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Anthony Wayne Corp. v. Elco Industries, Inc.

United States District Court, N.D. Indiana, South Bend Division

October 17, 2014

ANTHONY WAYNE CORPORATION, Plaintiff,
v.
ELCO INDUSTRIES, INC., ELCO TEXTRON, INC., (f/k/a Elco Industries), TINNERMAN PALNUT, INC. and A. RAYMOND TINNERMAN MANUFACTURING, INC., Defendants.

OPINION AND ORDER

PHILIP P. SIMON, District Judge.

Anthony Wayne Corporation owns property in Logansport which it has leased over the years to a series of manufacturing companies. Since 1972, the series of lessees (in chronological order) has included defendants Elco Industries, Inc., Elco Textron, Inc., Tinnerman Palnut, Inc. and A. Raymond Tinnerman Manufacturing, Inc. Wayne brought this case after learning that the property's soil and groundwater are contaminated, requiring environmental cleanup, and that the building on the property is in a deteriorated condition with repairs estimated in excess of $660, 000. Wayne's first amended complaint asserts claims for clean-up costs under the Indiana Environmental Legal Actions (ELA) statute (Count I) and under the federal Comprehensive Environmental Response, Compensation and Liability Act (Count II), as well as additional claims under Indiana law for breach of contract (Count III) and for waste (Count IV). The Elco defendants move to dismiss arguing that the amended complaint fails to state a claim upon which relief can be granted.

Motion to Dismiss Standards

The Supreme Court has held that: "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). See also Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Construing this standard, the Seventh Circuit advises that: "[i]n reviewing the sufficiency of a complaint under the plausibility standard announced in Twombly and Iqbal, we accept the well-pleaded facts in the complaint as true, but legal conclusions and conclusory allegations merely reciting the elements of the claim are not entitled to this presumption of truth." McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. Oct. 20, 2011). In sum, "the plaintiff must give enough details about the subject-matter of the case to present a story that holds together." Swanson v. Citibank, 614 F.3d 400, 404 (7th Cir. 2010). And "the complaint must contain allegations plausibly suggesting (not merely consistent with)' an entitlement to relief." McCauley, 671 F.3d at 616, quoting Twombly, 550 U.S. at 557.

Novation

Elco's first and over-arching argument is that Wayne released the Elco defendants from any future liability arising from their lease of the property when, back in October 2005, Wayne agreed to the assignment of the lease to another defendant, Tinnerman Palnut. This was a novation, according to Elco, meaning that "[e]very alleged liability contained in Plaintiff's Amended Complaint was assumed by Tinnerman Palnut and released as to Elco Industries." [DE 34 at 2.] Here is the operative language from the 2005 lease assignment:

Consent to Assignment and Novation. Effective as of the Effective Date, Landlord hereby (a) consents to the assignment effected hereby, (b) agrees to recognize Assignee as the Tenant under the Lease and thereby establish direct privity of contract with Assignee; and (c) grants Assignor a novation with respect to all liabilities and obligations under the Lease occurring on or after the Effective Date.

Exh. E to Amended Complaint, DE 31-5 at 3. Elco contends that any liability for breach of the lease by failure to maintain the property, and for environmental contamination or clean-up costs, occurred on or after this 2005 novation, and therefore does not lie with Elco. Elco also cites Indiana's statute and case law for the proposition that a novation is effective against liability under ELA or CERCLA. [DE 34 at 11.]

Not so fast, says Wayne. Given the procedural posture of the case - before me on a motion to dismiss - Wayne says that it must prevail because the pleadings don't establish "when a novation occurred." [DE 35 at 3.] Wayne says that the pleadings are insufficient to demonstrate the "Effective Date" of the novation, and absent that information, the novation can't be relied upon to obtain a dismissal. Section 1 of the Assignment defined the Effective Date as the date "on which the closing of the transactions contemplated by the Asset Purchase Agreement is consummated." [DE 31-5 at 2.] The Assignment refers to "that certain Asset Purchase Agreement... dated October 17, 2005 by and between" Elco Textron, Tinnerman Palnut and two other Textron entities. [ Id. ]

Wayne doesn't debate that a novation did occur, but just argues that Elco can't win with this argument unless the pleadings demonstrate when it occurred. In its amended complaint, Wayne asserts that it "entered into (this) assignment and assumption of Lease Agreement" in October 2005. [DE 31 at ΒΆ14.] For purposes of this motion to dismiss, Wayne's own pleading is enough to charge Wayne with entering into the novation in October 2005. But for reasons I will talk about in a moment, knowing the exact Effective Date of the novation is not critical to my analysis at this stage of the case.

