perpetrated a fraud upon them by inducing them to purchase a franchise through various misrepresentations and omissions of facts related to the purchase. They specifically allege that Mike Stopulos participated in the transaction, and they claim Mike and Mary Fran Stopulos and Freed had knowledge of the fraudulent misrepresentations and omissions that drove the transaction. Freed participated in the dissemination of information essential to the transaction. That is sufficient to withstand a motion to dismiss.
The court in Vukusich v. Comprehensive Accounting Corp., 150 Ill. App. 3d 634, 501 N.E.2d 1332, 103 Ill. Dec. 794 (2d Dist. 1986), had occasion to consider the language at issue. There, the plaintiff brought a complaint under IFDA which in part sought damages from individuals "solely on the basis of their status as persons who 'directly or indirectly control persons liable under . . . [IFDA]' or are 'principal executive officers or directors' of [the defendant corporation]." 150 Ill. App. 3d at 636, 501 N.E.2d at 1333. The court stated that if the defendant corporation were found liable, the individuals "may also be found jointly and severally liable with [the corporation] unless they had no knowledge or reasonable basis to have knowledge of the facts, acts or transactions constituting the alleged violation." 150 Ill. App. 3d at 641-42, 501 N.E.2d at 1337. Here, we have two individuals named as a vice presidents and director. The other's capacity is unknown at this point, but he certainly is alleged to have acted as someone with some authority in the corporation. Accordingly, their liability at this early stage of the proceedings is interwoven with that of Bixby under the IFDA and, similarly, under MFA. Accordingly, we find the McKays have adequately stated claims in Counts I and II.
B. Fraud Act Claim
The McKays bring Count IV under the Fraud Act. The counterdefendants have moved to dismiss this count, arguing that the McKays do not have standing to bring such a claim. They submit that the Fraud Act pertains to protection of consumers and the McKays do not fit that description in this instance. Further, they argue that while business entities are allowed to bring Fraud Act claims under certain circumstances, those circumstances are not present here.
The McKays maintain that they are not a business entity; instead they argue that they are entitled to sue as consumers of Bixby's products. Specifically, they allege that they purchased Bixby's product when they purchased, first, development rights and later, franchise rights. Under the Fraud Act, a consumer is defined as "any person who purchases or contracts for purchase merchandise not for resale in the ordinary course of his trade or business but for his use or that of a member of his household. 815 ILCS § 505/1(e); Serpico v. Menard, Inc., 927 F. Supp. 276, 282 (N.D.Ill. 1996). Merchandise, in turn, is broadly defined as including "any objects, wares, goods, commodities, intangibles, real estate situated outside of the State of Illinois, or services." 815 ILCS § 505/1(b); Scarsdale Builders, Inc. v. Ryland Group, Inc., 911 F. Supp. 337, 339 (N.D.Ill. 1996). Counterdefendants fail to explain why franchise rights would not come under this expansive definition, perhaps falling into the category of intangibles. Indeed, in interpreting the Fraud Act's predecessor, the court in People ex rel. Scott v. Cardet International, 24 Ill. App. 3d 740, 321 N.E.2d 386 (1st Dist. 1974) considered franchises to be intangibles and, therefore, merchandise under the Consumer Fraud Act. 24 Ill. App. 3d 740 at 744, 321 N.E.2d at 390. This would bring the McKays within the definition of "consumers." Consequently, the counterdefendants have failed to convince us that the McKays will be unable to prove any set of facts that would entitle them to relief under the Fraud Act.
In addition to the counterdefendants' general argument, Mike and Mary Fran Stopulos argue that the McKays' claim against them must be dismissed because the McKays have not alleged that they made affirmative misrepresentations. The elements of a claim under the Fraud Act do not require such an allegation, however, since the Fraud Act addresses "deceptive acts or practices." Perona v. Volkswagen of America, Inc., 292 Ill. App. 3d 59, 684 N.E.2d 859, 864, 225 Ill. Dec. 868 (1st Dist. 1997). An omission or concealment of a material fact in the conduct of trade or commerce constitutes consumer fraud. Connick v. Suzuki Motor Company, Ltd., 174 Ill. 2d 482, 504, 675 N.E.2d 584, 595, 221 Ill. Dec. 389 (1997). The McKays have adequately pleaded that the counterdefendants conduct in inducing them to purchase a franchise was a deceptive practice, driven by false FOCs misrepresentations that none of the counterdefendants bothered to clarify or correct. At this early stage in this proceeding, their claims should be allowed to stand.
