General Instrument and Motorola argue that they did not assume warranty liability for the
problems alleged to have infected the set-top boxes because that obligation arose before the
closing date. WH-TV responds that because General Instrument agreed to assume all of Zenith’s
obligations “for warranty repair work on products manufactured by the [Zenith] Division and
listed in Section 2.28 of the Disclosure Schedule,” General Instrument expressly assumed all the
obligations Zenith had relating to the set-top boxes sold to WH-TV. According to WH-TV, these
obligations include providing functional and DVB-compliant set-top boxes, as promised by
Zenith in its original proposal to WH-TV, without regard to when the problems in those areas
arose,

The court agrees with General Instrument. Under general rules of contract construction,
“contracts are to be interpreted as a whole, giving meaning and effect to each provision of the
contract.’” Arrow Master, Inc. v. Unique Fortiing Ltd., 12 F.3d 709, 713 (7" Cir. 1993) (quoting
Mayfair Constr. Co. v. Waveland Assoc. Phase I Ltd. P’ship, 619 N.E.2d 144, 152 (Ill. App. Ct.),
appeal denied, 624 N.E.2d 809 (Ill. 1993)). WH-TV’s reading of the Asset Purchase Agreement
would nullify the provision of that agreement that limits the obligations assumed by General
Instrument to Zenith’s obligations that arise from and after the closing date. The problems with
the functionality of the set-top boxes and their failure to conform to DVB standards alleged in
WH-TV’s counterclaim predated the closing date, and thus were not subject to an express
warranty assumed by General Instrument.’

WH-TV argues that in any event, General Instrument and Motorola impliedly assumed

2? The court notes that Zenith’s statement in the Asset Purchase Agreement relating to
potential litigation by WH-TV that “[a]s of June 28, 2000 Zenith believes that all such software
bugs [in the set-top boxes sold to WH-TV] have.been fixed. [Zenith] and WHTV are working to
resolve any open issues.” does not change the obligations assumed by General Instrument under
the agreement.



Instrument and Motorola as additional counter-defendants, alleging breach of express warranty.
When ruling on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the

court must consider “whether relief is possible under any set of facts consistent with the

allegations of the plaintiffs complaint.” Pokuta v. Trans World Airlines, Inc., 191 F.3d 834, 839
(7" Cir. 1999). That is, if it is possible to hypothesize a set of facts that would entitle the
plaintiff to relief, consistent with the allegations in the complaint, dismissal under Rule 12(b)(6)

is inappropriate. Graehling v. Village of Lombard, 58 F.3d 295, 297 (7" Cir. 1995).

General Instrument and Motorola argue that Count III of the Third Amended.

Counterclaim should be dismissed because WH-TV fails to state a claim that they assumed an

express warranty obligation of Zenith that co the defects alleged. Although a successor
entity generally does not assume the liabilities of its predecessor, a successor may expressly or
impliedly agree to assume some or all of its predecessor’s liabilities. Vernon v. Schuster, 688
N.E.2d 1172, 1175-76 (Ill. 1997). Thus, the court first examines the Asset Purchase Agreement
to determine whether General Instrument expressly assumed any of Zenith’s warranty
obligations.

The Asset Purchase Agreement provides that General Instrument assumed certain of
Zenith’s obligations “arising from and after the Closing Date in connection with the operation of
the Business...and no others.” These “Assumed Liabilities” included Zenith’s obligations for
warranty repair work on the set-top boxes sold to WH-TV. The “warranty repair obligations”

were all of Zenith’s obligations “for warranty répair work on products manufactured by the

[Zenith] Division and listed in Section 2.28 of the Disclosure Schedule..,.” Section 2.28 of the

Disclosure Schedule lists the set-top boxes sold to WH-TV.



broad warranty obligations when Motorola met with WH-TV personnel to address problems with
the reliability and function of the set-top boxes, and performed work designed to provide DVB-
compliant set-top boxes, provide an enhanced electronic program guide, and provide closed
captioning for some channels. However, the Asset Purchase Agreement expressly provides that
General Instrument assumed the listed liabilities “and no others,” and provides that the
agreement “contains the sole and entire agreement between the parties...” Because this
contractual language expressly disclaims liability that is not enumerated, the court cannot find

that there was an implied assumption of liability. See City of Aurora v. American LaFrance

Corp., No. 81 C 6638, 1985 WL 3141, at *4 (NLD. IIL. Oct. 10, 1985). General Instrument and
Motorola did not impliedly assume a broad obligation to correct problems with the functionality
of the set-top boxes, or to convert them to DVB-compliance.

Finally, General Instrument and Motorola contend that WH-TV cannot even maintain a
claim of breach of the limited warranty repair obligation that General Instrument assumed in the
Asset Purchase Agreement because WH-TV did not rely on the terms of that particular warranty
when it purchased the set-top boxes. However, the court need not decide whether WH-TV relied
on a warranty that was subsequently assumed by General Instrument because WH-TV does not
allege that any new problems relating to the set-top boxes arose after the closing date that would
be subject to any warranty assumed by General Instrument. To the contrary, WH-TV only
alleges that the problems that arose prior to the closing date continued after the closing date. As
discussed above, General Instrument did not assume Zenith’s obligations with reference to those
problems. Accordingly, General Instrument’s and Motorola’s motion to dismiss WH-TV’s

express breach of warranty claim is granted?

