The defendants raise numerous challenges to the sufficiency of Hinkle’s
complaint. First, Jackson states that it has no duty to Hinkle because it was not a party
to the original lease, and even if it had been a party to the lease, there is no common
law duty of care owed to Hinkle. Hinkle alleges that Jackson became the owner and
landlord of the leased office space by succeeding CEBA in the lease. Therefore,
because Jackson is Hinkle’s landlord, Jackson owes a duty of care at common law to
Hinkle. This duty is separate from any contractual duties that it may have towards
Hinkle under the lease. Although the terms of the contract may impose additional
duties on Jackson, this does not eliminate or replace common law duties Jackson has
as a landlord.

Second, Intell argues that because it was not a party to the lease, it has no
common law duty of care towards Hinkle. Hinkle alleges in its complaint that Intell
was the management company responsible for the building. Taking that allegation in
the light most favorable to Hinkle, we conclude that Intell is an agent of Jackson. The
actions of an agent are the actions of the principal. As discussed above, Jackson owed
a duty of care to Hinkle outside of the contract as its landlord, and thus Intell owed the
same duty.

Finally, Walsh also disputes that it owed a duty to Hinkle. Hinkle alleges that
Walsh was the general contractor for the roof repairs, that Walsh had a duty to ensure
the work was being done properly. Illinois law recognizes that a contractor hired by
a landlord to work on a building owes a common law duty of care to the building’s

-4-


landlord’s negligence. Economy, 689 N.E.2d at 202. An indemnification or “hold
harmless” clause concerns the risk of harm to third parties caused by the landlord’s
negligence and seeks to shift the financial burden, for ultimate payment of damages,
from the landlord to the tenant. Id. Both Jackson and Intell concede this point in their
motions.

It is clear that paragraph 9(a) of the Lease is an attempt by Jackson to exculpate
itself from liability toward Hinkle for Jackson’s own negligence. It is equally clear that
paragraph 9(a) of the Lease is also an attempt by Jackson to indemnify itself from
liability toward third parties from its own negligence. Therefore, paragraph 9(a) of the
Lease between the parties is void as against public policy according the Illinois
Landlord and Tenant Act. 765 Ill. Comp. Stat. 705/1. Because this paragraph is void,
it does not bar Hinkle’s claims.

b. Paragraphs 9(b) and 9(c)

Jackson further argues that paragraphs 9(b) and 9(c) of the lease bar Hinkle’s
claims because those paragraphs require Hinkle to obtain liability insurance for both
itself and Jackson, and that such a requirement is deemed to be the sole remedy for
damages under the contract in Illinois.

As stated above, any attempt by a landlord in a lease to exculpate itself from
liability for its negligent acts is as against public policy. Paragraph 9(b) appears to
require that Hinkle protect itself from fire or other catastrophic events by acquiring
insurance and to hold the landlord harmless if such events occur. This provision is

-9-


US. Dist. LEXIS 1366, *31 (N.D. Ill. Feb. 8, 1999). Pure economic losses are defined
as damages for inadequate value, costs of repair and replacement of defective product,
or loss of profits. Moorman, 453 N.E.2d at 449.

The Moorman doctrine is based upon the theory that tort law affords a remedy
for losses occasioned by personal injuries or damage to one’s property. Relief for
economic losses occasioned by diminished commercial expectations not coupled with

injury to person or property, on the other hand, are found in contract law and the

Uniform Commercial Code. In re Chicago Flood Litigation, 680 N.E.2d 265, 275 (Ill.
1997), quoting Inre Illinois Bell Switching Station Litigation, 641 N.E.2d 440, 449 (IIL.
1994). However, the Moorman doctrine does not stand simply for the proposition that
economic losses are not recoverable in tort. Instead, it limits the claims of parties who
allege breach of a contract to contractual remedies, rather that tort remedies. Put
another way, if a plaintiff claims that a defendant breached an obligation other than a
contractual obligation, the Moorman doctrine does not apply. Trade Solutions

Incorporated v. Eurovictory Sports, Inc., 1998 U.S. Dist. LEXIS 2725, *13 (N.D. Til.

Mar. 6, 1998).

