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TERRELL v. CHILDERS

March 27, 1995

CHARLES W. TERRELL and KAREN TERRELL, Plaintiffs,
v.
JOHN H. CHILDERS, MICHAEL CHILDERS, FRANK SCHUETTE, JR., JOANN CHILDERS, ELWOOD KREGER, TALENT SERVICES, INC., an Illinois corporation, and BERCOON, WEINER, GLICK & BROOK, 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 filed this action against John Childers, Michael Childers, Frank Schuette, JoAnn Childers, Elwood Kreger, Talent Services, Inc., and Bercoon, Weiner, Glick & Brook, alleging violations of various federal and state laws. In addition, defendant John Childers filed a counterclaim alleging breach of fiduciary duty and a third party beneficiary breach of contract claim. Presently before the court is plaintiffs' motion to dismiss defendant John Childers' amended counterclaim, defendants' motion to strike, and plaintiffs' motion for collateral estoppel. For the reasons set forth below, plaintiffs' motion to dismiss is granted in part and denied in part, defendants' motion to strike is granted in part and denied in part, and plaintiffs' motion for collateral estoppel is granted in part and denied in part.

 I. Background *fn1"

 In the late 1980s, some of the investors were unable to make their payments. According to the counterclaim, some of the investors, including Terrell, loaned the financially troubled investors money to make their mortgage payments. Childers asserts that in 1992, Terrell began demanding repayment of the loans from Childers and Talent Service, Inc ("TSI"). Childers and TSI refused, since they had not assumed any liability on the notes from the investors to Terrell. In response to this refusal, Terrell stopped making mortgage payments on the Pine Street property, allegedly prompting the assignee of the original mortgage, Bankers Trust Company, to bring a foreclosure action in Philadelphia. In addition, Terrell filed the present action, and Childers subsequently filed a counterclaim, alleging breach of fiduciary duty and a third party beneficiary breach of contract claim.

 II. Motion to Dismiss Standard

 A motion to dismiss should not be granted unless it "appears beyond doubt that the [counter-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 [counterclaim] 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); see also Refco, Inc. v. Troika Inv. Ltd., 702 F. Supp. 684, 685 n.2 (N.D. Ill. 1988).

 III. Discussion

 A. Motion to Dismiss Amended Counterclaim

 Counter-defendants Charles and Karen Terrell initially move to dismiss Childers' third party beneficiary claim. In Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498 (Ill. 1931), the Illinois Supreme Court set forth the standard for third party beneficiary suits:

 
The rule is settled in this state that, if a contract be entered into for a direct benefit of a third person not a party thereto, such third party may sue for breach thereof. The test is whether the benefit to the third person is direct to him arising from the contract. If direct, he may sue on the contract, if incidental he has no right of recovery thereon.

 Id. at 501. Childers asserts that, because each of the mortgages is "cross-collateralized" among all of the investors, each investor is a third party beneficiary of all of the mortgages. The fatal flaw in Childers' theory, however, is that third party beneficiary status is only afforded to a person who is "not a party" to the contract. Id. A copy of the mortgage for Unit 6, which Childers attached to his counterclaim, reveals that all of the investors signed the mortgage document as borrowers and general partners of 2134 Pine Street Associates. Because every partner is an undistinguished signatory to the mortgage, they are likewise all parties to the mortgage. And as parties, they, by definition, can not claim third party beneficiary status. See id. Accordingly, counter-defendants' motion to dismiss Count II is granted.

 The Terrells also move to dismiss Childers' counterclaim for breach of fiduciary duty. They assert that Childers was the dominant party in the partnership, and therefore has the burden of demonstrating the fairness of the transaction at issue before he can state a claim of breach of fiduciary duty by the Terrells. See Bandringa v. Bandringa, 20 Ill. 2d 167, 174, 170 N.E.2d 116 (Ill. 1960). In addition, the counter-defendants maintain that Childers defrauded them in connection with the Pine Street transaction, and that Charles' action in refusing payment on the mortgage was his effort to mitigate damages in the face of fraud. Both of these arguments, however, rely upon the allegations of the complaint, rather than the counterclaim, and are factually disputed by Childers. Because we are limited to the face of the ...


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