Wayne also argues that "the scope of the novation is an issue of fact that the jury must determine." [DE 35 at 4.] Wayne's rationale for this is that an ambiguity arises from conflicting language in "the two provisions in the Assignment upon which Elco relies to argue that there was a novation, " rendering the Assignment "ambiguous as to the scope of the novation." Id. Wayne therefore concludes that a jury must ultimately interpret the provisions through the use of extrinsic evidence. The ambiguity Wayne identifies is said to arise from a difference in the terminology used in Section 2(b) of the Assignment, describing Tinnerman Palnut's assumption of liabilities and obligations, and that used in Section 3, describing the novation granted by Wayne to Elco. Section 2(b) refers to "liabilities and obligations... arising or accruing on or after the Effective Date, " whereas Section 3 speaks of "liabilities and obligations... occurring on or after the Effective Date." [DE 31-5 at 2, 3.] Elco cites an Indiana Court of Appeals decision that says although in most cases contract interpretation is a question of law for the court, where "a contract is ambiguous or uncertain and its meaning is to be determined by extrinsic evidence, its construction is a matter for the fact finder." F.E. Gates Co., Div. of Blakley Corp. v. Hydro-Technologies, Inc., 722 N.E.2d 898, 903 (Ind.App. 2000).

Elco's reasoning skips several steps here, even assuming that there is a real ambiguity. First I have to interpret the contract to "ascertain the intent of the parties" and to determine whether there exists a real ambiguity. McLinden v. Coco, 765 N.E.2d 606, 611 (Ind.App. 2002). In so doing, I "must accept an interpretation of the contract that harmonizes its provisions as opposed to one that causes the provisions to be conflicting." Bank of America, N.A. v. Ping, 879 N.E.2d 665, 669 (Ind.App. 2008). Even where I find an ambiguity, extrinsic evidence and a jury determination are not always needed. Where "the ambiguity arises because of the language used in the contract and not because of extrinsic facts then its construction is purely a question of law to be determined by the trial court." First Federal Savings Bank of Indiana v. Key Markets, Inc., 559 N.E.2d 600, 605 (Ind. 1990).

I am not persuaded that the difference in terminology ("arising or accruing" versus "occurring") constitutes an ambiguity as to the scope of the novation granted to Elco. There may (or may not) be a substantive difference in the verbs, but they appear in different contexts defining different contractual terms. As I said before, Section 2 defines what liabilities and obligations Assignee Tinnerman Palnut takes on by accepting the Assignment. Section 3 defines the impact of the Assignment on Elco as the Assignor, namely the granting of a novation. If there is any real difference in the language distinction, it is a difference between the scope of Tinnerman Palnut's assumption of liabilities and obligations as the new Assignee, and the scope of Wayne's release from liabilities and obligations as Assignor. I find no ambiguity in the terms of Section 3 that would prevent me from determining whether the novation applies to support dismissal of Wayne's claims against Elco under the motion to dismiss standard.

Elco tells me that Wayne's claims for breach of the lease based on the deterioration of the property did not accrue until January 2013 when Wayne alleges it inspected the property and found it in terrible shape. Similarly, Elco maintains that any environmental liability "did not accrue or arise until at the earliest March 7, 2013, " when Wayne received a Phase I Environmental Site Assessment. As a result, Elco says Wayne's claims could only give rise to liability that occurred after the Effective Date of the October 2005 novation. But Elco fails to offer a legal analysis of when liabilities "occur" (the operative term in Section 3's treatment of the novation). Elco's argument that liability for the condition of the property only "occurred" when Wayne discovered the deterioration in January ...


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