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United Laboratories, Inc. v. Savaiano

January 7, 2008

UNITED LABORATORIES, INC., A DELAWARE CORPORATION, AND JULIE ANNE BENSON, AS DIRECTED TRUSTEE ON BEHALF OF UNITED LABORATORIES, INC.'S EMPLOYEE STOCK OWNERSHIP PLAN AND AS DIRECTED TRUSTEE ON BEHALF OF UNITED LABORATORIES, INC.'S LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN, PLAINTIFFS,
v.
MAUREEN R. SAVAIANO, INDIVIDUALLY, AS EXECUTOR OF THE ESTATE OF NICHOLAS J. SAVAIANO, DECEASED, AND AS TRUSTEE OF THE NICHOLAS J. SAVAIANO 1997 TRUST, DONALD F. SAVAIANO, INDIVIDUALLY AND AS NOMINEE FOR FLORENCE SAVAIANO, A TRUSTEE ON BEHALF OF THE SCULLY SAVAIANO INSURANCE TRUST, ROBERT G. DIFINO, JAMIE SAVAIANO MALONEY AND WILLAMETTE MANAGEMENT ASSOCIATES, INC., AN OREGON CORPORATION, DEFENDANTS.
MAUREEN R. SAVAIANO, INDIVIDUALLY, AS EXECUTOR OF THE ESTATE OF NICHOLAS J. SAVAIANO, DECEASED, AND AS TRUSTEE OF THE NICHOLAS J. SAVAIANO 1997 TRUST, DONALD F. SAVAIANO, INDIVIDUALLY AND AS NOMINEE FOR FLORENCE SAVAIANO, A TRUSTEE ON BEHALF OF THE SCULLY SAVAIANO INSURANCE TRUST, ROBERT G. DIFINO, AND JAMIE SAVAIANO MALONEY, DEFENDANTS/THIRD-PARTY PLAINTIFFS,
v.
MCDERMOTT WILL & EMERY LLP, AN ILLINOIS LIMITED LIABILITY PARTNERSHIP, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: James F. Holderman, Chief Judge

MEMORANDUM OPINION AND ORDER

On April 13, 2006, plaintiffs United Laboratories, Inc. ("United Labs") and Julie Anne Benson (as directed Trustee on behalf of United Labs' Employee Stock Ownership Plan ("ESOP I") and United Labs' Leveraged Employee Stock Ownership Plan ("ESOP II")) (collectively "Plaintiffs") filed a nine-count Amended Complaint alleging claims for breach of fiduciary duty, prohibited transactions, unjust enrichment, aiding and abetting breach of fiduciary duty, breach of contract, and civil conspiracy, in violation of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq., and state common law. The Amended Complaint was directed against defendants Willamette Management Associates Inc. ("Willamette"), Cole Taylor Bank ("Cole Taylor"), and former United Labs' Board of Directors members Maureen R. Savaiano,*fn1 Donald F. Savaiano,*fn2 Robert G. Difino, and Jamie Savaiano Maloney ("the Savaiano Defendants"). United Labs was founded by Nicholas Savaiano in 1964 and, until early 2004, its Board of Directors was at all times majority-controlled by members of the Savaiano family.*fn3

Plaintiffs' claims generally stem from the events surrounding the creation of the ESOP II in August, 1996. At that time, United Labs (acting through its Board of Directors) engaged in a series of transactions for the purpose of creating and funding the ESOP II. Those transactions included the purchase of 456,178 shares of United Labs Preferred Stock (the "Shares") from the Savaiano Defendants, the negotiation and execution of long-term loan agreements to finance the purchase of the Shares, and the transfer of assets and liabilities from United Labs' Zyme FlowTM Process Division to the newly-established United Laboratories International, LLC ("ULI"). While Plaintiffs generally allege that these transactions were imprudent, unfair, and ill-advised at the time of their execution, Plaintiffs also contend that the transactions constituted self-dealing in regards to the Savaiano Defendants, all of whom were then members of United Labs' Board of Directors. Specifically, Plaintiffs allege that the ESOP II purchased the Shares from the Savaiano Defendants at above-market value and that the Zyme-FlowTM Process Division was spun-off for the benefit of Nicholas and Maureen Savaiano, to the detriment of United Labs. Plaintiffs further allege that, on the Savaiano Defendants' watch, Nicholas and Maureen Savaiano were paid unreasonable and excessive salaries, benefits, and management fees; corporate assets were transferred to Nicholas Savaiano, Maureen Savaiano, and their relatives; proceeds from certain bank loans were paid to Nicholas and Maureen Savaiano to the financial detriment of the ESOP I and the ESOP II; and Maureen Savaiano accepted improper lease payments from United Labs.Plaintiffs assert that the Savaiano Defendants are liable for engaging in prohibited transactions (Count II), breaching their fiduciary duties to the ESOP II and United Labs (Counts III-V), unjust enrichment (Count VI), and conspiracy (Count IX).