> Given this conclusion, the court need not consider Motorola’s argument that WH-TV’s
claim against it should be dismissed because Motorola was not a party to the Asset Purchase
Agreement.


Minute Order Form (06/97)

United States District Court, Northern District of Illinois

N: f Assigned Jud: i: Sitting Judge if Oth
noe Magistrate Judge George W. Lindberg than Assigned Judge
CASE NUMBER 01 C 4366 _ DATE 1/8/2003
CASE Zenith Electronics Corporation vs. WH-TV Broadcasting
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
of the motion being presented.}

MOTION:

DOCKET ENTRY:

qd) (i) Filed motion of [ use listing in “Motion” box above.]

(2) im) Brief in support of motion due

(3) im} Answer brief to motion due___. Reply to answer briefdue__.

(4) Oo Ruling/Hearing on__setfor__at

(5) a Status hearing[held/continued to] (set for/re-set for] on setfor_ sat,
(6) Oo Pretrial conference[held/continued to] [set for/te-set for]on__——ssetfor__——saat_ ts
(7) im Trial[set for/re-set for] on _at

(8) o [Bench/Jury trial] [Hearing] held/continuedto, __—_at.

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) CO Local Rule 41.1 CUFRCP41(a)(1) CO FRCP41(a)(2).

(10) MM [Otherdocketentry} General Instrument?s.and Motorola’s motion to dismiss count Il of WH-TV’s
third amended counterclaim (181-1) is granted.

(ii) @ [For further detail see order (¢ ide-o the original minute order.]

v No notices required, advised in open court.

... Document
Number.

No notices required.

Notices mailed by judge’s staff.

Notified counsel by telephone

Docketing to mail notices.

Mail AO 450 form.

exces Mins

Copy to judge/magistrate judge.

date maifed notice

courtroom
SLB deputy’s
initials

eres bel

Datehihrte received in

central Clerk's Office axing depury ints
ee



ORDERED: General Instrument’s and Motorola’s Motion to Dismiss Count III of WH-
TV’s Third Amended Counterclaim [181-1] is granted.

ENTER:

‘ge. Lindberg
Seni, S. District Judge

DATED: “sani 0 8 2003



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

~ © 2008

ZENITH ELECTRONICS CORPORATION,

Plaintiff/Counter-Defendant,
01 C4366

Judge George W. Lindberg
WH-TV BROADCASTING CORPORATION,

)
)
)
)
v. )
)
)
)
Defendant/Counter-Plaintiff. )
MEMORANDUM OPINION AND ORDER
General Instrument Corporation (“General Instrument”) and Motorola, Inc. (“Motorola”)

have moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss Count II of WH-TV
Broadcasting Corporation’s (“WH-TV”) Third Amended Counterclaim. For the reasons stated
below, the motion to dismiss is granted.

In considering a motion to dismiss, the court must accept as true all well-pleaded facts

and must draw all reasonable inferences from those allegations in plaintiff's favor. MCM

Partners, Inc. v. Andrews-Bartlett & Assoc., Inc., 62 F.3d 967, 972 (7" Cir. 1995). According to
the allegations in the counterclaim, Zenith Electronics Corporation (“Zenith”) agreed to sell set-
top boxes to WH-TV, a cable television operator WH-TV used the set-top boxes in connection
with providing digital television service to its customers. Zenith promised that the boxes would
function as promised, would contain an enhati¢ed electronic program guide, and would comply
with digital video broadcast (“DVB”) standards, According to WH-TV, the set-top boxes it

bought from Zenith did not function properly, they contained an inadequate electronic program

' For example, the boxes did not respond properly, re-booted on their own, locked up
when changing channels, had no secondary audio program capability, and lacked parental control
and close-captioning functions. In addition, during prime time, channels froze up and some

236


guide, and they were not DVB-compliant. The counterclaim alleges that Zenith made efforts to
correct some of the functionality problems, and made a schedule under which it was to convert
the boxes to DVB-compliance. Zenith’s efforts to correct the problems were unsuccessful (and
in fact some of the “upgrades” caused new problems), and it did not convert the boxes to DVB-
compliance.

On July 17, 2000, Zenith and General Instrument entered into an Asset Purchase
Agreement, under which Zenith sold its division that was responsible for designing, developing,
and manufacturing the set-top boxes to Genefal Instrument. Under the agreement, General
Instrument agreed to assume certain liabilities in connection with the operation of the business.
These assumed liabilities included Zenith’s obligation to perform warranty repair work on the
set-top boxes sold to WH-TV.

Motorola is General Instrument’s parent corporation. After the Asset Purchase
Agreement was executed, Motorola personnel.continued Zenith’s efforts to make the WH-TV
set-top boxes DVB-compliant, provide a fully functioning electronic program guide, and correct
some of the other functional problems WH-TV experienced with the set-top boxes. However,
according to WH-TV, the set-top boxes still are not fully DVB-compliant, and still lack a fully
functional electronic program guide.

On June 11, 2001, Zenith brought this breach of contract action against WH-TV, alleging
that WH-TV failed to pay Zenith for the set-top boxes. WH-TV counterclaimed, alleging fraud
and breach of contract, based on its allegations that the set-top boxes were defective and that

Zenith’s equipment was not DVB-compliant. On October 8, 2002, WH-TV added General

subscribers experienced a total loss of video.