United States District Court, N.D. Illinois, Eastern Division
October 11, 2005.
ROBERT COLMAN, AS TRUSTEE OF THE ROBERT COLMAN TRUST, Plaintiff,
ROGER GREENFIELD, THEODORE KASEMIR, et al., Defendants.
The opinion of the court was delivered by: BLANCHE MANNING, District Judge
MEMORANDUM AND ORDER
Before the court is defendants' motion to dismiss under Rule
12(b)(6) certain counts of plaintiff's complaint for failure to
state a claim. For the reasons stated below, the defendants'
motion is denied in part and granted in part.
Plaintiff has filed a ten-count complaint seeking to enforce a
judgment he has obtained against defendants' affiliates.
Specifically, plaintiff alleges that he has a $954,728.60
judgment (excluding attorneys' fees, costs, and interest) against
Bar Louie Tempe, Inc. and a $488,604.20 judgment (again excluding
attorneys' fees, costs, and interest) against defendant
Restaurant Development Group ("RDG"). Defendants Roger D.
Greenfield and Theodore Kasemir are officers, directors, and sole
shareholders of both RDG and Bar Louis Tempe. According to the
plaintiff, Greenfield and Kasemir, in order to avoid making
payment on the judgments, caused RDG to transfer to or for the
benefit of the defendants valuable rights under certain
management agreements for no consideration and thereafter caused
RDG to cease its business operations. Plaintiff seeks to avoid RDG's alleged fraudulent transfers and
to collect the judgments from the defendants based upon their
improper conduct and failure to operate their business in
accordance with applicable law.
Defendants have moved to dismiss counts II (avoidance of
fraudulent transfers actual fraud), III (aiding and abetting
actual fraudulent transfers), IV (avoidance of fraudulent
transfers constructive fraud), VI (aiding and abetting breach
of fiduciary duties) and VIII (aiding and abetting unlawful
dividend) of the Amended Complaint*fn1 under Fed.R.Civ.P.
12(b)(6) for failure to state a claim. Specifically, defendants
contend that a cause of action for aiding and abetting does not
exist under Illinois law and that counts II and IV must be
dismissed because plaintiff has failed to plead fraud with
particularity as required by Fed.R.Civ.P. 9(b).
II. Standard for Motion to Dismiss
The Court may dismiss claims pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure if the plaintiff fails "to state
a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6).
In considering a motion to dismiss, the Court accepts as true all
well-pleaded factual allegations and draws all reasonable
inferences in the plaintiff's favor. McCullah v. Gadert,
344 F.3d 655, 657 (7th Cir. 2003). On a motion to dismiss, the "issue
is not whether a plaintiff will ultimately prevail but whether
the claimant is entitled to offer evidence to support the
claims." Cole v. U.S. Capital, Inc., 389 F.3d 719, 724 (7th
Cir. 2004) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236
III. Analysis A. Aiding and Abetting
Defendants first argue that no separate tort of aiding and
abetting law exists in Illinois. Classic Amenities, Inc. v.
Verbeke, et al., No. 00 C 3326, 2003 WL 21801021, at *2 n. 1
(N.D. Ill. August 1, 2003) ("Ready Care argues that under
Illinois law there is no separate tort of aiding and abetting. As
pointed out in Eastern Trading Co. v. Refco, Inc.,
229 F.3d 617, 623 (7th Cir. 2000), this is true.").
It is true that the Seventh Circuit stated in Eastern Trading
that "aiding and abetting is a basis for imposing liability for
the tort aided and abetted rather then being a separate tort."
Eastern Trading, 229 F.3d at 623. In so holding, however, the
Seventh Circuit acknowledged that at least two Illinois cases had
recognized aiding and abetting as a distinct claim. Id.
(stating that "a couple of cases have language (weakly)
consistent with the separate-tort idea.") (citing Carter Coal
Co. v. Human Rights Comm'n, 633 N.E.2d 202, 205 (Ill.App.Ct.
1994); Wolf v. Liberis, 505 N.E.2d 1202, 1208 (Ill.App.Ct.
1987)). Indeed, cases subsequent to Eastern Trading have
recognized a separate cause of action for aiding and abetting.
