\IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

STUDIUM, INC.,

 Plaintiff,

 v.

MATERIALS MARKETING, LTD.,

successor in interest to MATERIALS

MARKETING CORPORATION

 Defendant.

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12 C 212

 Judge Virginia M. Kendall 

MEMORANDUM OPINION AND ORDER

Studium, Inc., the seller of a defective batch of residential tiles, seeks indemnity

from Materials Marketing, Ltd., the manufacturer of the defective tiles, for a $125,000.00

settlement payment that Studium made to one of its customers who purchased the tiles. 

Materials Marketing now moves to dismiss Studium’s Complaint on the grounds that it is

not responsible in an action for indemnification for a settlement payment voluntarily made

by Studium to one of its customers. Applying New York law to this diversity action, the

indemnity claims of Studium’s Complaint survive and Materials Marketing’s Motion to

Dismiss Counts I-III is denied. Because Studium has decided not to prosecute Count IV of

its Complaint, that claim is accordingly dismissed. 

I. Background

When considering a motion to dismiss, all reasonable inferences must be drawn in

favor of the nonmoving party, and the veracity of the well-pleaded allegations is assumed.

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See Killingsworth v. HSBC Bank, 507 F.3d 614, 618 (7th Cir. 2007) (citing Savory v. Lyons, 469

F.3d 667, 670 (7th Cir. 2006)). Studium, Inc. operates a showroom in New York and sells

decorating materials made by a variety of manufacturers. Prior to this litigation, Studium

distributed Materials Marketing products for more than ten years. One of the Materials

Marketing products sold by Studium and appearing in its showroom was Vintage Classic

Tile. 

In 1999, Studium sold Materials Marketing’s Vintage Classic Tile to one of its

customers, Manny Haber. Shortly after purchasing the tile for his summer home, Haber

asked Studium if the tile was suitable for outdoor use. Studium inquired with the

manufacturer, Materials Marketing, and Materials Marketing affirmatively advised

Studium that the tile was suitable for outdoor use. Materials Marketing then supplied

Studium with outdoor installation instructions for the Vintage Classic Tile. 

Relying on Materials Marketing’s representation, Studium advised Haber that the

tile was suitable for outdoor use and supplied him with the outdoor installation

instructions that Materials Marketing had furnished to Studium. From 2000 through 2002,

Haber purchased a significant volume of Vintage Classic Tile; enough to coverthe deck and

pool areas of his large summer home. 

In the summer of 2004, Haber’s outdoor Vintage Classic Tile began to delaminate

and crack. Haber sued Studium and MaterialsMarketing in the Supreme Court of the State

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of New York, New York County for damages suffered from the defective product. See

Haber v. Studium, Inc., 881 N.Y.S.2d 363 (Sup. Ct. 2009). In answering Haber’s complaint,

Studium included cross-claims against Materials Marketing for breach of warranty and

contribution. See id. The Supreme Court of the State of New York granted Material

Marketing’s motion for summary judgment, holding that New York lacked personal

jurisdiction over Materials Marketing sufficient to hale it into court in New York State. See

id. at *5. Haber’s claims against Studium were therefore severed from his claims against

Materials Marketing and proceeded to a trial on the merits. See id.

In June 2010, after a two-day trial, the Supreme Court of the State of New York

issued a decision in favor of Haber and against Studium. The Court found that the Vintage

Classic Tile was not suitable for outdoor installation. On July 20, 2010, a judgment was

entered against Studium and in favor of Haber in the amount of $138,765.14. Studium

appealed to the New York Supreme Court, Appellate Division. In May 2011, while the case

was pending before the appellate court, Studium settled with Haber for the discounted

sum of $125,000.00. Studium now brings suit in this Court for indemnification against

MaterialsMarketing for breach of express warranty (Count I); breach of warranty of fitness

for a particular purpose (Count II); breach of warranty of merchantability (Count III); and

breach of contract (Count IV). 

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II. The Standard of Review

When considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all of

the well-pleaded facts alleged in the complaint and construes all reasonable inferences in

favor of the non-moving party. See Killingsworth, 507 F.3d at 618 (citing Savory, 469 F.3d at

670); accord Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). To properly state a valid

claim, the complaint must contain a “short and plain statement of the claim showing that

the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “Detailed factual allegations” are

not required, but the plaintiff must allege facts that, when “accepted as true ... ‘state a claim

to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To determine whether a complaint

meets this standard the “reviewing court [must] draw on its judicial experience and

common sense.” Iqbal, 556 U.S. at 678. If the factual allegations are well-pleaded, the Court

assumes their veracity and then proceeds to determine whether they plausibly give rise to

an entitlement to relief. Id at 679. A claim has facial plausibility when its factual content

allows the Court to draw a reasonable inference that the defendant is liable for the

misconduct alleged. See id. at 678.

