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DUGGAN v. TERZAKIS

July 30, 2003

JAMES DUGGAN, VERSUSLAW DUGGAN, J. DUGGAN 1500 LLC, J. DUGGAN PARKSIDE LLC, JAMES G. DUGGAN TRUST, AND VERSUSLAW DUGGAN, PLAINTIFF'S,
v.
JOHN TERZAKIS, ET AL., DEFENDANTS



The opinion of the court was delivered by: Amy J. St. Eve, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff's assert that John Terzakis, Rudy Mulder, Roxanne Gardner, and the entities they owned and controlled "masterminded an illegal scheme to defraud elderly individuals, including James and Lois Duggan, of their life savings" by convincing them to sell their real estate and purchase Defendants' commercial real estate at overvalued prices. (R. 1-1, Compl. ¶¶ 2-3, 6.) Defendants promoted these actions as a way for elderly investors to exit property management without adverse tax consequences. (Id. at ¶ 5.) Plaintiff's filed a six-count Complaint against Defendants asserting violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") (Counts I-III) and the Illinois Consumer Fraud Act ("ICFA") (Count IV), civil conspiracy (Count V), and common law fraud (Count VI).*fn1 Centerpoint moves to dismiss Counts IV-VI of Plaintiffs' Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendants contend that only Plaintiff James Duggan has standing to sue Centerpoint, and that Plaintiff's have failed to plead Counts IV and VI with Rule 9(b) particularity. For the reasons [ Page 2]

stated herein, the Court grants Centerpoint's motion to dismiss with respect to Lois Duggan, J. Duggan Parkside LLC, James G. Duggan Trust, and Lois S. Duggan Trust,*fn2 and denies the motion with respect to James Duggan and J. Duggan 1500 LLC.

ALLEGATIONS*fn3

Plaintiff's allege that "Terzakis, Mulder, Gardner, TDS and others" advertised that TDS could provide investment solutions to property owners in compliance with Section 1031 of the Internal Revenue Code. (R, 1-1, Compl. at ¶ 40.) Terzakis, Mulder, Gardner, and TDS mailed these advertisements on multiple occasions and ran them in the Wall Street Journal at least six times. (Id.) The advertisements stated that clients would have to sell their existing real estate and create special purpose entities to hold their new property interests in order to qualify for the purported tax benefits. (Id. at ¶ 42.) Although TDS would act as the clients' real estate broker in these transactions, the clients did not know it. (Id. at ¶¶ 41, 43.) Defendants sent the clients a list of properties in which they could invest, including the Honeywell Building. (Id. at ¶ 44.) Defendants also sent the clients prospectuses omitting purportedly material information including UITs 50% ownership of TDS, Terzakis' 45% ownership of UIT, Mulder's 45% ownership of UIT, and Gardner's 10% ownership of UIT. (Id. at ¶¶ 43-46.) Centerpoint's role in Defendants' scheme relates to the sale and purchase of the Honeywell Building.

Plaintiff's allege that Defendants, including Centerpoint, entered into a fraudulent real estate transaction. (Id. at ¶ 47.) In order to induce investment in Defendants' venture at inflated prices, Centerpoint purportedly sold the Honeywell Building, located in Arlington Heights, Illinois, to its purchasers*fn4 for substantially more than the property's fair market value in [ Page 3]

September 2000. (Id. at ¶¶ 38, 48, 55(d), 55(e).) Centerpoint allegedly kicked-back part of the excess profits to the purchasers through a three-year lease entered into on June 9, 2000. This lease provided the purchasers with the security they needed to obtain a loan for buying the building in the first place. (Id. at ¶¶ 38, 55(d).)

Centerpoint's lease covered four vacant blocks. (Id. at ¶¶ 138, 53, 55(d).) Centerpoint, which began paying rent on September 6, 2000, only used or intended to use a small fraction of the purportedly leased space. (Id. at ¶¶ 38, 55(d).) This ghost lease inflated the building's occupancy to investors. (Id. at ¶¶ 38, 55(d), 55(i), 56.) This inflation would only begin affecting investors once the lease's expired. (Id. at ¶ 53.)

Centerpoint's participation in Defendants' scheme did not end there. Centerpoint also agreed to furnish UIT and the other defendants with a fraudulent rent roll for the property, which "UIT, TDS and other defendants"*fn5 sent to investors as part of an offering memorandum in April 2000. (Id. at ¶¶ 49, 51, 55(a).) The rent roll listed non-existing tenants, including Invensys. (Id. at ¶¶ 50, 55(h).) In fact, Centerpoint was the entity that was leasing the purported Invensys space. (Id.) The rent roll also represented that this was a ten-year lease when it, in reality, only covered a three-year period. (Id.) Finally, Centerpoint paid the purchasers more than two-million dollars of the investors' money to be released from the lease once the investors purchased all of the buildings' shares. (Id. at ¶¶ 55(g), 55(h), 57.)

LEGAL STANDARD

I. Rule 12(b)(6) Standards

A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a complaint, not the merits of a claim. Triad Assoc., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir. 1989). In evaluating a 12(b)(6) motion, a court examines the facts alleged in the complaint and draws all [ Page 4]

reasonable inferences from those facts in the Plaintiff's favor. Stachon v. United Consumers Club, Inc., 229 F.3d 673, 675 (7th Cir. 2000). Dismissal is appropriate only when "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). While a complaint ordinarily need not set out in detail the facts upon which a plaintiff bases his claim, Benson v. Cady, 761 F.2d 335, 338 (7th Cir. 1985), a plaintiff may not simply attach ...


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