KATHLEEN McDONALD O'MALLEY, District Judge.
Before the Court is Plaintiff Jeffrey Evans' ("Evans") Motion for Leave Instanter to File an Amended Complaint. (Doc. 19.) In this Motion, Evans seeks to add two individuals as defendants pursuant to Rule 15 of the Federal Rules of Civil Procedure and 28 U.S.C. § 1447(e). Defendant Hanger Prosthetics Orthotics, Inc. ("Hanger") filed a Motion to Dismiss and Brief in Opposition to Plaintiff's Motion for Leave to File an Amended Complaint. (Doc. 21.) For the reasons set forth below, the Court DENIES Evans' Motion to Amend to the extent that it seeks to add new defendants to the case and GRANTS the remainder of the motion. Additionally, as explained below, the Court DENIES Hanger's Motion to Dismiss, but sua sponte dismisses Evans' common law claims without prejudice to reasserting these claims under the Ohio Products Liability Act ("OPLA"). Within ten (10) days from the date of this Order, Evans shall file an Amended Complaint consistent with the findings and directives in this opinion
In the Brief in Opposition to Evans' Motion to Amend, Hanger argues that granting leave to amend would be futile because, Hanger asserts, Evans cannot sustain any claims against any defendants because he no longer has access to the allegedly defective product upon which his claims are premised. While Hanger never cites Rule 12(b)(6), nor otherwise explains why its filing is also captioned as a Motion to Dismiss, the Court assumes Hanger seeks dismissal based on this same argument.
I. BACKGROUND AND PROCEDURAL HISTORY
This dispute arises from the malfunctioning of Evans' prosthetic leg, which he purchased from Hanger.
For purposes of this motion, the Court must assume that all of the facts described in the Complaint are true.
In 1995, Evans lost his right leg in an accident. Although it is unclear from the record what occurred in the intervening years, in 2002, Evans purchased his first prosthetic from Hanger's facility in New Philadelphia, Ohio. (Doc 24 at 2.) Over the next few years, Evans' residual limb shrunk, which forced him to return to Hanger to obtain a new prosthetic leg in 2005. ( Id. at ¶ 10.) The new prosthetic was cast by licensed prosthetist Joseph Yanke ("Yanke"), an employee of Hanger. ( Id. at ¶¶ 3, 11.) The socket for the new leg, however, did not fit correctly. Over the next eighteen months, Evans returned repeatedly for fittings, but Yanke was unable to fix the leg. ( Id. at ¶ 13.) As a result, Evans continued to wear the leg that Hanger produced in 2002. ( Id. at ¶ 15.)
Evans asserts that he purchased his prosthetic leg from Hanger in 2000 or 2001. (Doc. 19-1 at ¶¶ 8-9.) Hanger, however, contends that Evans purchased his prosthetic from Hanger in 2002. (Doc 24 at 2.) The Court refers to the leg as the "2002 prosthetic," but neither that reference, nor the actual date of purchase of that first prophetic affects the resolution of the pending motions.
In 2007, Evans decided to get a second opinion about the difficulties with his 2005 prosthetic, this time from a doctor in Canton, Ohio. This doctor informed him that he needed a properly fitting socket and advised Evans to go see Kyle Underwood ("Underwood"), a licensed prosthetist and also an employee of Hanger, at Hanger's facility in Canton, Ohio. ( Id. at ¶¶ 5, 16.)
When Evans went to see Underwood, he took a new cast of his leg. ( Id. at ¶ 18.) Over the next few weeks, he went in for more fittings, but Underwood was no more successful than Yanke, which forced Evans to continue to wear his 2002 prosthetic leg. ( Id. at ¶ 20.) During one of Evans' visits, however, Underwood informed him that prosthetic legs usually have four bolts, yet Evans' 2002 prosthetic only had three bolts and some kind of shim to attach the joint, bolts, and socket. ( Id. at ¶ 21.)
The Court interprets the Complaint to imply that Underwood found this to be a less stable configuration.
A few weeks later, in April of 2007, the 2002 prosthetic leg malfunctioned and Evans once again returned to Underwood for assistance. When Evans tried the leg on in the office after Underwood worked on it, Evans informed Underwood that it still "felt funny" when he walked on it. Underwood assured him that the leg would not break and that it was safe, even if it only had three bolts. ( Id. at ¶ 22.)
Within one hour of returning home from his visit, the socket of his 2002 prosthetic leg broke, which caused Evans to fall down a hill and to suffer serious injuries. ( Id. at ¶ 23.) Evans asserts that the prosthetic was negligently molded and/or constructed and that its defective design and manufacture caused his injury. ( Id. at ¶¶ 24-25.)
Hanger contends that the injury occurred on or about April 24, 2007. (Doc. 24 at 2.) This date is consistent with the time frame provided by Evans and the Court will assume for present purposes that the injury occurred on that date.
On March 13, 2009, Evans filed a complaint in the Court of Common Pleas in Tuscarawas County, Ohio, which sought compensatory damages in excess of $25,000.00. ( Id. at 7.) On May 21, 2009, however, Hanger requested a written statement describing the actual amount of recovery sought, and Evans clarified that he was seeking $250,000.00 in damages. (Doc. 1-6.) Hanger then filed a Notice of Removal in this Court on June 6, 2009 pursuant to 28 U.S.C. §§ 1332(a), 1441(a) and 1446. (Doc. 1.) Evans is a citizen of Ohio, while Hanger is a Delaware corporation with its principal place of business in Maryland. ( Id. at 2.) Subject matter jurisdiction, therefore, is proper on the basis of diversity of citizenship under 28 U.S.C. § 1332.
The parties appear to assume that Ohio law applies. The Court agrees: it will apply Ohio law to this case as the injury occurred in Ohio and no other jurisdiction has a more significant relationship to the lawsuit. See In Re: Commercial Money Ctr., Inc, Equipment Lease Litigation, 603 F. Supp. 2d 1095, 1108 (N.D. Ohio 2009).
Evans' filed his Motion for Leave Instanter to File Amended Complaint on September 17, 2009. (Doc. 19.) Evans' Amended Complaint proposes to join Underwood and Yanke, both of whom are citizens of Ohio and employees of Hanger, as defendants in this case, which would destroy diversity jurisdiction. On October 2, 2009, Hanger filed its Motion to Dismiss and Brief in Opposition to Plaintiff's Motion for Leave to File an Amended Complaint. (Doc. 21.)
II. MOTION TO AMEND
The first issue before the Court is whether Evans should be allowed to amend his Complaint to join two non-diverse parties, which would require remand of the case to state court. Evans makes what are essentially two main arguments regarding his Motion to Amend: 1) the Court should grant him leave to amend his Complaint and to join the two new defendants as he is not trying to destroy diversity jurisdiction but, rather, is trying to fully adjudicate all of his claims against all of the defendants in one lawsuit (Doc. 19 at 3); and 2) joinder is not futile since professional negligence claims are subject to a four-year statute of limitations as stated in O.R.C. § 2305.09. (Doc. 22 at 6.) Hanger argues that Evans' Motion should be denied because: 1) the two-year statute of limitations for products liability claims under O.R.C. § 2305.10 and the one-year statute of limitations for medical malpractice claims under O.R.C. § 2305.11 bar Evans' claims against Underwood and Yanke (Doc. 24 at 6); 2) the Amended Complaint does not relate back under Rule 15(c) of the Federal Rules of Civil Procedure (Doc. 21 at 7); and 3) the proposed amendment would be futile because Evans' does nto have access to the 2002 prosthesis any longer.
