Judge are not relevant to the facts here are overruled.
Therefore, for the foregoing reasons, the court holds that Scholes, as the Receiver for D & S, AT Systems and AT Service, possesses standing and is the proper party to raise the fraudulent conveyance claims against these defendants.
2. Failure to State Fraudulent Conveyance Claims
As to the adequacy of the pleadings, the Magistrate Judge found that "the Receiver has adequately pleaded that the transfers to Defendant Charities were fraudulent in law." R&R, at p. 26. Defendants object, saying the Receiver "never identifies any pre-existing creditors or the amounts of their claims," that the Receiver "lumps together the debts of Douglas and the other entities," and that consideration supported the transfers. Defs.' Objections, at p. 13. These objections are overruled.
First, a claim of fraudulent conveyance does not always require the existence of a preexisting creditor. As stated supra, "an exception to the general rule provides that a voluntary conveyance may be set aside at the instance of subsequent creditors upon proof of actual fraudulent intent." Mandolini, 540 N.E.2d at 509. As Scholes alleges, and the court takes as true, "Douglas and others embarked upon a scheme to create an investment partnership . . . and then to misappropriate its assets." First Amended Complaint, at p. 4 P 6. The allegations of Douglas' mental state to actually defraud investors and the entities are sufficient. Furthermore, a "contemplated indebtedness" is sufficient and Scholes' allegations suffice to show that the entities and the investors could be shown to be contemplated claimants. See Indiana Nat'l Bank v. Gamble, 612 F. Supp. 1272, 1276 (N.D. Ill. 1984). Thus, defendants' objection that Scholes failed to allege the existence of a pre-existing creditor is overruled.
Defendants' objection that the Receiver impermissibly lumps together the debts of Douglas and other entities is similarly overruled. In support of this objection, defendants cite a Report and Recommendation of Magistrate Judge Weisberg in Scholes v. Moore, 1993 U.S. Dist. LEXIS 724, No. 90 C 6615, at pp. 23-24 (N.D. Ill. 1991) (Mag. J. Weisberg). This, however, is not dispositive. A motion to dismiss will not be granted unless the movant can show that under no set of facts could plaintiff prove the claim. Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). Defendants cannot meet this burden by arguing that Scholes lumps together the debts of Douglas. It is sufficient under the notice pleading requirements of the Federal Rules of Civil Procedure that plaintiff alleges that Douglas fraudulently transferred and misappropriated funds, in general, to defendants and others and that these transfers caused the receivership entities to become insolvent. Plaintiff's fraudulent conveyance claims will not be dismissed on this ground. This objection is overruled.
Next, the Charities object that "consideration . . . support[s] Douglas' transfers to the charities" but that "a conveyance of the sort alleged here is only actionable if there was no consideration". Defs.' Objections, at p. 13. This objection is also overruled. First, the Receiver alleges in each fraudulent conveyance claim that the conveyances were made "without valid consideration". First Amended Complaint, at PP 17, 38, 55, 71, 88, etc. This is sufficient to withstand a motion to dismiss. Furthermore, defendants' objection that all conveyances to charitable organizations are necessarily made with valid consideration is overruled. Factual questions prevent the court from deciding this issue on this motion to dismiss. See R&R, at pp. 25-26 and cases cited therein. Whether or not valuable consideration was given for the transfers at issue in this case is more properly addressed in a motion for summary judgment or at trial. This objection is overruled.
Therefore, the recommendation of the Magistrate Judge is accepted. Defendants' Motion to Dismiss plaintiff's fraudulent conveyance claims is denied.
B. Constructive Trust and Unjust Enrichment Claims
In the R&R, Magistrate Judge Pallmeyer concluded that the Receiver's constructive trust claims should be dismissed because constructive trust is a remedy and not a cause of action. She also recommended dismissing the unjust enrichment claims because constructive trust is the exclusive remedy for unjust enrichment which requires some wrongdoing and the Receiver did not allege any wrongdoing on the part of the Charities. R&R, at pp. 27-30. The Receiver objects to each of these recommendations, saying Illinois recognizes the cause of action of constructive trust and that wrongdoing on the part of the Charities is not a requirement of an unjust enrichment claim. Defendants respond by arguing that constructive trust is not a cause of action and that wrongdoing on the part of defendants is necessary for the unjust enrichment claims.
