wanted to induce Mr. Kleban to invest in order to get more money for CDDT and the Southwest Partnership, and that by relying on these statements he made the investment and thereafter lost it. Mr. Kleban has stated a claim for fraud against each of these three individual defendants.
D. Negligent Misrepresentation
To hold the defendants liable for negligent misrepresentation, Mr. Kleban must demonstrate that each defendant (1) made a negligent misrepresentation of a material fact; (2) is in the business of providing investment information; and (3) made the misrepresentation while guiding Mr. Kleban in his "business relations with third parties." Rankow v. First Chicago Corp., 870 F.2d 356, 362-63 (7th Cir. 1989) (quoting Black, Jackson and Simmons Insurance Brokerage, Inc. v. International Business Machines Corp., 109 Ill. App. 3d 132, 440 N.E.2d 282, 284, 64 Ill. Dec. 730 (1st Dist. 1982)) (emphasis in both originals).
Mr. Kleban alleges that he dealt directly with Messrs. Terzakis, Singer, and Garrity. His claim is that these defendants made misrepresentations in order to induce Mr. Kleban to deal with them. These defendants are not "third parties." Count IV of Mr. Kleban's complaint will therefore be dismissed as to all moving defendants. See Black, Jackson and Simmons, supra, 440 N.E.2d at 732 (dismissing claim where plaintiffs bought computer from defendant who could not then also be a third party).
E. Violations of RICO
Mr. Kleban contends that Messrs. Garrity, Singer, and Terzakis have violated § 1962(c) of RICO.
To state a claim under this section, Mr. Kleban must allege conduct of an enterprise through a pattern of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). To satisfy the pattern requirement, Mr. Kleban must fulfill the "continuity plus relationship" test by showing two or more predicate acts that are related to one another and pose a threat of continued criminal activity. Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992) (citing H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1988)).
To support his RICO claim, Mr. Kleban alleges several different acts of securities, mail, and wire fraud. These actions were all part of a single scheme -- the Southwest Partnership venture, which has apparently now ended. To recover under RICO, therefore, Mr. Kleban must demonstrate that the wrongful conduct "endured a 'substantial period of time' . . . [so that it] carries with it an implicit threat of continued criminal activity in the future." Midwest Grinding, supra, 976 F.2d at 1022-23 (quoting H.J. Inc., supra, 492 U.S. at 242).
In determining whether RICO liability should result from allegations that the fraud is likely to recur, the Seventh Circuit advocates a multifactor continuity test. Midwest Grinding, supra, 976 F.2d at 1023-24. Thus I must consider "the duration of time over which the predicate acts were committed, the number and variety of predicate acts, the number of victims, the presence of separate schemes, and the occurrence of distinct injuries." Id. at 1024. Mr. Kleban alleges a single scheme -- the Southwest Partnership venture. Additionally, his complaint does not point to any other victims of the fraudulent scheme.
And although Mr. Kleban alleges several different purchases of an interest in the partnership, these separate investments do not constitute "distinct injuries." The only injury Mr. Kleban suffered at the hands of the defendants was the loss of his investment in the partnership. The fact that he made this investment in installments should not alter this conclusion.
Thus although the Checkers operation lasted over three years and the defendants allegedly committed securities fraud several times, I find the continuity requirement not fulfilled. See United States Textiles, Inc. v. Anheuser-Busch Co., 911 F.2d 1261, 1269 (7th Cir. 1990) ("If the concern is 'continuity,' however, and the price for that 'continuity' is treble damages, costs and reasonable attorneys fees, a natural and common sense approach to the pattern element of RICO would instruct that identical economic injuries suffered over the course of two years stemming from a single contract were not the type of injuries which Congress intended to compensate via the civil provisions of RICO.").
