Freedom Transp., Inc. v. Navistar Int'l Corp.

• Decision Date: 26 September 2019
• Docket Number: Case No. 2:18-CV-02602-JAR-KGG
• Parties: FREEDOM TRANSPORTATION, INC., Plaintiff, v. NAVISTAR INTERNATIONAL CORPORATION, ET AL., Defendants.
• Court: U.S. District Court — District of Kansas

FREEDOM TRANSPORTATION, INC., Plaintiff,
v.
NAVISTAR INTERNATIONAL CORPORATION, ET AL., Defendants.

Case No. 2:18-CV-02602-JAR-KGG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

September 26, 2019

MEMORANDUM AND ORDER

Plaintiff Freedom Transportation, Inc. brings this action alleging a variety of claims against Defendants Navistar International Corporation and Navistar, Inc. ("Navistar Defendants"), Allstate Fleet and Equipment Sales of Houston, Inc. ("Allstate"), and Penske Truck Leasing Co., L.P., Penske Truck Leasing Corporation, and Penske Logistics LLC ("Penske Defendants") relating to Plaintiff's purchase of six allegedly defective box trucks for commercial use.

Plaintiff brings claims against the Navistar Defendants for breach of implied warranty of merchantability (Count I), fraudulent concealment (Count II), fraud in the inducement (Count III), negligence (Count IV), and consumer fraud and deceptive trade practices, including violations of the Illinois Consumer Fraud and Deceptive Trade Practices Act (Count V). Plaintiff's claims against Allstate include breach of contract (Count VI), breach of express warranty (Count VII), breach of implied warranty of merchantability (Count VIII), fraudulent concealment (Count IX), fraud in the inducement (Count X), negligent misrepresentation (Count XI), negligence (Count XII), deceptive trade practices, including violations of the Texas Deceptive Trade Practices-Consumer Protection Act (Count XIII), and unjust enrichment (Count

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XIV). Finally, Plaintiff brings claims against the Penske Defendants for fraudulent concealment (Count XV), fraud in the inducement (Count XVI), and negligence (Count XVII).

This matter comes before the Court on the Navistar Defendants' Motion to Dismiss for Lack of Personal Jurisdiction Pursuant to Fed. R. Civ. P. 12(b)(2) (Doc. 13), Allstate's Motion to Dismiss for Lack of Personal Jurisdiction Pursuant to Fed. R. Civ. P. 12(b)(2), Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted Pursuant to Fed. R. Civ. P. 12(b)(6) and Motion to Dismiss Pursuant to Fed. R. Civ. P. 9(b) (Doc. 28), and the Penske Defendants' Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted (Doc. 24). The motions are fully briefed, and the Court is prepared to rule.

For the reasons explained below, the Court denies the Navistar Defendants' motion to dismiss for lack of personal jurisdiction. The Court denies Allstate's motion to dismiss for lack of personal jurisdiction. The Court grants in part Allstate's Rule 12(b)(6) motion to dismiss for failure to state a claim. Allstate's Rule 12(b)(6) motion is granted only as to Counts IX, X and XIII for failure to plead fraud with the particularity required by Rule 9(b), and Plaintiff is granted leave to amend Counts IX, X and XIII. The Court also grants in part the Penske Defendants' Rule 12(b)(6) motion to dismiss for failure to state a claim. The Penske Defendants' motion is granted only as to Counts XV and XVI for failure to sufficiently plead fraud under Rule 9(b), without prejudice; Plaintiff may follow the procedure for seeking leave to amend under D. Kan. Rule 15.1.

I. Legal Standard for Motions to Dismiss for Failure to State a Claim

To survive a motion to dismiss brought under Fed. R. Civ. P. 12(b)(6), a complaint must contain factual allegations that, assumed to be true, "raise a right to relief above the speculative

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level"¹ and must include "enough facts to state a claim for relief that is plausible on its face."² Under this standard, "the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims."³ The plausibility standard does not require a showing of probability that "a defendant has acted unlawfully," but requires more than "a sheer possibility."⁴ "[M]ere 'labels and conclusions,' and 'a formulaic recitation of the elements of a cause of action' will not suffice; a plaintiff must offer specific factual allegations to support each claim."⁵ Finally, the court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.⁶

