the latter obligation could be fulfilled up to December 2000, both obligations could conceivably
require performance after the closing date. Thus, according to Zenith, these obligations were
contract obligations to be performed after the closing date, and, as such, were liabilities assumed
by General Instrument.

General Instrument responds that Zenith’s assurances that it would make the set-top
boxes DVB-compliant by December 2000 did not constitute a separate contractual obligation, but
rather was part of Zenith’s effort to remedy its failure to perform its original contractual
obligation to provide DVB-compliant equipment. Similarly, General Instrument argues, Zenith’s
obligation to provide an enhanced electronic program guide was part of Zenith’s obligation under
its original contract with WH-TV.

The court agrees with General Instrument. The provision of the Asset Purchase
Agreement relating to General Instrument’s assumption of obligations under business contracts
states that General Instrument would assume such obligations:

provided that, in no event will [General Instrument] assume any obligation of

(Zenith) that relates to [Zenith’s] performance or non-performance of any of its

obligations under any Business Contract or the terms and conditions of any

License prior to the Closing Date even if claims with respect thereto are asserted

after the Closing Date.

Zenith supplied the set-top boxes to WH-TV well before the execution of the Asset Purchase
Agreement. Zenith’s original obligation to supply set-top boxes that were DVB-compliant and
contained an enhanced electronic program guide was required to be performed before the closing
date. Thus, Zenith’s subsequent assurances that it would remedy its failure to perform that

original obligation did not create a new business contract, but rather merely constituted an

obligation relating to Zenith’s performance or non-performance of a contractual obligation,



General Instrument argues that Zenith’s indemnification claim should be dismissed for
failure to state a claim because WH-TV’s claims against Zenith do not relate to the liabilities
General Instrument assumed under the Asset Purchase Agreement. The indemnification
provision of the agreement states that General Instrument shall indemnify Zenith against losses
sustained by Zenith that result from, arise out of, or relate to:

(i) any misrepresentation, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of [General Instrument]
contained in this Agreement...; or

(ii) any Assumed Liability;

(iil) except as otherwise expressly provided in this Agreement, any obligation,
Liability, action, suit, claim or other proceeding which arises directly or
indirectly out of [General Instrument’s] operation of the Business or use of
the Assets on or after the Closing...and which does not result from a
breach of (Zenith’s] representations and warranties or covenants.

Zenith’s cross-claim invokes the latter two provisions.

Two assumed liabilities are relevant to Zenith’s cross-claim. First, General Instrument
assumed Zenith’s obligations under its business contracts and licenses that were to be performed
on or after the closing date. Second, General Instrument assumed Zenith’s obligations for
warranty repair work on the set-top boxes. To qualify as an assumed liability under the
agreement, the obligation must “aris[e] from and after the Closing Date in connection with the
operation of the Business.” The closing date was to be no later than August 31, 2000.

WH-TV has alleged that Zenith was obligated to develop certain features relating to the
electronic program guide in a timely manner. In addition, WH-TV’s claims that Zenith provided

it assurances that the set-top boxes would be made DVB-compliant no later than December 2000.

Zenith contends that because there was no specific time restriction on the former obligation, and



which “in no event [would General Instrument] assume.” Zenith’s obligation to perform under
its contract with WH-TV arose prior to the closing date, even if its attempts to remedy its
nonperformance continued to a later date.

Similarly, General Instrument did not assume Zenith’s obligations to provide set-top
boxes that were DVB-compliant and contain an enhanced electronic program guide, or Zenith’s
obligation to provide boxes that were designed or manufactured to function as promised, under
the “Warranty Repair Obligations” portion of the Assumed Liabilities provision. As with the
other Assumed Liabilities, General Instrument assumed a warranty repair obligation only to the
extent that it arose from and after the closing date. Since the problems alleged in WH-TV’s
counterclaim arose prior to the closing date, they would not be subject to the warranty assumed
by General Instrument.

