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Zang v. Alliance Financial Services of Illinois

May 7, 2009

JOHN ZANG, PLAINTIFF
v.
ALLIANCE FINANCIAL SERVICES OF ILLINOIS, LTD. AND BURTON STERN, DEFENDANTS



The opinion of the court was delivered by: Michael T. Mason United States Magistrate Judge

Hon. Michael T. Mason

MEMORANDUM OPINION AND ORDER

Before the Court is defendants' motion [24] under Fed. Rs. Civ. P. 12(b)(6) and 12(b)(1) to dismiss plaintiff's complaint and memorandum of law in support [25]. Plaintiff has filed a response [29], and defendants have filed a reply [37]. The Court heard oral arguments on the motion on 1/29/09, but held its ruling in abeyance pending the parties' settlement discussions. Based on plaintiff's representation that he is no longer interested in pursuing such discussions at this time, the Court has lifted the stay on the motion [44].

I. BACKGROUND

The complaint [1] sets forth the following allegations relevant to the pending motion. Plaintiff John Zang ("plaintiff" or "Zang") is a resident of Lexington, Michigan, and at "all relevant times was interested in purchasing a company to own and manage." (Compl. ¶ 1.) Defendant Alliance Financial Services of Illinois, Ltd. ("Alliance") is an Illinois corporation with its principal place of business in Chicago, Illinois. (Id. ¶ 2.)

Defendant Burton Stern ("Stern") is a resident of Chicago, Illinois and is the president of Alliance. (Id. ¶ 3.) Defendants are "in the business of providing consulting and accounting services" to assist individuals in locating and financing businesses for purchase. (Id. ¶ 2.)

On or about June 19, 2007, Zang contacted Alliance in response to an advertisement Alliance placed on a website that "promised companies for acquisition with NO principal payments" and that "Alliance will provide Buyer with Investment Bankers." (Compl. ¶ 6.) Later that month, Zang traveled to Alliance's Chicago office and met with Stern. (Id. ¶ 7.) At that meeting, Stern represented that Alliance would use its best efforts to locate a company for Zang to purchase and would arrange the financing for the purchase by obtaining a bank loan and using the proceeds to purchase life insurance sureties. (Id.) A copy of the diagram Stern gave Zang at this meeting to explain the financing Alliance would obtain for Zang is attached to the complaint at Exhibit B. Stern also stated that once Zang purchased a company through Alliance, Zang would pay Alliance a fee of 3% of the closing price of the business, but that such a fee would be due only if Zang closed on a business purchase. (Id. ¶ 8.) Stern requested a $5,000 "refundable" retainer, which Zang paid. (Id. ¶¶ 8, 9.)

Despite Stern's representations that Alliance would locate and finance potential companies for Zang to purchase, Alliance sent Zang only a few outdated listings for companies found through publicly available internet searches. (Compl. ¶ 10.) Just one of those companies met the cash flow criteria Stern informed Zang a potential acquisition should meet. (Id.) However, this company was located in Southern Texas. (Id.) Zang had previously informed Stern that he wanted to purchase a company in the Midwest and Stern agreed to locate a Midwest company for acquisition. (Id.)

Zang himself located two companies and instructed Alliance to pursue purchases of each. (Compl. ¶ 11.) At Stern's insistence, Zang gave him checks for $14,500.00, and $18,000.00, supposedly as down payments for the purchases of these companies and to fund Alliance's efforts to secure financing for the deals. (Id. ¶¶ 12-15.) Ultimately, neither deal was consummated, and Stern refused to refund any portion of the amounts, totaling $37,500.00, that Zang had paid. (Id. ¶¶ 18-19.)

On June 11, 2008, Zang filed the pending complaint against Alliance and Stern [1]. The complaint alleges eight counts, all but two of which are based on Illinois state common and statutory law (Counts II-V, VII-VIII). As for the two counts asserted under federal law, Count I asserts defendants violated Section 10(b) of the Securities Exchange Act because their "material misstatements and deceptive acts were made in connection with the purchase or sale of a security, specifically, life insurance sureties." (Compl. ¶ 25.) Count VI asserts defendants violated the Lanham Act by making "false" and "misleading" "representations of fact in commercial advertising about [Alliance's] products and services." (Id. ¶¶ 49, 48.)

Zang asserts this Court has federal question jurisdiction under 28 U.S.C. § 1331 over Counts I and VI and supplemental jurisdiction over the Illinois state law claims under 28 U.S.C. § 1367. (Compl. ¶ 4.)

II. LEGAL STANDARD

Defendants have moved to dismiss Counts I and VI under Rule 12(b)(6) and the remaining counts under Rule 12(b)(1).

A complaint will withstand a motion to dismiss under Rule 12(b)(6) "if it provides a short and plain statement of the claim showing that the pleader is entitled to relief that is also sufficient to provide the defendant with fair notice of the claim and its basis." INEOS Polymers Inc. v. BASF Catalysts, 553 F.3d 491, 497 (7th Cir. 2009) (citations and quotations omitted). To demonstrate that he is entitled to relief, however, a plaintiff must show through his allegations that it is plausible, rather than merely speculative, that he is entitled to relief. Id. In ruling on a motion to dismiss for failure to state a claim, the court must accept the allegations as true and draw all reasonable inferences in favor of the pleader. Id. Where, as here, a motion to dismiss under Rule 12(b)(1) contends that the complaint's allegations are facially insufficient to show jurisdiction, the ...


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