-13-
CONCLUSION

For the foregoing reasons, defendant’s motion is denied.

DATE: September 17, 2001

ENTER: ») Ly

John -{ rady, United States Distric udge



-~Aa-
different press, and that the press Chicago Printing had bought was
previously owned by a company in either Minnesota or Iowa that ran
high-quality jobs similar to those done by Chicago Printing.
Newlin also said that the press had been used only to print high-
quality annual report and prospectus-type jobs on high-quality
paper. (Id., GI 11-13.)

In December 1999, Chicago Printing accepted delivery of the
press from Heidelberg. (Id., 115.) Since its installation, the
press has never worked properly. Within a week of installation,
more than 200 parts had to be replaced. During the six months
after installation, a steady stream of repairmen and technicians
serviced the press. Nonetheless, it continued to malfunction,

producing “slurring,” roller marks, and color inconsistencies.

(Id., (If 21-22.)

In June 2000, Carver and Newlin met with Outlaw, reaffirmed
Heidelberg’s representation that the press was in “like new

condition,” and promised to fix the problems. (Id., @ 23.)

Between fall 2000 and the filing of plaintiff’s complaint,
Heidelberg attempted to repair the press, stated that it had the
capacity to do so, and asked for Chicago Printing’s patience and
understanding. Additional meetings between Chicago Printing and
Heidelberg took place in December 2000 and January 2001. The

parties discussed the continuing problems with the press, but


we a

=~ 9-

Miller v. Long-Airdox Co., 914 F.2d 976, 978 (7th Cir. 1990);

Torraco v. American Airlines, Inc., No. 94 C 1852, 1996 WL 6560, at
*7 (N.D. Ill. Jan. 4, 1996). Here, it is clear from the
allegations contained in the complaint that both the alleged injury
and the alleged conduct occurred in Illinois. Thus, we will apply
Illinois law to plaintiff’s claims.

B. Plaintiff's Claims

To state a fraudulent inducement claim, a plaintiff must
allege that (1) the defendant made a false statement of material
fact; (2) the defendant knew that the statement was false; (3) the
statement was intended to induce another’s reliance; (4) the
statement did induce reasonable reliance; and (5) the statement

caused damage to the party relying on it. See J.c. Whitney & Co.

v. Renaissance Software Corp., No. 99C 3714, 2000 WL 556610, at *8

(N.D. Ill. Apr. 19, 2000), adopted in part on relevant grounds and

modified in part on other grounds, 98 F. Supp. 2d 981 (N.D. Ill.

2000). Heidelberg argues that plaintiff’s claims must be dismissed
because plaintiff has failed to allege reasonable reliance on the
purported misrepresentations.

The Contract states that “fa]ll used equipment is sold to
buyer AS IS WHERE IS with all faults, unless otherwise indicated.”
(Complaint, Ex. 1 at 2.) The Contract also contains a disclaimer
that reads as follows:

EXCEPT AS STATED ABOVE, THERE ARE NO WARRANTIES, EXPRESS
OR IMPLIED, THAT EXTEND BEYOND THE DESCRIPTION OF THE



-6-
the action to this court on the basis of diversity jurisdiction.
Heidelberg now moves to dismiss plaintiff’s claims.

DISCUSSION
The purpose of a 12(b)(6) motion to dismiss is to test the

sufficiency of the complaint, not to resolve the case on the

merits. SA Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1356, at 294 (2d ed. 1990). When

evaluating such a motion, the court must accept as true all factual

allegations in the complaint and draw all reasonable inferences in

the plaintiff’s favor. Hentosh v. Herman M. Finch Univ. of Health

Sciences, 167 F.3d 1170, 1173 (7th Cir. 1999); Jang v. A.M. Miller
& Assocs., 122 F.3d 480, 483 (7th Cir. 1997). Dismissal is
appropriate only if “‘it is clear that no relief could be granted
under any set of facts that could be proved consistent with the
allegations.’” Ledford v. Sullivan, 105 F.3d 354, 356 (7th Cir.

1997) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984));

Jones v. General Elec. -Co., 87 F.3d 209, 211 (7th Cir.), cert.

denied, 519 U.S. 1008 (1996).
A. Choice of Law

Before we can decide whether plaintiff has adequately stated
claims, we must determine the applicable law. Heidelberg contends
that Illinois law applies because Illinois has the most significant

contacts with plaintiff’s tort claims. (Defendant’s Reply at 2-


~5-
ultimately were unable to resolve the controversy amicably. (Id.,
(i 25-28.)