A. Governing Law
The Court's decision whether to grant leave to amend the pleadings is governed by Rule 15 of the Federal Rules of Civil Procedure. Rule 15(a) provides, in part, that "a party may amend its pleading only with the opposing party's written consent or the court's leave" and that "[t]he court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a). A motion to amend should be denied, however, "if the amendment is brought in bad faith, for dilatory purposes, results in undue delay or prejudice to the opposing party, or would be futile." Crawford v. Roane, 53 F.3d 750, 753 (6th Cir. 1995). Where a party seeks to amend a complaint after the statute of limitations for a claim has expired, he or she may do so only where Rule 15(c) allows the amendment to relate back to the date of the original complaint. Rule 15(c) provides that an amendment relates back when:
(A) the law that provides the applicable statute of limitations allows relation back;
(B) the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out — or attempted to be set out — in the original pleading; or
(C) the amendment changes the party or the naming of the party against whom a claim is asserted, if Rule 15(c)(1)(B) is satisfied and if, within the period provided by Rule 4(m) [120 days] for serving the summons and complaint, the party to be brought in by amendment:
(i) received such notice of the action that it will not be prejudiced in defending on the merits; and
(ii) knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity.
Fed.R.Civ.P. 15(c).
B. Discussion
Whether Evans may amend his complaint turns on two threshold questions: 1) the Court must determine whether joinder of the two new defendants is barred by the statute of limitations; and 2) if so, whether the amendment relates back under Rule 15(c). The Court will first turn to the applicable statute of limitations for the claims in Evans' Amended Complaint.
Given the Court's resolution of these initial questions, the Court will defer consideration of Hanger's futility argument until its analysis of Hanger's Motion to Dismiss.
1. Statute of Limitations
The first two causes of action in the Amended Complaint are product liability claims. The applicable statute of limitations for product liability claims is found in O.R.C. § 2305.10, which provides that "an action based on a product liability claim . . . shall be brought within two years after the cause of action accrues." Ohio Rev. Code § 2305.10. The accident at issue in this case occurred on or about April 24, 2007. (Doc. 24 at 2.) Evans filed his Motion to Amend on September 17, 2009. (Doc. 19.) The time span between the accident and the date of the Motion to Amend is greater than two years. The statute of limitations for the product liability claims, therefore, has already expired. Accordingly, joinder is not permissible unless the amendments relate back to the date of the filing of the Complaint under Rule 15(c).
For the reasons discussed below, Counts Three, Four, Counts Six, and Seven of the proposed Amended Complaint are not viable claims. The Court does not, accordingly, address what statute of limitations might be applicable to such claims.
The proposed Amended Complaint seeks to add an additional claim of professional negligence against Underwood and Yanke to Count Five. The parties disagree which statute of limitations applies to this professional negligence claim as no court in Ohio has decided what the appropriate statute of limitations is for injuries resulting from the negligence of prosthetists. Hanger argues that, because the services provided by prosthetists are medical in nature and because the claims against the prosthetists are analogous to medical claims under O.R.C. § 2305.113, the one-year statute of limitations for medical malpractice claims should apply to this case. (Doc. 24 at 6.) The medical malpractice statute explains in relevant part that "an action upon a medical, dental, optometric, or chiropractic claim shall be commenced within one year after the cause of action accrued." Ohio Rev. Code § 2305.113(A). The statute then proceeds to define a medical claim as:
As the Court explains below, the remainder of Count Five contains additional allegations that do not assert viable claims.
any claim that is asserted in any civil action against a physician, podiatrist, hospital, home, or residential facility, against any employee or agent of a physician, podiatrist, hospital, home or residential facility, or against a licensed practice nurse, registered nurse, advanced practice nurse, physical therapist, physician assistant, emergency medical technician-basic, emergency medical technician-intermediate, or emergency medical technician-paramedic, and that arises out of the medical diagnosis, care, or treatment of any person.
Ohio Rev. Code § 2305.113(E)(3). The Supreme Court of Ohio, however, determined that "for purposes of the [O.R.C.] 2305.113(A) one-year statute of limitations, a medical claim under [O.R.C.] 2305.113(E)(3) is a claim that both (1) arises out of the medical diagnosis, care or treatment of any person and (2) is asserted against one or more of the statutorily enumerated medical providers." Estate of Stevic v. Bio-Medical Application of Ohio, Inc., 121 Ohio St. 3d 488, 491, 2009 Ohio 1525, 905 N.E.2d 635 (2009). While the claims Evans asserts against Underwood and Yanke relate to medical treatment, prosthetists are not one of the medical providers enumerated in the statute. The one-year statute of limitations in O.R.C. § 2305.113, therefore, does not apply in this particular instance.
Evans asserts that, because the claim against Underwood and Yanke does not fall under the medical malpractice statute of limitations, the four-year statute of limitations for professional negligence in O.R.C. § 2305.09 should apply. (Doc. 22 at 6.) Evans provides an extensive list of professionals, including accountants, investment advisors, surveyors, insurance agents, title agents, and engineers, as to whom claims against them are governed by a four-year statute of limitations. See id. Evans' attempt to analogize his claims against Yanke and Underwood to claims against these listed professionals is unpersuasive, however. The Supreme Court of Ohio has explained that "the two-year statute of limitations contained in [O.R.C.] 2305.10 governs claims of bodily injury resulting from the alleged negligence of health-care professionals other than those expressly included in [O.R.C.] 2305.11." Investors REIT One v. Jacobs, 46 Ohio St.3d 176, 180, N.E.2d 206 (1989). See also Whitt v. Columbus Coop., 64 Ohio St. 2d 355, 415 N.E.2d 985 (1980); Richardson v. Doe, 176 Ohio St. 370, 199 N.E.2d 878 (1964). The claim of professional negligence against Underwood and Yanke fits into the category of claims described in Investors REIT One because it relates to Evans' injury, which allegedly resulted from the negligence of Underwood and Yanke while acting in their capacity as health care professionals. The applicable statute of limitations for the claims against the prosthetists, therefore, is the two-year statute of limitations in O.R.C. § 2305.10; both wrong when they argue for alternative periods of limitation.
As noted above in footnote 4, O.R.C. § 2305.11 is now O.R.C. § 2305.113.
Thus, Evans' cause of action accrued on April 24, 2007. Since he failed to join any additional defendants by April 24, 2009 when the statute of limitations expired for the product liability claims and any professional negligence claim, his claims against Yanke and Underwood are time-barred unless they relate back to filing of the original Complaint under Rule 15(c) of the Federal Rules of Civil Procedure.
Evans does not assert that he is entitled to equitable tolling, nor could he in these circumstances. In the Sixth Circuit, courts are to consider the following five factors when determining whether to equitably toll a statute of limitations: 1) the petitioner's lack of notice of the filing requirement; 2) the petitioner's lack of constructive knowledge of the filing requirement; 3) diligence in pursuing one's rights; 4) absence of prejudice to the respondent; and 5) the petitioner's reasonableness in remaining ignorant of the legal requirement for filing his claim. Dunlap v. United States, 250 F.3d 1001, 1008 (6th Cir. 2001) (citing Andrews v. Orr, 851 F.2d 146, 151 (6th Cir. 1988)). The factors, however, "are not comprehensive, nor is each of the five factors relevant in all cases." Griffin v. Rogers, 399 F.3d 626, 635 (6th Cir. 2005) (citing Cook v. Stegall, 295 F.3d 517, 521 (6th Cir. 2002)). Rather, courts must consider equitable tolling on a "case-by-case basis." King v. Bell, 378 F.3d 550, 553 (6th Cir. 2004). Typically, equitable tolling is only applied when "a litigant's failure to meet a legally-mandated deadline unavoidably arose from circumstances beyond that litigant's control." Graham-Humphreys v. Memphis Brooks Museum of Art, Inc., 209 F.3d 552, 560-61 (6th Cir. 2000) (citations omitted). In this case, Evans had ample opportunity to join Underwood and Yanke as defendants before the statute of limitations ran since he repeatedly went to see both prosthetists for treatment and knew of their connection to his accident. Evans' failure to meet the deadline, therefore, did not arise from circumstances beyond his control, but, rather, from his lack of diligence. Accordingly, equitable tolling would not apply in this case.
