Cmty. Ass'n Underwriters of Am., Inc. v. Constr. Sys. Corp.

• Docket Number: 21 CV 6062
• Decision Date: 31 October 2022
• Citation: Cmty. Ass'n Underwriters of Am., Inc. v. Constr. Sys. Corp., 638 F.Supp.3d 872 (N.D. Ill. 2022)
• Parties: COMMUNITY ASSOCIATION UNDERWRITERS OF AMERICA, INC., Plaintiff, v. CONSTRUCTION SYSTEM CORP. OF ILLINOIS, Defendant.
• Court: U.S. District Court — Northern District of Illinois

638 F.Supp.3d 872

COMMUNITY ASSOCIATION UNDERWRITERS OF AMERICA, INC., Plaintiff, v. CONSTRUCTION SYSTEM CORP. OF ILLINOIS, Defendant.

No. 21 CV 6062

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

Signed October 31, 2022

Matthew S. McLean, Thompson Brody and Kaplan, LLP, Chicago, IL, Benjamin D. Wharton, De Luca Levine LLC, Blue Bell, PA, for Plaintiff.

Melanie Ann Strubbe, Bruce W. Lyon, LaBarge, Campbell & Lyon, LLC, Chicago, IL, Christopher M. Miller, Cory D. Anderson, Rock Fusco & Connelly, LLC, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

HEATHER K. McSHAIN, United States Magistrate Judge

Pending before the Court is defendant Construction System Corp. of Illinois's motion under Fed. R. Civ. P. 12(b)(6) to dismiss Counts I and III of plaintiff Community Association Underwriters of America's complaint and to strike its request for attorney's fees and delay damages. [31].¹ The motion is fully briefed. [36], [39]. For the following reasons, the motion to dismiss is granted in part with prejudice and in part without prejudice.

Background

Plaintiff is an insurance agency insuring the properties of subrogor, Arbor Lane Condominium Association ("Arbor Lane"), located at 6550 and 6560 W. Belmont Street and 6561 W. School Street in Chicago, Illinois, [1] 2, at ¶ 3. In 2013, defendant contracted with McKenzie Management, the property management company representing and retained by Arbor Lane, [1] 5, at ¶ 26, to install a roof on Arbor Lane's property. [1] 2, at ¶ 6. In August 2020, the roof allowed infiltration of rainwater through several locations which caused extensive damage to Arbor Lane's property. [1] 2, at ¶ 7. As a result of the damage, Arbor Lane submitted an insurance claim to plaintiff and requested payment for the damages incurred from the water leak. [1] 2 ¶ 8. Pursuant to the policy, plaintiff became obligated and did pay Arbor Lane for the damages incurred as a result of the water leak. [1] 2, at ¶ 9. By paying Arbor Lane's claim, a subrogation relationship arose between plaintiff as subrogee and Arbor Lane as subrogor.

In November 2021, plaintiff filed this suit in the U.S District Court for the Northern District of Illinois.[1].² Plaintiff's complaint asserts three claims against defendant: negligence (Count I); breach of implied warranties (Count II); and breach of contract (Count III). [1].³

Legal Standard

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "The plausibility standard . . . asks for more than a sheer possibility that a defendant has acted unlawfully." Id. In ruling on a motion to dismiss, a court accepts all well-pleaded facts in the complaint as true and "draw[s] all reasonable inferences in the plaintiff's favor." Webb v. Frawley, 906 F.3d 569, 576 (7th Cir. 2018).

When a federal court exercises diversity jurisdiction, the court "look[s] to the choice-of-law rules of the forum state to determine which state's law applies to the issues before it." Sosa v. Onfido, Inc., 8 F.4th 631, 637 (7th Cir. 2021) (internal quotation marks omitted). "Under Illinois choice-of-law rules, forum law is applied unless an actual conflict with another state's law is shown, or the parties agree that forum law does not apply." Id. (internal quotation marks omitted). Because there is no dispute that Illinois law controls here, the Court evaluates the plausibility of plaintiff's claims under Illinois substantive law. See Burdett v. Miller, 957 F.2d 1375, 1382 (7th Cir. 1992) (district court "will apply the substantive law of the forum state if the case is a diversity case and neither party argues choice of law").

Discussion

A. Negligence

Count I of the complaint alleges that defendant owed plaintiff a duty of care to refrain from engaging in conduct that created a foreseeable likelihood of harm to the subject property. [1] 3, at ¶ 12. Plaintiff argues that defendant acted unlawfully in negligently installing the roof. [1] 3-4, at ¶ 16. Defendant argues that this claim is barred by Illinois' economic loss doctrine. [31] 1-2. In its response brief, plaintiff conceded that this claim should be dismissed. [36] 1. Accordingly, the Court grants defendant's motion to dismiss Count I with prejudice. The Court also strikes plaintiff's request for attorney fees and delay damages, which plaintiff also concedes should be dismissed. [36] 1.

