Newnet Commc'n Techs., LLC v. VI E-Cell Tropical Telecom, Ltd., Case No. 13 C 8159

• Decision Date: 30 March 2015
• Docket Number: Case No. 13 C 8159
• Citation: 85 F.Supp.3d 988
• Parties: NewNet Communication Technologies, LLC, a Delaware limited liability company, and NewNet Communication Technologies, S.a.r.l., a Luxembourg limited liability corporation, Plaintiffs, v. VI E–Cell Tropical Telecom, Ltd., a U.S. Virgin Islands corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

85 F.Supp.3d 988

NewNet Communication Technologies, LLC, a Delaware limited liability company, and NewNet Communication Technologies, S.a.r.l., a Luxembourg limited liability corporation, Plaintiffs

v.VI E–Cell Tropical Telecom, Ltd., a U.S. Virgin Islands corporation, Defendant.

Case No. 13 C 8159

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

Signed March 30, 2015

John C. Gekas, Elizabeth Anne Thompson, Arnstein & Lehr, LLP, Chicago, IL, for Plaintiff.

David G. Wix, Kevin T. Mocogni, Tarpey Wix LLC, Chicago, IL, John Michael Wermuth, Attorney at Law, Miami, FL, for Defendant.

MEMORANDUM OPINION AND ORDER

Milton I. Shadur, Senior United States District Judge

This diversity-of-citizenship action was brought by NewNet Communication Technologies, LLC and NewNet Communication Technologies, S.a.r.l. (collectively “NewNet”), charging that VI E–Cell Tropical Telecom Ltd. (“Tropical”) had breached its duty under a guaranty agreement to pay the debts of three of its subsidiary corporations in Haiti (known collectively as “Hainet”). Tropical filed an Answer coupled with Affirmative Defenses (“ADs”) (Dkt.47) and followed that up by filing a Counterclaim that it intends to assert against NewNet (Dkt.51). Now before this Court are NewNet's motions to strike or dismiss Tropical's ADs and to dismiss Tropical's Counterclaim, along with Tropical's responses to those motions and NewNet's replies.¹ For the reasons set out below, NewNet's motion to strike or dismiss Tropical's ADs is granted in part and denied in part, and NewNet's motion to dismiss Tropical's counterclaim is denied.

Factual Background²

Tropical is the majority owner of the Hainet corporations (Answer ¶ 7), which provide wireless broadband services to customers in Haiti (Am. Countercl. ¶ 7). At some point before March 3, 2011 Hainet entered into an agreement (“Motorola Agreement”) with Motorola, Inc. under which Motorola agreed to provide certain wireless broadband equipment and services to Hainet at enumerated prices (id. ¶¶ 11–12). Among other provisions, the Motorola Agreement required the prior written consent of the other party before either party could assign it (Motorola Agmt. ¶ 18.1).

Motorola also entered into a guaranty agreement (“Guaranty”) with Tropical on the same March 3, 2011 date (Answer ¶ 12). Under the Guaranty Hainet was granted a $2 million line of credit by Motorola, in exchange for which Tropical agreed to guarantee unconditionally Hainet's “obligations” under the Motorola Agreement. “Obligations” is a defined term in Guaranty ¶ 1:

“Obligations” means collectively, all of the liabilities and obligations of [Hainet] to Motorola under the Agreement, whether now existing or hereafter arising, whether or not currently contemplated.

Meanwhile the Guaranty's Preliminary Statement included a definition of “the Agreement” (id. at 1):

Whereas, [Hainet] and Motorola entered into that certain ... Agreement dated September 10, 2010 (as the same may be subsequently modified, amended or supplemented, together with all instruments agreements related thereto, the “Agreement”).

Unlike the Motorola Agreement, the Guaranty could be assigned by Motorola without notice to or consent of Tropical (id. ¶ 11). As for choice of law and venue provisions, the Guaranty specified that Illinois law would apply in interpreting and applying the Guaranty and that any suit on the Guaranty was to be brought in the courts of Illinois or the Northern District of Illinois (id. ¶ 13).

On or about April 29, 2011—just a few weeks after executing the Guaranty—Motorola assigned both the Guaranty and the Motorola Agreement to Nokia Siemens Network US, LLC (“Nokia”) (Answer ¶ 16).³ Then, in an email exchange running from August 24 to 26, 2011, personnel from Nokia's sales and commercial department told Chris Taylor (Hainet's principal) that “the current contract is closed and no longer be used [sic]” and that Nokia wanted Taylor to “acknowledge the attached T & C [terms and conditions]” in place of the Motorola Agreement (T. Resp. Mem. Dis. Ex. A at 3, Dkt. 68–1). Taylor resisted at first but ultimately agreed to “close” the Motorola Agreement and accept the new contract (“Nokia Agreement”) in exchange for promises from Nokia that it would provide Hainet 60–day payment terms and a $2 million line of credit—the same amount that Motorola had previously provided in exchange for Tropical's guaranty (id. at 1–3). Several of the terms in the Nokia Agreement were more beneficial to Nokia than corresponding terms of the Motorola Agreement had been to Motorola—to give just one example, Nokia Agreement ¶ 19 provided for arbitration of disputes in Finland and the application of Finnish law to such disputes.⁴