2. Relation Back
There are three possible ways Evans' Amended Complaint can relate back to the date of the original Complaint under Rule 15(c):
First, an amendment can relate back "if the law that provides the applicable statute of limitations allows relation back." Fed.R.Civ.Pro. 15(c)(1)(A). In this case, O.R.C. § 2305.10 provides the applicable statute of limitations for all of Evans' valid claims and contains no relation back provision. The Sixth Circuit has interpreted Rule 15(c)(1)(A) to require that the statute providing the governing statute of limitations contain an express relation back provision before the rule may apply. Lovelace v. O'Hara, 985 F.2d 847, 851-52 (6th Cir. 1993). Because O.R.C. § 2305.10 does not contain a relation back provision, Evans' amendment does not relate back under Rule 15(c)(1)(A).
The second circumstance under which an amendment may relate back is where it seeks to add claims against parties already involved in the proceedings. Fed.R.Civ.Pro. 15(c)(1)(B). Evans' Amended Complaint does not add claims against parties already involved in the action, but, rather, seeks to add parties, making Rule 15(c)(1)(B) inapplicable.
The third possibility for relation back applies in certain instances where, as here, "the amendment changes the party or the naming of the party against whom a claim is asserted." Fed.R.Civ.Pro. 15(c)(1)(C). Rule 15(c)(1)(C) only allows relation back as to new party defendants, however, where, within 120 days of the filing of the original action, the party to be brought in by amendment: (1) received notice of the pending action; and (2) knew or should have known that an action would have been brought against him. Fed.R.Civ.Pro. 15(c)(1)(C)(i)-(ii).
Evans' Amended Complaint does not qualify for relation back under Rule 15(c)(1)(C)(i) because Yanke and Underwood did not receive notice of the action within the 120 day time limit. Evans filed the original Complaint on March 13, 2009 (Doc. 1-1) and filed his Motion to Amend on September 17, 2009. (Doc. 19). Underwood and Yanke, therefore, did not receive notice of the action until over 180 days after the filing of the Complaint, which is well outside of the 120 day time limit provided in Rule 15(c)(1)(C).
Evans' proposed amendment also fails to relate back under Rule 15(c)(1)(C) because it does not satisfy the second requirement in Rule 15(c)(1)(C)(ii), which provides that the newly-named defendant "knew or should have known that the action would have been brought against it, but for a mistake concerning the party's identity." Fed.R.Civ.Pro. 15(c)(1)(C)(ii). In Evans' Complaint, he brought suit against Hanger and also included "John Doe" defendants. The Sixth Circuit, however, has held consistently that "substituting a named defendant for a `John Doe' defendant is considered a change in parties" that does not relate back. Cox v. Treadway, 75 F.3d 230, 240 (6th Cir. 1996). Evans cannot use a "John Doe" pleading to circumvent the statute of limitations. There was never, moreover, any mistake concerning the prosthetists' identity. Evans repeatedly went to see both Underwood and Yanke and knew of their involvement with his prosthetic leg at the time the accident occurred. Because there was no mistake concerning the prosthetists' identity, there was no reason why Evans could not have brought claims against them when he filed his Complaint.
For the reasons set forth above, Evans' amendment does not relate back under Rule 15(c). Accordingly, the Court DENIES his Motion to Amend to the extent it seeks to add Underwood and Yanke as defendants.
Hanger also argues that Evans' proposed amendment constitutes an attempt at fraudulent joinder. ( See Doc. 23.) While the Court decided the issue of whether to grant Evans' Motion to Amend on other grounds, Hanger's claim of fraudulent joinder deserves mention. The doctrine of fraudulent joinder allows federal courts to prevent a plaintiff from joining non-diverse defendants against whom he has no real possibility of recovery where such joinder will destroy diversity jurisdiction. Coyne v. Am. Tobacco Co. 183 F.3d 488, 493 (6th Cir. 1999) (citing Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1994)). The burden of proving fraudulent joinder is on the removing party and the inquiry is whether the plaintiff has stated "at least a colorable cause of action against [the defendant] in the [Ohio] state courts." Jerome-Duncan, 176 F.3d 904, 907 (6th Cir. 1999). The plaintiff's motive for joining new parties is immaterial in the discussion of fraudulent joinder. Id. Given that both Underwood and Yanke worked on or examined the 2002 prosthetic leg that caused his injury and were the main Hanger personnel involved with Evans' care, there would have been at least a colorable cause of action against both of them in the Ohio state courts if timely brought. Because Evans' motive for joining the Underwood and Yanke is irrelevant and because Evans would have a colorable cause of action against them in state court, fraudulent joinder would not be a basis to deny Evans' Motion to Amend and to prohibit remand to state court.
Although it is not appropriate to amend the Complaint to add Yanke and Underwood, Hanger does not oppose the proffered amendment to the extent it seeks to add information to the Background Allegations section of the Complaint. The proposed amendments to the Background Allegations section of the Complaint appear designed to comport with the recently heightened pleading standard in federal court and give important details about Evans' accident. Accordingly, the Court GRANTS Evans' Motion to Amend solely to the extent the Amended Complaint modifies the Background Allegations section of the Complaint.
III. MOTION TO DISMISS
Although Hanger's Motion to Dismiss focuses on why Evans' Motion to Amend should be denied rather than why Evans' claims should be dismissed, its futility argument relates to all aspects of both the original and the proposed Amended Complaint. Hanger's contention is that Evans cannot prevail on any of his claims because he no longer has access to the prosthesis in question and, therefore, cannot satisfy the elements of a product liability claim. (Doc. 21 at 1.) In contrast, Evans asserts that, though he no longer has the prosthetic leg, that fact is not fatal to his case. Evans argues that he can still prevail in this matter because Hanger worked extensively on the leg, there are records of Evans' visits to Hanger, and Yanke Bionics examined the socket after it broke and could offer qualified expert opinions about the leg. (Doc. 22 at 3.)
The prosthetic leg that caused Evans' accident was destroyed by Yanke Bionics, Evans' new prosthetist. (Doc. 21 at 5.)
A. Standard of Review
The Court may dismiss a claim for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). The purpose of a motion under 12(b)(6) is to test the sufficiency of the complaint — not to decide the merits of the case.
It is well-established that a complaint need not set forth in detail all of the particularities of the plaintiff's claim. See Myers v. Delaware Co., No. 2:07-cv-844, 2009 U.S. Dist. LEXIS 98143, *6 (S.D. Ohio Oct. 22, 2009). Instead, Rule 8(a)(2) of the Federal Rules of Civil Procedure requires only a "short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8 does not, however, "unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). While legal conclusions can provide the framework for a complaint, all claims must be supported by factual allegations. Id. The Supreme Court has indicated that "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 1949; see also Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) ("[A] formulaic recitation of the elements of a cause of action" is insufficient).
