Enhance v. Dainippon Screen Graphics (Usa), LLC

• Decision Date: 06 February 2015
• Docket Number: No. 14 C 1033,14 C 1033
• Parties: ENHANCE A COLOUR CORP., Plaintiff, v. DAINIPPON SCREEN GRAPHICS (USA), LLC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

ENHANCE A COLOUR CORP., Plaintiff, v. DAINIPPON SCREEN GRAPHICS (USA), LLC, Defendant.

No. 14 C 1033

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

February 6, 2015

Judge John J. Tharp, Jr.

ORDER

For the reasons set forth in the Statement below, the Court grants the defendant's Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6), Dkt. 8, as to Count II of plaintiff's Complaint; the Motion is denied as to Count I. Defendant's Motion to Strike Pursuant to Fed. R. Civ. P. 12(f), Dkt. 8, is also denied. A status hearing is set for February 19, 2015, at 9:00 a.m.

STATEMENT

Plaintiff Enhance A Colour Corp. ("EACC") brings this two-count action against Defendant Dainippon Screen Graphics (USA), LLC ("Screen") regarding an "Equipment Purchase Agreement" (the "Agreement") for an inkjet printer known as the "Truepress Jet2500 UV" (the "Machine"). See Compl. Ex. 2, Dkt. 1-2. EACC's Complaint asserts a claim for breach of contract (Count I) and request for rescission (Count II), alleging that the Machine was subject to a twelve-month warranty and failed to "perform as warranted" within five months of delivery. Compl., Dkt. 1, ¶¶ 7-16. Jurisdiction is based on diversity. 28 U.S.C. § 1332.

Relying on "integration" and "no-reliance" clauses in the written "Terms and Conditions" accompanying the Agreement attached to EACC's Complaint, Screen moves pursuant to Fed. R. Civ. P. 12(f) to strike all references in the Complaint to such a 12-month warranty, and to the "quality" and "reliability" of the Machine allegedly touted in Screen's marketing materials and by its sales representative. See Compl., Dkt. 1, ¶¶ 6-8, 13; Compl. Ex. 2, Dkt. 1-2, §§ 6(a), 6(e), 7, and 13(a). With these allegations out of the way, Screen would then argue that the Machine was protected by a warranty of only ninety days, and that the Complaint—failing to allege a defect within that narrower time frame—in turn fails to allege a cognizable claim for breach of contract or rescission. See Mem., Dkt. 9, at 6-7. On this basis, Screen moves to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6). The Court denies the motion to strike and denies the motion to dismiss as to Count I, but grants the motion to dismiss as to Count II.¹

I. Breach of Contract

Screen's motions to strike and dismiss both ask the Court to hold that, by virtue of the parol evidence rule, the parties' "integration" and "no-reliance" clauses "preclude[] statements by Screen's representatives and Screen's marketing materials from imposing additional contractual obligations on Screen," and, further, "render [EACC's] reliance on representations by Screen's representatives or its marketing materials unreasonable." See Mem., Dkt. 9, at 4-5 ("By virtue of the parol evidence rule, an integration clause prevents a party to a contract from basing a claim of breach of contract on agreements or understandings, whether oral or written, that the parties had reached during the negotiations that eventuated in the signing of a contract but that they had not written into the contract itself." (quoting Vigortone Ag Prods. v. AG Prods., 316 F.3d 641, 644 (7th 2002)). From that premise, Screen argues that EACC's breach of contract claim is insufficient under Illinois law.² But the premise and conclusion are both faulty.

As to the premise, neither an integration clause nor the parol evidence rule prevents a party from asserting, or a court from considering, extrinsic evidence "to discover the parties' genuine intent when a contract is ambiguous." See Brooklyn Bagel Boys, Inc. v. Earthgrains Refrigerated Dough Prods., Inc., 212 F.3d 373, 380 (7th Cir. 2000) (parol evidence rule allows consideration of extraneous evidence to construe ambiguous contract term); Music Dealers, LLC v. Sierra Bravo Corp., No. 1:12-cv-00712, 2012 WL 4017950, at *4 (N.D. Ill. Sept. 10, 2012) ("Under Illinois law, if the contract is ambiguous, as matter of law, extrinsic and parol evidence is admissible to explain the terms of the ambiguous contract," despite integration clause); Sefton v. Toyota Motor Sales U.S.A., No. 09 C 3787, 2010 WL 1506709, at *2 (N.D. Ill. Apr. 14, 2010) (parol evidence rule allows consideration of extrinsic evidence "if the language of the contract is ambiguous, that is, susceptible to more than one meaning"). Here, the Court concludes that this principle applies to two ambiguous provisions in the Agreement at issue, and the accompanying Terms and Conditions, and the parties' arguments best demonstrate those ambiguities.