The Supreme Court has explained the analysis as a two-step process. For the purposes of a motion to dismiss, the court "must take all the factual allegations in the complaint as true, [but is] 'not bound to accept as true a legal conclusion couched as a factual allegation.'"⁷ Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.⁸ Second, the court must determine whether the factual allegations, when assumed true, "plausibly give rise to an entitlement to relief."⁹ "A claim has facial plausibility when the plaintiff pleads factual content

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that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."¹⁰

Facts Drawn from the Complaint

Based on the above standards, the underlying facts are as follows. Plaintiff is a shipping and logistics company owned by Daniel and Natasha Shirey and based in Olathe, Kansas. The Navistar Defendants are incorporated in Delaware and have their principal place of business in Lisle, Illinois. The Navistar Defendants are registered to do business in Kansas and have a registered agent for service of process in Kansas. Allstate is incorporated in and has its principal place of business in Texas. Penske Truck Leasing Co., L.P. is a Delaware partnership; Penske Truck Leasing Corporation is a Delaware corporation; and Penske Logistics LLC is a Delaware limited liability company. The Penske Defendants' principal place of business is in Pennsylvania; they are registered to do business and have an agent for service of process in Kansas.

In November 2016, Plaintiff purchased six International DuraStar 4300 trucks in order to meet the needs and specifications of a contract requiring Plaintiff to perform shipping and logistics services. The trucks had been manufactured by Defendant Navistar, Inc. Plaintiff purchased the trucks from Defendant Allstate; Defendant Allstate had purchased the trucks from the Penske Defendants.

Plaintiff communicated from Kansas with Allstate representatives numerous times during November 2016. Plaintiff told Allstate that it needed six box trucks with certain specifications for a shipping contract and that it needed the trucks to be reliable. Allstate identified the six

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trucks it was offering as 2010 and 2011 International DuraStar 4300s, manufactured by Navistar, Inc.

On or around November 29, 2016, Defendant Allstate emailed to Plaintiff in Kansas a "Vehicle Buyer's Order" offering to sell the trucks for $25,500 each with instructions for Plaintiff to sign and return the order form. On or about November 29, 2016, Plaintiff signed and returned the order form to Defendant Allstate, accepting the offer and agreeing to pay the total price. Plaintiff picked up the trucks from various Penske locations and drove the trucks to Plaintiff's headquarters in Kansas.

The six trucks Plaintiff purchased in November 2016 turned out to be defective and failed well before their intended and expected useful life, causing Plaintiff lost revenue, business opportunities and other damages. Within weeks of picking up the trucks, the trucks began experiencing breakdowns, ERG emission system failures, and engine failures.

These International DuraStar 4300 trucks were manufactured by Navistar, Inc. in 2010 and 2011 and featured the MaxxForce engine, which Navistar, Inc. designed and manufactured. The MaxxForce engine has an exhaust-gas-recirculation-only ("EGR-only") emission system, which recirculates engine exhaust gas back into the engine to be re-combusted. In contrast, other commercial truck manufacturers in North America use a combination of EGR and selective catalytic reduction, which requires injecting a urea-based chemical after-treatment into the exhaust gas once it leaves the engine, thereby neutralizing and/or reducing harmful emissions.

In public statements, press releases and advertising, the Navistar Defendants touted the MaxxForce engine's unique EGR-only technology as providing superior fluid economy and represented that the engines would be certified under the EPA's 2010 emission standards. But the engines never reached the EPA's 2010 emission standards threshold necessary for

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certification. Based on the data results of extensive pre-market testing that is standard in the industry, Navistar knew that the engines were never going to meet the EPA's standards using EGR-only technology. Navistar's EGR-only emission system causes widespread engine damage, repeated engine failures, and decreased fuel efficiency. One of the most significant problems with the EGR-only emission system is that the continuous recirculation of exhaust gas back into the engine reduces the engine's efficiency, causing it to overheat and producing excessive soot inside the engine. The Navistar Defendants knew about these problems and concealed this information from the public and from Plaintiff. By mid-2011, warranty claims for the engines were significantly increased, which the Navistar Defendants also concealed. The Navistar Defendants also failed to properly repair the EGR-only systems during and/or outside the warranty period.

By February 2012, the Navistar Defendants ran out of "banked" EPA emissions credits, which they had been using to continue to sell the MaxxForce engines. The Navistar Defendants continued to manufacture and distribute the MaxxForce-powered International DuraStar 4300 trucks while making false representations to the public and to Plaintiff regarding their performance capabilities, reliability, EPA certification, and Navistar's commitment to the MaxxForce engine that Navistar knew to be false. In July 2012, the...