Thornwood, Inc. v. Jenner & Block, 799 N.E.2d 756, 759-762
(Ill.App.Ct. 2003) (recognizing aiding and abetting fraud and
aiding and abetting breach of fiduciary duty); Hefferman v.
Bass, No. 04 C 5748, 2005 WL 936900, at *3 (N.D. Ill. Apr. 15,
2005) (addressing defendant's motion to dismiss an aiding and
abetting claim "rooted in intentional behavior" and stating the
elements thereof) (citing Thornwood, 799 N.E.2d 756).
Moreover, the District Court for the Southern District of New
York recently had occasion to address whether such causes of
action existed as distinct and separate claims under Illinois law
in In re Parmalat Securities Litigation, 377 F. Supp. 2d 390,
412-14 (S.D.N.Y. 2005). The In re Parmalat court noted the conflict between the Seventh Circuit's
position in Eastern Trading and subsequent cases interpreting
Illinois law, such as Thornwood and Hefferman, and concluded
that "[g]iven this trend in the lower courts, the Court cannot
agree with defendants that Thornwood is an outlier unworthy of
the respect that a federal court sitting in diversity must give
to the decisions of the Illinois Court of Appeals." In re
Parmalat, 377 F. Supp. 2d at 413-14 (citations omitted).
This court agrees with the In re Parmalat court that Illinois
courts recognize separate claims for aiding and abetting. This
court acknowledges that it has previously concluded that the
"Seventh Circuit has expressly found that the tort of aiding and
abetting fraud does not exist in Illinois." W. United Life
Assurance Co. v. Fifth Third Bank, 02 C 7315, 2003 WL 21800076,
at *4 (N.D. Ill. July 29, 2003) (citing Eastern Trading,
229 F.3d at 624). However, as the defendants note in their brief, the
Thornwood case by the Illinois Appellate Court finding a cause
of action for aiding and abetting was decided after this
court's ruling in Fifth Third Bank. Further, as the In re
Parmalat court noted, "the dispute is academic" because the:
Seventh Circuit and the intermediate Illinois courts
agree that knowingly assisting another to commit
fraud gives rise to civil liability under Illinois
law. They simply disagree on whether such conduct
should be called fraud or aiding and abetting fraud.
In re Parmalat, 377 F. Supp. 2d at 414; see Eastern Trading,
229 F.3d at 623 ("There is nothing to be gained by multiplying
the number of torts, and specifically by allowing a tort of
aiding and abetting a fraud to emerge by mitosis from the tort of
fraud, since it is apparent that one who aids and abets a fraud,
in the sense of assisting the fraud and wanting it to succeed, is
himself guilty of fraud"). Because the court concludes that a
cause of action exists under Illinois law for aiding and abetting, the court denies defendants' motion to dismiss
Counts II, VI, and XIII of the amended complaint.
B. Pleading with Particularity Under Fed.R.Civ.P. 9(b).
Defendants argue that plaintiff's counts II and IV alleging
that the defendants fraudulent transfers should be dismissed
because plaintiff has failed to plead these claims with the
requisite level of particularity.
According to the Seventh Circuit:
Rule 9(b) provides that `[i]n all averments of fraud
or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity.'
Fed.R.Civ.P. 9(b). The circumstances of fraud or
mistake include the identity of the person who made
the misrepresentation, the time, place and content of
the misrepresentation, and the method by which the
misrepresentation was communicated to the plaintiff.
General Elec. Cap. Corp. v. Lease Resolution Corp.,
128 F.3d 1074, 1078 (7th Cir. 1997). (citations and internal quotation
marks omitted). Rule 9(b) requires that a plaintiff provide the
"who, what, when, where, and how: the first paragraph of any
newspaper story." DiLeo v. Ernst & Young, 901 F.2d 624
(7th Cir. 1990).