Nor can Zenith rely on the provision of the Asset Purchase Agreement that obligates
General Instrument to indemnify Zenith for claims arising from General Instrument’s operation
of the business or use of the assets on or after the closing date. That obligation only arises if the
claim “does not result from a breach of (Zenith’s] representations and warranties or covenants.”
As discussed above, Zenith allegedly breached its original contractual representations that the
set-top boxes would be DVB-compliant, would contain an enhanced electronic program guide,

and would function as promised.



‘Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judi i Sitting Judge if Oth
vm 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, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

a)

MOTION:

DOCKET ENTRY:

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

(2) Qa Brief in support of motion due

(3) i) Answer brief to motion due___. Reply to answer briefdue___.

(4) Q Ruling/Hearing on setfor___at

(5) Q Status hearing[held/continued to] [set for/re-set for]on___ set for___—at

(6) a] Pretrial conference[held/continued to] [set for/re-set for]on__——s set for —sat__.

(7) i) Trial[set for/re-set for]on___—__at

(8) Q [Bench/Jury trial] [Hearing] held/continued to_ at

(9) im) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) OLocal Rule 41.1 CFRCP41(a)(1) CI FRCP41(a)(2).

ao ff (Other docket entry] General Instrument’s motion to dismiss Zenith’s cross-claim for

indemnification (180-1) is granted. Enter memorandum opinion and order.

a [For further detail see order (

Sigffached to)xhe original minute order.}

v

No notices required, advised in open court. Document

Number
No notices required number of notices

Notices mailed by judge's staff.

» 2008

date docketed

wunblin | 37

Notified counse! by telephone.
Docketing to mail notices.

Mail AO 450 form. 1unod J.

Copy to judge/magistrate judge.

oly

2236 Hd 8-!

date mailed notice
courtroom

SLB deputy’s

initials oy pee oe

1s Ly TS
T falatte ected i
Daten ressived in rong deans



ORDERED: General Instrument’s Motion to Dismiss Zenith’s Cross-Claim for
Indemnification [180-1] is granted.

ENTER;

litle

Gfhege W. JAndberg

Senior U. istrict Judge

JAN 0 8 2003
DATED:



i

IN THE UNITED STATES DISTRICT COURT chy manne
FOR THE NORTHERN DISTRICT OF ILLINOIS YAN ~ 9 2003
EASTERN DIVISION
ZENITH ELECTRONICS CORPORATION,

Plaintiff/Counter-Defendant,
01 C 4366

Judge George W. Lindberg
WH-TV BROADCASTING CORPORATION,

)
)
)
)
v. )
)
)
)
Defendant/Counter-Plaintiff. )
MEMORANDUM OPINION AND ORDER

General Instrument Corporation (“General Instrument’) has moved pursuant to Federal
Rule of Civil Procedure 12(b)(6) to dismiss Zenith Electronics Corporation’s (“Zenith”) Cross-
Claim for Indemnification. 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 Zenith’s cross-claim and WH-TV Broadcasting Corporation’s (“WH-TV”)
counterclaim, Zenith sold set-top boxes to WH-TV, a cable television operator. Zenith promised
that the boxes would function as described in the proposal, would contain an enhanced electronic
program guide, and would comply with digital video broadcast (“DVB”) standards. The set-top
boxes were delivered in 1999. According to. WH-TV, the set-top boxes it bought from Zenith did

not function properly,' contained an inadequate electronic program guide, and were not DVB-

' 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 closc-captioning functions. In addition, during prime time, channels froze up and some

subscribers experienced a total loss of video.



compliant. Zenith made efforts to correct some of the functionality problems, and assured WH-
TV that it would convert the boxes to DVB-compliance no later than December 2000. 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 to General Instrument the Zenith division that was
responsible for manufacturing the set-top boxes. Under the agreement, General Instrument
agreed to assume certain liabilities in connection with the operation of the business. The
agreement provided that General Instrument would indemnify Zenith from all losses relating to
these assumed liabilities.

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
Instruments as an additional counter-defendant... Zenith filed a cross-claim for indemnification
against General Instrument, in the event that it.is held liable to WH-TV.

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 plaintiff's 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).