refused to release liens on the property. Plaintiffs maintain that the continued presence of these liens resulted in millions of dollars of lost sales and expenses. Plaintiffs have sufficiently alleged causation and have therefore stated a claim under § 503. Accordingly, DeNicholas' motion to dismiss count VI is denied.
III. Plaintiffs' State Law Claims Against Wolin and DeNicholas
This court can exercise supplemental jurisdiction over the state law claims against Wolin, provided these claims are adequately pled, despite the fact that the sole federal claim against him has been dismissed. With limited exceptions, 28 U.S.C. § 1367 provides that when a federal district court has original jurisdiction in any civil action the court possesses supplemental jurisdiction over all state claims "that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." Section 1367 has been read by courts to allow jurisdiction in cases similar to this. See United States v. Tazzioli Constr. Co., 796 F. Supp. 1130 (N.D. Ill. 1992). This court has original jurisdiction over the federal claim asserted against defendants DeNicholas, Vercillo and McLaughlin. The state law claims at issue here arise out of the same case or controversy as the federal claim and they do not fall under any of the exceptions listed in § 1367(c). Accordingly, supplemental jurisdiction is proper.
A. Counts I and V: Intentional Interference with Contractual Relations and Interference with Prospective Business Advantage
Wolin and DeNicholas maintain that plaintiffs have failed to state a claim for intentional interference with contractual relations. Under Illinois law the elements of the tort of intentional interference with contractual relations are: (1) the existence of a valid and enforceable contract between the plaintiff and a third party; (2) the defendant's awareness of that contractual relationship; (3) the defendant's intentional and unjustified inducement of a breach of contract by a third party; (4) a subsequent breach by the third party caused by the defendant's wrongful conduct; and (5) damages resulting from the breach. George A. Fuller Co. v. Chicago College of Osteopathic Medicine, 719 F.2d 1326, 1330-31 (7th Cir. 1983); Certified Mechanical Contractors, Inc. v. Wight & Co., 162 Ill. App. 3d 391, 113 Ill. Dec. 888, 892-93, 515 N.E.2d 1047 (Ill.App. 1987). Defendants contend that plaintiffs cannot state a claim under this tort because there is no third party interference at issue here.
As officer and attorney for Cosmopolitan, DeNicholas and Wolin were conditionally privileged to act to protect the best interests of Cosmopolitan. See Waldinger Corp. v. CRS Group Engineers, 775 F.2d 781, 789-90 (7th Cir. 1981) (stating that attorneys and corporate officers are privileged to act to protect the best interests of their clients and corporations, respectively). Where such a privilege exists, a plaintiff seeking to state a claim for intentional interference with contract relations must allege that the agent's intentional acts were not taken to further its principal's best interests, but to further the agent's personal goals or to injure the other party to the contract. Id. at 790; Fuller, 719 F.2d at 1333; Swager v. Couri, 77 Ill. 2d 173, 32 Ill. Dec. 540, 546-47, 395 N.E.2d 921 (1979). Plaintiffs maintain that the third party interference issue is the defendants' unjustified interference with the contract between plaintiffs and Cosmopolitan.
Plaintiffs have sufficiently stated a claim for intentional interference with contractual relations. They have alleged the elements of intentional interference with contract relations: (1) that a contract existed between MDI, KMPL, Brown, and Cosmopolitan; (2) DeNicholas and Wolin knew of that contract; (3) DeNicholas and Wolin induced the bank to use the MDI payment as a setoff on the unrelated Brown/Cosmopolitan participations to further their own personal financial interests and to benefit Phoenix Financial, a bank holding company in which they were to be controlling officers; (4) this setoff constituted a breach of Cosmopolitan's agreements with plaintiffs; and (5) the plaintiffs were damaged as a result of this breach. Plaintiffs contend that DeNicholas and Wolin were acting in their own personal interests when they induced the setoff and that the setoff was not in the best interests of the bank because it constituted criminal conduct under 18 U.S.C. § 1005. Thus plaintiffs have stated a claim for intentional interference with contract relations and defendants' motions to dismiss this claim are denied.
