United States District Court, N.D. Illinois, Eastern Division
THE FEDERAL DEPOSIT INSURANCE CORPORATION, as Successor to the Resolution Trust Corporation, as Receiver for the Home Federal Savings Association of Kansas City, F.A., and as Manager of the FSLIC Resolution Fund, Plaintiff,
DAVID J. WABICK, PATRICIA A. WABICK, LAWRENCE ETTNER, JANELLE ETTNER, LORRAINE WABICK, and PAUL FREITAG, Defendants.
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, the Federal Deposit Insurance Corporation, filed
suit against several Defendants, including Lawrence Ettner and
Janelle Ettner. Plaintiff alleges Defendants delivered false
documents which enabled an otherwise unqualified corporation to
participate in a bidding process and purchase of certain loans.
Plaintiff also alleges Defendants colluded with the then-owner of
the loans to depress the bid price. Based on these actions,
Plaintiff brings claims for fraud, breach of contract, and unjust
enrichment against Defendants. Presently before the Court is
Lawrence Ettner and Janelle Ettner's Omnibus Motion to Dismiss
the Second Amended Complaint. For the following reasons, that
motion is granted in part and denied in part. LEGAL STANDARD
In reviewing a motion to dismiss, the court reviews all facts
alleged in the complaint and any reasonable inferences drawn
therefrom in the light most favorable to the plaintiff. See
Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326
(7th Cir. 2000). A plaintiff is not required to plead the facts
or elements of a claim, with the exceptions found in Federal Rule
of Civil Procedure 9. See Swierkiewicz v. Sorema, 534 U.S. 506,
511 (2002); Walker v. Thompson, 288 F.3d 1005, 1007 (7th Cir.
2002). Dismissal is warranted only if "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, 45-46 (1957). The "suit should not be dismissed if it is
possible to hypothesize facts, consistent with the complaint,
that would make out a claim." Graehling v. Village of Lombard,
Ill., 58 F.3d 295, 297 (7th Cir. 1995).
The facts, for the purposes of this motion, are taken as true
from Plaintiff's Second Amended Complaint. Defendants David
Wabick and Larry Ettner formed Gateway Capital. Together, Larry
Ettner and his wife, Janelle Ettner, owned half of Gateway
Capital; however, Gateway Capital was an alter-ego of David
Wabick and Larry Ettner. Furthermore, Janelle Ettner took her
direction as a shareholder in Gateway Capital from David Wabick
and Larry Ettner, and thus acted as David Wabick's agent in this
regard. David Wabick also controlled or owned another
corporation, Connaught. The Resolution Trust Corporation was a United States
corporation charged with protecting creditors and depositors of
failed savings and loan institutions.*fn1 When one of these
institutions was declared insolvent, the Resolution Trust
Corporation was appointed as conservator or receiver. Consistent
with its obligations, the Resolution Trust Corporation liquidated
assets of failed savings and loan institutions at public
To ensure that all potential bidders in the auctions operated
with the same information, the Resolution Trust Corporation
adopted certain policies and procedures, such as requiring
prospective bidders, as prerequisites to bidding, to complete a
Confidentiality Agreement and a Deposit Agreement. In these
agreements, all prospective bidders of assets gave, on their own
behalf and on behalf of their representatives, several
certifications to the Resolution Trust Corporation, including:
(1) a certification that the signer would not disclose to any
third party any confidential information without prior written
consent of the Resolution Trust Corporation; and (2) a
certification that the signer would not communicate with any
debtor, guarantor, or debtor's or guarantor's accountant or
attorney relative to any asset without prior written consent of
the Resolution Trust Corporation.
In addition, the Resolution Trust Corporation adopted a number
of eligibility requirements to prevent assets controlled by the
Resolution Trust Corporation from being won at auction by those
who had caused losses to the insurance funds or who were
otherwise unsuitable purchasers. All prospective bidders were
required to complete and submit a "Collection Policy
Certification" as a prerequisite to participation. This
certification required all purchasers to certify on their own behalf and on behalf of all their affiliates
that: (1) no defaults, by the prospective purchasers or its
affiliates, existed on any obligation to the Resolution Trust
Corporation or other certain federal corporations involved with
insuring savings and loan institutions; and (2) a certification
that no litigation existed between the prospective purchaser and
the Resolution Trust Corporation or other certain federal
corporations involved with insuring savings and loan
One group of loans the Resolution Trust Corporation auctioned
off was the Merit Loans. The lender on the Merit Loans was
declared insolvent, and the Resolution Trust Corporation was
appointed its receiver. Merit Corporation, Merit Holding
Corporation, and Trison Corporation (collectively, the "Merit
Entities") were either debtors or controlled the debtors on some
or all of the Merit Loans. Albert Ichelson, Jr. controlled or
owned each of the Merit Entities.