Hinkle entered into a contract with Jackson. Jackson has a contractual duty to
provide quiet and peaceful enjoyment of the premises to Hinkle. However, Hinkle
alleges duties that do not arise out of the contract. The breach of these common-law
duties is not a disappointed commercial expectation of Hinkle’s, nor is it a “gradual
deterioration or internal breakdown of the defective property.” See Redarowicz v.

6-


tenants to avoid foreseeable harm to the tenants. Cole v. Housing Authority of LaSalle

County, 385 N.E.2d 383, 385 (Il. App. Ct. 1979). Hinkle has clearly stated a claim
against Walsh and the grounds upon which it rests.

Walsh also argues that Hinkle has predicated its claim ofnegligence on Walsh’s
duty to ensure Hinkle’ quiet and peaceful enjoyment of the premises, a duty born solely
out of contract. Walsh has misread the complaint. Nowhere does Hinkle allege that
Walsh was a party to the lease, that Walsh had any duties under the lease, or that Walsh
even had a common law duty to ensure Hinkle’s peaceful and quiet enjoyment of the
premises. Rather, Hinkle’s negligence claim is based solely on Walsh’s duty of care
at common law not to damage the property of tenants like Hinkle, and thus the
complaint states a claim sufficient to withstand a 12(b)(6) challenge.

TI. Moorman Doctrine

All three defendants argue that Hinkle’s losses should be barred by the Moorman
doctrine. They argue that the losses result from Hinkle’s disappointed commercial
expectations, are purely economic and do not fit any exception that would preclude
application of the Moorman doctrine.

The Moorman doctrine bars a plaintiff in a negligence action from recovering
losses that do not involve personal injury or property damage. See Moorman Mfg. Co.
v. Nat’] Tank Co., 435 N.E.2d 443 (Ill. 1982). In other words, tort law is not intended
to compensate parties for monetary losses suffered as a result of duties that are owed

to them simply as a result of a contract. Nepomoceno v. Knights of Columbus, 1999

5-


As such, the defendants’ motions are Provisions granted as to the prayer for punitive
damages.

IV. Contract

a. Paragraph 9(a)

Jackson argues that paragraph 9(a) of the Lease means that Hinkle has agreed
to waive any right for recovery against the landlord for loss or damage. That paragraph
reads: “To the extent permitted by law, Landlord shall not be liable, and Tenant waives
all claims it may have against Landlord, its agents . . . for loss or damage to. . .
property sustained by Tenant . . . resulting from any act or neglect of... Landlord.”
Hinkle points to the Landlord and Tenant Act of Illinois, arguing that this provision is
void as against public policy. Section | of the Act prevents landlords from exempting
themselves for liability resulting from the negligence of the lessor or other related
patties, including the lessor’s agents. 765 Ill. Comp. Stat. 705/1. Whether a particular
lease provision is void depends not on the cause of action in which the lease provision
is invoked but rather whether the language of the lease provision runs afoul of the

statutory prohibition. See Economy Mechanical Industries v. Higgins Company, 689

N.E.2d 199, 202 (Ill. App. Ct. 1997).

Although the Act expressly prohibits only lease exculpatory provisions, it has
been construed as also prohibiting certain lease indemnification provisions. McMinn
vy. Cavanaugh, 532 N.E.2d 343, 357 (Ill. 1988). An exculpatory clause deprives a
tenant ofits right to recover damages for harm sustained by the tenant as a result of the