However, defendants' motion to dismiss plaintiffs' claim for intentional interference with prospective business advantage are granted because plaintiffs have failed to allege the elements of that tort. To state a claim for intentional interference with prospective business advantage, plaintiffs must allege (1) a reasonable expectation of entering a valid business relationship with a third party; (2) knowledge of that relationship on the part of the defendant; (3) defendant's purposeful interference with and defeat of that expectancy; and (4) injury to plaintiff as a result. A-Abart Elec. Supply, Inc. v. Emerson Elec. Co., 956 F.2d 1399, 1404 (7th Cir.), cert. denied, 113 S. Ct. 194, 121 L. Ed. 2d 137 (1992); Kurtz v. Illinois Nat'l Bank, 179 Ill. App. 3d 719, 128 Ill. Dec. 562, 567, 534 N.E.2d 1007 (Ill.App. 1989). In addition, plaintiff must prove the tort-feasor acted with actual malice, i.e., the individual acted with a desire to harm that was unrelated to the interest he was presumably trying to protect by bringing about the contract breach. Capital Options Inv., Inc. v. Goldberg Bros. Commodities, Inc., 958 F.2d 186, 189 (7th Cir. 1992). Plaintiffs MDI and KMPL have failed to state a claim for this tort -- there is not even mention of a prospective relationship with a third party. Accordingly, defendants' motions to dismiss this claim are granted.
B. Counts III and VII: Scheme to Defraud
Wolin and DeNicholas further move this court to dismiss plaintiffs' claims for fraud on the ground that plaintiffs have failed to plead the "who, what, when and where" of the allegedly fraudulent scheme, as required by Fed.R.Civ.P. 9(b). Defendants also contend that plaintiffs have failed to allege which of their statements induced plaintiffs to act to their detriment.
Rule 9(b) requires that
in all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity.
The complaint must set forth the circumstances of fraud, including the time and place of the fraud, the contents of the omissions or misrepresentations, and the identity of the party perpetrating the fraud. In re Olympia Brewing Co. Sec. Litig., 674 F. Supp. 597, 619 (N.D. Ill. 1987). We believe that plaintiffs have alleged sufficient facts to state a cause of action for fraud.
Under Illinois law fraud occurs where a defendant makes a false representation of material fact which defendant knows is false, defendant intends that plaintiff rely on this false representation and plaintiff reasonably relies thereon and sustains damage because of it. Dresser Indus., Inc. v. Pyrrhus AG, 936 F.2d 921, 934 (7th Cir. 1991); In re Witt, 145 Ill. 2d 380, 164 Ill. Dec. 610, 615, 583 N.E.2d 526 (1991). A fraudulent representation may be made by words or by actions, or other conduct amounting to a statement of fact. Glazewski v. Coronet Ins. Co., 108 Ill. 2d 243, 91 Ill. Dec. 628, 631, 483 N.E.2d 1263 (1985). The intentional concealment of a material fact is the equivalent of a false statement of material fact. Zimmerman v. Northfield Real Estate, Inc., 156 Ill. App. 3d 154, 109 Ill. Dec. 541, 545, 510 N.E.2d 409 (Ill.App. 1986).
Plaintiffs in this case allege that defendants failed to inform them that their payment would be applied in any other manner than plaintiffs specified; that defendants knew the reversal of the bookkeeping entry and the application of these funds as a setoff was improper; that plaintiffs relied on Cosmopolitan to correctly record their banking activity; that due to the omission by defendants as to how the funds were to be applied, plaintiffs were induced to allow their payment to be applied as a setoff; and that plaintiffs suffered damages as a result. Therefore, plaintiffs have stated a claim for fraud.
Rule 9(b) has also been satisfied as plaintiffs have pled with enough specificity to give defendants notice of the complained-of acts and to enable defendants to prepare a defense. Where multiple defendants are involved it is generally the case that the complaint must set forth the role of each defendant in the fraudulent scheme. However, group allegations such as those in this case are permissible where corporate insiders are involved and the role of each insider defendant is solely within their knowledge. See Banowitz v. State Exch. Bank, 600 F. Supp. 1466, 1469 (N.D. Ill. 1985). This exception is particularly applicable here, where there is just one transaction at issue and only four named defendants. We conclude that the requirements of Rule 9(b) have been met. Defendants' motions to dismiss plaintiffs' fraud claim (counts III and VII) are therefore denied.
C. Counts IV and VIII: Conversion
Finally, Wolin and DeNicholas ask this court to dismiss plaintiffs' claim for conversion. However, both sides have failed to adequately develop their arguments in regard to the conversion claim. It seems that the conversion claim was merely tacked on at the end of each side's motion as an alternate ground for relief or dismissal. Given this, and the fact that later developments in this case may obviate the need to address the conversion claim at all, we decline to rule on the conversion issue at this time. Both sides will be given the opportunity to supplement their conversion arguments, should it become necessary at a later date.
For the reasons hereinabove stated, Wolin's motion to dismiss count II is granted and DeNicholas' motion to dismiss count VI is denied. Defendants' motions to dismiss counts III and VII are denied and the motions to dismiss counts I and V are granted in part and denied in part. A decision on defendants' motions to dismiss counts IV and VIII is deferred.
JAMES B. MORAN,
Chief Judge, U.S. District Court
November 30, 1993.
© 1992-2004 VersusLaw Inc.