C. Common Law Fraud
The McKays bring a common law fraud claim under Count V, which counterdefendants Mike Stopulos and Freed moves to dismiss. They argue that the McKays have failed to allege that they made any untrue statements to the McKays. The basic elements of common law fraud are: (1) a false representation of a material fact; (2) by a party who knows or believes it to be false; (3) with the intent to induce a plaintiff to act; (4) action in reliance on the statement; and (5) injury to the plaintiff as a consequence of that reliance. Washington Courte Condominium Ass'n v. Washington-Golf Corp., 267 Ill. App. 3d 790, 814-15, 643 N.E.2d 199, 216, 205 Ill. Dec. 248 (1st Dist. 1994). An affirmative statement is not always required, however, and fraud may also consist of the omission or concealment of a material fact if accompanied by the intent to deceive under circumstances which create the opportunity and duty to speak. Id. This -- omission or concealment of material facts -- is the basis of the McKays' fraud claim. Accordingly, the argument of Freed and Mike Stopulos are unavailing.
D. Breach of Fiduciary Duty
In Count VI, the McKays charge the counterdefendants with breaching the fiduciary duty they owed the McKays. The counterdefendants move to dismiss this count, arguing that they owed no fiduciary duty to the McKays as a matter of law. It is well established under Illinois law that parties to a contract, including a franchise contract, do not owe a fiduciary duty to one another. Oil Exp. Nat., Inc. v. Burgstone, 958 F. Supp. 366, 370 (N.D.Ill. 1997). On the other hand, a fiduciary relationship may be found where special circumstances exist. Id. In a contract situation, however, the allegation that "one businessman simply trusted another to fulfill his contractual obligations" is insufficient to state a fiduciary duty. Id. (quoting Carey Electric Contracting, Inc. v. First National Bank of Elgin, 74 Ill. App. 3d 233, 392 N.E.2d 759, 764, 30 Ill. Dec. 104 (1979)). Nor does "trust between friends or businesses, plus a dominant business position . . . operate to turn a formal, contractual relationship into a fiduciary relationship." 958 F. Supp. at 370-71 (quoting Carey, 392 N.E.2d at 763-64). Here, all the McKays allege is that they were introduced to counterdefendants through a friend and that they "reposed their complete trust and confidence in Bixby's," (CCl., PP 14-17, 76). Such allegations are insufficient to adequately claim the existence of a fiduciary relationship. Accordingly, Count VI must be dismissed.
E. RICO Claims
Under Count VIII of their countercomplaint, the McKays contend that Miyamoto and Alan Freed engaged in conduct that violated RICO. 18 U.S.C. § 1962(c). Originally, RICO was intended as an "attempt to eradicate organized, long-term criminal activity." Mira v. Nuclear Measurements Corp., 107 F.3d 466, 473 (7th Cir. 1997). In a civil suit, it allows a plaintiff to recover treble damages, costs, and attorney's fees, if it can establish the following elements:
(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. A pattern of racketeering activity consists of at least two predicate acts of racketeering committed within a ten-year period. Predicate acts are indictable under a specified list of criminal laws.
Id. Where the predicates a plaintiff relies upon are acts of fraud, each must be pleaded with particularity. Fed.R.Civ.P. 9(b); Emery v. American General Finance, Inc., 71 F.3d 1343, 1348 (7th Cir. 1995). Here, the McKays charge Miyamoto and Freed with the predicate acts of mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343.
We move to the requirement that plaintiffs plead a "pattern of racketeering." The concept of a "pattern" is a RICO term of art that has essentially escaped definition; the Supreme Court has stated that it requires "continuity plus relationship" in terms of predicate acts. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985). The Seventh Circuit has fashioned a list of factors to consider to determine whether a pattern has been pleaded: (1) the number and variety of predicate acts and the length of time over which they were committed; (2) the number of victims; (3) the presence of separate schemes; and (4) the occurrence of distinct injuries. Gagan v. American Cablevision, Inc., 77 F.3d 951, 962-63 (7th Cir. 1996). Here, most of these factors weigh against the McKays' allegations.
The McKays allege six mailings on Miyamoto's part, beginning December 15, 1994 and ending September 2, 1995. They are:
1) Franchise Development Agreement for the McKays' signatures on December 15, 1994;
2) Memorandum stating, "we can't lose Geneva site," on March 11, 1995;