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TERRELL v. CHILDERS

October 20, 1993

CHARLES W. TERRELL and KAREN TERRELL, Plaintiffs,
v.
JOHN H. CHILDERS, MICHAEL J. CHILDERS, FRANK SCHUETTE, JR. and TALENT SERVICES, INC., an Illinois corporation, Defendants.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 Plaintiffs Charles and Karen Terrell bring this eight count action against their financial advisers, alleging breach of contract, breach of fiduciary duty, fraud, conspiracy to commit fraud, negligent misrepresentation, declaratory judgment, RICO, and RICO conspiracy. Defendants John Childers, Michael Childers, Frank Schuette, and Talent Services, Inc. have moved to dismiss the complaint in its entirety. For the reasons set forth below, we deny defendants' motion to dismiss.

 I. Motion to Dismiss Standard

 A motion to dismiss should not be granted unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); see also Beam v. IPCO Corp., 838 F.2d 242, 244 (7th Cir. 1988); Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985), cert. denied, 475 U.S. 1047, 89 L. Ed. 2d 574, 106 S. Ct. 1265 (1986). We take the "well-pleaded allegations of the complaint as true and view them, as well as reasonable inferences therefrom, in the light most favorable to the plaintiff." Balabanos v. North Am. Inv. Group, Ltd., 708 F. Supp. 1488, 1491 n.1 (N.D. Ill. 1988) (citing Ellsworth).

 II. Background

 Plaintiffs Charles W. Terrell ("Walt") and Karen Terrell are citizens of Kentucky. Walt Terrell has been a professional baseball player since 1980, and neither he nor his wife has any training or expertise in finance or investments. Defendant Talent Services, Inc. ("TSI") is an Illinois corporation which represents professional athletes, providing them with investment and tax advice, as well as general business management. Defendants John H. Childers, Michael J. Childers, and Frank Schuette, Jr. are citizens of Illinois and officers of TSI.

 According to the complaint, defendants first approached Walt Terrell during the 1985 baseball season, when Walt was with the Detroit Tigers. Michael Childers informed Walt that John Childers and he, through TSI, had considerable experience in providing professional athletes with financial advice. He also noted that TSI's primary goal was to insure that its clients were financially secure after their careers were over, and that he could provide that service for Walt and Karen. In subsequent phone calls, Michael Childers continued to assert that TSI could successfully manage all of Walt's family's financial affairs.

 In response to these representations, Walt entered into a Business Management Agreement with TSI in December, 1985, which essentially provided that TSI would undertake the management of the Terrells' finances. Under the agreement, TSI agreed to use "persons legally qualified to render the services," and specifically agreed to provide:

 
(a) General Bookkeeping services;
 
(b) Advice and programming with respect to your budget, including the preparation of cash flow projections and an annual management report;
 
(c) Advice and programming with respect to taxes and tax planning, including preparation of annual tax returns;
 
(d) The payment of some or all of your expenses from funds supplied by you for that purpose;
 
(e) Insurance and estate planning consultation;
 
(f) Such other advice and programming as may be deemed advisable by TSI to maintain records and provide the management of your business and financial affairs contemplated by this agreement.

 In return, the Terrells paid TSI an annual fee of five percent of Walt's annual income, which the defendants collected by writing checks to TSI on the Terrells' checkbook. The Terrells also provided the defendants with all of the information they possessed regarding their finances, and had Walt's salary and the family bills forwarded directly to TSI.

 A. The Pine Street Transaction

 In the mid-1980s, John and Michael Childers and TSI created an Illinois general partnership called 2134 Pine Street Associates to purchase a historic property located at that address in Philadelphia for investment purposes. In late 1985, Michael Childers contacted Walt and encouraged him to invest in the partnership. Childers informed Walt that the investment would be highly profitable, risk free, and provide a large tax write-off. He also stated that Walt's sole risk would be a one-time payment of $ 15,000, since the investment would be structured as a limited partnership.

 Over the course of the next year, Walt signed a signature page that was subsequently attached to a "partnership agreement," as well as two powers of attorney which allowed TSI to obtain two mortgages covering the property. The partnership subsequently purchased the property, and John Childers assigned mortgages in one of the six condominium units to the various investors, who included Walt, other professional athletes who were clients of TSI, and himself. Walt was assigned a 55% share in one unit on the property.

 Contrary to the defendants' assertions, however, 2134 Pine Street Associations was actually a general partnership, and Walt was therefore exposed to significantly higher liability than the Childers represented. In addition, the complaint alleges that John Childers failed to inform the Terrells that he was entitled to a $ 31,500 commission for arranging the transaction. Finally, the Terrells assert that the defendants continued to mislead them as to the status of the Pine Street investment. For example, on numerous occasions, Mike Childers and Schuette informed ...


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