Chicago Printing. alleges that Newlin and Carver's
representations regarding the press were fraudulent because the
press was in fact the Dorholt press, was used almost exclusively to
print board, had never been used to print high-quality projects,
had not been fully refurbished, and could not handle the kind of
high-quality printing that Heidelberg knew Chicago Printing
intended. Moreover, the press had been plagued with serious
problems and prior damage that were known to Heidelberg but not
disclosed to Chicago Printing. Chicago Printing also pleads, on
information and belief, that Heidelberg concealed that it had

damaged the press by too hastily removing it from Dorholt. (Id.,

qi 17-19.) Plaintiff alleges that Newlin and Carver’s
representations were made to induce plaintiff to buy the press and

accept delivery. (Id., 416.) Plaintiff would not have purchased

the press or accepted delivery had it known of the
misrepresentations. (Id., I 20.)

Chicago Printing originally filed this action in the Circuit
Court of Cook County, seeking rescission of the Contract, a refund
of the purchase price and any prepayment penalty on the loan,

actual damages in excess of $600,000, $10,000,000 in punitive

damages, and attorney’s fees. On May 7, 2001, Heidelberg removed


wed we

-8-

choice of law does not apply to plaintiff’s claims. See Coram

Healthcare Corp. v, Aetna U.S. Healthcare Inc., 94 F. Supp. 2d 589,

$93 (E.D. Pa. 1999) (holding that contractual choice-of-law
provision did not govern fraudulent inducement and negligent

misrepresentation claims); Union Oil Co. v. John Brown FE & C, No.

94 C 4424, 1994 WL 535108, at *2-3 (N.D. Ill. Sept. 30, 1994)

(same; negligent misrepresentation); Mellon Bank, N.A. v. Miglin,

No. 92 C 4059, 1995 WL 230492, at *7 (N.D. Ill. Jan. 10, 1995
(explaining that when the cause of action arises independently from
the contract, the court should perform a separate choice-of-law

analysis); Heller Fin, Inc. v. Peavy, No. 86 C 7802, 1987 WL

12943, at *4 n.5 (N.D. Ill. June 23, 1987).

Absent a controlling contractual provision, a federal court
exercising diversity jurisdiction must consult the choice-of-law
rules of the state in which the court sits to determine which

state’s substantive law should apply. See GATX Leasing Corp. v.

National Union Fire Ins. Co., 64 F.3d 1112, 1114 (7th Cir. 1995).

Under Illinois law, the law applicable to tort claims is that of
the state in which the .tort occurred unless another state has a
more significant relationship to the occurrence or the parties.

See Walters v. Maren Eng’q Corp., 246 Ill. App. 3d 1084, 1090, 617

N.E.2d 170, 173 (Ist Dist. 1993). The two most important factors
relevant to the determination of where the tort occurred are the

place of injury and the place of conduct causing the injury. See



Mine Order Form (06/97)
United States District Court, Northern District of Illinois
Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge John F. Grady than Assigned Judge
CASE NUMBER 01 C 3251 DATE September 17, 2001
CASE Chicago Printing Co v. Heidelberg USA Inc.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the
MOTION: nature of the motion being presented.]
DOCKET ENTRY:
(60) o Filed motion of [ use listing in “Motion” box above.]
(2) o Brief in support of motion due
(3) o Answer brief to motion due . Reply to answer brief due__
(4) o Ruling/Hearing on __ set for at
(5) a 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 __ set for at
(7) a Trial[set for/re-set for] on at
(8) oO [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OO FRCP4(m) General Rule2i © FRCP41(a)(1) 0 FRCP41(a)(2).
(10) a {Other docket entry] Defendant’s motion to dismiss { ] is denied. ENTER
MEMORANDUM OPINION. C7 -\ i
ql x [For further detail see order (on reverse side offattached to) the original minute order.]
No notices required, advised in open court. Document
Number

No notices required

X_ | Notices mailed by judge’s staff.

Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form.

Copy to
courtroom
KAM deputy’s
initials

number of notices

Date/time received in
central Clerk’s Office

mailing deputy initials



-l1-
1998) (“A party who could have discovered the fraud by reading the
contract, and in fact had an opportunity to do so, cannot later be
heard to complain that the contractual terms bind her.”); Kusiciel

v. LaSalle Nat’1 Bank, 106 Ill. App. 3d 333, 435 N.E.2d 1217 (1st

Dist. 1982) (affirming trial court’s holding that “plaintiffs were
not entitled to claim that they were deceived about the scope of
the provision in the lease limiting competition when the scope of

that provision was clearly set forth in the lease”); Cozzi Iron &

Metal, Inc. v, U.S. Office Equip., Inc., 250 F.3d 570, 574-75 (7th

Cir. 2001) (stating that, “{a]s long as the complaining party could
have discovered the fraud by reading the contract and had the
opportunity to do so, Illinois courts have refused to extend the
doctrine of fraudulent inducement to invalidate contracts”).