To withstand a motion to dismiss pursuant to Rule 12(b)(6), a complaint must plead facts sufficient "to state a claim for relief that is plausible on its face." Twombly, 550 U.S. at 570 (emphasis added). The requisite facial plausibility exists "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949. The plausibility requirement is not the same as a "probability requirement" but instead "asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Therefore, where a complaint pleads facts that are "merely consistent with" the defendant's liability, "its stops short of the line between possibility and plausibility of entitlement to relief." Id. (citing Twombly, 550 U.S. at 557). Examining whether a complaint states a plausible claim for relief is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.
A district court considering a motion to dismiss must construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded allegations in the complaint as true. See Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir. 1998); Iqbal, 129 S.Ct. at 1950 ("When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief."). Where the well-pleaded facts "do not permit the court to infer more than the mere possibility of misconduct," the complaint fails to state a claim. Iqbal, 129 S.Ct. at 1950. In sum, the allegations in the complaint must "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555.
B. Counts One and Two
In its Motion to Dismiss, Hanger focuses on the fact that Evans does not have the prosthesis that caused the accident. Hanger argues that, without physical possession of the prosthesis, Evans will not be able to provide expert testimony or to produce other evidence necessary for him to prevail on his claims. (Doc. 21 at 4.) Section 2307.73 of the Ohio Revised Code, however, provides that:
[i]f a claimant is unable because the manufacturer's product in question was destroyed to establish by direct evidence that the manufacturers product in question was defective . . . then, consistent with the Rules of Evidence,
it shall be sufficient for the claimant to present circumstantial or other competent evidence that establishes, by a preponderance of the evidence that the manufacturer's product in question was defective in any one of the four respects specified in division (A)(1) of this section.
Ohio Rev. Code § 2307.73(B) (emphasis added); see also Yanovich v. Zimmer Austin, Inc., 255 Fed. Appx. 957, 966 (6th Cir. 2007). The fact that Evans no longer has the prosthetic leg, therefore, is not fatal to Evans' claims if he can otherwise present circumstantial evidence of the alleged defects. Hanger's argument about insufficient evidence, moreover, is an argument that should be made in connection with a motion for summary judgment rather than a motion to dismiss. Obviously, the Court cannot predict what types of evidence the parties will generate during discovery, which is what distinguishes a motion to dismiss from a motion for summary judgment.
Hanger does not attack Counts One and Two on alternate grounds. Evans should, however, address a defect in Count Two when he drafts his Amended Complaint. This count of his Complaint, of course, alleges defective design, manufacture, and installation. He purports to bring the entirety of this claim under O.R.C. § 2307.75, et seq., however, § 2307.75 does not apply to claims for defective manufacturing: such claims fall under the scope of O.R.C. § 2307.74.
C. Counts Three through Seven
1. Counts Three Through Seven are Abrogated
While Hanger does not attack these counts on grounds other than Evans' inability to produce the prosthesis, the Court does so sua sponte. Peculiarly, both parties failed to notice that, while the first two causes of action in Evans' Complaint were brought pursuant to Ohio's product liability statutes, the remaining five causes of action are common law claims that have been abrogated by the Ohio Products Liability Act (the "OPLA"), O.R.C. § 2307.71 et seq. These claims are abrogated because, when the Ohio General Assembly enacted the current version of the OPLA, which became effective on April 7, 2005, it abrogated all common law claims relating to product liability causes of actions. See Flex Homes, Inc. v. Ritz-Craft Corp of Michigan, Inc., 2009 U.S. Dist. LEXIS 91723, at *41 n. 22 (N.D. Ohio Sept. 30, 2009). Specifically, the General Assembly added a section stating that "Sections 2307.71 to 2307.80 of the Revised Code are intended to abrogate all common law product liability causes of action." Ohio Rev. Code § 2307.71(B). Furthermore, the OPLA applies to "recovery of compensatory damages based on a product liability claim," as well as "[a]ny recovery of punitive damages or exemplary damages in connection with a product liability claim." Ohio Rev.
Evans admits that the last five causes of action in his Complaint are common law claims. ( See Doc. 22 at 3.)
Evans' claims accrued well after the amendments to the OPLA went into effect as his accident occurred in April 24, 2007. (Doc. 24 at 2.)
Code § 2372(A)-(B). See also Delahunt v. Cytodyne Techs, 241 F.Supp. 2d 827, 842 (S.D. Ohio 2003). The OPLA defines "product liability claim" as follows:
(13) "Product liability claim" means a claim or cause of action that is asserted in a civil action pursuant to sections 2307.71 to 2307.80 of the Revised Code and that seeks to recover compensatory damages from a manufacturer or supplier for death, physical injury to person, emotional distress, or physical damage to property other than the product in question, that allegedly arose from the following:
(a) The design, formulation, production, construction, creation, assembly, rebuilding, testing or marketing of that product;
(b) Any warning or instruction, or lack of warning or instruction, associated with that product;
(c) Any failure of that product to conform to any relevant representation or warranty.
Ohio Rev. Code § 2307.71(A)(13).
Cn#p2064123 S.Ct. at 2064 ("In addition to this Court's longstanding and consistent construction of the National Bank Act as providing an exclusive federal cause of action for usury against national banks, this Court has also recognized the special nature of federally chartered banks. Uniform rules limiting the liability of national banks and prescribing exclusive remedies for their overcharges are an integral part of a banking system that needed protection from `possibly unfriendly State legislation.'" (quoting Tiffany v. Nat'l Bank of Mo., 18 Wall. 409, 412 (1874))). Accordingly, it
Cn#p2064123 S.Ct. at 2064 ("In addition to this Court's longstanding and consistent construction of the National Bank Act as providing an exclusive federal cause of action for usury against national banks, this Court has also recognized the special nature of federally chartered banks. Uniform rules limiting the liability of national banks and prescribing exclusive remedies for their overcharges are an integral part of a banking system that needed protection from `possibly unfriendly State legislation.'" (quoting Tiffany v. Nat'l Bank of Mo., 18 Wall. 409, 412 (1874))). Accordingly, it
is "[b]eyond genuine dispute" that state law "may not curtail or hinder a national bank's efficient exercise of [its real-estate-lending power or] any other power, incidental or enumerated under the NBA." Id. at 13, 127 S.Ct. at 1567-68.
The NBA "plainly provides that a national bank may charge interest `on any loan' at the rate allowed by the laws of the State in which the bank is `located.'" Id. As the Supreme Court stated in Beneficial Nat'l Bank:
Sections 85 and 86 serve distinct purposes. The former sets forth the substantive limits on the rates of interest that national banks may charge. The latter sets forth the elements of a usury claim against a national bank, provides for a 2-year statute of limitations for such a claim, and prescribes the remedies available to borrowers who are charged higher rates and the procedures governing such a claim.
539 U.S. at 9, 123 S.Ct. at 2063. The reasoning behind this rule is straightforward:
A national bank is "located" in the state that the bank's organization certificate specifies. See Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 308, 99 S.Ct. 540, 545 (1978). Shelbourne does not allege where BOA is "located" for NBA purposes, and it purportedly lacked sufficient knowledge to admit or deny BOA's allegation that BOA is located in North Carolina. Further, Shelbourne makes no allegation regarding the legality of BOA's interest calculation under North Carolina law.
If the location of the bank were to depend on the whereabouts of each . . . transaction, the meaning of the term "located" would be so stretched as to throw into confusion the complex system of modern interstate banking. A national bank could never be certain whether its contacts with residents of foreign States were sufficient to alter its location for purposes of § 85.
Id. at 312,
99 S.Ct. at 547.
A. Illinois Interest Act
The NBA preempts Shelbourne's IIA affirmative defense and counterclaim. Shelbourne does not dispute that the NBA preempts state-law-usury claims. It contends, rather, that it has not alleged that the interest charged by BOA is usurious. That argument does not survive a review of Shelbourne's allegations.