Before the auction, all prospective bidders received a bid
package, including: (1) an explanation of the Collection Policy
Certification, (2) copies of the certification forms described
above, (3) a Credit History and Legal Record Statement, (4)
instructions for completing the forms and the Credit History, and
(5) the Confidentiality Agreement and the Deposit Agreement.
Delivery of these forms was a prerequisite to participate in the
Gateway Capital intended to bid on the Merit Loans. Defendants,
as detailed below, made a number of misrepresentations on various
forms prepared so that Gateway Capital could bid on the Merit
Loans, including: (1) the Confidentiality Agreements, (2) the
Deposit Agreements, (3) the Collection Policy Certifications, (4)
the Credit Histories, (5) a Purchase Agreement, and (6) an
affidavit. On September 4, 1992, in anticipation of participation in the
auction, Defendant David Wabick, on behalf of Gateway Capital,
signed: (1) a Confidentiality Agreement and agreed not to
communicate with nor disclose confidential information to any
debtor whose loan was contained in the Merit Loans package; (2) a
Deposit Agreement in which David Wabick certified that Gateway
Capital had no known material business relationship with any
obligor under any mortgage loan contained in the Merit Loans
package; and (3) the requisite Collection Policy Certification.
These items were sent to the Resolution Trust Corporation.
Included in these documents were certifications that: (1) no
default existed with respect to any obligation of Gateway Capital
or its affiliates to the Resolution Trust Corporation or other
certain federal corporations involved with insuring savings and
loan institutions; and (2) Gateway Capital was not purchasing
assets on behalf of or for resale to a restricted purchaser.
Gateway Capital, Defendant Patricia A. Wabick, and Larry Ettner
signed Credit Histories dated September 4, 1992; October 19,
1992; and October 20, 1992, respectively. On October 21, 1992,
the Collection Policy Certification was signed on behalf of
Gateway Capital in Illinois. These documents were sent to the
company the Resolution Trust Corporation hired to investigate the
Credit Histories of the prospective bidders.
The signers of the Credit Histories represented that neither
they nor any related entity had: (1) any outstanding judgments;
(2) filed for bankruptcy or been declared bankrupt in the
preceding ten years; (3) owned property which had been foreclosed
or given title or deed in lieu thereof in the preceding seven
years; (4) been in default on any obligations to pay principal or
interest to any credit institution, including the Resolution
Trust Corporation or other certain federal corporations involved with insuring savings and loan
institutions; and (5) been a party to any pending lawsuit at the
time the Credit Histories were executed.
While Gateway Capital was preparing the required materials for
its bid, Wabick also sent a fax to the Resolution Trust
Corporation receiver. This fax contained a signed affidavit from
David Wabick stating that prior to receiving the bid package and
executing the Confidentiality Agreement and the Deposit
Agreement, Gateway Capital had entered into discussions with
Ichelson regarding the Merit Loans. Wabick further certified that
after executing these documents, Gateway Capital had no further
discussions with any borrowers, including Ichelson, and had not
disclosed confidential information to any borrowers or their
agents relating to the Merit Loans.
Thereafter, Gateway Capital was informed that it was the
highest bidder on the Merit Loans. Before Gateway Capital was
designated as the successful bidder, the Resolution Trust
Corporation requested that Gateway Capital execute another
Confidentiality Agreement and Deposit Agreement re-certifying
that Gateway Capital had no contact with any borrowers, nor had
Gateway Capital disclosed confidential information to any
borrowers relating to the Merit Loans.
