Illinois Partnership Law, Exclusive Remedy Provisions and Federal Judgment on the Pleadings Standards (IL ND)

Allied Waste Transportation v. Bellemead Development Corp., 2014 WL 4414510 (ND.Ill. 2014), examines the reach of liability under a decades-old partnership agreement for millions of dollars in environmental clean-up costs.

The plaintiff and defendant were partners in an entity that ran a landfill in suburban Chicago. The partnership agreement gave each party 50-50 responsibility for paying litigation costs and any fines levied against the  partnership.  If either party failed to pay under this cost-sharing section, the paying party would have his partnership share increased while the non-payer’s share would correspondingly lessen.

After plaintiff paid about $125M to end several years of environmental litigation filed by State and local governments related to the landfill, it sued for damages under CERCLA (the Federal environmental statute) and for breach of the  partnership contract.  The defendants counter-sued for breach of the partnership agreement’s indemnification provision – the section that required either partner to indemnify the other for litigation costs incurred in defending a lawsuit.

Defendants moved for judgment on the pleadings on all claims on the dual grounds that the partnership agreement’s share adjustment section was the exclusive remedy for a partnership violation and that plaintiff’s suit was premature since it failed to first seek a formal accounting.

Held: Defendants’ motion for judgment on the pleadings denied.

Reasons:

The Court held that the defendants failed to meet their burden of establishing that the plaintiff could never state a valid breach of partnership or a statutory CERCLA Claim.

A party can move for judgment on the pleadings after pleadings are closed. FRCP 12(c). The same standards that govern a Rule 12(b)(6) motion govern judgment on the pleadings motions.  A Court views allegations in the light most favorable to the non-moving party and the motion will be granted where it appears beyond a doubt that the non-movant cannot prove any set of facts sufficient to support his claim for relief.  On a judgment on the pleadings motion, the Court considers only the complaint, answer and any exhibits.

Applying these standards, the Court held that the plaintiff made out both a CERCLA claim and a cause of action for breach of the partnership agreement.  

On the breach of partnership agreement count, the Court found that the agreement’s profit and loss adjustment section was not an exclusive remedy. In Illinois, limitation of remedy provisions are enforceable but they aren’t favored. Contracting parties are not required to put all potential remedies in a document in order to make those remedies available, and providing for one specific remedy won’t always preclude another remedy.  Also, a contract doesn’t have to use the word “exclusive” for a remedy to be deemed exclusive. Instead, the remedy will be found exclusive where the contract text warrants such a finding. (*4-5).

Here, the interest adjustment section that the plaintiff argued was the exclusive remedy only applied to situations where the partnership needed an infusion of extra capital and one partner didn’t timely contribute his share. There was no language, in either the adjustment section or in the partnership agreement as a whole, to justify a finding that an increase or reduction in partnership interest was the sole remedy for a breach. (*6).

The Court also rejected defendant argument that a formal accounting was a required precursor to a partnership suit by the plaintiff. In Illinois, the general rule is that one partner can’t sue another until there has been a settlement of partnership affairs via an accounting.  An exception to this rule is where a partner’s claim can be decided without a full review of the partnership accounts.  Also, see 805 ILCS 206/405 (partner can sue partnership or a co-partner with or without an accounting) (**6-7).

Here, since the amount plaintiff paid for the environmental clean-up costs was easily calculable (as was the defendants’ share of the costs), no accounting was necessary as a precondition to plaintiff’s suit.

Afterwords: If contracting parties intend for there to be an exclusive remedy for a breach – they should say as much.  This case also makes clear that a formal accounting isn’t always required first before a partner can sue another partner or the partnership entity; especially if the suing partner can easily compute his damages.  

Published by

PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.