II. The Corporate Defendants -- Midwest Properties, Willowbrook, IPC, RDC, and Greenscape Landscaping
To hold these defendants liable for the torts committed by their principals, Mr. Kleban must establish that the wrongful acts were (1) committed in the scope of the wrongdoer's employment; (2) committed for the benefit of the corporation; and (3) authorized or subsequently ratified by the corporation. Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1306 (7th Cir. 1987), cert. denied, 492 U.S. 917, 106 L. Ed. 2d 588, 109 S. Ct. 3241 (1989). Mr. Kleban's allegations do not support a claim against the corporation.
Mr. Kleban does allege that Mr. Terzakis "owned, controlled, and/or managed" Willowbrook, MPI, IPC, and RDC and that these entities "provided goods, services, and loans to" the Checkers operation. (Complaint P 10) He explains in greater detail exactly what services each of these defendants provided to the Checkers operation, but nowhere does he state that Mr. Terzakis acted on their behalf when making the misrepresentations to Mr. Kleban. Mr. Kleban has therefore not alleged the prerequisites to hold these defendants liable for Mr. Terzakis's actions, and the complaint against them is dismissed.
For the same reason, the complaint is dismissed as to Greenscape. Mr. Kleban alleges that Greenscape is owned, in part, by defendants Singer and Tedesco. (Complaint P 22) He further alleges that Greenscape provided services to the Checkers operation. He does not, however, allege that Messrs. Singer or Tedesco acted on behalf of Greens cape when making their misrepresentations.
III. The IDDT Defendants
In response to the Motion to Dismiss filed by the IDDT Defendants, Mr. Kleban voluntarily dismissed Counts II through V as to them. The only remaining claim alleges violations of Rule 10b-5. The IDDT defendants contend that this claim must be dismissed because Mr. Kleban does not allege any misrepresentations or omissions by them. In response, Mr. Kleban argues that they are liable as control persons under Section 20 of the Act.
To determine whether the IDDT defendants may be held liable as control persons, the court must examine whether they "actually participated in, that is, exercised control over, the operations of the [wrongdoer(s)] in general." Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873, 881 (7th Cir. 1992), cert. denied, 125 L. Ed. 2d 688, 113 S. Ct. 2994 (1993). Additionally, the court must consider "whether [the wrongdoers] possessed the power or ability to control the specific transaction or activity upon which the primary violation was predicated, whether or not that power was exercised." Id.
Mr. Kleban's complaint itself shows that the IDDT defendants had no control over the actions of Mr. Singer, CDDT, or any of the other defendants associated with the Checkers operation. According to Mr. Kleban's complaint, "CDDT was the sole controlling entity of the Checkers investment scheme and SOUTHWEST PARTNERSHIP." (Complaint P 69D) (emphasis added). In his response to the IDDT defendants' motion, Mr. Kleban points to earlier portions of his complaint alleging control by the IDDT defendants. For example, in one paragraph, Mr. Kleban alleges that "upon information and belief . . . [Mr. Sun] controlled, managed, oversaw, and/or supervised the Checkers investment scheme." (Complaint P 7). Mr. Kleban, however, may not create an inconsistency in his complaint and then direct the court to only those particular portions which aid his argument at that moment.
More importantly, Mr. Kleban may not escape the Joint Development Agreement in which Messrs. Sun, Young, and Singer agreed to divide the Chicago area for Checkers development and become competitors.
Under this agreement, S.Y.S. transferred all of its "rights, duties and obligations" to CDDT and IDDT. The PPM which Mr. Kleban signed and attached to his complaint states that IDDT, with Messrs. Sun and Young as principals, was a competitor of CDDT. Mr. Kleban makes no attempt to explain how a competitor of CDDT would retain control over its actions. Accordingly, the IDDT defendants are not liable as controlling persons under Section 20 and the complaint against them will be dismissed.
For the reasons stated above, the complaint against S.Y.S., IDDT, Mr. Sun, Mr. Young, Midwest Properties, Willowbrook, IPC, RDC, and Greenscape is dismissed. Counts II, IV, & V are dismissed as to Messrs. Terzakis, Singer, and Garrity.
Elaine E. Bucklo
United States District Judge
Dated: December 20, 1995