III. Discussion

A federal court sitting in diversity does not necessarily apply the substantive law of

the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); see also

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Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009). Ratherthe

Court applies the choice-of-lawprinciples of the forum state to determine what substantive

law to apply to the underlying dispute. See id. Because this case is before the Court

pursuant to its grant of diversity jurisdiction under 28 U.S.C. § 1332, Illinois, the forum

state, choice-of-law principles apply. See Auto-Owners Ins. Co., 580 F.3d at 547; Int’l Adm’rs,

Inc. v. Life Ins. Co. of N. Am., 753 F.2d 1373, 1376 n. 4 (7th Cir. 1985). When selecting the

appropriate state substantive law to apply to a case, Illinois uses the “most significant

relationship” approach to choice-of-law disputes. See Esser v. McIntyre, 661 N.E.2d 1138,

1141 (Ill. 1996). The “most significant relationship” approach is rooted in Sections 6 and 145

of the Restatement (Second) of Conflicts of Laws. See Townsend v. Sears, Roebuck & Co., 879

N.E.2d 893, 903 (Ill. 2007). 

Studium argues that New York law applies to the instant dispute, while Materials

Marketing maintains that Illinois law applies. Under Section 145 of the Restatement, four

contacts are integral to the choice-of-law analysis: “(1) where the injury occurred; (2) where

the injury-causing conduct occurred; (3) the domicile of the parties; and (4) where the

relationship of the parties is centered.” Esser, 661 N.E.2d at 1141. The Court must evaluate

and balance each of these factors in light of the particular facts and circumstances of the

case in order to determine whether Illinois or New York has the more significant

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relationship to the instant litigation. See, e.g., Pittway Corp. v. Lockheed Aircraft Corp., 641

F.2d 524, 526-527 (7th. Cir. 1981).

The injury at issue here arises out of the July 2010 judgment against Studium and

the resulting $125,000.00 settlement payment to Haber. The Supreme Court of the State of

New York entered judgment in New York. Studium is a New York corporation, with its

principle place of business in New York City. Materials Marketing is a Texas corporation,

with its principal place of business in San Antonio, Texas. Studium asserts that the relevant

contracts between Studium and Haber, as well as between Studium and Materials

Marketing, were entered into in New York. Accepting the well-pleaded allegations as true

and construing all reasonable inferences in Studium’s favor, as the Court is required to do

at this stage of the case, the Court finds that New York has the most significant relationship

to the litigation. See Killingsworth, 507 F.3d at 618 (citing Savory, 469 F.3d at 670). Therefore,

New York substantive law of indemnification applies to the dispute between Studium and

Materials Marketing. See Klaxon Co., 313 U.S. at 496. 

A seller of a defective product has an implied right of indemnification against the

manufacturer of that product. See Godoy v. Abamaster of Miami, Inc., 754 N.Y.S.2d 301, 306

(N.Y. App. Div. 2003). Under New York law, “one who settles a tort action against him

may continue to pursue a cause of action for indemnification.” McDermott v. City of New

York, 406 N.E.2d 460, 464 (N.Y. 1980). “When an indemnitor has notice of the claim against

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it, the general rule is that the indemnitor will be bound by any reasonable good faith

settlement the indemnitee might thereafter make.” Nesterczuk v. Goldin Management, 911

N.Y.S.2d 367, 371 (N.Y. App. Div. 2010) (citing Coleman v. J.R.’s Tavern, 622 N.Y.S.2d 334

(N.Y. App. Div. 1995)); see also Goldmark Indus. v. Tessoriere, 681 N.Y.S.2d 327 (N.Y. App.

Div. 1998). 

Materials Marketing was notified of Studium’s claims against it when it was sued

by Haber in the New York action and when Studium asserted cross-claims for breach of

warranty and contribution against it. See Nesterczuk, 911 N.Y.S.2d at 371. Materials

Marketing responded to this notification by filing a motion for summary judgment and

removing itself from that litigation. Under New York personal jurisdiction standards,

which differ in several material respects from federal personal jurisdiction standards,

Materials Marketing was successful in removing itself from the New York action. See

Haber, 881 N.Y.S.2d 363, at *5. It does not follow that because New York lacked sufficient

contacts to assert personal jurisdiction over Materials Marketing in the Haber action that

Materials Marketing is exempt from all subsequent actions at law for indemnification. For

the purposes of this Motion, it must be inferred that the settlement Studium reached with

Haber for $125,000.00 was a reasonable good faith settlement. See Nesterczuk, 911 N.Y.S.2d

at 371. Accordingly, Studium’s indemnity claims (Counts I-III) can proceed and Materials

Marketing’s Motion to Dismiss those claims must be denied. 

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Because the disputed contract is one for the sale of goods, a four year statute of

limitations applies to actions arising therefrom. N.Y. U.C.C. Law § 2-725 (McKinney 2012). 

In its Reply to Materials Marketing’s Motion to Dismiss, Studium concedes that the breach

of contract claim that it alleges in Count IV of its Complaint is barred by the four year

statute of limitations. Studiumtherefore conceded that it will not continue prosecuting that

claim. Count IV is accordingly dismissed. 

IV. Conclusion

For the reasons set forth above, Materials Marketing’s Motion to Dismiss Counts I,

II, and III of Studium’s Complaint alleging causes of action for indemnification is denied. 

Due to Studium’s concession that it will not continue prosecuting Count IV of its

Complaint for breach of contract, that Count is accordingly dismissed.

 

 ___________________________________

Virginia M. Kendall

United States District Court Judge

Northern District of Illinois

Date: June 25, 2012

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