These cases are distinguishable from the instant case because
they involved claims where the oral fraud was discoverable by
reading the terms of the contract. As the court stated in J.c.
Whitney, the cases “indicate that reliance on precontractual fraud
statements is precluded as unreasonable only where the contract
‘flatly contradicts’ them.” 2000 WL 556610, at *10.

Chicago Printing’s claims involve prior representations about
the printing press that are not contained or referred to in the
Contract. Specifically, Chicago Printing alleges that Heidelberg
made the following misrepresentations regarding the press: it was

not previously owned by Dorholt, it had not come from Dorholt, it


-~10-

EQUIPMENT ON THE FACE OF THE CONTRACT. SELLER EXPRESSLY
DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, THAT THE
EQUIPMENT SOLD HEREUNDER IS MERCHANTABLE, OR FIT FOR ANY
PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTY IS IN
LIEU OF ALL LIABILITIES OR OBLIGATIONS OF SELLER FOR
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY, USE OR PERFORMANCE OF THE EQUIPMENT AND ANY
SOFTWARE.‘ :

(Id.) In addition, the Contract states under the heading
“VARIATIONS IN PRODUCTION”:
The speed or production rate which the Buyer is able to
obtain with the equipment depends on a number of
variables not under Seller’s control including, but not
limited to, operator skill, equipment maintenance, the
nature of the desired product, the ink, paper, film, and
other materials used, ambient conditions, and the
specific manner in which Buyer uses the equipment. The

Seller cannot and does not make any representations or

warranty concerning the speed at which Buyer will be

able to operate the equipment or the amount of waste

produced or volume or quality of production that Buyer

will achieve with the equipment.

(Id.) Heidelberg argues that the presence of the “as is” clause,
the disclaimer, and the “variations in production” provision
precludes Chicago Printing’s reasonable reliance on the alleged
pre-contractual representations regarding the press.

The cases cited by Heidelberg in support of its argument stand
for the principle that a party cannot claim that it reasonably
relied on pre~contractual representations if that party could have
discovered the fraud by reading the contract. See Regensburger v.

China Adoption Consultants Ltd., 138 F.3d 1201, 1207-08 (7th Cir.

4 The “stated express warranty” referred to in this provision was a 90-

day parts and labor warranty. (Complaint, Ex. 1, at 1.)


-7-
5.) Chicago Printing, on the other hand, contends that Georgia
law applies to its claims because the parties expressly agreed in
the Contract that Georgia law would apply.? (Plaintiff's Response
at 6-9.)

Chicago Printing’s argument is not persuasive because it is
based on the incorrect assumption that the choice-of-law provision
in the Contract applies to plaintiff’s claims. The language of the
Contract states that it would be governed by Georgia law. This
means that Georgia law controls only those issues involving Chicago
Printing’s and Heidelberg’s rights and duties under the Contract
itself. Although the parties easily could have done so, they did
not draft a more expansive contractual provision that encompassed
matters such as tortious conduct leading up to the Contract’s
execution (which is alleged here) or other actions relating to
their relationship. Chicago Printing’s tort claims for fraudulent
inducement and inducement by negligent misrepresentations are
separate from the Contract, as they stem from events that occurred

prior to its execution. Accordingly, the parties’ contractual

¥ This argument differs from the argument Heidelberg made in the
memorandum in support of its motion. Heidelberg’s initial contentions were as
follows: the Contract provided that it would be governed and enforced by Georgia
law, see Complaint, Ex. 1 at 2. Application of Georgia law encompasses not only
its substantive law, but also its choice-of-law rules. Because Georgia’s choice-
of-law rules provide that tort claims must be decided by the place of the wrong,
which is Illinois, then Illinois law applies to plaintiff’s tort claims.
(Defendant’s Memorandum at 3-4.) Apparently, Heidelberg has (wisely) abandoned
that reasoning.

2/ Chicago Printing also suggests that the choice-of-law question is not
highly significant because application of either Georgia law or Illinois law
would produce the same result.



~-3-
and print test the press because it had been dismantled in
anticipation of shipment to the Pennsylvania purchaser. Newlin
assured Outlaw that the press was “like new,” in perfect operating
condition, and would print as well as Heidelberg’s new press in its
Mount Prospect showroom. Plaintiff alleges that in reality, the

press had one or more stress fractures. (Id., II 6-8.)