Gateway Capital was then declared the successful bidder, and it
executed a Purchase Agreement for the loans. In the Purchase
Agreement, Gateway Capital again certified that it had complied
with all the terms and conditions of the Confidentiality
Agreement. Gateway Capital also specifically represented and
warranted to the Resolution Trust Corporation that as of the date
of the agreement, and continuing through closing, neither Gateway
Capital nor any of its affiliates was an ineligible purchaser under the existing
policies of the Resolution Trust Corporation.
However, as noted above, the representations made in the
required certifications, Credit Histories, and other documents
filed in connection with the Merit Loans were false. For a
variety of reasons, Connaught was ineligible to bid at the
auction. David Wabick knew that Connaught was not qualified to
bid at the auction and that his affiliation with Connaught would
prevent Gateway Capital from being eligible to bid at the
auction. The misrepresentations made in connection with the Merit
Loans helped to conceal David Wabick's interest in Connaught.
In addition, David Wabick negotiated with Ichelson and the
Merit Entities transactions regarding the Merit Loans. David
Wabick entered these negotiations so that Gateway Capital would
be the successful bidder in the auction because Ichelson would:
(1) provide Gateway Capital with information concerning the Merit
Loans that was not contained in the bid package, and (2) cause
some of the Merit Entities to file bankruptcy prior to the
auction to make the Merit Loans less attractive to other bidders.
Because of these alleged misrepresentations, Gateway Capital
was able to purchase assets at the auction it could not have
otherwise purchased. Subsequently, the profits from the sales of
those assets were then distributed to, among others, Larry Ettner
and Janelle Ettner.
The Ettners seek to dismiss the fraud counts, the breach of
contract count, and the unjust enrichment count. According to the
Ettners, Plaintiff has not properly alleged a claim for fraud in
accordance with Federal Rule of Civil Procedure 9. The Ettners
also contend that Plaintiff has not properly alleged a claim for
breach of contract, nor is there any legal basis to hold Janelle Ettner liable for a breach of contract. The Ettners further argue
that the unjust enrichment count should be dismissed because it
is mutually exclusive to the Plaintiff's contract claim, and
Plaintiff fails to state a claim for unjust enrichment. Finally,
Defendants argue that Plaintiff has not properly alleged its
measure of damages.
The Ettners seek to dismiss Count II and IV, the fraud claims,
of Plaintiff's Second Amended Complaint. According to the
Ettners, Plaintiff did not plead the fraud claims with the
particularity needed under Federal Rule of Civil Procedure 9(b).
Specifically, the Ettners contend that: (1) many of the
allegations supporting the fraud claims are not pled with
particularity; (2) fraud allegations pled based on "information
and belief" are not permissible; and (3) Plaintiff has not
alleged the Ettners knew David Wabick was affiliated with a
company that would prevent Gateway Capital from bidding on the
loans in question. Janelle Ettner also argues that no good faith
basis exists demonstrating that she participated in any fraud.
"In all averments of fraud or mistake, the circumstances
constituting fraud or mistake shall be stated with
particularity." Fed.R. Civ. P. 9(b). "While this does not
require a plaintiff to plead facts that if true would show that
the defendant's alleged misrepresentations were indeed false, it
does require the plaintiff to state `the identity of the person
making the misrepresentation, the time, place and content of the
misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff.'" Uni*Quality, Inc. v.
Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992) (quoting
Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683
(7th Cir. 1992) (Bankers Trust)). "The allegations must be specific enough to provide the
defendants with a general outline of how the alleged fraud scheme
operated and of their purported role in the scheme." Rohlfing v.
Manor Care, Inc., 172 F.R.D. 330, 347 (N.D. Ill. 1997)
(citations omitted). To determine whether counts are sufficiently
pled, a court will bear in mind the purposes of Rule 9(b): "(1)
protecting the defendants' reputations; (2) preventing fishing
expeditions; and (3) providing adequate notice to the
defendants." Rohlfing, 172 F.R.D. at 347 (citing Vicom, Inc.
v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir.
The Ettners are correct in arguing that allegations of fraud
pled on "information and belief" are generally not permissible.
