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Muhammad v. Oliver

June 1, 2007


The opinion of the court was delivered by: Judge Blanche M. Manning


Husband and wife Dennis and Navena Muhammad own a construction company. Together, they have sued defendant Christine Oliver and two companies she runs. The Muhammads allege that Oliver used them to obtain contracts with the Chicago Housing Authority intended for minority-run companies, and then reneged on promises she had made once she obtained the contracts. The defendants have moved to dismiss on various grounds, including that the Muhammads' claims have already been resolved in state court. For the reasons stated, the motion to dismiss is granted.


The following facts are lifted from the complaint and are deemed to be true. See County of McHenry v. Ins. Co. of the W., 438 F.3d 813, 817 (7th Cir. 2006) (on a motion to dismiss, the allegations of the complaint are accepted as being true). The Muhammads are the sole shareholders of Muhammad Ali Community and Economic Development Corporation (or MDC). MDC had a stellar reputation as a minority-owned contractor in Chicago and had done regular business with the city since 1992. Meanwhile, defendant Christine Oliver was president of two companies, the Chicago Dwellings Association (or CDA) and CDA Management. In 2001, Oliver approached the Muhammads about forming a joint venture to bid for contracts with the Chicago Housing Authority. In order to win CHA contracts under the city's minority utilization ordinance, a contractor must be able to assure the city that a substantial portion of the work will be performed by minorities or women. By forming a joint venture with a company wholly owned by African-Americans, Oliver (who is white) would be able to contend for minority utilization contracts that she could not win on her own.

The parties ultimately agreed to form the joint venture, which they named MDC/CDA Ventures, L.L.C. The joint venture consisted of MDC, which owned 51%, and either CDA or CDA Management, which owned 49%.*fn1 Also, in a separate agreement CDA agreed to loan MDC $150,000 for MDC's use on projects unrelated to the joint venture. MDC agreed to repay the loan plus interest in quarterly installments over the course of one year.

The joint venture's first attempt to obtain a contract with the CHA succeeded when the CHA awarded it a $5.5 million contract to install air conditioners in housing units for seniors. But despite the joint venture's early success, the relationship between the Muhammads and Oliver quickly soured. According to the complaint, after winning the $5.5 million contract with the CHA, Oliver sought "to prevent Mr. Muhammad and MDC from exercising any significant control" over the installation of the air conditioners, and "to exclude Mr. Muhammad from all decision-making functions in the Joint Venture." Complaint at ¶ 68. Oliver's tactics included gaining sole control over the joint venture's finances by setting up a checking account that required her signature only, refusing to use the Muhammads' employees on the CHA project and instead hiring her own subcontractors to perform the work, and refusing to meet or talk to Mr. Muhammad. In addition, Oliver caused CDA to call in its $150,000 loan seven months early. Ultimately, the joint venture concluded its work on the CHA project and was paid, but Oliver told Mr. Muhammad that the joint venture had not made any money and therefore had no profits to distribute.

Litigation followed. CDA sued Mr. Muhammad and MDC in state court for breach of the $150,000 loan agreement, and the state court eventually entered judgment against MDC. Meanwhile, MDC responded to CDA's lawsuit by filing a separate suit in state court against CDA and CDA Management. In that suit, MDC alleged that CDA and CDA Management breached the joint venture agreement by refusing to produce to MDC joint venture documents or to allow MDC to review the joint venture's books and records even though the joint venture agreement required it to do so. The complaint also alleged that CDA and CDA Management refused MDC's demands to appoint a liquidating manager to wind up and dissolve the joint venture in accordance with the terms of the joint venture agreement. CDA Management filed a counterclaim (the parties have not described what the counterclaim alleged). Eventually, the state court dismissed CDA after concluding that it was not a party to the joint venture agreement, and later entered an agreed order in which MDC voluntarily dismissed its remaining claims and CDA Management dismissed its counterclaim, all without prejudice "subject to the parties' right to re-file their claims." The parties have not addressed what prompted the voluntary dismissals.

More than one-and-a-half years after its voluntary dismissal, the Muhammads and MDC filed this suit. In their complaint, they set forth claims that: (1) the defendants denied them benefits under a contract based upon their race in violation of 42 U.S.C. § 1981; (2) the defendants committed fraud by inducing MDC into joining the joint venture with promises that it would be an equal partner when in fact the defendants planned to use MDC as a front to win contracts intended for minority contractors, and committed fraud by keeping joint venture profits for themselves; (3) the defendants breached the joint venture agreement by failing to provide MDC with access to joint venture books and records when requested and by keeping all of the joint venture's profits for themselves; (4) the defendants breached their fiduciary duties by failing to allow MDC to inspect the corporate books, by keeping the joint venture profits for themselves, and by cashing checks that were intended for the joint venture rather than the individual defendants; (5) the defendants stole checks belonging to the joint venture rather than the individual defendants; and (6) the defendants badmouthed the Muhammads and MDC, which tortiously interfered with their ability to enter into future contracts with the city and the CHA.


Motion to Dismiss Standard

Under Federal Rule of Civil Procedure 12(b)(6), claims should be dismissed only if the complaint's allegations, accepted as true, fail to "state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6); Cler v. Ill. Educ. Ass'n, 423 F.3d 726, 729 (7th Cir. 2005). A claim should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim entitling him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Sanville v. McCaughtry, 266 F.3d 724, 732 (7th Cir. 2001).

42 U.S.C. § 1981

The plaintiffs' lone claim under federal law is that the defendants denied them benefits under the joint venture agreement on account of their race, in violation of 42 U.S.C. § 1981. Section § 1981 prohibits racial discrimination in the making and enforcing of contracts. See Humphries v. CBOCS West, Inc., 474 F.3d 387, 393 (7th Cir. 2007). It reads as follows:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like ...

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