-8-


4, Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Charles P. Kocoras Sitting Judge if Other
or Magistrate Judge . than Assigned Judge
CASE NUMBER 01 C5078 DATE 10/17/2001
CASE Hinkle Engineering, Inc. vs. 175 Jackson L.L.C. et al
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
() Q Filed motion of [ use listing in “Motion” box above.]
(2) a Brief in support of motion due
(3) im Answer brief to motion due. . Reply to answer brief due.
(4) ia) Ruling/Hearing on __ set for at :
(5) | Status hearing set for 2/28/2002 at 9:30 A.M..
(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on _ set for at
(7) o Trial{set for/re-set for] on at
(8) im) [Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
QFRCP4(m) (General Rule21 OFRCP41(a)(1) O FRCP41(a)(2).
ao) ff [Other docket entry] Ruling held. ENTER MEMORANDUM OPINION: Defendants’ motions
(Docs 5-6, 6-1 & 7-1) motions to dismiss are granted in part and denied in part. Said motions to dismiss
the prayer of punitive damages are granted. The remainder of the motions are denied. Defendants are
given to October 31, 2001 to answer the complaint. All document discovery to be completed by
December 31, 2001. All discovery to be completed by February 28, 2002.
dl) {For further detail see order attached to the original minute order.]
No notices required, advised in open court.
No notices required. umber otnaties
Notices mailed by judge’s staff.
Notified counsel by telephone. Cl AS8 mt
vo | Docketing to mail notices. ()
Mail AO 450 form. CI)
Copy to ingeflmagitrate judge.
ae yp ty ts al
i \ ayocy 7 Fil it c4
V \ “ date mailed notice,
courtroom
scT deputy’s
initials
Date/time received in
central Clerk’s Office mailing deputy inital



The facts in Clark are not synonymous with the instant case. Hinkle is not suing
Jackson for contribution for the injuries suffered by a third party. Hinkle and Jackson
are not codefendants. Rather, Hinkle is suing for injuries it suffered as a direct result
of Jackson’s alleged negligence. The agreement in the lease between the parties does
not provide the sole remedy for the parties as to claims against each other.

CONCLUSION
For the reasons stated above, the defendants’ motions to dismiss the prayer for

punitive damages are granted. The remainder of the motions are denied.

CPO. Phere

Charles P. Kocoras
United States District Judge

Dated: October 17, 2001

-ll-


susceptible to two interpretations. It either means that if Hinkle suffers damage from
some nonnegligent act, like a tornado, Hinkle will be protected by an insurance policy
and not seek a remedy from Jackson. If this is the case, then the negligent acts of
Jackson are not covered by this paragraph. Otherwise, this provision means that if
some negligent act causes Hinkle’s damage, Jackson will be exculpated from liability,
which would make the provision void against public policy under the Illinois Landlord
and Tenant Act. Under either interpretation, this paragraph cannot bar Hinkle’s claims
of breach of contract or negligence.

Defendants also argue that paragraph 9(c), which essentially requires Hinkle to
obtain general liability insurance, provides Hinkle with a sole remedy. Defendants’
reliance on Clark v. Ruan and other supporting cases is misplaced. Clark v. Ruan,
1994 U.S. Dist. LEXIS 3330 (N.D. Ill. Mar. 18, 1994). In Clark, the parties agreed in
their contract that the lessee of automobiles would provide insurance naming both the

lessor and lessee as co-insureds. Id. at *2. A third party suffered injuries while driving
the leased vehicle and sued the lessee for damages. Id. The lessee then filed a third
party complaint against the lessor seeking contribution. Id. The court held that the
insurance provision naming both the lessor and lessee as co-insureds barred the lessee
from suing the lessor seeking contribution for injuries suffered by a third party because
the parties agreed to look to the insurance for protection. Id, at *3. The court also noted
that whatever amount not covered by the insurance would be recoverable from the
lessor. Id. at *3.

-10-


Ohlendorf, 441 N.E.2d 324, 327 (Ill. 1992). “Where a duty arises outside of the
contract, the economic loss doctrine does not prohibit recovery in tort for the negligent

breach of that duty.” Congregation of the Passion v. Touche Ross & Co., 636 N.E.2d

503, 514 (Ill. 1994). Hinkle’s claim for negligence is not an attempt to veil a contract
claim.

Furthermore, even if Hinkle’s claim were a disappointed commercial
expectation, the Moorman doctrine would not apply because Hinkle alleges it did suffer
property damage. Additionally, the damage was not caused by a qualitative defect (i.e.,
the slow deterioration of the roof), but rather from the sudden event of holes being
punched in the roof, allowing water to leak into the building.

Based on the foregoing, we conclude that Hinkle has sufficiently plead a
cognizable claim for negligence against all three defendants.

