United States District Court, N.D. Illinois, Eastern Division
July 16, 2004.
DAVID E. OGDON, Plaintiff,
BARRY G. HOYT, Defendant.
The opinion of the court was delivered by: ROBERT GETTLEMAN, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff David E. Ogdon seeks damages against defendant Barry
G. Hoyt for his alleged refusal to fulfill the duties of his
contract with plaintiff to purchase $833,000 worth of plaintiff's
shares of Newco stock.*fn1 Specifically, plaintiff asserts
the following claims: (1) breach of contract (Count I); (2)
estoppel (Count II); (3) quantum meruit (Count III); and (4)
breach of fiduciary duty (Count IV). Defendant has moved to
dismiss all counts pursuant to Fed.R.Civ.P. 12(b)(6). For the
reasons stated below, defendant's motion to dismiss is denied
with respect to Counts I through III, and granted with respect to
Defendant Barry G. Hoyt ("Hoyt") was CEO and director of Asset
Allocation Company ("AAM"), a registered investment advisor that
services small and medium insurance companies. Plaintiff David E.
Ogdon ("Ogdon") was a senior portfolio manager for AAM until he
left on January 1, 2000. A group of investors offered to buy up
to 33% of the existing business for $23,100,000. The lead investor was an entity known as Cenco. In
the first quarter of 2001, Cenco signed a written Stock Purchase
Agreement to purchase up to 33% of an entity that would be
created to own the companies and/or revenue streams of AAM and
its affiliated companies. Six of eight AAM-related entities were
consolidated to form the entity called Newco. The two other
existing entities, AAM Advisors, Inc. and AAM Convertibles, Inc.,
were S corporations, which could not be purchased by Cenco, a C
corporation, without "adverse consequences." Therefore, all of
the contracts of AAM Advisors, Inc. and AAM Convertibles, Inc.,
were transferred to Newco. In return, AAM Advisors, Inc. and AAM
Convertibles, Inc., received stock in Newco, and that stock
became the sole asset of the two S corporation entities.
Plaintiff and defendant owned 4.6% and 23% of Newco stock,
respectively. Under the Purchase Agreement, Cenco was to purchase
25% of Newco by June 2001 and had a six-month option to purchase
an additional 8.33% of Newco. The purchase price was $700,000 for
each 1% purchased, a 70% premium over "internal valuations." Each
owner of Newco shares could sell an equal percent of his shares
In April 2001, one month prior to the closing of Cenco's
purchase of 25% of Newco, defendant approached plaintiff about a
"side deal." If plaintiff sold his pro-rata shares to Cenco, he
would be selling some of his S corporation holdings. Defendant
wanted to avoid this because as a shareholder of the S
corporation entities, a sale by plaintiff to Cenco would create a
capital gain for all shareholders of AAM Advisors or AAM
Convertibles and subject defendant to capital gains taxes.
Further, the sale of more than 2.2% of Newco stock from AAM
Advisors by plaintiff to Cenco would present difficulties for
defendant to maintain control of the Board of Directors of Newco. Defendant met with plaintiff on or about April 26, 2001, to
discuss defendant's request. The complaint alleges that plaintiff
and defendant "agreed" that plaintiff would not tender as many
shares as plaintiff was entitled to tender. Defendant promised to
purchase from plaintiff the amount of shares plaintiff would not
be selling to Cenco at the same price promised by Cenco, so that
plaintiff would receive the same deal as if he were selling
directly to Cenco. Based on defendant's assurances at this
meeting, plaintiff did not insist on having an attorney put the
agreement in a formal writing. Following this meeting, plaintiff
sent emails to Mr. Marvogenes and defendant regarding the
specific numbers discussed at the meeting and going through
On May 31, 2001, Cenco proceeded with its purchase of 25% of
Newco stock. Plaintiff, in reliance on defendant's promise,
tendered fewer shares of Newco to Cenco than he might have.
Plaintiff sent an email to defendant, Mr. Marvogenes, and Ms.
Richards on June 1, 2001, confirming figures for the side deal
and suggesting June 30th as the date to complete the
transaction. On July 7, 2001, plaintiff sent defendant an email
regarding defendant's failure to purchase plaintiff's shares.
Because Cenco decided to exercise its option to buy an additional
8.33% of Newco, defendant suggested delaying payment until
Cenco's second purchase was complete, along with a second side
deal between plaintiff and defendant. Again, in reliance on
defendant's promise, plaintiff did not tender to Cenco as many
shares as he could have when Cenco purchased the additional 8.33%
of Newco. Defendant has not purchased any of plaintiff's Newco
stock, and has received $833,000 "that should have been paid to
The purpose of a motion to dismiss under Fed.R.Civ.P.
