single entity to the extent that Kellers and Doubledown have been apprised of TIP’s claim.
Doubledown’s motion to dismiss Count II of TIP’s complaint is denied.

CONCLUSION

For the aforementioned reasons, Kellers’ motion to dismiss TIP’s counter-claim that
Kellers failed to take reasonable action to recover the “managed units” is denied, Kellers’ motion
to dismiss TIP’s counter-claim for indemnification is granted, and Doubledown’s motion to
dismiss TIP’s veil-piercing claim is denied.

This matter is set for a report on status on December 12, 2001 at 9:00 a.m.

ENTER: November 21, 2001

— IG C—
VAR Ve le

Robert W. Gettleman
United States District Judge

13


that Kellers failed to “take such action as is reasonably necessary to pursue the prompt recovery
of such Units” under paragraph 3 of Amendment 4. TIP also alleges that Kellers breached the
agreement by filing suit against TIP, and seeks recovery pursuant to the indemnification
provisions provided in the Agreement. Finally, TIP alleges a veil-piercing claim against
Doubledown, claiming that Doubledown commingled funds with Kellers and hence should be
held liable for any damages to TIP as the result of Kellers’s alleged breach of contract.*

DISCUSSION

Standard of Review

In reviewing a motion to dismiss, the court does not address the merits of the counter-
claim, but merely tests the sufficiency of the pleading. Deberry v. Sherman Hospital Ass’n, 741
F.Supp. 1302, 1303 (N.D. Ill. 1990). Under the federal notice pleading standards, all well-
pleaded allegations are construed liberally, and dismissal is proper only where the claimant can
prove no set of facts to support the allegations. Conley v. Gibson, 355 U.S. 41, 46 (1957). All
well-pleaded facts are taken as true and the claimant is entitled to all reasonable inferences
therefrom. Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 733 (7" Cir. 1986).
Consequently, a complaint does not fail due to either vagueness or lack of detail. Strauss v. City
of Chicago, 760 F.2d 765 (7" Cir. 1985).

TIP’s Breach of Contract Claims

Count I of TIP’s counter-claim alleges breach of contract on Kellers’s part. First, TIP
alleges that Kellers breached the agreement by failing “to take such action as is reasonably

necessary to pursue the recovery of the managed units,” and that Kellers’ failure to recover the

“Kellers and Doubledown are both owned by Richard Templer.
4


the court looked to the contract as a whole and found that the parties intended the
indemnification provision to apply to third-party claims. Consequently, the court granted the
plaintiffs motion to dismiss the counterclaim.

In the instant case, examining both paragraphs 11.1 and 2.5(c) of Amend. No. 3 in the
context of the whole Agreement, the court finds the indemnification provisions were intended to
apply to third party claims.* The parties provided an “Indemnification Procedure” by which the
resolution of claims for which each party agreed to indemnify would follow. (f 11.3 of the
Agreement). These procedures include obligations to send notice regarding the existence of
claims, assumption of the defense of claims, settlement, and the opportunity to join in defense of
litigation. The court agrees with Kellers that the “Indemnification Procedure” provisions would
be nullified if the indemnification obligations applied to a lawsuit between TIP and Kellers.
Therefore, the court finds the indemnification provisions of the agreement do not encompass fee-
shifting for lawsuits filed by the parties to the Agreement. Accordingly, Kellers’ motion to
dismiss TIP’s counter-claim for indemnification is granted.

TIP’s Piercing Claim

Count II of TIP’s counter-claim alleges commingling of funds between Kellers and
Doubledown, and implicitly asserts that Doubledown and Kellers are a single entity. TIP claims
that Doubledown is liable for Kellers’ alleged breach of the Agreement and seeks money

damages from Doubledown. Kellers and Doubledown have moved the court to dismiss TIP’s

‘Under Pennsylvania law the court examines contract provisions in the context of the
whole agreement and gives effect to provisions in relation to others. See Halpin v. LaSalle

University, 639 A.2d 37, 39 (Pa. Sup. Ct. 1994); Marcinak v. Southeastern Greene School
District, $44 A.2d 1025, 1027 (Pa. Super. Ct. 1988).