In November 2011 Nokia announced that it would spin off a part of its global business, including its business with Hainet, to NewNet (see T. Resp. Mem. Str. 2). Despite what has been said earlier about the email exchange between Nokia and Hainet as to canceling the Motorola Agreement, Nokia notified Hainet by a February 15, 2012 letter that it was assigning that contract to NewNet (see Notice of Assignment Ex. A (Dkt.19–10)). But in the various schedules of contracts included in Nokia's and NewNet's assignment agreement, no mention at all was made of the Motorola Agreement, the Guaranty or any other contract or account between Nokia and either Hainet or Tropical (see Dkt. 19, Ex. F–J).

After NewNet succeeded Nokia contractually, it proved to be unable to provide the level of service that Hainet expected (Countercl. ¶¶ 17–18), a failure that caused Hainet's customers to lose cellular service for two days, among other problems (id. ¶ 20). Even worse, Hainet also had to purchase from third parties the services that NewNet had represented it would provide (id. ¶ 23). As a result Hainet suffered damages in excess of $3.5 million (id. ¶ 24).

NewNet asserts that Hainet owed it some $653,400 in unpaid invoices as of November 13, 2013 (Compl. ¶ 1). Because neither Hainet nor Tropical paid that amount in full (Answer ¶ 18), NewNet filed this action. Tropical responded by filing a motion to dismiss, which this Court denied in an oral ruling (hereafter “Oral Ruling,” Feb. 21, 2014 Status Hrg. Tr. (Dkt.23)). Tropical then filed its ADs and Counterclaim, which are the subject of this action.

Relevant Law

NewNet's motions before this Court, though legally separate, are conceptually related. NewNet's motion to strike or dismiss Tropical's manifold ADs under Fed.R.Civ.P. (“Rule”) 12(f)⁵ is premised mostly on the ground that Tropical's ADs are assertedly insufficient as a matter of law. And NewNet's motion to dismiss Tropical's Counterclaim under Rule 12(b)(6) asserts that Tropical has failed to state a claim on which relief can be granted. In other words, both motions essentially ask this Court to reject Tropical's assertion of various excuses for nonperformance of the Guaranty because those excuses fail as a matter of law. But because the motions are legally distinct, it is worth dwelling for a moment on the different standards that they bring into play.

Conventional wisdom teaches that motions to strike under Rule 12(f) are disfavored (see, e.g., 5C Charles Wright & Arthur Miller, Federal Practice and Procedure § 1380 (3d ed.2004) ). But where a defendant's asserted ADs are both legion and mostly frivolous, a motion to strike can aid the parties in resolving the case by removing irrelevant issues from consideration. On that score Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir.1989) (most internal citations omitted)—a case that continues to be relied upon extensively a quarter century later—is worth quoting at length:

Midwhey places great reliance on the general rule that motions to strike are disfavored. This is because motions to strike potentially serve only to delay. But where, as here, motions to strike remove unnecessary clutter from the case, they serve to expedite, not delay. Affirmative defenses will be stricken only when they are insufficient on the face of the pleadings. Ordinarily, defenses will not be struck if they are sufficient as a matter of law or if they present questions of law or fact. Affirmative defenses are pleadings and, therefore, are subject to all pleading requirements of the Federal Rules of Civil Procedure. Thus, defenses must set forth a “short and plain statement,” Fed.R.Civ.P. 8(a), of the defense.

Defenses that are more properly classified as denials, as well as defenses that are legally insufficient on their face, can both be stricken under Rule 12(f) (see id. at 1294–95 ; Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1057 (5th Cir.1982) ).

Meanwhile, like a complaint, a counterclaim will be dismissed under Rule 12(b)(6) only if, after taking all well-pleaded allegations as true and drawing all reasonable inferences in favor of the counterclaimant, the counterclaimant still would not be entitled to relief under any legal theory (see Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570, 574 (7th Cir.2001) ). And that is not all. As Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 934–35 (7th Cir.2012), quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), has explained):

To survive a motion to dismiss, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’... 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.”

As the Factual Background section recounts, several contracts are at issue in this action, and each includes a choice of law clause. Courts typically honor such clauses absent some countervailing concern grounded in public policy (see Restatement (Second) of Conflict of Laws § 187 ; accord, Hussein v. L.A. Fitness Int'l, L.L.C., 2013 IL App (1st) ...