12(b)(6) is to test the sufficiency of the complaint, not to rule
on its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520
(7th Cir. 1990). When considering the motion, the court accepts
the factual allegations as true and draws all reasonable
inferences favorable to the plaintiff. Travel All Over the
World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1428 (7th
The consideration of a Rule 12(b)(6) motion is generally
restricted to the pleadings, which include the complaint, any
exhibits attached thereto, and supporting briefs. Thompson v.
Illinois Department of Professional Regulation, 300 F.3d 750,
753 (7th Cir. 2002). Nonetheless, "documents that a defendant
attaches to a motion to dismiss are considered part of the
pleadings if they are referred to in the plaintiff's complaint
and are central to [the] claim." Venture Associates Corp. v.
Zenith Data Systems Corp., 987 F.2d 429, 431 (7th Cir. 1993).
The pleading requirements under Fed.R.Civ.P. 8(a)(2)
necessitate only "a short and plain statement showing the
plaintiff is entitled to relief, the purpose of which is to give
the defendant notice of the claims and the grounds they rest
upon." Thompson, 300 F.3d at 753.
1. Breach of Contract
The elements of breach of contract under Illinois law are, "(1)
an offer and acceptance, (2) consideration, (3) definite and
certain contractual terms, (4) the plaintiff's performance of his
contractual obligations, (5) the defendant's breach of the
contract, and (6) damages resulting from the breach." Green v.
Trinity Int'l Univ., 344 Ill. App.3d 1079, 1085 (Ill.App.2d
Dist. 2003). According to defendant, although negotiations took place with
plaintiff, the parties did not enter into a contract because no
definite and certain contractual terms were agreed upon. The
complaint, however, specifically alleges the acceptance of terms
and figures, as well as assurances that the agreement would be
honored by defendant. Additionally, plaintiff points to specific
details of the financial loss caused by defendant's breach. The
complaint clearly states, "the side-deal was that [defendant]
would purchase from [plaintiff] at the Cenco price
8323%(1.6633%-.831%) of [plaintiff's] Newco stock out of AAM
Advisors or AAM Convertibles immediately after the completion of
Cenco's initial purchase."
Defendant further argues that the existence of an oral contract
must be proved by "clear, convincing and satisfactory evidence."
In re Marriage of Parr, 103 Ill. App.3d 199, 204 (Ill.App.2d
Dist. 1981). While this may be the case, this motion merely tests
the sufficiency of the complaint and not the merits. Gibson,
910 F.2d at 1520. Accordingly, the court denies defendant's
motion to dismiss Count I.
To establish a claim based on promissory estoppel under
Illinois law, a "plaintiff must allege and prove that (1)
defendants made an unambiguous promise to plaintiff, (2)
plaintiff relied on such promise, (3) plaintiff's reliance was
expected and foreseeable by defendants, and (4) plaintiff relied
on the promise to its detriment. Plaintiff's reliance must be
reasonable and justifiable." Quake Construction, Inc. v.
American Airlines, Inc., 141 Ill.2d 281, 310 (Ill. 1990)
Defendant argues that plaintiff cannot raise this claim because
estoppel cannot exist where there is a contractual relationship
between the parties. This argument ignores a party's right to plead a claim for breach of contract while
simultaneously pleading a claim for promissory estoppel in the
alternative. Fed.R.Civ.P. 8(e)(2) states in relevant part: "A
party may set forth two or more statements of a claim or defense
alternately or hypothetically, either in one count or defense or
in separate counts or defenses," and "a party may also state as
many separate claims or defenses as the party has regardless of
consistency." Plaintiff's claim will not be dismissed for
pleading in the alternative.
Defendant further argues that plaintiff does not sufficiently
plead the elements of estoppel, with emphasis on the ambiguity of
the alleged oral contract and plaintiff's unreasonable reliance
thereon. The complaint alleges that defendant made an unambiguous
promise to pay plaintiff the Cenco price for the shares plaintiff
would decline to tender to Cenco. Additionally, plaintiff's
complaint alleges reliance on defendant's promise, the
foreseeability of such reliance, the detriment incurred through
reliance, and the reasonableness of such reliance. Taking
plaintiff's allegations as true, as this court must on a motion
to dismiss, plaintiff has sufficiently pled the certainty of the
promise, as well as the reasonableness of plaintiff's reliance on
defendant's assurances. Therefore, the court denies defendant's
motion to dismiss Count II.