9


not solely limited to indemnification.’ In any event, TIP has stated a claim for breach of contract.
Therefore, Kellers’ motion to dismiss TIP’s counter-claim, with respect to the allegation that
Kellers failed to take reasonable action to recover the missing units, is denied.

Second, Count I of TIP’s counter-claim asserts a breach of contract by Kellers based on
the indemnification provisions of the Agreement. TIP claims that Kellers breached the
Agreement “through its filing of the Complaint.” Consequently, TIP seeks indemnification for
the attorney’s fees, costs, and expenses of defending the lawsuit. Essentially, TIP claims the
indemnification provisions of the contract provide for fee-shifting in lawsuits between the two
parties to the Agreement. Kellers argues the indemnification provisions of the contract apply to
third-party claims only, The issue is whether the indemnification provisions of the Agreement
extend to a lawsuit filed by one party to the Agreement against the other. Based upon the parties’
choice of law provision in the Agreement, Pennsylvania law governs the construction of the
indemnification agreement.

Courts construe indemnification provisions strictly and interpret their application “against
the party seeking their protection.” Lackie v. Niagara Machine and Tool Works, 559 F.Supp.
377, 378 (E.D. Pa. 1983) citing Dilks v. Flohr Chevrolet, 192 A.2d 682 (1963). Pennsylvania
law requires the court “to ascertain and give effect to the intent of the parties as reasonably
manifested by the language of their written agreement.” Bethlehem Steel Corp. v. MATX, Inc.,
703 A.2d 39, 42 (Pa. 1997) citing Halpin v. LaSalle University, 639 A.2d 37, 39 (Pa. 1994),

While an indemnitee may recover attorney’s fees and costs in defense of litigation covered by an

‘TIP may be able to show damages due to Kellers’s alleged breach in lost profits from the
missing trailers. Additionally, TIP may have incurred some losses in the management of the
accounts, and may have been damaged if those units are never recovered.

6


Managed Units abrogates TIP’s obligation to purchase those units. Essentially, TIP argues that
its obligation to purchase has not accrued due to Kellers’s failure to perform.’ Kellers asserts
that TIP has not alleged any damages, other than the costs of litigation, due to Kellers’ claimed
breach. Thus, Kellers argues the breach of contract claim should be dismissed.

To state a claim for breach of contract against Kellers, TIP must allege the following: (1)
the existence of a valid contract; (2) TIP complied with the Agreement and performed its
obligations; (3) Kellers breached the Agreement; and (4) Kellers’ breach has damaged TIP. See
Pierce v. Montgomery County Opportunity Board, Inc., 884 F. Supp. 965, 970 (E.D. Pa. 1995).
Under the liberal notice pleading standards of Rule 8(a), TIP need assert only a “short and plain
statement” as to the elements of the breach of contract claim. Fed. R. Civ. P. 8(a), See Ryan v.
Mary Immaculate Queen Ctr., 188 F.3d 857, 860 (7" Cir. 1999).

Neither Kellers nor TIP dispute the existence of a valid and binding contract. TIP has
alleged that Kellers breached the Agreement by failing “to take such action as is reasonably
necessary to pursue the recovery of the Managed Units.” TIP requests that the court enter
judgment for money damages due to Kellers’s breach of the Agreement. While TIP’s complaint
does not specifically detail the damages due to Kellers’s failure to recover the missing units, on a
motion to dismiss the court must afford all reasonable inferences in favor of the claimant. See

Ed Miniat, Inc., 805 F.2d at 733. Dismissal is proper only where the claimant can prove no set of

facts to support the claim. See Conley, 355 U.S. at 46. The court finds that TIP has at least

provided sufficient notice to Kellers of a breach of contract claim. TIP’s request for damages is

‘This claim on its surface sounds more in avoidance, and may have been properly alleged
as an affirmative defense under Fed. R. Civ. P. 8(c). Under the notice pleading requirements in
Rule 8(a), however, the court is disinclined to reconfigure TIP’s claim into a defense.

5


of the operation of such Units as herein provided.” TIP claims that Seller’s obligation to hold it
“harmless” for “any loss” precludes Kellers from filing suit for breach of contract.
Consequently, TIP argues that Kellers’ filing suit violates the “hold harmless” provision and
triggers the indemnification obligations.

