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Matrix IV, Inc. v. American National Bank

March 15, 2007


The opinion of the court was delivered by: Judge George M. Marovich


Plaintiff Matrix IV, Inc. ("Matrix") filed a ten-count complaint against defendants American National Bank and Trust of Chicago ("ANB") and Gateway Park LLC ("Gateway"). In the complaint, Matrix asserts five claims against each defendant. Each defendant moves to dismiss the five claims against it. In addition, Gateway has moved the Court to take judicial notice of certain pleadings in prior judicial proceedings. For the reasons outlined below, the Court grants in part defendant Gateway's motion to take judicial notice. The Court grants defendant ANB's motion to dismiss. The Court grants Gateway's motion to dismiss.

I. Background

The Court takes as true the allegations in plaintiff's 253-paragraph, 71-page complaint and summarizes the relevant allegations below.

Plaintiff Matrix is a custom molder. It's primary business is to engineer and manufacture injection-molded products. Defendant ANB is a bank owned by JPMorgan Chase & Co. Defendant Gateway was formed in 1998 by three individuals, Martha Williams ("Williams"), Michael DePaul ("DePaul") and William Bailes ("Bailes"), none of whom is a defendant here. Gateway owns an industrial park. The story of how Matrix came to sue ANB and Gateway starts much earlier than the 1998 formation of Gateway.

In approximately 1994, Matrix began doing business with Stylemaster, Inc. ("Stylemaster"). Stylemaster was a company that distributed molded plastic products to retailers. Stylemaster's day-to-day operations were run by Williams. The plastic products Stylemaster sold were manufactured by, among others, plaintiff Matrix. The manufacturing process required the use of expensive plastic injection molds, which Stylemaster owned; but, the manufacturers (including Matrix) possessed Stylemaster's molds for use in the manufacturing process.

According to the complaint, Stylemaster was a terrible customer. It rarely, if ever, paid its bills; yet, Matrix continued to do business with Stylemaster for years. By June 1995, Matrix notified Stylemaster that it had obtained statutory and common-law liens upon the Stylemaster molds that Matrix possessed. Since that time, Matrix asserts that it has never waived or released the possessory liens and has never been fully paid. Matrix continued, however, to do business with Stylemaster.

In early 1997, Matrix informed Williams that it would no longer do business with Stylemaster. Williams, however, convinced Matrix to continue manufacturing its products by telling Matrix: (1) that Matrix would be paid for past orders only if it continued to produce future orders; (2) that if Matrix did not supply products, Stylemaster would be forced into bankruptcy; (3) that Matrix's liens (which Stylemaster said were superior to any liens perfected by UCC filings) upon the molds ensured payment; and (4) that Williams was looking for additional investors for Stylemaster. Matrix agreed to continue manufacturing Stylemaster products in 1997.

Later in 1997, Williams brought in two new investors--DePaul and Bailes--for Stylemaster. As of that time, Williams owned 51% of the shares of Stylemaster, with the remaining 49% divided equally between DePaul and Bailes. Williams informed Matrix that Stylemaster would pay its debts to Matrix within 60 days. It is not clear from the complaint whether Matrix was paid.

In November 1997, Williams, DePaul and Bailes obtained from defendant ANB a line of credit for Stylemaster. The line of credit was secured by Stylemaster property at four locations, not including the Matrix location. Thus, the line of credit was not secured by the Stylemaster molds in Matrix's possession.

The three owners of Stylemaster created defendant Gateway in 1998. Gateway purchased an industrial park in Chicago and agreed to build a 600,000-square-foot industrial space for Stylemaster. When Stylemaster moved into its new facility (in or about May 2001), Matrix read news media reports stating that Stylemaster was moving its manufacturing in-house. When Matrix asked Williams about the issue, Williams told Matrix to disregard the media accounts. Stylemaster's move into the new Gateway space also increased Stylemaster's annual rent to approximately $5,000,000, an expense increase about which Williams, DePaul and Bailes never told Matrix.

Throughout 1998 and 1999, Matrix continued to do business with Stylemaster. Williams continued to represent that Stylemaster would pay its bills, and Matrix continued to provide Stylemaster with manufactured plastic products with only partial payment. Based on Stylemaster's assurances that it would continue purchasing products from Matrix, Matrix agreed to expand its manufacturing facility and storage space and turned down substantial business from other potential purchasers.

