ROBERT M. DOW, JR., District Judge.
In its Complaint, Plaintiff Walgreen Co. ("Plaintiff") brings claims against Defendant Panasonic Healthcare Corporation of North America ("Defendant") for breach of contract (Count I), negligence (Count II), and breach of warranty (Count III). Currently before the Court is Defendant's motion [16] to dismiss Count I of Plaintiff's Complaint for failure to state a claim. For the reasons explained below, Defendant's motion [16] is denied. This case remains set for status hearing on March 20, 2018 at 9:00 a.m.
Plaintiff is a drugstore chain operating retail pharmacy locations across the United States. [1-1 ¶ 7.] In addition to its retail locations, Plaintiff operates four specialty pharmacies, including one in Beaverton, Oregon. [Id.] These specialty pharmacies handle and dispense specialty pharmaceuticals used to treat chronic, high-cost, or rare diseases. [Id. ¶ 1.] Many such specialty pharmaceuticals must be stored in specific climate-controlled environments to prevent adverse effects on the drugs themselves. [Id.] If a specialty pharmaceutical is not stored in the proper temperature range, the pharmaceutical's efficacy may be compromised, in which case Plaintiff cannot dispense it to a patient. [Id.]
Defendant sells products and services, including ultra-low and cryogenic freezers, cell culture incubators, laboratory and biomedical refrigerators and freezers, and portable autoclaves, that are used in the life science, pharmaceutical, biomedical, and research markets. [Id. ¶ 8.] One of Defendant's products is the "LabAlert System." [Id. ¶ 13.] The LabAlert System is marketed as a product that allows remote monitoring of freezer temperatures and provides alarm notifications in the event that a freezer's temperature exceeds a specific range. [Id. ¶¶ 12-13, 34.]
On April 2, 2015, Plaintiff and Defendant entered into a Hosted Services and License Agreement (the "Agreement") under which Defendant agreed to supply, install, and configure the LabAlert monitoring system so that Plaintiff could remotely monitor the temperature of the walk-in cooler at Plaintiff's Beaverton, Oregon specialty pharmacy. [Id. ¶¶ 2, 9-12.]
Section 14 of the Agreement contains the indemnification provisions agreed to by Plaintiff and Defendant. [See 1-1, Exhibit A, § 14.] Section 14.1(a), governing general indemnification by Defendant,
[Id. § 14.1(a).] Section 14.2, in turn, governs indemnification by Plaintiff, and reads as follows:
[Id. § 14.2.]
Other relevant sections of the Agreement include the sections governing indemnification procedures (Section 14.3), limitations on liability (Section 15), and attorneys' fees (Section 17.12). Section 14.3 begins as follows: "If a Party makes a claim for indemnifications under this Section 14 (Indemnification), such indemnified Party shall give written notice to the indemnifying Party promptly and in no event later than thirty (30) days after learning of a third party claim that is subject to indemnification ("
Section 15 of the Agreement includes two limitations on liability. The first is a waiver of consequential, special, indirect, incidental, punitive, or exemplary damages. [Id. § 15.1.] The second is a direct damages cap limiting damages for claims asserted against one party by the other party under the Agreement to five times the total fees paid or payable in the prior twenty-four months. [Id. § 15.2.] These limitations do not apply, however, for (i) damages arising in connection with either party's indemnification obligations; (ii) damages related to either party's willful misconduct or gross negligence; and (iii) damages related to breaches of either party's confidentiality obligations. [Id. §§ 15.1, 15.2.] Finally, Section 17.12 provides that "[t]he prevailing party shall be entitled to recover its costs and reasonable attorneys' fees and expenses incurred in connection with any action or proceeding between [Defendant] and [Plaintiff] arising out of or related to any Agreement." [Id. § 17.12.]
On or around June 8, 2016, the walk-in cooler at Plaintiff's Beaverton specialty pharmacy began to fail, and the freezer temperature rose to a level that should have triggered an alarm notification through the LabAlert System. [1-1 ¶ 17.] Plaintiff did not receive such a notification, however, and as a result the specialty pharmaceuticals stored at that facility became unusable. [Id. ¶ 20.] Plaintiff alleges that Defendant's technician or subcontractor failed to properly install and/or configure the LabAlert System, which led to this notification failure. [Id. ¶¶ 2, 19.] Plaintiff claims that the losses caused by this LabAlert System failure total approximately $11.5 million. [Id. ¶ 22.] Plaintiff demanded that Defendant compensate it for this loss, but Defendant refused to indemnify Plaintiff. [Id. ¶ 28.]