The court finds this argument without merit. Initially, there is no express language within
the indemnification provisions that provides for fee-shifting in suits between TIP and Kellers.
The court is bound by Pennsylvania law to refrain from inserting specific terms into general

language. See Payne 66 A. at 557; Ruzzi 588 A.2d at 8-10. Additionally, the court must strictly

construe the scope of the indemnification provisions against the party seeking its benefit. See

Lackie 559 F.Supp. at 378. Therefore, the court may not include fee-shifting where the contract

is silent.

At least one court interpreting Pennsylvania law has answered the question whether an
indemnification provision compensates an indemnitee for the damages and costs of defending a
lawsuit filed by the indemnitor against the indemnitee. See Horizon Unlimited, Inc. v. Silva.

1998 U.S. Dist. LEXIS 12410 (E.D. Pa. Aug. 12, 1998). In Horizon, the defendant/seller

counterclaimed against the plaintiff/buyer for breach of contract claiming that the plaintiff

breached by filing suit. Horizon 1998 U.S. Dist. LEXIS 12410 at *2. The defendant claimed the

purchase agreement contained a “hold harmless” provision that bound the plaintiff to pay the
costs and damages of the defense of a suit brought by the plaintiff against the defendant. Id. The
plaintiff moved to dismiss arguing that the contract did not call for indemnification of the costs
of a lawsuit brought by the plaintiff. The court found that indemnification for the costs of the

suit was not the “clear intent” of the parties based on the contractual language. Id. Contrarily,


Minute Order Form (06°97)

United States District Court, Northern District of Minois

Name of Assigned Judge
or Magistrate Judge

Robert W. Gettleman

Sitting Judge if Other
than Assigned Judge

CASE NUMBER 01 C 989 DATE Nov. 21, 2001
CASE Kellers Systems, Inc. v Transport International Pool, Inc.
TITLE

[in the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented]
DOCKET ENTRY:
qd) oO Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
@) o Answer brief to motion due. . Reply to answer brief due.
(4) oO Ruling/Hearing on set for at :
(5) Status hearing 12/12/01, at 9:00 a.m.
(6) o Pretrial conference[held/continued to] [set forite-sét for] on _ at :
(Os) o Trial[set for/re-set for] on at a .

Dp CUT fa .
(8) a [Bench/Jury trial] [Hearing] held/continued to -
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) O General Rule21 OFRCP41(a)(1) O FRCP41(a)(2).

ao) ff [Other docket entry] Memorandum opinion and order entered.

Accordingly, Kellers” motion to dismiss TIP’s counter-claim that Kellers failed to
take reasonable action to recover the managed units is denied and Kellers’ motion
to dismiss TIP’s counter-claim for indemnification is granted. Doubledown’s
motion to dismiss TIP’s veil-piercing claim is denied.

qi) oo

No notices required, advised in open

[For further detail see order attached to the original minute order.]

y MSWer Dried die

No notices required.

X | Notices maited by judge's stat

Notified counsel by telephone,

seraet |

Docketing to mail notices,

Mail AO 450 form, (40« initials

Copy to judge/magistrate judge.

courtroom
Gps deputy’s
initials

Date/titne received in»:

central Clerk's Office mailing deputy initials

Han



under which it ultimately seeks to avoid responsibility.” Illinois law governs TIP’s veil-piercing
claim against Doubledown.

Piercing the corporate veil is an equitable remedy that Illinois courts “should undertake
reluctantly.” See Walker v. Dominik’s Finer Foods, Inc., 415 N.E. 2d 1213, 1217 (Ill. 1981),
Under Illinois law, courts will abrogate separate corporate identity where it is shown “that it is so
controlled and its affairs so conducted that it is a mere instrumentality of another, and it must
further appear that observance of the fiction of separate existence would, under the
circumstances, sanction a fraud or promote injustice.” Main Bank of Chicago v. Baker, 427
N.E.2d 94, 101 (Ill. 1981); Mini Motor Co. v. The Department of Revenue, 488 N.E.2d 274, 276
(Ill. App. Ct. 1985). Ilinois recognizes the “single-entity” theory of piercing the corporate veil,
see Main Bank, 427 N.E.2d at 102. To establish a veil-piercing claim, the claimant must prove
two elements:

First, there must be such unity of interest and ownership that the separate personalities of

the corporation and the individual [or other corporation] no longer exist; and second,

circumstances must be such that adherence to the fiction of separate corporate existence
would sanction a fraud or promote injustice.