3. Quantum Meruit
Quantum meruit is a quasi-contract theory that compensates
plaintiffs for acts of unjust enrichment where one party receives
services without giving compensation. Midcoast Aviation, Inc. v.
General Elec. Credit Corp., 907 F.2d 732, 737 (7th Cir. 1990).
To state a claim for quantum meruit, "the plaintiff bears the
burden of establishing: (1) the plaintiff rendered services; (2)
the defendant received the benefit of those services; and (3) the
defendant's retention of those services without giving
compensation in exchange will be unjust." Perini Bldg. Co., Inc. v. Univ. of Chicago, 98 C 1744, 1999 WL 58556,
at *2 (N.D.Ill. Feb. 3, 1999) (citing Midcoast Aviation, Inc.,
907 F.2d at 737).
Defendant argues that plaintiff cannot plead quantum meruit
where there is an actual contract. As stated above, pursuant to
Fed. Civ. P. 8(e)(2), a plaintiff may plead contradictory claims
in the alternative. In addition, defendant states that plaintiff
fails to allege the necessary elements of quantum meruit.
Specifically, defendant claims that the complaint is not clear as
to what benefit defendant received unjustly. The court disagrees.
Plaintiff's complaint alleges that his refusal to tender as many
shares to Cenco as he could have, pursuant to his agreement with
defendant, resulted in both pecuniary and administrative benefits
to defendant. Plaintiff also alleges that defendant's refusal to
pay for services rendered is inequitable. Therefore, the court
denies defendant's motion to dismiss Count III.
4. Breach of Fiduciary Duty
Under Illinois law, a plaintiff may recover for breach of
fiduciary duty where: "(1) a fiduciary duty exists on defendant's
part; (2) the defendant breached that fiduciary duty; and (3)
damages proximately resulted from the breach." Pope v.
Smith-Rothchild Financial Co., 03 C 3335, 2003 WL 21994023
(N.D.Ill. Aug. 21, 2003) (citation omitted).
Defendant argues that the complaint fails to allege a fiduciary
relationship as a matter of law. Plaintiff argues that the nature
of the transaction created a principal-agent or
trustee-beneficiary relationship, where a fiduciary duty exists
as a matter of law. See Prime Leasing, Inc. v. Kendig,
332 Ill. App.3d 300, 313 (Ill.App. 1st Dist. 2002); Paskas v.
Illini Federal Sav. & Loan Ass'n, 109 Ill. App.3d 24, 30,
440 N.E.2d 194, 198 (Ill.App.5th Dist. 1982). The complaint, however, fails to allege any facts to support this
theory. As noted by defendant, such a ruling would mean that any
contract creates a fiduciary relationship.
"A fiduciary relationship and the attendant duties may also
arise as the result of special circumstances of the parties'
relationship, where one party places trust in another so that the
latter gains superiority and influence over the former." Prime
Leasing, Inc. v. Kendig, 332 Ill. App.3d 300, 313 (Ill.App.
1st Dist. 2002). Plaintiff's complaint alleges no such "special
circumstances." Instead, plaintiff merely asserts that "because
of the relationships, promises and actions alleged above,
[defendant] owed fiduciary duties to [plaintiff]." The facts do
not describe a fiduciary duty. Plaintiff and defendant were both
sophisticated shareholders conducting a business transaction at
arms length. This district has previously held, "a contractual
relationship alone does not normally create a fiduciary duty."
Pope v. Smith-Rothchild Financial Co., 03 C 3335, 2003 WL
22889377 (N.D.Ill. Dec. 5, 2003) (citing Oil Express Nat'l, Inc.
v. Latos, 966 F. Supp. 650, 650-51 (N.D.Ill. 1997)). Moreover,
the facts do not suggest defendant gained any superiority over
plaintiff. Therefore, because plaintiff has not sufficiently pled
the existence of a fiduciary duty, the court grants defendant's
motion to dismiss Count IV.
5. Attorney Fees and Prejudgment Interest
Defendant's motion to dismiss alleges that plaintiff's
complaint asserts no basis for awarding attorney fees. Without
reaching the merits of this claim, the court finds any ruling on
this issue to be premature.
Plaintiff's response to defendant's motion to dismiss asserts a
claim for prejudgment interest. Here, too, the court finds any
ruling on this issue to be premature. CONCLUSION
For the reasons stated herein, defendant's motion to dismiss is
denied with respect to Counts I through III, and granted with
respect to Count IV.