First, EACC asserts that "the parties specifically modified the Terms and Conditions of the Sale by including a provision for a full year warranty in the Equipment PurchaseAgreement." Response, Dkt. 16, at 1-2. That modified provision, according to EACC, now appears on the face of the Agreement and reads as follows: "9 month SMA - Enhances 90 warranty into the first year of full coverage." Id. (quoting Agreement, Dkt. 1-2, at 1). EACC thus offers Screen's marketing enticements of "12-months warranty on parts" and "12 months warranty on labor" to "illuminate" this "specifically modified" provision. Id. at 1, 10-11; Compl., Dkt. 1, ¶ 7; Compl. Ex. 1, Dkt. 1-1, at 7. Screen, by contrast, contends that this reference to a "9 month SMA" instead refers to a "Service Maintenance Agreement" (a document that has not been provided to the Court), whereby "the parties may have agreed to a service arrangement for an additional 9 months," but otherwise did not extend the limited 90-day warranty against "defects in materials and workmanship" set out in the Terms and Conditions. Reply, Dkt. 17, at 4. Second, EACC contends that the term "defects" as used in the warranty is likewise ambiguous, and seeks to "illuminate" this term again through reference to Screen's testimonials as to the "quality" and "reliability" of the Machine. See Response, Dkt. 16, at 10-11; Compl., Dkt. 1, ¶¶ 6-7 (quoting Compl. Ex. 1, Dkt. 1-1). Screen, on the other hand, appears to define the term "defects" by reference to its own "specifications" (which the Court also does not have), arguing that "the Complaint is absolutely devoid of any allegation that the Machine failed to perform to Screen's specification, inside or outside the 90-day warranty period." See Reply, Dkt. 17, at 4-5.

With both of these terms "susceptible to more than one meaning," Sefton, 2010 WL 1506709, at *2, the Court concludes that the warranty provision at issue is ambiguous as to duration and scope, and that parol evidence (at least some of which is not before the Court) would be admissible to construe its parameters. This effort would thus require contract interpretation and consideration of evidence inappropriate for a motion to dismiss. See, e.g., Music Dealers, 2012 WL 4017950, at *4 (denying motion to dismiss where, despite integration clause, parol evidence was needed to construe term susceptible to "more than one reasonable interpretation").

Indeed, even apart from these ambiguities—and drawing all reasonable inferences in EACC's favor, as required at this stage—the Court must accept EACC's assertion that the parties agreed to "a full year warranty in the Equipment Purchase Agreement" by including the language "9 month SMA - Enhances 90 warranty into first year of full coverage," Response, Dkt. 16, at 1-2, which now appears on the face of that Agreement as attached to EACC's Complaint. See Compl. Ex. 2, Dkt. 1-2; Sefton, 2010 WL 1506709, at *3 (denying motion to dismiss: "Plaintiff has alleged that the contract included a promise," and "the court must assume the truth of the Plaintiff's allegations"). So too must the Court reasonably infer that EACC can present evidence supporting its claim that the Machine had a defect covered by this express warranty, for to hold otherwise would improperly resolve questions of fact against it. See, e.g., Pardo v. Mecum Auction Inc., No. 12 C 08410, -- F. Supp. 3d. --, 2014 WL 7403286, *5 (N.D. Ill. Dec. 29, 2014) ("the contract claim cannot be resolved as a matter of law at the pleading stage because there are questions of fact"); Lantz v. Am. Honda Motor Co., No. 06 C 5932, 2007 WL 1424614, *11 (N.D. Ill. May 14, 2007) (denying motion to dismiss express warranty claim for "defects in materials and workmanship," where the court "cannot say that [plaintiffs] will be unable to present any facts that will entitle them to relief").

This result follows, moreover, regardless of the parties' integration and no-reliance clauses, because the warranty provision that EACC claims was breached appears on the face of the Agreement sued on. See PharMerica Chicago, Inc. v. Meisels, 772 F. Supp. 2d 938, 953 (N.D. Ill. 2011) (integration and non-reliance clauses did not bar various tort claims, where misrepresentation sued on was "included in" the pertinent agreement); Am. Hardware Mfrs. Ass'n v. Reed Elsevier, Inc., No. 03 C 9421, 2004 WL 3363844, *8 (N.D. Ill. Dec. 28, 2004) (denying motion to dismiss fraud claims despite alleged no-reliance clause, where alleged oral representations were supported by provisions in the parties' agreement). EACC's claim for breach of the parties' Agreement thus survives, with or without the integration and no-reliance clauses to which that Agreement may be subject.³

For these reasons, Screen's motion to dismiss Count I of EACC's Complaint is denied.

II. Rescission

Screen's challenge to EACC's request for rescission has similar flaws, but ultimately finds footing in its third argument. Screen contends that this Count must be dismissed because (i) EACC has not "alleged that Screen knowingly made a false statement of material fact with the intention that EACC would rely on it"; (ii) the parties' no-reliance clauses "preclude" it; and (iii) rescission is "barred" by limitation-of-remedies provisions to which the parties' Agreement is also subject. Mem., Dkt. 9, at 7. While the Court disagrees that the first two propositions defeat EACC's request for rescission, the...