Black's Law Dictionary defines usury as "the charging of an illegal rate of interest" or "[a]n illegally high rate of interest." Black's Law Dictionary (8th ed. 2004); see also Budnik v. Bank of Am. Mortgage, No. 03 C 6116, 2003 WL 22964372, at *3 (N.D. Ill. Dec. 16, 2003) ("`Usury is the receiving, securing, or taking of a greater sum or value for the loan or forbearance of money, goods, or things in action than is allowed by law, the exaction of a greater sum for the use of money than the highest rate of interest allowed by law.'" (quoting 45 Laura Dietz Anne M. Payne, Am. Jur., Interest Usury § 2 (2d ed. 2002))); General Motors Acceptance Corp. v. Kettleson, 219 Ill. App. 3d 871, 874, 580 N.E.2d 187, 189 (Ill. App. Ct. 1991) ("Usury is defined as an illegal profit received by the lender on a sum of money loaned to a borrower."); Tyrcha v. Wesolek, 187 Ill. App. 3d 354, 357, 543 N.E.2d 222, 224 (Ill. App. Ct. 1989) ("Usury is an illegal profit required and received by a lender of a sum of money from the borrower." (citing Clemens v. Crane, 234 Ill 215, 229-30, 84 N.E. 884, 889 (Ill. 1908))).
Charging an illegal — and therefore usurious — rate of interest is exactly what Shelbourne alleges that BOA did. Shelbourne, for example, (1) alleges that BOA received "greater value for the loan under the Note and Term Note than authorized by the Illinois Interest Act" (R. 53, Defs.' Affirmative Defenses Countercls. at ¶ 22 (emphasis added)); (2) quotes from IIA Section 5, which prohibits the receipt of "any greater sum or greater value for the loan . . . than is expressly authorized by this Act" ( id. at ¶ 23 (emphasis added)); and (3) alleges that "Plaintiff knowingly and unlawfully applied a definition of `year' that did not comply with the Promissory Note and Bank Holiday Act and, as a result, in violation of the Illinois Interest Act, charged and received more interest than authorized under the Illinois Interest Act" ( id. at ¶ 26 (emphasis added)).
Shelbourne's IIA affirmative defense and counterclaim accuse BOA of charging fees that exceeded those allowed by law. As such, they are based on usury and preempted by the NBA. See Forness v. Cross Country Bank, Inc., No. 05-CV-417-DRH, 2006 WL 240535, at *4 (S.D. Ill. Jan. 13, 2006) (finding that the plaintiffs' complaint raised a preempted usury claim because it accused the defendants of charging excessive fees); Patterson v. Regions Bank, No. 06-CV-469-DRH, 2006 WL 3407852, at *5 (S.D. Ill. Nov. 27, 2006) (finding that a complaint did not raise a usury claim where there was "no indication that the challenged interest rate exceeds what is allowed by law or that the interest rate itself amounts to an excessive charge"); Budnik, 2003 WL 22964372, at *3 ("Regardless of the [plaintiffs'] characterization of the unearned interest, they are in fact attacking the overall amount of interest charged by Bank of America Mortgage. As the saying goes, if it walks like a duck and quacks like a duck, it must be a duck."); Treadway v. Nations Credit Fin. Servs. Corp., 383 Ill. App. 3d 1124, 1130, 892 N.E.2d 534, 539 (Ill. App. Ct. 2008) (a complaint did not raise a usury claim in the absence of an allegation that the defendant charged the plaintiff "interest that exceeded any limit imposed by any state or federal lending statute or regulation"); Dannewitz v. Equicredit Corp. of Am., 362 Ill. App. 3d 82, 87, 839 N.E.2d 1060, 1064 (Ill. App. Ct. 2005). The Court, therefore, strikes Shelbourne's second affirmative defense and first counterclaim. See Phipps v. Fed. Deposit Ins. Corp., 417 F.3d 1006, 1013 (8th Cir. 2005) ("Once the district court determined the plaintiffs' claims are preempted, it was a short step to conclude these claims must be dismissed.").
B. Remaining Counterclaims and Affirmative Defenses
BOA argues that the NBA preempts the remaining counterclaims and affirmative defenses because they essentially — albeit not explicitly — allege usury. Specifically, BOA argues that the other claims "are each premised on the notion that Bank of America bargained for a contract that included an interest calculation provision that resulted in Bank of America receiving more interest than is purportedly allowed under Illinois law." (R. 26, Pl.'s Mem. in Supp. of Mot. to Dismiss Strike at 9-10.) Shelbourne responds that the NBA does not preempt its counterclaims and affirmative defenses because they "are directed to a lender's improper and deceptive method of computing interest" and therefore not for usury. (R. 62, Resp. Br. at 9.)
The NBA does not preempt any of BOA's other affirmative defenses or counterclaims. While the NBA preempts claims for usury, as more thoroughly explained below none of the remaining affirmative defenses or counterclaims is based upon BOA's charging an illegal interest rate. They are premised, rather, on allegations that (1) BOA charged interest in a manner that conflicted with its representations or (2) Shelbourne was unable to perform under the loan documents due to an "unforeseeable and unprecedented economic downturn and recession." (R. 53, Defs.' Affirmative Defenses Countercls. at ¶¶ 19, 31, 48, 56, 59-60, 65.) Accordingly, the NBA does not preempt them. Patterson, 2006 WL 3407852, at *5 (finding that a complaint did not raise a usury claim where it alleged that the defendant was "not charging the rate it said it would charge").
II. Illinois Interest Act Counterclaim and Affirmative Defense
Beyond being preempted by the NBA, Defendant's IIA counterclaim and affirmative defense fail because the IAA (1) does not apply to a corporation's loans and (2) merely provides a gap-filling mechanism where — unlike here — no period of time is stated for which interest is to be calculated. Shelbourne alleges that BOA violated the IIA by (1) "receiv[ing] by device, subterfuge, and other means a greater value for the loan under the Loan Agreement, Note and Term Note"; and (2) "using a year of less than 12 calendar months ( i.e., 360 days only) to compute and charge interest." (R. 53, Defs.' Affirmative Defenses Countercls. at ¶¶ 22-26.)
The IIA excludes from its coverage loans to corporations. Specifically, it provides that "[i]t is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to . . . [a]ny loan made to a corporation." 815 Ill. Comp. Stat. § 205/4(1)(a). Based on this provision's plain meaning, Illinois courts have concluded that the IIA "does not apply to transactions involving corporations." Computer Sales Corp. v. Rousonelos Farms, Inc., 190 Ill. App. 3d 388, 392, 546 N.E.2d 761, 763 (Ill. App. Ct. 1989); see also Ehlers v. Frey, 109 Ill. App. 3d 1004, 1009, 441 N.E.2d 651, 655 (Ill. App. Ct. 1982); Jones Brown, Inc. v. W. E. Erickson Constr. Co., 73 Ill. App. 3d 481, 483, 391 N.E.2d 1097, 1098 (Ill. App. Ct. 1979). As one Illinois treatise puts it, a corporation "has the power to borrow money for its corporate purposes at such rates of interest as the corporation may determine, without regard to the restrictions of any usury law of Illinois. Consequently, the usury statute does not limit the interest that a corporation may contract to pay on a transaction." 35 Kimberly C. Simmons, Ill. Law and Prac. Usury § 11 (2010). Furthermore, the IAA's corporate-loan exemption extends to loans involving a corporation's guarantor. See Verson v. Hardt, 107 Ill. App. 2d 480, 484, 246 N.E.2d 461, 463 (Ill. App. Ct. 1969).