Ill. Punitive Damages

Under Illinois law, punitive damages may be awarded upon a showing of gross
negligence and a wanton disregard for the rights of others. Hollowell v. Wilder Corp.
of Delaware, 743 N.E.2d 707, 711 (Ill. App. Ct. 2001). All three defendants argue that
Hinkle has not properly pleaded the kind of behavior that would support a claim for
punitive damages. The sole basis for Hinkle’s claim seems to be the length of time in
which their complaints about the flooding were ignored. Although we sympathize with
Hinkle that four months seems a long time to wait, we do not think that the facts Hinkle
has alleged show the kind of extreme conduct that would warrant punitive damages.

-7-


Nonetheless, in order to withstand a motion to dismiss, a complaint must allege facts
sufficiently setting forth the essential elements of the cause of action. See Lucien v.
Preiner, 967 F.2d 1116, 1168 (7th Cir. 1992). In reviewing a Rule 12(b)(6) motion to
dismiss for failure to state a claim, the court must limit itself to the allegations
contained in the pleadings themselves. It is with these principles in mind that we
address the motion before us.
DISCUSSION

All three defendants filed individual motions to dismiss. However, Jackson and
Intell’s are essentially identical. Therefore, we address Jackson and Intell’s arguments
together and any additional individual arguments by Walsh separately.
I. Negligence

Illinois law plainly recognizes that a landlord owes its tenants a common law

duty to avoid negligent acts or omissions that cause foreseeable harm to tenants. See,

e.g., Cole v. Housing Authority of LaSalle County, 385 N.E.2d 382, 383 (Ill. App. Ct.
1979). A landlord’s common law duty to its tenants can include a duty to use
reasonable care in selecting an independent contractor to work on the property. Huber
vy. Seaton, 519 N.E.2d 73, 76 (Ill. App. Ct. 1988).

Hinkle alleges in its complaint that Jackson had a duty to ensure the construction
work was not performed negligently. They claim that Jackson breached that duty as
the landlord of the building by failing to prevent the flooding or correct it after Hinkle

brought it to their attention.


that the landlord had a contractual duty to ensure that Hinkle could have peaceful
possession of the offices.

During Hinkle’s occupation of the offices, Jackson hired Walsh to repair the
building’s roof. During this work, Walsh left holes in the roof that caused water to leak
into Hinkle’s office space, resulting in extensive damage. For about four months,
Hinkle repeatedly notified Jackson, through Jackson’s managing agent Intell, of the
damage the leaky roof was causing, yet Jackson and Intell took no action to remedy the
leak, nor did Walsh.

Hinkle filed a two-count complaint. Count I alleges Jackson breached its
contractual duty to provide Hinkle with peaceful and quiet enjoyment of the premises.
Count II alleges negligence on the part of all three defendants. The defendants have
moved to dismiss all counts.

LEGAL STANDARD

The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the
sufficiency of the complaint, not to decide the merits of the case. In ruling on a motion
to dismiss, the court must construe the complaint’s allegations in the light most
favorable to the plaintiff and accept as true all well-pleaded facts and allegations. See
Bontkowski v. First National Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). The
allegations of a complaint should not be dismissed for failure to state a claim “unless
it appears beyond a doubt that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

2-


UNITED STATES DISTRICT COURT wep

NORTHERN DISTRICT OF ILLINOIS ROCKETED

EASTERN DIVISION OCT 18 2008
HINKLE ENGINEERING, INC., )
)
Plaintiff, )
)

vs. ) 01 C5078
)
175 JACKSON LLC, INTELL MANAGEMENT)
AND INVESTMENT COMPANY, and WALSH)
CONSTRUCTION COMPANY OF ILLINOIS, )
)
Defendants. )
MEMORANDUM OPINION

CHARLES P. KOCORAS, District Judge:

This matter comes before the Court on the motions to dismiss of Defendants 175
Jackson L.L.C. (“Jackson”), Intell Management and Investment Company (“Intell”),
and Walsh Construction Company of Illinois (“Walsh”). For the reasons set forth

below, we deny the motions in part and grant them in part.

BACKGROUND
Plaintiff Hinkle Engineering, Inc. (“Hinkle”), an Oklahoma engineering firm,
entered into a written lease with Chicago Exchange Building Associates (“CEBA”).
The lease allowed Hinkle to occupy commercial office space at 175 West Jackson
Boulevard in Chicago. Jackson succeeded CEBA as a party to the lease and assumed

all of CEBA’s rights and duties under the lease. The lease contained a provision stating

1/_