Matrix alleges that, beginning in 2001, Williams, Bailes and DePaul engaged in two schemes to defraud Matrix and another manufacturer, Paramount Plastics. The first scheme Matrix calls the "2001 inventory scheme." In this scheme, Williams, Bailes and DePaul decided to bring Stylemaster's manufacturing in-house but did not want its outside manufacturers to know. As part of the scheme, Williams, Bailes and DePaul sought to "trick" Matrix and Paramount Plastics into producing a large quantity of Stylemaster products for Stylemaster to keep in its inventory while it was developing its own capacity to manufacture the products. Williams told Matrix that it was ordering goods from Matrix to fill bonafide orders placed with Stylemaster, when, in fact, no such orders existed. Stylemaster failed to pay for the products Matrix supplied. Instead of informing Matrix of its worsening financial condition, Williams sent Matrix a year-old financial statement, which misstated Stylemaster's financial condition. In January 2002, Stylemaster provided a list of inventory to Matrix, which showed that Stylemaster possessed $4,000,000 worth of Matrix-produced inventory.

The second scheme is a scheme Matrix calls the "2001 mold/lien scheme." Matrix alleges that Williams, DePaul and Bailes attempted to regain possession of the molds and to destroy the possessory liens Matrix had over some of Stylemaster's molds. Williams asked Matrix to release two molds so that Stylemaster could try out its new presses. Matrix handed over the two molds, and Stylemaster never returned them. Next, Stylemaster tried to regain possession of a 34-inch Base Contempra Mold, which was used for one of Stylemaster's most popular products. Matrix refused. Thus, Williams, DePaul and Bailes attempted to destroy Matrix's lien another way. In November 2001, when Stylemaster and ANB were negotiating loan amendments, Williams told ANB that ANB would have first superior liens over all of Stylemaster's molds, including the molds possessed by Matrix.

Stylemaster filed for bankruptcy protection in March 2002. At that time, Stylemaster owed Matrix about $7,200,000. It owed Paramount Plastics approximately $1,200,000. Shortly after Stylemaster filed for bankruptcy protection, Williams and Bailes formed J.R. Plastics, LLC ("J.R. Plastics"), which purchased substantially all of Stylemaster's assets, allegedly for a fraction of their value.

II. Standard on a Motion to Dismiss

The Court may dismiss a claim 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 (1974)). The Seventh Circuit has explained:

Plaintiffs need not plead facts; they need not plead law; they plead claims for relief. Usually they need do no more than narrate a grievance simply and directly, so that the defendant knows what he has been accused of. . . . Any district judge (for that matter, any defendant) tempted to write "this complaint is deficient because it does not contain . . ." should stop and think: What rule of law requires a complaint to contain that allegation.

Doe v. Smith, 429 F.3d 706, 708 (7th Cir. 2005). Certain allegations, however, must be stated with particularity. For example, Federal Rule of Civil Procedure 9(b) mandates that "all averments of fraud" be "stated with particularity." Fed.R.Civ.P. 9(b). Rule 9(b) "is of course applicable to allegations of fraud in a civil RICO complaint." Goren v. New Vision Int'l, Inc., 156 F.3d 721, 726 (7th Cir. 1998).

III. Discussion

A. Gateway's Motion to Take Judicial Notice

In considering a motion to dismiss, a court generally may not consider matters outside the pleadings without converting the motion to a motion for summary judgment. See Fed.R.Civ.P. 12(b). Courts can, however, take judicial notice of certain matters of public record without converting a 12(b)(6) motion into a motion for summary judgment. General Elec. Cap. Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). Still, courts "should strictly adhere to the criteria established by the Federal Rules of Evidence before taking judicial notice of pertinent facts." Id. at 1081. Those rules provide that:

A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.

See Fed. R. Evid. 201(b).

Gateway has asked the Court to take judicial notice of particular pleadings from Stylemaster's bankruptcy proceedings and from other lawsuits filed by Matrix. Gateway has supplied file-stamped pleadings from the Circuit Court of McHenry County, Illinois and the United States Bankruptcy Court for the Northern District of Illinois. Because the accuracy of the file-stamped pleadings cannot reasonably be questioned, the Court will take judicial notice of the timing of and the fact that those pleadings were filed. The Court will take judicial notice of the fact that parties made the statements they made in those pleadings, but the Court will not assume the truth of those statements or take judicial notice of the facts asserted in those pleadings. See Limestone Dev't Corp. v. Village of Lemont, __ F. Supp. 2d ___, 2007 WL 273489 at n. 3 (N.D. Ill. Jan. 25, 2007).

Accordingly, Gateway's motion requesting the Court to take judicial notice of pleadings is granted in part.

B. ANB's Motion to Dismiss Counts I-V

Plaintiff brings Counts I-V of its complaint against defendant ANB. In Count I, Matrix asserts a claim for common-law fraud. In ...

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