Additionally, even if the IIA applied to loans to corporations and were not preempted by the NBA, it still would not apply in this case. Section 9 of the IIA clearly provides:
Whenever, in any statute, act, deed, written or verbal, contract, or in any public or private instrument whatever, any certain rate of interest is or shall be mentioned,
and no period of time is stated for which such rate is to be calculated, interest shall be calculated at the rate mentioned, by the year, in the same manner as if "per annum" or
"by the year" had been added to the rate.
815 Ill. Comp. Stat. § 205/9 (emphasis added). Under its express terms, therefore, Section 9 only applies when "no period of time is stated" in the instrument. Here, the IIA affirmative defense and counterclaim — together with the underlying loan documents — clearly provide that interest was to be calculated based on a 360-day year. (
See R. 53, Defs.' Affirmative Defenses Countercls. at ¶¶ 7, 10, 14, 26, 41.) Accordingly, Section 9's gap-filling mechanism does not apply, and the Court strikes Shelbourne's third affirmative defense and dismisses Count I.
III. Breach of Contract/Implied Duty of Good Faith and Fair Dealing Counterclaim and Affirmative Defense
Shelbourne's counterclaim and affirmative defense relating to BOA's alleged breach of contract and the implied duty of good faith and fair dealing also fail because, as alleged and as shown in the loan documents, BOA charged interest in accordance with the non-discretionary terms of the loan documents. Shelbourne alleges that Plaintiff:
(1) deliberately created ambiguity in the language of the loan documents explaining how interest would be calculated (
i.e., by stating that the applicable interest rates were "per annum," while also stating that interest would be based on a 360-day year) and then (2) exercised its discretion to calculate interest in a manner that charged Shelbourne and Mr. Kelleher, as purported guarantor, more interest than they reasonably expected to be charged (
i.e., by calculating interest using the 360-day year, notwithstanding the fact that the Loan Agreement, Note and Term Note described the applicable interest rates as "per annum").
(R. 53, Defs.' Affirmative Defenses Countercls. at ¶ 48; see also id. at ¶ 19.)
BOA's argument that Shelbourne cannot bring an independent cause of action for breach of the good-faith covenant misses the mark because Shelbourne's good-faith theory is part of its breach-of-contract claim. ( See R. 53, Defs.' Affirmative Defenses Countercls. at ¶¶ 43-49.) As the Seventh Circuit teaches, "breach of the covenant of good faith and fair dealing is not an independent cause of action under Illinois law except `in the narrow context of cases involving an insurer's obligation to settle with a third party who has sued the policy holder.'" APS Sports Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 624, 628 (7th Cir. 2002) (quoting Voyles v. Sandia Mortgage Corp., 196 Ill. 2d 288, 751 N.E.2d 1126, 1131 (Ill. 2001)). For this reason, "courts regularly dismiss causes of action for breach of duty of good faith when they are not asserted within a breach of contract claim." Hickman v. Wells Fargo Bank N.A., 683 F. Supp. 2d 779, 793 (N.D. Ill. 2010) (emphasis in original and compiling cases); see also LaSalle Bank Nat'l Assoc. v. Paramont Props., 588 F. Supp. 2d 840, 853 (N.D. Ill. 2008). Because Shelbourne's claim for breach of the duty of good faith is part of its breach-of-contract cause of action, however, the Court will not dismisses Count II on these grounds.
Even taken as true, however, Shelbourne's allegations do not state a claim for breach of contract or trigger a good faith defense or counterclaim. As alleged and as provided for in the loan documents, BOA was merely calculating interest according to the non-discretionary terms of the parties' agreements. Under Illinois law, "[e]very contract contains an implied promise of good faith and fair dealing between the contracting parties," absent express disavowal. Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 395 (7th Cir. 2003); Tatom v. Ameritech Corp., 305 F.3d 737, 745 (7th Cir. 2002). The purpose of this implied duty is "to ensure that parties do not take advantage of each other in a way that could not have been contemplated at the time the contract was drafted or do anything that will destroy the other party's right to receive the benefit of the contract." Gore v. Ind. Ins. Co., 376 Ill. App. 3d 282,
286, 876 N.E.2d 156, 161 (Ill. App. Ct. 2007) (citing Cramer v. Ins. Exch. Agency, 174 Ill. 2d 513, 523-24, 675 N.E.2d 897, 903 (Ill. 1996)).
To establish that BOA breached the duty of good faith and fair dealing, Shelbourne must establish that "the contract vested [BOA] with discretion in performing an obligation under the contract and [BOA] exercised that discretion in bad faith, unreasonably, or in a manner inconsistent with the reasonable expectations of the parties." Hickman, 683 F. Supp. 2d at 792. This implied covenant is only a rule of construction, however; it is "not a stand-alone obligation." In re Kmart Corp., 434 F.3d 536, 542 (7th Cir. 2006); see also Zeidler v. A W Rests., Inc., 301 F.3d 572, 575 (7th Cir. 2002) ("The covenant is only an aid to interpretation, not a source of contractual duties or liability under Illinois law."). The implied covenant "is not an invitation to the court to decide whether one party ought to have exercised privileges expressly reserved in the document." Hickman, 683 F. Supp. 2d at 792 (quotation omitted). Courts use it, rather, "to determine the intent of the parties where a contract is susceptible to two conflicting constructions." Cromeens, 349 F.3d at 395.
When the covenant applies, it "does not require parties to behave altruistically toward each other; it does not proceed on the philosophy that I am my brother's keeper." The Original Great Am. Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 280 (7th Cir. 1992). It imposes a duty "not to `be reasonable,' but to avoid taking advantage of gaps in a contract in order to exploit the vulnerabilities that arise when contractual performance is sequential rather than simultaneous." Id. (noting that it would be bad faith for a party to dishonestly invoke a contractual provision "to achieve a purpose contrary to that for which the contract had been made"); see also Greer Props., Inc. v. LaSalle Nat'l Bank, 874 F.2d 457, 460 (7th Cir. 1989). Additionally, the duty of good faith requires parties who have entered into a contract to "bargain[] in good faith over terms left open by the original contract" because "that bargaining is a component of the anticipated performance." First Nat'l Bank of Chicago v. Atl. Tele-Network Co., 946 F.2d 516, 520 (7th Cir. 1991).
When there is no ambiguity in a contract, however, the good-faith covenant does not come into play. In re Kmart, 434 F.3d at 542. As the Seventh Circuit has noted, "Illinois law holds that parties to a contract are entitled to enforce the terms to the letter and an implied covenant of good faith cannot overrule or modify the express terms of a contract." Cromeens, 349 F.3d at 395-96. The language at issue here is not ambiguous. That language provided that "all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed." (R. 45-1, Ex. A, Loan Agreement at § 5.5; see also R. 46, Ex. C, Term Note at 6.) This provision unambiguously specifies that interest will be calculated based on a 360-day year, and the "actual number of days" language indicates that interest will be based on the 365/360 method — not the 360/360 method — because there are 365 (or 366) days in a year, not 360. See In re Mkt. Ctr. E. Retail Prop., Inc., ___ B.R. ___, 2010 WL 3088550, at * 11-12 (D.N.M. Aug. 3, 2010). Further, there is no conflict between using the 365/360 method and stating that the applicable interest rates were "per annum." See In re Oil Spill by Amoco Cadiz Off Coast of Fr. on Mar. 16, 1978, No. 92-3282, 1993 WL 360955, at *1-2 (7th Cir. Sept. 14, 1993) (describing the different methods of calculating annual interest, including the most-common, 365/360, method).
