Fed. Ins. Co. v. J.K. Mfg. Co.

• Decision Date: 28 March 2013
• Docket Number: No. 12 C 3465.,12 C 3465.
• Citation: 933 F.Supp.2d 1065
• Parties: FEDERAL INSURANCE COMPANY, as subrogee of MonoSol Holdco, LLC, Plaintiff, v. J.K. MANUFACTURING CO., Defendant.
• Court: U.S. District Court — Northern District of Illinois

933 F.Supp.2d 1065

FEDERAL INSURANCE COMPANY, as subrogee of MonoSol Holdco, LLC, Plaintiff,

v.J.K. MANUFACTURING CO., Defendant.

No. 12 C 3465.

United States District Court,

N.D. Illinois,

Eastern Division.

March 28, 2013.

Anthony J. Morrone, Thaddeus Christian Baria, Cozen O'Connor, Chicago, IL, for Plaintiff.

John J. Moroney, IV, Randall W. Slade, Franco & Moroney LLC, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, District Judge.

Federal Insurance Company (“Federal Insurance”), as subrogee of MonoSol Holdco, LLC (“MonoSol”), brings this diversity action against J.K. Manufacturing Company (“J.K.”) for negligence (Count I), breach of express and implied warranties (Count II), and products liability (Count III). (R. 1, Compl. ¶¶ 15–31.) Presently before the Court is J.K.'s motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below, J.K.'s motion is denied.

RELEVANT FACTS

MonoSol is a limited liability company (“LLC”) incorporated in Delaware with its principal place of business in Merrillville, Indiana. ( Id. ¶ 2.) During the time relevant to this action, MonoSol owned the property located at 1701 County Line Road, Portage, Indiana (the “MonoSol Facility”). ( Id.) MonoSol manufactures plastic water soluble films inside the MonoSol Facility. ( Id.) Federal Insurance is an insurance provider with its principal place of business in Warren, New Jersey. ( Id. ¶ 1.) At all times relevant to this action, Federal Insurance provided property and business interruption insurance coverage to MonoSol and related MonoSol entities. ( Id. ¶ 3.) J.K. is an Illinois corporation with its principal place of business in Bedford Park, Illinois. ( Id. ¶ 4.) At all times relevant to this action, J.K. was in the business of designing and manufacturing cylinder drums used in production lines. ( Id.)

On or about November 6, 2009, MonoSol hired J.K. to design and manufacture four Monoflow spiral cylinder drums to replace baffled shell cylinders that were originally installed on production lines at the MonoSol Facility. ( Id. ¶ 5; R. 1–1, Ex. A, Quote & Purchase Order at 2–4.) J.K. charged MonoSol $152,000.00 for the four cylinder drums. (R. 1–1, Ex. A, Quote & Purchase Order at 2–4.) The MonoSol Facility production lines each have head and tail cylinder drums. (R. 1, Compl. ¶ 6.) Head cylinder drums are used to pre-heat the plastic water soluble film, and tail cylinder drums are used to cool the plastic water soluble film after it comes out of the oven. ( Id. ¶ 7.)

In February 2010, the MonoSol Facility's Production Line No. 2 was upgraded with new head and tail Monoflow cylinder drums fabricated by J.K. ( Id. ¶ 6.) Federal Insurance alleges that on or about May 26, 2010, Production Line No. 2 began making abnormal noises and visible cracking was noted on the tail cylinder drum. ( Id. ¶ 8.) The cracking caused the tail cylinder drum to vibrate, which in turn damaged the existing production line. ( Id.) J.K. repaired the tail cylinder drum, and it was returned to service on June 8, 2010. ( Id. ¶ 9.) Prior to reaching full production, however, the tail cylinder drum again began making noise. ( Id.) According to Federal Insurance, the cracking in the tail cylinder drum and the associated damage to the existing assembly line caused Production Line No. 2 to be out of service until June 12, 2010. ( Id. ¶ 10.) That day, the tail cylinder drum was removed and replaced with the original baffled shell cylinder. ( Id.) The tail cylinder drum was removed by cutting Production Line No. 2's stainless steel carrier belt. ( Id.) On or about June 21, 2010, Production Line No. 2 once again began making abnormal noises and visible cracking was noted on the head cylinder drum. ( Id. ¶ 11.) The cracking caused the drum to vibrate, which in turn damaged the existing production line. ( Id.) According to Federal Insurance, the cracking in the head cylinder drum and the associated damage to the existing assembly line caused Production Line No. 2 to be out of service until June 28, 2010, when the head cylinder drum was removed and replaced with the original baffled shell cylinder. ( Id. ¶ 12.) The head cylinder drum was removed by cutting Production Line No. 2's stainless steel carrier belt. ( Id.)