See Bankers Trust, 959 F.2d at 683-84. However, the requirement
in Rule 9(b) does not mean Plaintiff must "plead facts showing
the representation is indeed false." Bankers Trust,
959 F.2d at 683.
Here, Plaintiff has met the applicable pleading standard with
respect to Larry Ettner. As detailed above, Plaintiff has
identified numerous alleged misrepresentations made by the
Defendants, including Larry Ettner, in this case. These alleged
misrepresentations, which were not pled based on "information and
belief," include statements made by Defendants in Confidentiality
Agreements, Deposit Agreements, an affidavit, certifications in
the Purchase Agreement, and Credit Histories. As detailed above,
Plaintiff has pled who made the alleged misrepresentations, when
the alleged misrepresentations were made, and where the alleged
misrepresentations were made. Larry Ettner argues that many of
Plaintiff's allegations which were pled on "information and
belief" cannot be used to support the fraud claim. Specifically,
Larry Ettner points to three allegations which they claim are
insufficient under Rule 9(b): (1) that David Wabick and Larry
Ettner met with Ichelson to discuss the Merit Loans; (2) that David Wabick and Larry Ettner controlled Gateway Capital, while
Wabick controlled Connaught; and (3) that Larry Ettner knew
certain representations were false. However, all of the fraud
allegations, considered as a whole, demonstrate that the
representations made in connection with the Merit Loans were
false and further provide Defendants with a general outline of
the fraud and Defendants' participation therein.
Larry Ettner next argues that no allegations exist
demonstrating that they knew David Wabick was affiliated with
Connaught and that Connaught, and therefore Gateway Capital, was
ineligible to bid at the auction. According to Larry Ettner,
Plaintiff only states that Larry Ettner "agreed to the execution
of false and misleading documents designed to conceal that Wabick
was in control of Connaught," but none of these documents
references Connaught. Larry Ettner also contends that this
allegation only states that they executed the documents, but that
he did not know the documents were false. However, it can be
reasonably inferred that Larry Ettner knew the documents were
false when the documents were executed.
Based on these allegations, Plaintiff has properly stated a
claim for fraud against Larry Ettner.
Janelle Ettner correctly contends that there is no basis to
allege she participated in the alleged fraud and that no
allegations exist demonstrating that she executed a document
containing misrepresentations. In response, Plaintiff states that
a claim for fraud can be stated by showing Janelle Ettner
"accept[ed] the fruits of fraud knowing of the means by which
they were obtained." Pulphus v. Sullivan, No. 02 C 5794, 2003
WL 1964333, at *17 (N.D. Ill. Apr. 28, 2003) (citations omitted).
However, there are no allegations which meet the requirements of
Federal Rule of Civil Procedure 9, stating that Janelle Ettner
knew about the fraud, accepted the fruits of the fraud, or participated in the
fraud. Therefore, the fraud claims with respect to Janelle Ettner
Breach of Contract Claim
The Ettners next contend Plaintiff's breach of contract claim
should be dismissed for two reasons. First, Plaintiff "has failed
to allege a single fact in support of its legal conclusion that
Larry Ettner was the alter ego of Gateway Capital." (Defs.' Mot.
at 2). Second, Plaintiff "cannot impose individual liability
against Janelle Ettner as an alleged agent of David Wabick."
(Defs.' Mot. at 2).
With respect to Larry Ettner, Plaintiff alleges that Gateway
Capital breached its contract, the Purchase Agreement, by falsely
certifying documents. Plaintiff also alleges that Larry Ettner
acted as Gateway Capital's "alter ego" in this regard and,
therefore, Gateway Capital's corporate veil should be pierced and
liability for the breach of contract should be imposed upon Larry
Ettner. Pursuant to Federal Rule of Civil Procedure 8, Plaintiff
need not allege facts in support of this allegation. Accordingly,
Plaintiff has properly stated a claim for breach of contract
against Larry Ettner.
With respect to Janelle Ettner, Plaintiff alleges that she
actively participated in the breach of contract. Plaintiff
further alleges that Janelle Ettner was David Wabick's agent for
the purpose of concealing his interest in Gateway Capital. Thus,
through agency relationships, Janelle Ettner should be liable for
the alleged breach of contract.
However, in contract cases, "an agent may not be held
personally liable for a breach of contract by . . . her principal
when the agent has disclosed the fact that . . . she is acting on
behalf of the principal." Strzelecki v. Shwartz Paper Co.,
824 F. Supp. 821, 829 (N.D. Ill. 1993) (citations omitted) (Strzelecki). This proposition also applies
when the agent actively participated in breaching the contract.