Yan Dorn Co. v. Future Chemical and Oil Corp., 753 F.2d 565, 570 (7" Cir. 1985).

However, Van Dorn does not hold that the above elements must be pleaded in order to

survive a motion to dismiss. See Steel Warehouse of Wisconsin, Inc. v. Caterpillar, Inc., 1990

°Doubledown argues Pennsylvania law applies because it perceives an advantage.
Doubledown argues that Pennsylvania law does not recognize “single-entity” liability in veil-
piercing cases. The court expresses no opinion on Pennsylvania law with respect to veil-
piercing, but notes the dubious nature of Doubledown’s claim. Doubledown would ostensibly
concede it is a single-entity with Kellers in order to avail itself of the Agreement’s contractual
choice-of-law provision in the hope that the court would find for Doubledown because
Pennsylvania law does not recognize the “single-entity” theory of liability. The court finds this
argument without merit.

li


veil-piercing claim against Doubledown, claiming that Pennsylvania law does not recognize the
“single-entity” theory of liability advocated by TIP in veil-piercing cases.

The parties dispute the controlling law of TIP’s veil-piercing claim against Doubledown.
TIP asserts that Illinois law applies to its veil-piercing claim. Doubledown claims Pennsylvania
law applies. Doubledown argues that the choice of law governing the Agreement controls the
veil-piercing claim since TIP seeks to hold it responsible for Kellers’s alleged breach of the same
Agreement. The court finds Doubledown’s argument that Pennsylvania law controls is without
merit. In determining which state’s law applies, the court looks to the choice-of-law provisions
of the forum state, here Illinois. See Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313
USS. 487, 496 (1941). Illinois follows the internal affairs doctrine as its choice-of-law principle
in cases alleging impropriety of corporate governance. See Bagdon v. Bridgestone/Firestone,
Inc., 916 F.2d 379, 382-83 (7" Cir. 1990); Paulman v. Kritzer, 230 N.E.2d 262 (1967) affirming
219 N.E.2d S41 (Ill. Ct. App. 1966); see also Restatement (2d) of Conflicts of Law §§301-10.
Under the internal affairs doctrine the substantive law of the state of incorporation governs. See
Heyman v, Beatrice Co., 1995 WL 151872 at *6 (N.D. Ill. April 3, 1995).

It is undisputed that Doubledown is incorporated in the state of Illinois, is not a party to
the Agreement, and was not involved in the sale of Kellers’ assets to TIP. Doubledown fails to
establish any colorable basis for applying Pennsylvania law to TIP’s veil-piercing claim other
than a bare assertion that Pennsylvania law applies because TIP and Kellers agreed that
Pennsylvania law would govern the validity and effect of the Agreement. Doubledown’s only

argument that Pennsylvania law applies is grounded in a contract to which it is not a party and

10


indemnity agreement, see Boiler Engineering & Supply Co. v. General Controls, Inc., 277 A.2d

812, 814 (Pa. 1971), the intent to indemnify for the particular dispute or claim must be clear from
the terms of the Agreement. See Bethlehem Steel Corp, 703 A.2d at 43.

Under Pennsylvania law, the court may not insert specific terms for indemnification into
words of general import. See Perry v. Payne, 66 A. 553, 557 (Pa. 1907); Ruzzi v. Butler
Petroluem Co., 588 A.2d 1, 8-10 (Pa. 1991). Consequently, for TIP to state a claim for
indemnification from Kellers for the costs, attorneys’ fees, and expenses for defending the instant
lawsuit brought by Kellers, it must appear clear from the terms of the indemnification provisions.
Kellers’s indemnification obligation, contained in paragraph 11.1(b) of the Agreement, in
relevant part, states:

In addition to any other indemnification provided for under this Agreement or any

Ancillary Document, Seller [Kellers] shall indemnify, defend and hold harmless Buyer

[TIP] and each other member of the Buyer Group from and against any and all Losses

incurred or suffered by any member of the Buyer Group arising out of, resulting from or

relating to:...