In March 2010, the MonoSol Facility's Production Line No. 1 was upgraded with new tail and head Monoflow cylinder drums fabricated by J.K. ( Id. ¶ 6.) Federal Insurance avers that on or about September 3, 2010, Production Line No. 1 began making abnormal noises and visible cracking was noted on the tail cylinder drum. ( Id. ¶ 13.) The cracking caused the tail cylinder drum to vibrate, which in turn damaged the existing production line. ( Id.)

As a result of the cracking of the cylinder drums and the damage to Production Line Nos. 1 and 2, MonoSol “sustained property and business interruption damage in an amount in excess of $866,252.98 exclusive of interest and costs.” ( Id. ¶¶ 14, 18, 30.) MonoSol thus made claims to Federal Insurance pursuant to its insurance policy, and Federal Insurance reimbursed MonoSol for those claims in an amount in excess of $866,252.98. ( Id. ¶ 14.) Therefore, Federal Insurance avers that it is legally, equitably and contractually subrogated to the claims of MonoSol against any responsible third parties, including J.K. ( Id.) Federal Insurance seeks a judgment in its favor “in an amount in excess of $866,252.98, together with interest and the cost of this action, and any other relief that this Court deems equitable and proper.” ( Id. ¶¶ 18, 31.)

PROCEDURAL HISTORY

Federal Insurance filed a three-count complaint against J.K. in this Court on May 7, 2012. (R. 1, Compl.) In Count I, Federal Insurance alleges that J.K. was negligent in the design and manufacture of the Monoflow cylinder drums. ( Id. ¶¶ 15–18.) In Count II, Federal Insurance asserts a claim for breach of express and implied warranties, ( id. ¶¶ 19–26), and in Count III, Federal Insurance alleges that J.K. is liable under a products liability theory, ( id. ¶ ¶ 27–31).

On August 1, 2012, J.K. filed a motion to dismiss Counts I and III of Federal Insurance's complaint. (R. 9, Mot.) J.K. argues that the negligence and products liability causes of action should be dismissed because damages for economic losses cannot be recovered in tort pursuant to the economic loss doctrine ¹ set forth in Moorman Manufacturing Company v. National Tank Company, 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982). (R. 9, Def.'s Mem. at 2.)

On December 27, 2012, Federal Insurance filed its response to J.K.'s motion, (R. 28, Pl.'s Resp.), arguing that Indiana law, and not Illinois law, governs this dispute because “the law to be applied is that of the state where the accident [or] injury occurred.” (R. 28, Pl.'s Resp. at 3.) (quoting Burlington N. & Santa Fe Ry. Co. v. ABC–NACO, 389 Ill.App.3d 691, 329 Ill.Dec. 238, 906 N.E.2d 83, 92 (1st Dist.2009)). Federal Insurance further argues that the economic loss doctrine does not bar its claims for negligence and strict products liability against J.K. because, it asserts, it may recover damages under either general negligence or products liability principles if a defective product causes damage to other property. ( Id. at 4) (citing Gunkel v. Renovations, Inc., 822 N.E.2d 150, 153–54 (Ind.2005)). Alternatively, Federal Insurance argues that even if Illinois law applies, its claims survive the economic loss doctrine under the “sudden and dangerous occurrence” exception, whereby a plaintiff who “has sustained property damage or personal injury resulting from a sudden or dangerous occurrence” may recover damages. ( Id. at 6) (quoting Muirfield Village–Vernon Hills, LLC v. K. Reinke, Jr. & Co., 349 Ill.App.3d 178, 284 Ill.Dec. 582, 810 N.E.2d 235, 247 (2d Dist.2004)).

On January 10, 2013, J.K. filed its reply in support of its motion to dismiss. (R. 29, Def.'s Reply.) J.K. argues that Illinois law governs this action because there is no substantive difference between Illinois and Indiana law, and that Federal Insurance's claims are barred by the economic loss doctrine under both Illinois and Indiana law. ( Id. at 2–8.)

LEGAL STANDARD

A motion under Federal Rule of Civil Procedure 12(b)(6) “challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir.2009). Pursuant to Rule 8(a)(2), a complaint must contain “a ‘short and plain statement of the claim showing that the pleader is entitled to relief,’ sufficient to provide the defendant with ‘fair notice’ of the claim and its basis.” Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008) (quoting Fed.R.Civ.P. 8(a)(2) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). When considering a motion to dismiss under Rule 12(b)(6), the Court construes the complaint in the light most favorable to the plaintiff by accepting as true all of the well-pleaded factual allegations and drawing all reasonable inferences in the plaintiff's favor. Id. To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955.) “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Furthermore, “[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.” Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955.) “ ‘Plausibility’ in this context does not imply that the district court should decide whose version to believe, or which version is...