The parties dispute how Rule 9(b) is to be applied in a case
such as this alleging a fraudulent conveyance. The defendants
recite the standards described above and contend that the
plaintiff must comply with these standards. Boyd Machine and
Repair Co., Inc., v. D&L Industrial Servs., Inc.,
100 F. Supp. 2d 898, 900 (N.D. Ill. 2000); Russo v. Bache Halsey Stuart
Shields, Inc., No. 82 C 4219, 1983 U.S. Dist. LEXIS 13555, at *2
(N.D. Ill. Sept. 21, 1983); Brandt v. Jack Levy Associates,
Inc., 92 C 5075, 1993 WL 95383, at *1-2 (N.D. Ill. Mar. 30,
1993). Alternatively, relying on General Elec., the plaintiff
argues that the fraudulent transfer claims satisfy the Rule 9(b) requirements as long as they comply
with "the more relaxed standard" provided in Form 13 of the
Appendix of Forms to the Federal Rules of Civil Procedure.
General Elec., 128 F.3d at 1079.
In General Elec., the Seventh Circuit addressed the
defendant's argument that the district court erred in concluding
that the plaintiff's allegations as to its fraudulent transfer
claim satisfied Rule 9(b). In analyzing whether the plaintiff had
complied with Rule 9(b), the Seventh Circuit first commented that
Fed. Rule of Civ. P. 84 states that "[t]he forms contained in the
Appendix of Forms are sufficient under the rules and are intended
to indicate the simplicity and brevity of statement which the
rules contemplate." Id. The Seventh Circuit then referred to
Form 13, which provides an example of a complaint on a joint
claim to recover debt and to set aside a fraudulent conveyance
under Rule 18(b). Id. Form 13 requires: 1) an allegation of
jurisdiction; 2) a statement of the date and the conditions under
which the defendant executed a promissory note*fn2 to the
plaintiff; 3) a statement that the defendant owes the plaintiff
the amount; 4) a description of the events surrounding the
defendant's conveyance of all of his property to the transfer
recipient for the purpose of defrauding plaintiff and delaying
the collection of the indebtedness by the plaintiff;*fn3 and
5) the plaintiff's demand of the court. In General Elec., the Seventh Circuit concluded that "GE
Capital has pled these elements with sufficient particularity."
Id. at 1080. Specifically, the Seventh Circuit stated that the
following allegations satisfied Rule 9(b):
The Fourth Amended Complaint states the following
allegations: The promissory note and guaranties for
the airplane were executed on December 23, 1991. See
Complaint ¶¶ 8-10. Aero defaulted on its payments and
GE Capital responded by replevying the airplane and
obtaining a judgment against its guarantors
(including Rental) for the remaining amount. See id.
¶¶ 12-13. Rental settled an unrelated class action on
March 4, 1993. See id. ¶ 15. As part of the
settlement, Rental "transferred, assigned and
conveyed substantially all of its assets to LRC in
exchange for a release of pending legal claims
against Rental." Id. Rental allegedly did not
receive from LRC or the limited partnerships any
reasonably equivalent value that would be applied to
the deficiency due GE Capital. See id. ¶ 37. This
transfer rendered Rental insolvent and "effectively
precluded Rental from meeting any deficiency
obligation to GE Capital for the aircraft under
Rental's guaranty." Id. ¶ 15. Finally, GE Capital
asked the district court 1) to enter a judgment for
the deficiency plus prejudgment interest and
attorneys' fees, cost and expenses and 2) to declare
the transfer of assets from Rental to LRC null and
void to the extent of this judgment. See id. ¶ 43
Thus, this court does not read General Elec. as approving a
"relaxed standard" only that the plaintiff had met the pleading
requirements under Rule 9(b) for alleging fraudulent transfers.
Id. ("This complaint has sufficiently detailed the
circumstances surrounding LRC's alleged constructive fraud.").
In the instant case, the plaintiff's fraudulent conveyance
claims include the following allegations:
1) jurisdiction (Amended Compl. at ¶¶ 43-45)
2) it obtained judgments against RDG and Bar Louie
Tempe, Inc. on February 10, 2005 (Amended Compl. at
¶¶ 1, 56)
3) the defendants owe plaintiff the sum stated
(Amended Compl. at ¶¶ 56) ("No portion of the
Judgments has been satisfied.")
4) the circumstances surrounding the alleged
fraudulent transfer of the debt, specifically that:
RDG is a restaurant management company which was in
the business of providing management services to the
restaurants identified in the complaint and was
entitled to receive 6% of each of the restauratns net
sales (Amended Compl. at ¶¶ 46-48).