Plaintiff filed suit against Defendant in Illinois state court on February 15, 2017, bringing claims for breach of the Agreement through Defendant's refusal to indemnify Plaintiff for its losses (Count I); negligence for failure to properly install and configure the LabAlert System (Count II); and breach of the express warranty contained in Section 12 of the Agreement regarding Defendant's services and product (Count III). Defendant removed the case to federal court, [see 1], and thereafter filed the instant motion to dismiss Count I of the Complaint for failure to state a claim, [see 16].
To survive a Federal Rule of Civil Procedure ("Rule") 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, the complaint first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)) (alteration in original). Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the "speculative level." E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "A pleading that offers `labels and conclusions' or a `formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). Dismissal for failure to state a claim under Rule 12(b)(6) is proper "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Twombly, 550 U.S. at 558. In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court accepts as true all of Plaintiff's well-pleaded factual allegations and draws all reasonable inferences in Plaintiff's favor. Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007).
Defendant moves to dismiss Plaintiff's breach of contract claim (Count I) for failure to state a claim. Defendant argues that its indemnification obligation under the Agreement does not apply to first-party claims asserted by Plaintiff itself, but it instead applies only to claims asserted by third parties. Therefore, according to Defendant, Plaintiff's breach of contract claim fails as a matter of law.
The parties agree that the Agreement's interpretation is governed by Illinois law. See [1-1, Exhibit A, § 17.11]; see also Vencor, Inc. v. Webb, 33 F.3d 840, 844 (7th Cir. 1994) (enforcing a contract's choice of law provision). In Illinois, "[t]he primary objective in construing a contract is to give effect to the intent of the parties." Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007). The language of a contract is the best indication of that intent. Id. (citation omitted); see also Right Field Rooftops, LLC v. Chi. Cubs Baseball Club, LLC, 870 F.3d 682, 690 (7th Cir. 2017) (applying Illinois contract law) ("A court must initially look to the language of a contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties' intent."). If the contract's language is facially unambiguous, its words "must be given their plain, ordinary, and popular meaning." Cent. Ill. Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004). If the contract's language is susceptible of more than one meaning, it is ambiguous and the court can consider extrinsic evidence to determine the parties' intent. Right Field Rooftops, 870 F.3d at 690. All portions of a contract should be "construed as a whole, viewing each part in light of the others." Gallagher, 874 N.E.2d at 58 (citation omitted). In so construing a contract, a court should "attempt to give meaning to every provision of the contract and avoid a construction that would render a provision superfluous." Land of Lincoln Goodwil Indus., Inc. v. PNC Fin. Servs. Grp., Inc., 762 F.3d 673, 679 (7th Cir. 2014).
Upon review of the Agreement,
Section 14.1(a) of the Agreement governs general indemnity by Defendant and contains two paragraphs. The first paragraph states that:
[1-1, Exhibit A, § 14.1(a).] Thus, Defendant's indemnity obligation arising out of this first paragraph is explicitly limited to claims involving damages of third parties only.
The second paragraph of Section 14.1(a) contains parallel language but omits the reference to third-party claims or actions. The second paragraph states that:
[1-1, Exhibit A, § 14.1(a).] By its plain terms, Section 14.1 contains two separate indemnification obligations, one of which is limited by the phrase "third parties in third-party claims or actions," and one of which is not limited by this phrase and thus could include first- or third-party claims. Plaintiff has premised its breach of contract claim on the second paragraph of Section 14.1(a) and Defendant's refusal to indemnify Plaintiff for its property damage allegedly caused by Defendant's negligence. [1-1 ¶¶ 23-30.] As such, Plaintiff's claim is not barred by the plain language of the Agreement. See Water Tower Realty, 936 N.E.2d at 1133-34 (parties must signify their intent to limit an indemnification clause by doing so expressly); Gallagher, 874 N.E.2d at 58 (the language of a contract is the best indication of the parties' intent).
