United States District Court, S.D. Indiana, Indianapolis Division
ORDER ON PLAINTIFF-COUNTERDEFENDANT'S MOTION TO
DISMISS COUNTERCLAIMS (DKT. 125)
EVANS BARKER, JUDGE
DMC Machinery America (“DMCA”), a Michigan
corporation, sued among others Defendant-Counterclaimant
Heartland Machine and Engineering (“Heartland”),
an Indiana limited liability company. Dkt. 104. Heartland
answered and counterclaimed. Dkt. 124. Now before the Court
is DMCA's motion to dismiss Heartland's counterclaim
in part for failure to state a claim on which relief can be
granted under Federal Rule of Civil Procedure 12(b)(6). Dkt.
125. For the reasons explained below, the motion is granted
in part and denied in part.
facts are recited as they appear in Heartland's
counterclaim. Cozzi Iron & Metal, Inc. v. U.S. Office
Equip., Inc., 250 F.3d 570, 574 (7th Cir. 2001).
Heartland is a vendor of machine tools. For several years, it
purchased its inventory from “DMC, ” a South
Korean manufacturer, through DMC's American importer and
affiliate, DMCA. In 2013, DMC and DMCA began using
substandard parts in their machine tools, unbeknownst to
Heartland, as a cost-savings measure instituted in response
to serious financial difficulties the companies were then
facing. As a result, the machine tools delivered to Heartland
did not perform as specified or warranted.
and DMCA's financial situation worsened, deliveries of
new machine tools to Heartland were delayed and repairs to
the defective machine tools already delivered could not be
made for want of replacement parts. By mid-2014, DMC had
declared bankruptcy and sold its machine-tool business to
“FFG, ” a subsidiary of a Taiwanese company. But
because DMCA was already in default on several financial
obligations to FFG, FFG would not do business with DMCA.
Accordingly, Heartland was forced to buy new DMC machine
tools from FFG's American distributor, “Hanhwa,
” a South Korean company, and to purchase replacement
parts from FFG directly.
brought this action in the Northern District of Illinois on
January 8, 2016. Dkt. 1. It was transferred to this Court on
February 9, 2017. Dkt. 76. The now operative Amended
Complaint was filed on September 7, 2017, Dkt. 104, to
which Heartland filed its Amended Answer on June 4,
2018. Dkt. 124. The answer contains Heartland's
counterclaims for negligent misrepresentation (Count 1),
fraudulent misrepresentation (Count 2), and breach of
contract (Counts 3 and 4).
alleges DCMA's duty “to act with reasonable care in
the information and products provided to Heartland” and
its breach of that duty “by misrepresenting its
products as well as its ability to obtain replacement
parts.” Countercl. ¶¶ 26, 30. Count 2 alleges
DCMA's fraud in knowingly misrepresenting to Heartland
“that the products it sold to Heartland were in good
and working condition . . . with the intent for Heartland to
continue making sales . . . .” Id. ¶ 33.
Count 3 alleges DCMA's breach of an
“agreement” to “provide DMC manufactured
tools in a good, new, and working condition, and according to
manufacturer specifications[, ]” id. ¶
36, and to “provide replacement parts for DMC
manufactured machine tools as needed . . . .”
Id. ¶ 37. Count 4 alleges DMCA's breach of
an “agreement” providing that, “if
Heartland would make new warehouse space available for DCMA,
DCMA would move inventory to Heartland's campus and pay
Heartland rent . . . .” Id. ¶ 41.
22, 2018, DMCA moved under Rule 12(b)(6) to dismiss the
misrepresentation claims in Counts 1 and 2 as barred by the
economic-loss rule and the fraudulent misrepresentation claim
in Count 2 as insufficiently pleaded under Rule 9(b).
motion under Rule 12(b)(6) tests the legal sufficiency of a
pleading. Szabo v. Bridgeport Machs., Inc., 249 F.3d
672, 675 (7th Cir. 2001). In determining a pleading's
sufficiency, we accept as true all factual allegations and
draw every nonspeculative inference in the pleader's
favor. Vesely v. Armslist LLC, 762 F.3d 661, 664-65
(7th Cir. 2014). Generally, a pleading is legally sufficient
when it contains a short and plain statement plausibly
showing the pleader is entitled to relief. Fed.R.Civ.P. 8(a);
Ashcroft v. Iqbal, 556 U.S. 662, 678
of fraud, however, must be pleaded with particularity.
Under Rule 9(b), a [pleader] must allege “the first
paragraph of any newspaper story”: “the who,
what, when, where, and how” of the alleged fraud.
United States ex rel. Lusby v. Rolls-Royce Corp.,
570 F.3d 849, 853 (7th Cir. 2009) (quoting DiLeo v. Ernst
& Young, 901 F.2d 624, 627 (7th Cir. 1990)). While
it is “erroneous[ ]” to “take an overly
rigid view of th[is] formulation, ” Pirelli
Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen
Co., 631 F.3d 436, 442 (7th Cir. 2011), the application
of which “may vary on the facts of a given case[,
]” id., Rule 9(b) must require “some . .
. means of injecting precision and some measure of
substantiation . . . [, ]” id. (quoting 2
James W. Moore, Moore's Federal Practice §
9.03 (3d ed. 2010)), if it is to serve its important
functions of “forc[ing] the plaintiff to conduct a
careful pretrial investigation” and “protect[ing]
defendants from [the] ‘privileged libel'” of
fraud charges. Id. at 441 (quoting Fid.
Nat'l Title Ins. Co. of N.Y. v. Intercounty Nat'l
Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005);
Kennedy v. Venrock Assocs., 348 F.3d 584, 594 (7th
Cir. 2003)). “It is enough to show, in detail, the
nature of the charge, so that vague and unsubstantiated
accusations of fraud do not lead to costly discovery and
public obloquy.” Lusby, 570 F.3d at 854-55.
United States ex rel. Kietzman v. Bethany Circle of
King's Daughters of Madison, Ind.,
305 F.Supp.3d 964, 974 (S.D. ...