Relying on Newlin’s representations about the press, Chicago
Printing signed a written contract (the “Contract”) on October 7,
1999 to purchase the press from Heidelberg for $1,350,000. on
November 2, 1999, William Carver, Heidelberg’s Regional Manager,
attended a meeting at Chicago Printing’s offices, where he assured
Chicago Printing that it would not have the kind of problems with
this press that Chicago Printing had experienced with its previous
press and that the press would handle any job that Chicago Printing
wanted to print. (Id., I 9-10.)

Later in November, Outlaw and others at Chicago Printing were
warned by a paper salesman about a Heidelberg press owned by
Dorholt Printing in Minneapolis (the “Dorholt press”) that had been
used to print board and had experienced pervasive operating
difficulties. Outlaw met with Newlin to discuss his concerns about
the Dorholt press and to ask whether the press Chicago Printing had
just bought was in fact the Dorholt press. He told Newlin that
under no circumstances would Chicago Printing accept delivery of

the Dorholt press. Newlin said that the Dorholt press was a


Bid a

-2-

services printing presses and other equipment throughout the United
States. Between summer 1999 and early October 1999, Donald Outlaw,
an employee of Chicago Printing, met several times with Bob Newlin,
an agent of Heidelberg, at Chicago Printing’s offices. They
discussed the possible replacement of Chicago Printing’s 5-color
Model MOFP-H 1994 Heidelberg printing press with a used 40-inch, 6-
color Heidelberg press. In these discussions, Outlaw described
Chicago Printing’s requirements for a replacement press: low-
impression, high-quality, and used exclusively to print high-
quality paper projects, such as annual reports. Outlaw told Newlin
that Chicago Printing would not consider purchasing any press that
had been used to print “board.”' (Complaint, @{ 1-2, 4-5.)

In late September 1999, at a meeting at Chicago Printing’s
offices, Newlin told Outlaw that he had found the “perfect press”
for Chicago Printing. Newlin said that this press had just come
back on the market due to a Pennsylvania purchaser having backed
out of a deal due to unexpected financial difficulties. Newlin
also said that this press had never printed board, it had been
refurbished by Heidelberg’s subcontractor, Stoner & Company, Inc.
(“Stoner”), and all worn or questionable parts had been replaced.
In early October 1999, when Outlaw and Newlin visited Stoner to

inspect the press, Newlin said that Chicago Printing could not run

¥ The briefs and pleadings do not fully explain what printing “board”
means.


01-3251.011-3cD September 17, 2001

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

CHICAGO PRINTING COMPANY,
an Illinois corporation,

Plaintiff,
v. No. 01 C 3251

HEIDELBERG USA, INC.,
a Delaware corporation,

Defendant.

MEMORANDUM OPINION

Before the court is defendant’s motion to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12 (b) (6)
For the following reasons, the motion is denied.

BACKGROUND

This is an action brought by plaintiff Chicago Printing
Company (“Chicago Printing”) against defendant Heidelberg USA, Inc.
(“Heidelberg”) for fraudulent misrepresentation (fraudulent
inducement) and negligent misrepresentation in connection with
Chicago Printing’s purchase of a used printing press from
Heidelberg.

The following relevant facts, drawn from the complaint, are
taken as true for purposes of this motion. Chicago Printing
provides high-quality, commercial paper printing services to

customers in Illinois. Heidelberg manufactures, sells, and

|



- 12 -
was not used to print board, it was used to print only high-quality
jobs, and it had been fully refurbished. Neither the “as is”
clause nor the warranty disclaimer nor the “variations in
production” provision explicitly contradicts these alleged
misrepresentations. In other words, none of these provisions is
sufficiently specific such that Chicago Printing could have
“discovered” the fraud. The J.C. Whitney court explained why such
provisions do not automatically negate the element of reasonable
reliance:

{A] warranty disclaimer tells a contracting party that
extra-contractual statements are not part of the
agreement. However, these expressions of the metes and
bounds of the contract do not on their face purport to
tell a party that any unincorporated precontract
statements are incorrect, or that by agreeing to an
integration clause or a warranty disclaimer a party is
waiving fraud claims based on unincorporated precontract
statements. Indeed, because of the ubiquity of such
clauses, such a rule would in substance require a
contracting party -to expressly preserve a claim for
fraudulent inducement, and would allow a party to
contract out of fraud claims by implication.
Id. Because the complaint clearly alleges actionable

misrepresentations that would not have been revealed by reading the

Contract, we deny Heidelberg’s motion to dismiss.