Shelbourne alleges that BOA calculated interest using the 365/360 method, which is what the loan documents provided for. A party cannot invoke the covenant of good faith to target another's non-discretionary actions under a contract. "Problems relating to good faith performance are most common where one party to an agreement is given wide discretion, and the other party must hope the discretion is exercised fairly." Interim Health Care of N. Ill., Inc. v. Interim Health Care, Inc., 225 F.3d 876, 884 (7th Cir. 2000). "The covenant requires a party vested with broad discretion to act reasonably and not arbitrarily or in a manner inconsistent with the reasonable expectations of the parties." Cromeens, 349 F.3d at 395; see also Greer Props., 874 F.2d at 460 (noting that the "implied obligation of good faith and fair dealing in the performance of contracts acts as a limit on the discretion possessed by the parties"). To properly allege breach of the covenant, a party must plead the existence of contractual discretion. Accordingly, "the good-faith duty to exercise contractual discretion reasonably does not apply where no contractual discretion exists." Mid-West Energy Consultants, Inc. v. Covenant Home, Inc., 352 Ill. App. 3d 160, 165, 815 N.E.2d 911, 916 (Ill. App. Ct. 2004).
Shelbourne's breach-of-contract/breach-of-good-faith affirmative defense and counterclaim fail because Shelbourne has alleged that BOA was calculating interest based on the 365/360 method, and that is exactly what the loan documents specified that BOA do. The Counterclaim alleges, for example, that under the Loan Agreement "`all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed.'" (R. 53, Defs.' Affirmative Defenses Countercls. at ¶ 7 (quoting Loan Agreement at § 5.5).) It also alleges that under the Note and Term Note, "`Borrower shall pay accrued interest computed as set forth in Section 2 of the Loan Agreement on the basis of the actual days elapsed over a 360-day year.'" ( Id. at ¶ 10.) Because BOA did not exercise any discretion in calculating interest based on a 360-day year, it "cannot be held to have breached the covenant of good faith and fair dealing for simply enforcing the contracts as written." Cromeens, 349 F.3d at 396; see also McDonald's Corp. v. C.B. Mgmt. Co., 13 F. Supp. 2d 705, 711 (N.D. Ill. 1998); Gore, 376 Ill. App. 3d at 287, 876 N.E.2d at 162; Northern Trust Co. v. VIII S. Mich. Assocs., 276 Ill. App. 3d 355, 367, 657 N.E.2d 1095, 1104 (Ill. App. Ct. 1995).
IV. Illinois Consumer Fraud Act Counterclaim
In Count III, Defendants allege that Plaintiff violated the ICFA by:
• "engag[ing] in a deceptive, unfair, systematic, and common practice of computing and charging interest at an interest rate with a `per annum' time period added to the rate, but computing and charging that interest using only a `year' containing 360 days, thereby overcharging defendants" (R. 53, Defs.' Affirmative Defenses Countercls. at ¶ 56);
• "willfully and wantonly engag[ing] in an ongoing systematic pattern and common practice of deception and unfairness" that included "misrepresentations, half-truths, and omissions concerning the Loan Agreement, Note and Term Note in order to conceal the true rate of interest to be applied and the increased cost of credit, and thereby to increase surreptitiously Plaintiff's profits at the expense of Defendants" (
id. at ¶ 57);
• "lur[ing] Shelbourne into contracting with Plaintiff, and entering into the Loan Agreement, Note and Term Note unilaterally drafted by Plaintiff, by means of false promises to prepare the Loan Agreement, Note and Term Note to document accurately the negotiated and agreed terms of credit (including
per annum interest rates), all the while intending to insert in the Loan Agreement, Note and Term Note inconspicuous, confusing, vague and contradictory boilerplate language to conceal and create confusion over the actual interest rate and the cost of credit to Shelbourne" (
id. at ¶ 59 (emphasis in original)); and
• "increas[ing] the daily interest rate and cost of the loan to Shelbourne, and by extension, the financial exposure of Mr. Kelleher, as purported guarantor, by using less than 12 calendar months to compute the daily interest charge and then charging this daily interest for 12 calendar months of 365 or 366 days" (
id. at ¶ 60).
The ICFA "is a regulatory and remedial statute intended to protect consumers, borrowers, and business persons against fraud, unfair methods of competition, and other unfair and deceptive business practices." Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 417, 775 N.E.2d 951, 960 (Ill. 2002); see also Rockford Mem'l Hosp. v. Havrilesko, 368 Ill. App. 3d 115, 121, 858 N.E.2d 56, 61 (Ill. App. Ct. 2006). "It eliminated many of the common-law fraud elements, creating a new cause of action that affords consumers broad protection." Havrilesko, 368 Ill. App. 3d at 121, 858 N.E.2d at 61; see also Miller v. William Chevrolet/Geo, Inc., 326 Ill. App. 3d 642, 654-55, 762 N.E.2d 1, 11 (Ill. App. Ct. 2001) ("The Act offers `a clear mandate to the Illinois courts to utilize the Act to the greatest extent possible to eliminate all forms of deceptive or unfair business practices and provide appropriate relief to consumers.'" (quoting Totz v. Cont'l DuPage Acura, 236 Ill. App. 3d 891, 901, 602 N.E.2d 1374, 1380 (Ill. App. Ct. 1992))). "It is to be liberally construed to effect its purposes." Havrilesko, 368 Ill. App. 3d at 121, 858 N.E.2d at 61; see also Thacker v. Menard, Inc., 105 F.3d 382, 386 (7th Cir. 1996).
To prevail on an ICFA claim, a plaintiff must prove: "(1) a deceptive act or practice by [the defendant]; (2) that the act or practice occurred in the course of conduct involving trade or commerce; (3) that [the defendant] intended [the plaintiff] to rely on the deception; and (4) that actual damages were proximately caused by the deception." Oshana v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006) (citing Avery v. State Farm Mut. Auto Ins. Co., 216 Ill. 2d 100, 835 N.E.2d 801, 850 (Ill. 2005); Oliveira v. Amoco Oil Co., 201 Ill. 2d 134, 776 N.E.2d 151, 164 (Ill. 2002)); see also Siegel v. Shell Oil Co., ___ F.3d ___, No. 09-3451, 2010 WL 2977315, at *2 (7th Cir. July 30, 2010); Demitro v. General Motors Acceptance Corp., 388 Ill. App. 3d 15, 19, 902 N.E.2d 1163, 1168 (Ill. App. Ct. 2009). To determine if a practice is unfair under the ICFA, courts ask whether it (1) violates public policy, (2) is so oppressive that the consumer has little choice but to submit, and (3) causes consumers substantial injury. See Siegel, 2010 WL 2977315, at *2 (noting that under the third prong, an injury generally must: "(1) be substantial; (2) not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and (3) be an injury that consumers themselves could not reasonably have avoided"). A practice may be unfair under the ICFA even if it does not satisfy all of these criteria. See id.
Shelbourne cannot state an ICFA claim based on terms that are revealed within the very loan documents that it signed. As the Seventh Circuit has stated, "[a] `party cannot close his eyes to the contents of a document and then claim that the other party committed fraud merely because it followed this contract.'" Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 767 (7th Cir. 2010) (quoting VIII S. Mich., 276 Ill. App. 3d at 365-66, 657 N.E.2d at 1103); see also Belleville Nat'l Bank v. Rose, 119 Ill. App. 3d 56, 59, 456 N.E.2d 281, 284 (Ill. App. Ct. 1983) ("One is under a duty to learn, or know, the contents of a written contract before he signs it, and is under a duty to determine the obligations which he undertakes by the execution of a written agreement." (quotation omitted)). "The application of this rule is particularly appropriate where the parties to the agreement are sophisticated business persons." VIII S. Mich., 276 Ill. App. 3d at 365-66, 657 N.E.2d at 1103. As discussed above, Shelbourne has alleged — and the loan documents confirm — that BOA was to calculate interest based on the 365/360 method. ( See R. 53, Defs.' Affirmative Defenses Countercls. at ¶¶ 7, 10.) That is exactly what Shelbourne has alleged that BOA did. ( Id.) As such, the ICFA claim fails.