(b) Any failure by Seller to perform any of its covenants or agreements
contained in this Agreement or any Ancillary Document.

With respect to the Managed Units, paragraph 2.5(c) of the Agreement contains an
additional indemnification provision, stating, “Seller [Kellers] shall indemnify and hold Buyer

[TIP] harmless from any loss, cost or liability which may arise as a result of Buyer’s performance

"The court notes these cases addressed the question whether the indemnification
provisions covered losses for claims against the indemnitee based on the indemnitee’s
negligence. The rule provides that “a contract of indemnity against personal injuries should not
be construed to indemnify against the negligence of the indemnitee, unless it is so expressed in
unequivocal terms.” Ruzzi, 588 A.2d at 8. Nonetheless, the court finds this rule of contract
interpretation applicable to a claim for indemnification for the costs associated with a lawsuit
between the two parties to the contract.



apparently missing or unavailable due to customer disputes between Kellers and its lessees,
would remain excluded from the December 9 sale. The parties termed these missing or
unavailable units as the “Managed Units,” and agreed that both Kellers and TIP would assume
certain responsibilities with respect to these semi-trailers. Paragraph 2.5(c) of Amendment 3 to
the Agreement and Paragraph 3 of Amendment 4 to the Agreement encompass the parties’
obligation with respect the “Managed Units.” Paragraph 2.5(c), in relevant part, states:
Buyer [TIP] agrees to manage the accounts for each such excluded Unit, including
without limitation monitoring insurance certificates, billing in the ordinary course, and
forwarding all payments received on account of each such unit directly to Seller [Kellers].
In respect to each lease, Seller shall take whatever action Seller deems appropriate to
terminate the lease, conclude the lease, and recover the Unit or allow the lease to
complete its term. When and as Seller recovers each Unit, Seller shall deliver the Unit to
Buyer. Buyer shall thereupon pay the Seller the fair market value for such Unit.
Paragraph 3 of Amendment 4 provides:
For each of the Managed Units (those identified under paragraph 2.5(c) as amended in
Amendment No, 3), Seller [Kellers] agrees to immediately send notice to each of the
lessees advising each such lessee that the respective lease is terminated at the end of the
minimum term and the Units are to be immediately returned to a TIP branch location.
TIP shall draft the letter, to KELLERS’ satisfaction, and shall provide the branch location
for each such return. If any lessee fails to return such Units as directed, KELLERS will
take such action as is reasonably necessary to pursue the prompt recovery of such Units.
[Emphasis added]
As evidenced by the present litigation, the “Managed Units” were never recovered or
presented for sale pursuant to the Agreement. Kellers sued TIP, arguing that TIP failed to
perform its obligations to manage the accounts of the “managed units,” that TIP held possession

of the titles to the missing units, and that TIP’s actions precluded Kellers from recovering the

missing units.? TIP counter-claimed, alleging a breach of contract on Kellers’s part, claiming

3Kellers and TIP dispute who holds the titles to the missing units.

3


essentially the alter-ego of Kellers and seeking to hold Doubledown responsible for Kellers’s
alleged breach of contract. Kellers and Doubledown have moved this court to dismiss TIP’s
counter-claims pursuant to Fed. R. Civ. P. 12(b)(6). For the following reasons, Kellers and
Doubledown’s Motion to Dismiss is granted in part and denied in part.

BACKGROUND

At the heart of this case are between 274 to 331 apparently missing or unavailable semi-
trailers and the subsequent responsibilities for their recovery.’ Kellers, a New York corporation
with its principal place of business in Chicago, Illinois, leases tractor-trailers. TIP is a
Pennsylvania Corporation engaged in the business of renting, servicing and leasing semi-trailers
in Illinois and throughout the United States. Doubledown is an Illinois corporation with its
principal place of business in Illinois.