B. Breach of Contract

Count III of the complaint alleges that defendant breached the terms of its contract with McKenzie Management when damages were caused to Arbor Lane's property as a result of defendant's roof installation. [1] 6, at ¶ 27, 30. Plaintiff argues that due to the roof being improperly installed by defendant, rainwater infiltrated Arbor Lane's property through several locations which caused extensive damage to the property. [1] 2, at ¶ 7.

Defendant seeks dismissal of this claim on the grounds that (1) plaintiff is not an intended third-party beneficiary of the contract between it and McKenzie Management, [31] 3, and (2) plaintiff has failed to plausibly allege that McKenzie Management was an agent of Arbor Lane. [39] 2. In support, defendant contends that since there is no mention of Arbor Lane in the contract between McKenzie Management and defendant, then plaintiff could not be an intended third-party beneficiary of that contract. [31] 3-4. Defendant also argues that neither plaintiff's complaint nor any contract provided demonstrates an agency relationship between McKenzie Management and Arbor Lane. Therefore, plaintiff has not plausibly alleged an agency relationship that may allow plaintiff to enforce the contract as an undisclosed principal. [39] 2.

Plaintiff responds that it can enforce the contract because its subrogor, Arbor Lane, was an intended third-party beneficiary of that contract. [36] 2 (citing Waterford Condo Ass'n v. Dunbar Corp., 104 Ill.App.3d 371, 60 Ill.Dec. 110, 432 N.E.2d 1009, 1011 (1982)). Plaintiff also argues that it is entitled to enforce the contract because a principal-agency relationship existed between Arbor Lane and McKenzie Management, and under Illinois law an "undisclosed principal" like Arbor Lane "may, on showing the agency, claim the benefit of any transaction into which the agent entered, precisely as if the principal had entered into it himself." O'Connor v. Vill. of Palos Park, 31 Ill.App.3d 528, 333 N.E.2d 276, 281 (Ill. App. 1975); see [36] 3-4. In support, plaintiff points to a proposed second amended complaint attached to its opposition brief, which alleges that, "[u]pon information and belief, Defendant performed its roofing work pursuant to a contract with [Arbor Lane's] agent, McKenzie Management." [36-1] 4, at ¶ 17. Plaintiff has not sought leave to file the proposed amended complaint.

In reply, defendant does not dispute that Illinois law permits an undisclosed principal to enforce a contract that its agent entered on its behalf. Rather, defendant contends that plaintiff's original complaint does not allege the existence of a principal-agency relationship between Arbor Lane and McKenzie Management, and that plaintiff has failed to provide sufficient evidence that such a relationship exists. [39] 2.

1. Intended Third-Party Beneficiary

In Illinois, there is a strong presumption that parties to a contract intend that the contract's provisions apply to only the contracting parties and not a third party. Ball Corp. v. Bohlin Bldg. Corp., 187 Ill.App.3d 175, 134 Ill.Dec. 823, 543 N.E.2d 106, 107 (Ill. App. 1989) (citing Alaniz v. Schal Associates, 175 Ill.App.3d 310, 124 Ill.Dec. 851, 529 N.E.2d 832, 834 (Ill. App. 1988)). To overcome that presumption, "the implication that the contract applies to third parties must be so strong as to be practically an express declaration." Id. "Liability to a third party must affirmatively appear from the contract's language and from the circumstances surrounding the parties at the time of its execution and cannot be expanded or enlarged simply because the situation and circumstances justify or demand further or other liability." Ball Corp. 187 Ill.App.3d 175, 134 Ill.Dec. 823, 543 N.E.2d at 107, (citing Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498, 501 (1931)). To determine whether another is a third-party beneficiary, the court must look to the contract to evaluate the parties' intentions. 187 Ill.App.3d 175, 134 Ill.Dec. 823, 543 N.E.2d at 107.

Additionally, it is not enough that the beneficiary reaps incidental benefits from the contract. People ex rel. Resnik v. Curtis & Davis, Architects & Planners, Inc., 78 Ill.2d 381, 36 Ill.Dec. 338, 400 N.E.2d 918, 920 (1980). Only a direct beneficiary has a right against the promisor or promisee. Id. A third-party is a direct rather than incidental beneficiary when the contracting parties have manifested in their contract an intention to confer a benefit upon the third party. Altevogt v. Brinkoetter, 85 Ill.2d 44, 51 Ill.Dec. 674, 421 N.E.2d 182, 187 (1981).

For example, Illinois courts have found a party to be an intended third-party beneficiary when the party was named in the contract, had signed the contract, and where the contract provided for its consultation and approval before construction of a prison facility commenced. Resnik, 78 Ill.2d 381, 36 Ill.Dec. 338, 400 N.E.2d at 920. In Resnik, the court found that the State was an intended third-party beneficiary and that the parties intended to confer a direct benefit on the State because construction of a prison would directly benefit only the State, which had the expertise...