substantive reasons why the court should deny Plaintiffs' motion to reconsider. On procedural grounds, Defendants argue (1) that reconsideration is proper only under rare circumstances and that rather than showing that such circumstances are present in this case, Plaintiffs merely rehash arguments the court has already rejected; and (2) that Plaintiffs' arguments in favor of remand impermissibly rely on allegations that were added to their complaint only after the case had been removed. Even if the court were to ignore these procedural obstacles to reconsideration and consider Plaintiffs' new allegations, Defendants urge, the new allegations provide no reason for the court to reach a different conclusion on the merits. That is, according to Defendants, Sargent & Lundy is still not a "significant defendant" under CAFA's local controversy exception either because Plaintiffs have still failed to state a claim against Sargent & Lundy or because Sargent & Lundy's alleged conduct is still insignificant in comparison to the alleged conduct of the other Defendants. The court considers these arguments in turn.

         A. Defendants' Procedural Objections to Reconsideration

         Defendants' procedural arguments against the motion to reconsider have considerable merit. A significant portion of Plaintiffs' motion for reconsideration is devoted to rehashing arguments the court has already considered and rejected. Litigants may seek appellate review if they disagree with a district court's reasoning, "but a motion to reconsider is not the appropriate mechanism for a party to relitigate already-rejected arguments." Henson v. T-Mobile USA, No. 12 C 3845, 2013 WL 4725549, at *2 (N.D. Ill. Sept. 3, 2013). Where Plaintiffs have raised new arguments, they rely on allegations that were not included in their complaint at the time of removal, and it is not clear that the court is permitted to consider such post-removal allegations in determining whether it has subject-matter jurisdiction. "The well-established general rule is that jurisdiction is determined at the time of removal, and nothing filed after removal affects jurisdiction." In re Burlington N. Santa Fe Ry. Co., 606 F.3d 379, 380 (7th Cir. 2010) (applying the general rule in case where plaintiffs attempted to evade CAFA jurisdiction by removing class allegations from original complaint).

         Plaintiffs offer two challenges to application of the Burlington rule here, but neither is persuasive. First, Plaintiffs argue that applying the general rule laid out in Burlington to the present case would contradict the federal removal statute, which requires a case to be remanded if it appears that the district court lacks subject matter jurisdiction "[a]t any time before final judgment . . . ." 28 U.S.C. § 1447(d). The Seventh Circuit, however, has already considered and rejected this precise argument. See Matter of Shell Oil Co., 966 F.2d 1130, 1133 (7th Cir. 1992) ("Does the reference to 'any time before final judgment' [in § 1447(d)] mean that changes after removal can eliminate jurisdiction and require remand? We think not."). Second, Plaintiffs argue that applying the rule from Burlington would be inconsistent with the Seventh Circuit's observation that a motion to reconsider can perform a valuable function if there has been "a controlling or significant change in the law or facts since submission of the issue to the Court." Bank of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d 1185, 1191 (7th Cir. 1990). But even if Plaintiffs' purportedly recent discovery of Sargent & Lundy's 2004 presentation constitute a "significant change in facts"-a questionable ...


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