BOA is correct that, generally speaking, actions brought under the ICFA are subject to Rule 9(b)'s heightened pleading requirements because they involve averments of fraud. See Duggan v. Terzakis, 275 F. Supp. 2d 968, 973 (N.D. Ill. 2003) (noting that courts must "evaluate Rule 9(b)'s particularity requirement in light of the purposes of: (1) protecting defendants' reputations from harm, (2) minimizing strike suits and fishing expeditions, and (3) providing defendants with adequate notice" (internal quotations omitted)); Neffv. Capital Acquisitions Mgmt. Co., 238 F. Supp. 2d 986, 994 (N.D. Ill. 2002); but see Strohmaier v. Yemm Chevrolet, 211 F. Supp. 2d 1036, 1043 (N.D. Ill. 2001) (Rule 9(b) does not apply to ICFA claims that are not based on fraudulent acts). Because Shelbourne did not state an ICFA claim, however, the Court need not address BOA's Rule 9(b) argument.
V. Common Law Fraud Counterclaim
"To state a fraud claim under Illinois law, a plaintiff must allege that the defendant: (i) made a false statement of material fact; (ii) knew or believed the statement to be false; (iii) intended to and, in fact, did induce the plaintiff to reasonably rely and act on the statement; and (iv) caused injury to the plaintiff." Reger Dev., 592 F.3d at 766; see also Trade Fin. Partners, LLC v. AAR Corp., 573 F.3d 401, 413 (7th Cir. 2009). As explained above, Shelbourne has alleged that BOA calculated interest by using the 365/360 method, which is exactly the method called for by the loan documents. Without a false statement, Shelbourne's fraud claim must be dismissed.
VI. Commercial Impracticability Affirmative Defense
In their commercial-impracticability affirmative defense, Shelbourne alleges that its inability to perform is "(1) temporary, and (2) the result of an unforeseeable and unprecedented economic downturn and recession, particularly in the real estate market." (R. 53, Defs.' Affirmative Defenses Countercls. at ¶ 31.) Shelbourne further alleges that "Plaintiff's own executives and officers have repeatedly made public statements and other communications describing the current economic conditions, including those affecting the real estate market and the availability of credit, as `unprecedented,' `unparalleled' and not reasonably foreseeable." ( Id. at ¶ 33.) BOA argues that this affirmative defense is unavailable to Shelbourne because the
parties both foresaw and expressly provided for the possibility that Shelbourne would be unable to obtain financing. ( See R. 26, Pl.'s Mem. in Supp. of Mot. to Dismiss Strike at 18-19 (citing Amendment No. 1 at § 2.3, Amendment No. 2 at § 2.1).)
A party raising an impossibility defense must show: (1) an unanticipated circumstance, (2) that was not foreseeable, (3) to which the other party did not contribute, and (4) to which the party raising the defense has tried all practical alternatives. See Blue Cross Blue Shield of Tenn. v. BCS Ins. Co., 517 F. Supp. 2d 1050, 1056 (N.D. Ill. 2007); Illinois-Am. Water Co. v. City of Peoria, 332 Ill. App. 3d 1098, 1106, 774 N.E.2d 383, 391 (Ill. App. Ct. 2002). "The rationale for the defense of commercial impracticability is that the circumstance causing the breach has rendered performance so vitally different from what was anticipated that the contract cannot be reasonably thought to govern." Waldinger Corp. v. CRS Group Eng'rs, Inc., 775 F.2d 781, 786 (7th Cir. 1985) (internal quotation omitted). This defense, "like the doctrine of good faith, is a gap filler; it must not be used to alter an agreed upon allocation of risk. Parties to contracts know better than a court does what allocation of risk is best for them." Tele-Network, 946 F.2d at 521.
The viability of this affirmative defense depends on whether the economic downturn was foreseeable. "Because the purpose of a contract is to place the reasonable risk of performance upon the promisor, . . . it is presumed to have agreed to bear any loss occasioned by an event that was foreseeable at the time of contracting." Waldinger, 775 F.2d at 786. The foreseeability inquiry is "whether the risk of the occurrence of the contingency was so unusual or unforeseen and the consequences of the occurrence . . . so severe that to require performance is to grant the buyer an advantage he did not bargain for in the contract." Id. Whether a party's contractual performance is impossible depends on what its obligations were. See Hoosier Energy Rural Elec. Coop., Inc. v. John Hancock Life Ins. Co., 582 F.3d 721, 727 (7th Cir. 2009). "If the risk of the occurrence of the contingency was unforeseeable, the seller cannot be said to have assumed that risk." Waldinger, 775 F.2d at 786. If a contingency is foreseeable, however, the commercial-impracticability defense is not available "because the party disadvantaged by the fruition of the contingency might have contractually protected itself." Id. As one court has noted:
It is difficult to establish unforeseeability because the general rule is that "where parties, by their own contract and positive undertaking, create a duty or charge upon themselves, they must abide by the contract and make the promise good, and subsequent contingencies, not provided against in the contract which render performance impossible, do not bring the contract to an end."
Blue Cross, 517 F. Supp. 2d at 1057 (quoting
Joseph W. O'Brien Co. v. Highland Lake Constr. Co., 17 Ill. App. 3d 237, 241, 307 N.E.2d 761, 765 (Ill. App. Ct. 1974)).
Based on the allegations in Shelbourne's third affirmative defense, whether the economic downturn was foreseeable cannot be resolved on a motion to strike. The fact that performance becomes economically burdensome generally does not excuse performance. See Greer Props., 874 F.2d at 460; United States v. S.W. Elec. Coop., Inc., 869 F.2d 310, 316 (7th Cir. 1989). If the parties could not have foreseen the extent of the economic downturn, however, and if performance were impossible, Shelbourne could satisfy the requirements for an impracticability defense. See Hoosier Energy, 582 F.3d at 729 (summarizing uniform commercial-impracticability principles and applying New York law). While many could have foreseen the economic downturn, see Ner Tamid Congregation of N. Town v. Krivoruchko, 638 F. Supp. 2d 913 (N.D. Ill. 2009), here Shelbourne has alleged that BOA itself "has acknowledged that the
economic conditions, including those affecting the availability of credit, are unprecedented and not reasonably foreseeable." (R. 53, Defs.' Affirmative Defenses Countercls. at ¶ 32.) Specifically, BOA's own executives and officers allegedly "have repeatedly made public statements and other communications describing the current economic conditions, including those affecting the real estate market and the availability of credit, as `unprecedented,' `unparalleled' and not reasonably foreseeable." ( Id. at ¶ 33.) Based on these allegations, it is "uncertain whether the extent of the 2008 credit crunch, which extended into 2009, was foreseeable" to the parties at the time that they entered into the loan documents. Hoosier Energy, 582 F.3d at 729. BOA has not shown to a certainty that it would succeed on this affirmative defense, and therefore its motion to strike it must be denied. See Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991).
CONCLUSION
For the foregoing reasons, the Court grants in part and denies in part Plaintiff/Counter-Defendant BOA's motion to dismiss and strike.