On December 9, 1997, Kellers and TIP entered into an Asset Purchase Agreement
pursuant to which TIP would buy Kellers’s assets in its semi-trailer leasing business. The
December 9 agreement, together with four subsequent amendments, constitutes the entirety of the
asset purchase agreement (the “Agreement”), The parties agreed that Pennsylvania law would
govern the “validity, performance, and enforcement” of the Agreement.” Additionally, the

parties agreed that some of Kellers’s assets, specifically certain semi-trailer units that were

'The exact number is apparently in dispute but is not essential to the disposition of this
motion. The court merely notes the two numbers quoted by Kellers and TIP.

The Agreement contains a choice of law provision which provides: “[tJhe validity,
performance and enforcement of this Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without giving effect to the principles of conflicts of law
thereof, except that with respect to matters regarding the transfer of right, title to and interest in
any Contract, the laws governing such Contract shall govern.” (13.10 of the Agreement).

2


IN THE UNITED STATES DISTRICT COURT D
FOR THE NORTHERN DISTRICT OF ILLINOIS OCKETED

EASTERN DIVISION NOV 26 aap,
KELLERS SYSTEMS, INC., a New York
corporation,
Plaintiff,
No. 01.0989
Vv.

Judge Robert W. Gettleman
TRANSPORT INTERNATIONAL POOL, INC.,

a Pennsylvania corporation,

Defendant.

TRANSPORT INTERNATIONAL POOL, INC.,
a Pennsylvania corporation,

Counterplaintiff,
Vv.

KELLERS SYSTEMS, INC., a New York
corporation, and DOUBLEDOWN STABLES,
INC., an Iflinois corporation,

eS SS SS SS SS SD

Counterdefendants.

MEMORANDUM OPINION AND ORDER

Procedural History

Plaintiff/Counter-defendant Kellers Systems, Inc. (Kellers) sued Defendant/Counter-
plaintiff Transport International Pool, Inc.’s (TIP) in the Circuit Court of Cook County, Illinois
alleging breach of contract and conversion and seeking specific performance of a contract. TIP
removed the case to this court pursuant to 28 U.S.C. § 1446, and filed an answer and a two-count
counterclaim alleging a breach of the same contract by Kellers. The counter-claim also added

Doubledown Stables, Inc.’s (Doubledown) as a counter-defendant, alleging that Doubledown is

N


w

USS. Dist. LEXIS 19153 *5 (NLD. Ill. Nov. 13, 1990). Under Rule 8(a)’s liberal notice pleading
standards, the court will not dismiss a complaint unless it is clear there are no facts that
complainant could prove consistent with the pleadings, See Hishon v. King & Spaulding, 467
U.S. 69, 73 (1984). Where a claimant fairly alleges an entity exists as the alter ego of another
and provides factual manifestations suggesting the existence that the two operate as a single
entity, a motion to dismiss will be denied. See Steel Warehouse, 1990 U.S. Dist, LEXIS at *5.
In this case, it is undisputed that Kellers and Doubledown share common ownership by
Richard Templer. Additionally, while TIP has failed to allege that Doubledown’s separate
corporate existence no longer exists or that Doubledown is a mere instrumentality of Kellers, TIP
alleges Doubledown and Kellers commingled funds. TIP’s assertion of commingling surrounds
six separate payments from TIP to Kellers for the benefit of CIT Systems, Inc (CIT). TIP agreed
to pay Kellers specified sums owed to CIT for CIT’s lease of semi-trailers to Kellers (“the CIT
payments”) until such time as TIP and Kellers could obtain a novation from CIT to replace
Kellers with TIP. (12.4 of the Agreement.) TIP alleges that five of the CIT payments were in a
bank account jointly held by Kellers and Doubledown and at least one of the CIT payments was
in an account held solely by Doubledown. TIP alleges that Templer, the owner of both Kellers
and Doubledown, used the accounts interchangeably and commingled the assets of Kellers and
Doubledown.'° Consequently, TIP seeks to hold Doubledown and Kellers as one entity and that
Doubledown should be held responsible for Kellers’s alleged breach of contract. Under the

liberal notice pleading standards, TIP has fairly alleged that Doubledown and Kellers operate as a

‘TIP alleges that Templer in fact requested TIP to deposit at least one CIT payment
directly into an account held by Doubledown.

12