Greenfield and Kasemir are officers and directors
of RDG (Amended Compl. at ¶ 46).
Each of the restaurants for which RDG was providing
management services was owned and operated either
directly or indirectly by Greenfield and Kasemir
(Amended Compl. at ¶ 47).
RDG guaranteed the real property leases on the
restaurants it opened starting in the late 1990's
(Amended Compl. at ¶¶ 50-51).
For a number of years, RDG's restaurant management
business was profitable and by 2002 RDG was reporting
over $2 million in ordinary income on its federal
income tax return (Amended Compl. at ¶ 52).
In 2002 and 2003 Greenfield and Kasemir closed at
least 10 restaurants whose real property leases
and/or other obligations had been guaranteed by RDG
(Amended Compl. at ¶ 53).
Due to the guarantees RDG had with respect to the
restaurants that had closed, its revenues decreased
and by 2003 RDG was insolvent.(Amended Compl. at ¶
To avoid paying the claims of RDG's creditors, in
2003 RDG terminated its Management Agreements with
each of the restaurants for no consideration and
transferred the management rights to that income to
or for the benefit of Greenfield, Kasemir, RDG Chicago,
the restaurants and/or their affiliates (Amended
Compl. at ¶ 55).
In addition to the allegations listed above, the plaintiff
notes that just before filing their motion to dismiss, the
defendants sent to plaintiff an affidavit by Theodore Kasemir in
which he stated that all management agreements and all loan
agreements by RDG were oral agreements. See Exh. A to
Plaintiff's Resp. to Motion to Dismiss. As this court has stated,
"[w]here the matters alleged are within the opposing parties'
knowledge, . . ., less detail is required." Western United Life
Assurance Co. v. Fifth Third Bank, No. 02 C 7315, 2003 WL
444417, at *3 (N.D. Ill. Feb. 21, 2003).
Given that the RDG management and loan agreements were verbal,
and information related to the forgiveness of the loans or the
transfer of the rights under the management agreements are likely
within the specific knowledge of the defendants, less specificity
is required. Further, the allegations listed above are at least
as particularized (if not more so) than those that were declared
sufficient by the Seventh Circuit in General Electric.
Accordingly, the court finds that the allegations in this case
satisfy the pleading requirements of Rule 9(b) with the exception
of the allegations in the second sentence of paragraph 55 of the
The second sentence of paragraph 55 alleges "on information and
belief" that RDG made "other transfers" for no consideration to
or for the benefit of Greenfield, Kasemir, RDG Chicago, the
Restaurants and/or their affiliates. "Allegations based on
information and belief usually do not satisfy the particularity
requirement in Rule 9(b)." Id. However, as noted above, a
plaintiff has more leeway when the facts supporting the
allegations are in the exclusive knowledge of the defendant.
Id. Nevertheless, "even when facts are `inaccessible to the
plaintiff, unless the plaintiff states the grounds for his suspicions,' a claim for
fraud `upon information and belief' is insufficient." Id.
In his response to the motion to dismiss, the plaintiff
attempts to support the allegation by asserting that "[i]n light
of the Defendants' thirty (or more) fraudulent transfers in the
form of terminating the RDG's management agreements for no
consideration, it is not a stretch to believe that the Defendants
took other deliberate steps to transfer and conceal assets."
Resp. at 8. The court has carefully studied the amended complaint
and concludes that such a leap in logic does not satisfy the
pleading requirements of Rule 9(b). Simply because the plaintiff
has stated facts to support the fraudulent conveyances regarding
the management agreements does not support a finding that the
defendants must therefore have engaged in other fraudulent
conveyances. Because the plaintiff has not provided the court
with any facts supporting the allegation that "other" fraudulent
transfers occurred, the court strikes this allegation. IV. Conclusion
For the reasons stated herein, the defendants' motion to
dismiss [48-1] is denied in part and granted in part.
Specifically, to the extent that the plaintiff is attempting to
state a fraudulent conveyance claim based on "information and
belief" as to "other transfers," that allegation is stricken. The
remaining relief in the motion to dismiss is denied.
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