Strzelecki, 824 F. Supp. at 829. Plaintiff offers no arguments
to the contrary. Therefore, Plaintiff's breach of contract claim
against Janelle Ettner is dismissed.
The Ettners also argue that Plaintiff's claim for unjust
enrichment should be dismissed. Specifically, the Ettners contend
that the unjust enrichment claim "is an equitable claim that is
mutually exclusive to [Plaintiff's] contract claim." (Defs.' Mot.
at 2). The Ettners also contend that Plaintiff "has failed to
plead two essential elements for an unjust enrichment claim
namely, that the [Resolution Trust Corporation] conferred a
benefit on the Ettners and that the Ettners received a benefit to
the detriment of the [Resolution Trust Corporation] or"
Plaintiff. (Defs.' Mot. at 2).
However, the Federal Rules of Civil Procedure permit parties to
plead alternative and inconsistent claims, including claims for a
breach of contract and unjust enrichment. Fed.R. Civ. P.
8(e)(2); Lilly v. Ford Motor Co., No. 00 C 7372, 2002 WL 84603,
at *6 (N.D. Ill. Jan. 22, 2002) (Lilly). Thus, although
Plaintiff cannot recover on the breach of contract claim and the
unjust enrichment claim, Plaintiff may plead both causes of
The Ettners also contend that they did not receive a benefit
directly from the Resolution Trust Corporation and cannot be
liable under an unjust enrichment theory; instead, the Ettners
contend that any benefits they received came from a third party,
Gateway Capital. However, Plaintiff may recover the benefit in
situations where "the plaintiff is seeking recovery of a benefit
that was transferred to the defendant [here, the Ettners] by a
third party [here, Gateway Capital]" if "the plaintiff for some other reason had a better claim to the
benefit than the defendant." See HPI Health Care Servs., Inc. v.
Mt. Vernon Hosp., Inc., 545 N.E.2d 672, 679 (Ill. 1989) (HPI
Here, Plaintiff alleges that the Ettners engaged in multiple
improper actions to ensure Gateway Capital received a benefit.
Plaintiff also alleges that Gateway Capital transferred part of
this benefit to the Ettners. Because of the Ettners' alleged
improper actions, Plaintiff would have a superior claim to the
benefit than the Ettners' claim.
The Ettners further argue that Plaintiff failed to allege the
proper measure of damages for the unjust enrichment claim.
According to the Ettners, the Resolution Trust Corporation was
going to sell the loans in question to the highest bidder. As a
result, Plaintiff's damages would be limited to the amount the
Resolution Trust Corporation would have sold the loans to another
purchaser minus the amount Gateway Capital paid for the loans.
The Ettners thus contend that Plaintiff's remedy of disgorgement
of any profits made by the Ettners from the loan is inapplicable;
and, therefore, Plaintiff has not properly pled a claim for
unjust enrichment. See Rowe v. Maremont, 850 F.2d 1226, 1241
(7th Cir. 1988) (Rowe).
However, as noted above, the Ettners concede that some measure
of damages are available. Furthermore, "[i]t is within the
district court's discretion to determine whether disgorgement or
some other damage measure is appropriate." Rowe,
850 F.2d at 1240 (citation omitted). The proper determination of damages is
an inquiry not suited for resolution on a motion to dismiss.
Based on the above, Plaintiff has properly stated a claim for
unjust enrichment against the Ettners. Damages
Lastly, the Ettners assert Plaintiff's measure of damages is
speculative and based on conjecture, and Plaintiff's Second
Amended Complaint should be dismissed in its entirety. However,
Plaintiff need not allege its damages with specificity at the
pleading stage. See Medcom Holding Co. v. Baxter Travenol Labs.,
Inc., 984 F.2d 223, 229 (7th Cir. 1993).
For the foregoing reasons, Lawrence Ettner and Janelle Ettner's
Omnibus Motion to Dismiss the Second Amended Complaint is granted
in part and denied in part. Plaintiff's fraud claims and breach
of contract claim against Janelle Ettner are dismissed.