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RESOLUTION TRUST CORP. v. S & K CHEVROLET CO.

February 28, 1996

RESOLUTION TRUST CORPORATION, AS RECEIVER FOR SECURITY FEDERAL SAVINGS AND LOAN ASSOCIATION, PLAINTIFF,
v.
S & K CHEVROLET COMPANY; DAVID ANGEVINE, A/K/A DAVID ALEX; DUANE ANGEVINE; CAL COLLINS; TONY CONSTIBLE; RAY COUNTS; WALT DURDLE; ART ENTURO, JR.; BERNIE ESCAMILLA; JIM HAINES; AL HETH; AL HUNT; WILLIAM KALLISTER; KEVIN KALLISTER, MATT MATTHEWS; GARY PARKINSON; MONTY RAYMOND; RANDY REIMAN; BOB RHINES; THOMAS SMITH, SR.; DAVE STANFEL; HAROLD STAFFORD; AND DAN STEWART, DEFENDANTS.



The opinion of the court was delivered by: McDADE, District Judge.

ORDER

Before the Court are the Objections of Defendant Randy Reiman to the Magistrate's Report and Recommendation [Doc. # 139]. The facts in this case are set forth in the Court's previous Order dated November 8, 1994, and will only be summarized here. On August 6, 1993, Plaintiff Resolution Trust Corporation ("RTC"), filed a two-count Complaint against various Defendants alleging common law fraud (Count I) and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) (Count II).

According to the Complaint, Security Savings and Loan Association ("Security") was a federally chartered savings and loan association located in Peoria, Illinois. On August 17, 1989, the Office of Thrift Supervision ("OTS") placed Security into receivership and appointed RTC as receiver of Security. Simultaneously, the OTS created a new institution, Security Federal Savings and Loan Association ("Security Federal") to acquire all deposits and certain assets and liabilities of Security. On August 17, 1990, OTS appointed RTC as receiver of Security Federal. RTC filed the August 6, 1993, Complaint on behalf of Security Federal.

Defendant Randy Reiman ("Reiman") was an insurance agent for a national insurance company. Reiman was allegedly involved in a scheme to fraudulently secure financing from Security for persons who sought to purchase automobiles from S & K Chevrolet. In an Order dated November 8, 1994, the Court denied Defendants' motion to dismiss Count I (common law fraud) but granted the motion to dismiss Count II (RICO). Resolution Trust Corp. v. S & K Chevrolet, et at., 868 F. Supp. 1047 (C.D.Ill. 1994). In dismissing Count II, the Court reasoned that bank fraud could not be retroactively applied as a predicate act under RICO. Id. at 1062-63. Thus, because the RICO claim relied solely upon bank fraud to establish a pattern of racketeering activity, the claim had to be dismissed. Id.

However, the Court also found that absent any concerns about retroactivity, Plaintiffs' bank fraud claims would have sufficiently established a "pattern" under the RICO statute by alleging "open-ended continuity." Id. at 1061. Apparently encouraged by this holding, Plaintiff filed a First Amended Complaint which asserted allegations of mail fraud in Count II to replace the bank fraud allegations as predicate acts under RICO. Defendant Reiman filed a motion to dismiss both counts of the First Amended Complaint [Doc. # 106]. Magistrate Judge Kauffman denied Defendant's motion to dismiss on the basis that he could find no new arguments that were not already presented and rejected by the Court in its previous Order of November 8, 1994.

Reiman filed objections from the Magistrate Judge's Report and Recommendation on the basis that the following five grounds had not been previously decided by this Court:

    (1) Whether Plaintiff has standing to prosecute a
    cause of action for punitive damages under Illinois
    law;
    (2) Whether Plaintiff has sufficiently alleged mail
    fraud as a pattern of racketeering activity.
    (3) Whether Plaintiff has standing to prosecute a
    claim for violation of 18 U.S.C. § 1962(a) and
    § 1962(b) or for conspiracy under § 1962(d)
    to violate § 1962(a) or § 1962(b);
    (4) Whether Plaintiff has sufficiently alleged a
    violation of 18 U.S.C. § 1962(c); and
    (5) Whether Plaintiff has sufficiently alleged
    a conspiracy under § 1962(d) to violate
    § 1962(a), (b)or (c).

Because the Court agrees with Reiman that it has not previously decided these issues,*fn1 it will now reach the merits of his objections.

ANALYSIS

The Court shall make a de novo determination of those portions of the Report and Recommendation to which objection has been made. 28 U.S.C. § 636(b)(1)(C). In analyzing a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), the Court must take the well-pleaded allegations of the Complaint as true and draw all reasonable inferences in favor of the plaintiff. Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 787 (7th Cir. 1995). Such a motion will only be granted where it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Lashbrook v. Oerkfitz, 65 F.3d 1339, 1343 (7th Cir. 1995). A complaint must contain either direct or inferential allegations respecting all material elements necessary to sustain a recovery under some viable legal theory. Sutliff, Inc. v. Donovan Cos., 727 F.2d 648, 654 (7th Cir. 1984). Moreover, Fed. R.Civ.P. 9(b) requires that "all averments of fraud . . . shall be stated with particularity."