Defendant argues that the parties have in fact expressly limited indemnification to third-party claims. Specifically, Defendant argues that "[b]y its plain terms, the first sentence of Section 14.1(a) is limited to third-party claims," [17 at 9], and "where the first sentence of Section 14.1(a) clearly states that that section only applies to `third-party' claims, there would be no reason to repeat that language in each paragraph," [24 at 3]. This argument ignores the repetition of several terms in both the first and second paragraphs of Section 14.1(a), however: both paragraphs repeat the "indemnify, defend and hold harmless" language, the "from and against any" damages language, the "costs of [Plaintiff] in enforcing this indemnification obligation" language, and the "arising out of or in connection with any of the following" language. [1-1, Exhibit A, § 14.1(a).] In fact, the only language that is not repeated in the second paragraph is the "third parties in third-party claims or actions" limitation, indicating that this limitation does not apply to the situations outlined in the second paragraph. "[W]hen parties to the same contract use such different language to address parallel issues * * * it is reasonable to infer that they intend this language to mean different things." Right Field Rooftops, 870 F.3d at 690 (quoting Taracorp, Inc. v. NL Indus., Inc., 73 F.3d 738, 744 (7th Cir. 1996) (applying Illinois law)). It is thus reasonable to infer that the absence of an express third-party limitation in this second paragraph means that Defendant's indemnification obligation pursuant to that paragraph includes both first- and third-party claims.
Defendant further argues that an interpretation of Section 14.1(a) that allows for first-party indemnification claims of Plaintiff by Defendant "is unreasonable because it creates a one-sided first-party indemnification obligation that is contrary to the terms of the Agreement." [24 at 4.] In other words, because the parties agree that Section 14.2 entirely limits indemnification of Defendant by Plaintiff to third-party claims, [see 1-1, Exhibit A, § 14.2], Defendant argues Section 14.1(a) must be read to mirror that complete limitation to third-party claims as well. As stated above, though, the differences in language between Section 14.1 and Section 14.2 must be given effect. Right Field Rooftops, 870 F.3d at 690. Section 14.2 contains one paragraph that explicitly limits indemnification by Plaintiff to damages "of, or awarded to, or settled with (in accordance with Section 14.3 (Indemnification Procedures)), third parties in third-party claims or actions." [1-1, Exhibit A, § 14.2.] This same language appears in the first paragraph of Section 14.1 and is absent from the second paragraph of Section 14.1. This reasonably indicates that the parties did not intend for that limitation to apply to claims that are subject to the second paragraph of Section 14.1.
Defendant's arguments regarding Section 14.1 in conjunction with the other sections of the Agreement similarly fail to change the result here. As Defendant correctly notes, the Court must construe the Agreement as a whole, "viewing each part in light of the others." Gallagher, 874 N.E.2d at 58; see also ImagePoint, 2014 WL 7335167, at *8 (construing an indemnification provision to cover both first-party and third-party claims where the agreement did "not contain additional provisions `which unmistakably relate to third-party claims'"). Defendant argues that construing Section 14.1(a) in light of (1) Section 14.3, governing indemnification procedures, and (2) Sections 15 and 17.12, governing limitations of liability and attorneys' fees respectively, demonstrates that the parties have expressly limited Section 14.1 to third-party claims and have excluded first-party claims from Defendant's obligations.
Defendant's first argument regarding Section 14.3 does not change the result here. Section 14.3 indeed contains many provisions that would not make sense when applied to first-party claims, including provisions for notice, assumption of an indemnified claim's defense by the indemnifying party, and the requirement that an indemnified party assist in the defense of the indemnified claim. See [1-1, Exhibit A, § 14.3]; see also Open Kitchens, Inc. v. Gullo Int'l Dev. Corp., 466 N.E.2d 1313, 1315 (Ill. App. Ct. 1984) (concluding that the broad indemnity provision in a contract was limited to third-party claims because the next provision, imposing a duty to defend on the indemnifying party, "indicates that the indemnity was intended to arise only in the context" of third-party claims). But Section 14.3 begins as follows: "If a Party makes a claim for indemnifications under this
The Court agrees with Plaintiff that this provision is structured consistently with how one would expect an indemnification procedure section in a contract where indemnification obligations include both first-party and third-party claims to be set out; there would be no need to define an indemnified claim as one involving third parties if all indemnified claims involve third parties. At best, this limitation in the definition of "indemnified claim" for Section 14.3 in connection with the absence of a third-party limitation in the second paragraph of Section 14.1 as outlined above creates an ambiguity as to what is really covered by the second paragraph. "Where the contract is ambiguous, `the language is a question of fact which a [court] cannot properly determine on a motion to dismiss.'" Victory Records, Inc. v. Kalnoky, 2016 WL 3181706, at *2 (N.D. Ill. June 8, 2016) (quoting Quake Constr., Inc. v. Am. Airlines, Inc., 565 N.E.2d 990, 994 (Ill. 1990)).