In their Third-Party Complaint Against McDermott Will & Emery LLP ("McDermott"), the Savaiano Defendants/Third-Party Plaintiffs*fn4 contend that McDermott "will have liability to the Savaiano Defendants if the Savaiano Defendants have any liability to the Plaintiffs" in relation to Counts III, V, VI and IX (the "Claims"). (Third-Party Compl. ¶¶ 7, 11). The Savaianos' theory of recovery is based on their claim that McDermott "represented and provided legal advice to: (I) United Labs; (ii) ULI; (iii) Nicholas Savaiano as trustee of ESOP I and ESOP II; (iv) Nicholas Savaiano and the other Savaiano Defendants in their capacities as officers and directors of United Labs and ULI; and (v) Nicholas and Maureen Savaiano individually." (Id. ¶ 15). The Savaianos contend that McDermott "represented to the Savaiano Defendants that the transactions that are the subject of Plaintiffs' Claims did not violate any law or duties of the Savaiano Defendants," and that the Savaianos relied on McDermott's representations to their detriment. (Id. ¶¶ 18-20; 25-27). The Savaianos allege that McDermott is potentially liable to them for legal malpractice (Count 1) or, in the alternative, for negligent misrepresentation (Count 2).

On June 22, 2007, McDermott filed a Motion to Dismiss the Third-Party Complaint. (Dkt. No. 158). For the reasons stated below, McDermott's Motion to Dismiss the Third-Party Complaint is granted in part and denied in part. The motion is granted as to Count II, which is dismissed with prejudice. The motion is denied as to Count I, which remains pending against McDermott.

LEGAL STANDARD

Under the Federal Rules of Civil Procedure, a complaint generally needs to include only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In other words, the complaint must "give the defendant fair notice of what the. . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1969 (May 21, 2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); see also Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007). As long as the factual allegations in the complaint "raise a right to relief above the speculative level" and plead "enough facts to state a claim to relief that is plausible on its face," the complaint will withstand a 12(b)(6) challenge. Killingsworth, 507 F.3d at 618 (quoting Bell Atlantic, 127 S.Ct. at 1965, 1974). The crux of the court's analysis is whether the factual detail in the complaint provides the defendant with sufficient notice of the claims alleged against him or her. Id. at 619 (citing Airborne Beepers & Video, Inc. v. AT & T Mobility, LLC, 499 F.3d 663, 667 (7th Cir. 2007)).

In conducting its analysis, the court assumes that all well-pleaded allegations in the complaint are true. Erickson v. Pardus, ___ U.S. ___, 127 S.Ct. 2197, 2200 (2007) (quoting Bell Atlantic, 127 S.Ct. at 1965). However, a plaintiff can plead herself out of court if a complaint includes facts that undermine its own allegations. Kolupa v. Roselle Park Dist., 438 F.3d 713, 715 (7th Cir. 2006). Any exhibits attached to a complaint are considered to be a part of the pleadings. Moranski v. Gen. Motors Corp., 433 F.3d 537, 539 (7th Cir. 2005).

ANALYSIS

1. Statute of Repose

Both McDermott and the Savaianos agree that, under Illinois law, a six-year statute of repose applies to all actions brought against attorneys "arising out of an act or omission in the performance of professional services." 735 Ill. Comp. Stat. 5/13-214.3(b) and (c). This six-year period begins to run on the last date on which the attorney performed the work at issue. Carlen v. First State Bank of Beecher City, 857 N.E.2d 696, 700 (Ill. App. Ct. 5th Dist. 2006).

A statute of repose is an affirmative defense, and, in federal court, "[c]complaints need not anticipate or attempt to defuse potential defenses." Doe v. Smith, 429 F.3d 706, 709 (7th Cir. 2005). If the allegations of the Complaint include facts sufficient to establish an affirmative defense, however, a court may dismiss the claim pursuant to Rule 12(b)(6). Hollander v. Brown, 457 F.3d 688, 691 n.1 (7th Cir. 2006) (citing United States v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005)).

In this case, McDermott argues that "the statute of repose bars almost all of the Third-Party Complaint." (Dkt. No. 160 at 5). Specifically, McDermott asserts that the Savaianos' third-party claims are time-barred to the extent they seek redress for legal advice or representations related to those acts which took place in or around August 1996, when the ESOP II was formed and United Labs purchased the Shares from the Savaiano Defendants. The court agrees that such claims are time-barred under the Illinois statute of repose.*fn5 To the extent the Savaianos seek to hold McDermott liable for legal advice or representations made in 1996, the Savaianos' claims are time-barred.

However, Plaintiffs also seek to hold the Savaianos liable for events that may have occurred more recently. For example, Plaintiffs allege that, as Trustee to the ESOP I and the ESOP II, Nicholas Savaiano "fail[ed] to assert a claim for the overcharge on the purchase of the Shares on behalf of the ESOP II." (Am. Compl. ΒΆ 212(l)). Nicholas Savaiano was Trustee of the ESOP II from December, 1996 until his death in February, 2004. In their Response, the Savaianos argue that "the proof will show that Nick Savaiano received advice from [McDermott] with respect to any alleged overcharge within the statute of repose." (Dkt. No. 169 at 9-10) (emphasis added). Because the allegations of the Third-Party Complaint, which includes the Amended Complaint as an attached exhibit, do ...


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