COUNT 1

In Count I, Plaintiff RTC has alleged common law fraud and requested both compensatory and punitive damages. Reiman argues that Plaintiff does not have standing to prosecute a cause of action for punitive damages under Illinois law. This argument is based on the notion that under Illinois law, punitive damages do not survive the death of the claimant. By analogy, Reiman asserts that the dissolution of a corporation, such as Security or Security Federal, prevents RTC from requesting punitive damages on behalf of those now defunct corporations.

A preliminary question is whether a corporation can maintain any cause of action under Illinois law after it has been dissolved. The answer is that it can, but only to the extent that Illinois statutes allow it to do so. See Chicago Title & Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp., 302 U.S. 120, 125, 58 S.Ct. 125, 127, 82 L.Ed. 147 (1937); People v. Mazzone, 74 Ill.2d 44, 23 Ill.Dec. 76, 79, 383 N.E.2d 947, 950 (1978). The applicable statute here is contained in Article 12 of the Illinois Business Corporation Act:

    The dissolution of a corporation . . . shall not
    take away nor impair any civil remedy available to
    or against such corporation, its directors, or
    shareholders, for any right or claim existing, or
    any liability incurred, prior to such dissolution if
    action or other proceeding thereon is commenced
    within five years after the date of such
    dissolution.

805 ILCS 5/12.80 (1993). Because RTC filed suit on August 6, 1993, this was within the five year limitations period for the dissolution of both Security and Security Federal and the fraud claim is viable.

This brings the Court to the crux of Defendant's argument: whether a
punitive damages claim can survive the death of the claimant. The Illinois
Supreme Court has held that it cannot, Froud v. Celotex Corp.,
98 Ill.2d 324, 74 Ill.Dec. 629, 634, 456 N.E.2d 131, 136 (1983);
Mattyasovszky v. West Towns Bus Co., 61 Ill.2d 31, 330 N.E.2d 509, 510
(1975), unless a statute or regulatory scheme expressly authorizes a
punitive damages award. National Bank of Bloomington v. Norfolk & Western
Ry. Co., 73 Ill.2d 160, 23 Ill.Dec. 48, 383 N.E.2d 919 (1978) (Public
Utilities Act). Courts have read the exception in National Bank very
narrowly. See, e.g., Duncavage v. Allen, 147 Ill. App.3d 88, 100
Ill.Dec. 455, 463-64, 497 N.E.2d 433, 441-42 (1st Dist. 1986), appeal
denied, 113 Ill.2d 573,  106 Ill.Dec. 46, 505 N.E.2d 352 (1987) (holding
that the Illinois Consumer Fraud Act does not form a statutory basis for
survival of the award because it "does not explicitly authorize punitive
damages"); Poole v. Alpha Therapeutic Corp., 698 F. Supp. 1367, 1373
(N.D.Ill. 1988) (holding that the Blood Labeling Liability Act and the
Illinois Food, Drug and Cosmetic Act does not provide for survival of
punitive damages because they do not "expressly authorize" them).

There is little reason to believe that the Illinois Supreme Court's holdings regarding the unavailability of punitive damages after the death of a person do not also apply to the dissolution of a corporation. See Chicago Title, 302 U.S. at 125, 58 S.Ct. at 127 ("[The corporation's] dissolution puts an end to its existence, the result of which may be likened to the death of a natural person"); Oklahoma Nat. Gas Co. v. Oklahoma, 273 U.S. 257, 259, 47 S.Ct. 391, 392, 71 L.Ed. 634 (1927) ("[A]s the death of the natural person abates all pending litigation to which such a person is a party, dissolution of a corporation at common law abates all litigation in which the corporation is appearing either as plaintiff or defendant"); Mazzone, 23 Ill.Dec. at 79, 383 N.E.2d at 950 ("[T]he dissolution of a corporation is analogous to the death of an individual.").

In Grunloh v. Effingham Equity, Inc., 174 Ill. App.3d 508, 124 Ill.Dec. 140, 146-47, 528 N.E.2d 1031, 1037-38 (4th Dist. 1988), appeal denied, 123 Ill.2d 557, 128 Ill.Dec. 890, 535 N.E.2d 401 (1988), the court applied the Illinois Supreme Court's analysis regarding the survival of punitive damages claims to the dissolution of a corporation. The court found that the corporation's claims for punitive damages were not part of a regulatory or statutory scheme and thus found that they would not survive at common law. Id. 124 Ill.Dec. at 147, 528 N.E.2d at 1038. The court concluded that because the punitive damages could not survive the dissolution of the corporation, they also were not assignable by the corporation. Id.

Here, too, it would appear that the Illinois Supreme Court's holdings in Froud, 74 Ill. Dec. at 634, 456 N.E.2d at 136, and Mattyasovszky, 330 N.E.2d at 510, dictate that Security's punitive damages claim does not survive the dissolution of that corporation under Illinois law. Plaintiff has not cited to any statutory provision or regulatory scheme pursuant to National Bank which would allow the assignment of such a claim to RTC after Security's dissolution.

Instead, Plaintiff tries a different tack by arguing that Illinois law on this issue is preempted by federal law, namely, the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") which provides:

  The [Federal Deposit Insurance] Corporation shall, as
  conservator or receiver, and by ...

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