First, the court overrules the objections of the Receiver regarding the constructive trust claims. Imposition of a constructive trust is a remedy and not a cause of action. See R&R, at pp. 27-30 and cases cited therein. As such, the claims of constructive trust are dismissed. A constructive trust may be an appropriate remedy in this case but may not be asserted as a separate cause of action.
Next, the Receiver objects that an unjust enrichment claim does not require allegations of wrongdoing by the defendants because a constructive trust is not the sole remedy for unjust enrichment, and that he has adequately alleged a cause of action for unjust enrichment. The Receiver's objection is sustained. In support of the assertion that the sole remedy for unjust enrichment is imposition of a constructive trust, the Magistrate Judge cited Steinberg v. Chicago Medical Sch., 69 Ill. 2d 320, 328, 371 N.E.2d 634, 638, 13 Ill. Dec. 699 (1977). The R&R states "as the Illinois Supreme Court has stated, a constructive trust is imposed 'to redress unjust enrichment where there is either actual fraud or implied fraud resulting from a fiduciary relationship'." R&R, at p. 29 (quoting Steinberg, 371 N.E.2d at 638). The R&R goes on to cite a Seventh Circuit case for the proposition that "a constructive trust 'will not be imposed unless the complaint makes specific allegations of wrongdoing, such as fraud, breach of fiduciary duty, duress, coercion or mistake'." R&R, at p. 29 (quoting Amendola v. Bayer, 907 F.2d 760, 763 (7th Cir. 1990)). Based on these quotations, the Magistrate Judge concluded that constructive trust is the exclusive remedy for unjust enrichment and that wrongdoing on the part of the defendant is therefore required for a claim of unjust enrichment. R&R, at p. 29. This court disagrees with the Magistrate Judge's conclusion based on these two cases.
Steinberg does not stand for the proposition that imposition of a constructive trust is the exclusive remedy of an unjust enrichment claim. In Steinberg, the plaintiff applied for admittance to the defendant medical school. The defendant rejected him. The plaintiff asserted four causes of action, one of which charged fraud, another of which charged unjust enrichment. The Illinois Supreme Court upheld the dismissal of both claims. In so doing, it held that "a construct trust may be imposed to redress unjust enrichment where there is either actual fraud or implied fraud . . .". Steinberg, 371 N.E.2d at 638 (emphasis added). Contrary to the deduction reached in the R&R, this language does not imply that constructive trust is the exclusive remedy for unjust enrichment. Therefore, the ultimate conclusion that the unjust enrichment claims require allegations necessary for imposition of a constructive trust is misplaced.
Furthermore, this court believes that unjust enrichment can be pleaded as a separate cause of action in Illinois. In HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145, 545 N.E.2d 672, 137 Ill. Dec. 19 (Ill. 1989), the Illinois Supreme Court implicitly held that unjust enrichment exists as an independent cause of action. In HPI, the court noted that
the doctrine of unjust enrichment underlies a number of legal and equitable actions and remedies, including the equitable remedy of constructive trust and the legal actions of assumpsit and restitution or quasi-contract. [citation omitted]. To state a cause of action based on a theory of unjust enrichment, a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff's detriment, and that defendant's retention of the benefit violates the fundamental principles of justice, equity, and good conscience.
HPI, 137 Ill. Dec. at 25-26, 545 N.E.2d at 678-79. Thus, the Illinois Supreme Court recognized unjust enrichment as an independent claim. No cases cited by the defendants point persuasively to the contrary. Therefore, plaintiff's objection is sustained. The Receiver's claims for unjust enrichment will not be dismissed.
For all the foregoing reasons, plaintiff's objections are sustained in part and overruled in part and defendants' objections are sustained in part and overruled in part. The defendants' Motion to Dismiss is granted to the extent that the claims of constructive trust are dismissed and only to the extent these claims are presented as distinct, independent causes of action. This conclusion does not prejudice the Receiver's right to seek a remedy of imposition of a constructive trust. The defendants' Motion to Dismiss is denied in all other respects.
Date: NOV 16 1993
JAMES H. ALESIA
United States District Judge