Defendant's similar arguments regarding the limitation of liability provision (Section 15) and the attorneys' fees provision (Section 17.12) also are unavailing. Section 15 includes (1) a waiver of consequential, special, indirect, incidental, punitive, or exemplary damages in connection with the Agreement, and (2) a direct damages cap limiting damages for claims asserted against one party by the other party under the Agreement to five times the total fees paid or payable under the Agreement in the prior twenty-four months. [1-1, Exhibit A, § 15.] These limitations specifically do not apply to damages arising in connection with a party's indemnification obligations. [Id.] According to Defendant, because both of these liability limitations exclude from their scope claims for indemnification, if indemnification applies to Plaintiff's first-party claims, these provisions will never apply. Defendant also points to Section 17.12, which provides an award of attorneys' fees and expenses to the prevailing party in any action related to the Agreement. [1-1, Exhibit A, § 17.12.] Defendant argues that, because "Damages" as defined in Section 14 include attorneys' fees, construing Section 14 to include first-party claims would render Section 17.12 meaningless because Defendant would be responsible for Plaintiff's attorneys' fees and costs every time Plaintiff filed suit against Defendant. Therefore, Defendant is arguing that Plaintiff's interpretation of the Agreement would make these sections completely superfluous, in contravention of normal contract interpretation principles.
However, the Court cannot construe these provisions in this way: reading the second paragraph of Section 14.1(a) to include a first-party indemnification obligation on Defendant's part is consistent with the other provisions of the Agreement when the contract is construed as a whole. A plain reading of the second paragraph of Section 14.1(a) demonstrates that not every possible claim by Plaintiff against Defendant would fall under Section 14.1. Only claims in connection with (i) bodily harm, death and/or loss and damage to real and tangible personal property caused by the negligence or willful misconduct of Defendant, or (ii) Plaintiff's compliance with the requirements of applicable data protection laws following a breach by Defendant are covered by this indemnification obligation. Plaintiff plausibly argues that there are other claims that Plaintiff could make against Defendant that would not be covered by Section 14.1(a)'s indemnification obligations, meaning these sections would not be rendered superfluous. The combination of the broad indemnification obligation in the second paragraph of Section 14.1(a), the limitations in Section 15, and the attorneys' fees provisions of Section 17.12 arguably creates an ambiguity as to reach of the second paragraph of Section 14.1(a). See UIRC-GSA Holdings Inc. v. William Blair & Co., L.L.C., ___ F. Supp. 3d ____, 2017 WL 3706625, at *6-7 (N.D. Ill. Aug. 28, 2017) (refusing to dismiss claim for breach of contractual duty to indemnify a first-party claim because the indemnity provision's "broad language" was "inconsistent with the language in other provisions of the Agreement," making the contract ambiguous). As noted, ambiguous language in a contract is a question of fact not properly determined at the motion to dismiss stage. Victory Records, Inc., 2016 WL 3181706, at *2.
Defendant's arguments point to some ambiguity in the contractual language of the Agreement, but they do not conclusively demonstrate that Defendant is not required to indemnify Plaintiff for its first-party claims under the second paragraph of Section 14.1(a) of the Agreement. Because Plaintiff has plausibly alleged that the Agreement requires Defendant to indemnify Plaintiff for its first-party claims of this kind, Defendant's motion to dismiss Count I of the Complaint is denied.
For the reasons explained above, Defendant's motion [16] is denied. This case remains set for status hearing on March 20, 2018 at 9:00 a.m.
