The opinion of the court was delivered by: Joe Billy Mcdade Senior United States District Judge
Before the Court are the Motion to Dismiss and Motion to Strike Jury Demand filed by Defendants Ward Feed Yard, Inc., ILS Financing, Inc., WFY Holding Co., and Leon Borck, on August 3, 2009 (Doc. 10) and the Motion for Leave to File a Reply filed by the same Defendants on September 29, 2009 (Doc. 15). The Motion to Dismiss is GRANTED IN PART and DENIED IN PART, the Motion to Strike is GRANTED, and the Motion for Leave is DENIED.
In early 2004, Joseph Bonar entered into a partnership agreement with Berwick Black Cattle Company, which is owned by Mark Ray (collectively "Ray entities"), for the purchase of cattle. According to the Complaint [Doc. 1], Bonar put up $10 million from February 2004 to September 2005 with the understanding that the Ray entities would use the funds to purchase and resell cattle. In exchange, the Ray entities guaranteed that Bonar would see a return of the principal amount in addition to profits on the sale of cattle and/or interest payments. The venture initially generated a return to Bonar; however, by the end of 2005, Bonar did not see the return of $7.7 million in principal and $1 million in interest. Bonar alleges that the Ray entities used the money to buy and resell cattle and either used the proceeds themselves or pay other creditors. Thus, Bonar alleges that the Ray entities breached their contract with him.
Plaintiff also alleges that the Ray entities committed fraud. Plaintiff states that the Ray entities represented, through Ron Throgmartin, their agent, that the funds he would furnish would be pooled with other funds and used for the purchase of cattle, that the cattle would then be resold in weeks or a few months, and that he would see a return on these short-term cattle sales. Based on these representations, Plaintiff agreed to invest significant funds. Plaintiff then asserts that the Ray entities, presumably through Throgmartin, made additional representations of how his investment was being spent. Plaintiff, relying on these statements, invested additional money in the Ray entities' scheme. However, Plaintiff asserts that the Ray entities knew that these representations were untrue, that he relied on these untrue statements, and that he suffered damages as a result.
On December 26, 2006, Berwick and Ray were subject to separate involuntary Chapter 11 bankruptcy proceedings. Orders for Relief were entered in those proceedings on February 1, 2007, and the cases were ultimately dismissed on January 15, 2009. The Ray entities have failed to appear in the case at bar and an entry of default was made by the Clerk on September 30, 2009.
The remaining Defendants, Leon Borck, Ward Feed Yard, Inc. (hereinafter Ward), ILS Financing, Inc. (hereinafter ILS), and WFY Holding Co. (hereinafter WFY) (collectively "Ward entities"), are interrelated. The Complaint alleges that Ward and ILS are wholly owned subsidiaries of WFY. The Complaint further alleges that Borck is the president, chief executive officer, and chairman of the board of WFY, Ward, and ILS. Ward owns 6 cattle farms in Kansas and Nebraska.
The Complaint alleges that prior to the bankruptcy proceedings, the Ray entities were customers of Ward and they entered into various financial agreements. The Complaint details these financial arrangements and ultimately alleges that all of the Ward entities exercised control over the Ray entities' funds, assets (i.e. cattle) and payments made to the Ray entities' creditors such that the Ward entities determined which creditors to pay, including themselves. As such, the Complaint alleges that the Ward entities acted as an alter ego of the Ray entities and that the Ray entities were mere instrumentalities of the Ward entities (Count III). Plaintiff alleges that the Ward entities are liable for the indebtedness of the Ray entities. Plaintiff further alleges that the Ward entities violated Illinois' Fraudulent Transfer Act, 740 Ill. Comp. Stat. § 160/1 et seq., by ensuring, through their control of the Ray entities, that their debt had priority (Count IV).
Motion for Leave to File Reply
Local Rule 7.1(B)(3) provides that no reply to a response is permitted. Other than indicting that a reply is "warranted," Defendants have not explained why the local rule should be disregarded.
In considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must view a complaint in a light most favorable to the plaintiff. Williams v. Ramos, 71 F.3d 1246, 1250 (7th Cir. 1995). The Court must accept all well-pleaded factual allegations and draw all reasonable inferences from those facts in favor of the plaintiff. Richards v. Kiernan, 461 F.3d 880, 882 (7th Cir. 2006). A plaintiff is not required to plead extensive facts, legal theories, or to anticipate defenses. Massey v. Merrill Lynch and Co., Inc., 464 F.3d 642, 650 (7th Cir. 2006). However, a plaintiff must "provide the grounds of his entitlement to relief" that are "more than labels and conclusion  [or] a formulaic recitation of the elements of a cause of action." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964-1965 (2007) (citations and editing marks omitted). In particular, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. at 1965. Rule 12(f) provides that any redundant, immaterial, impertinent, or scandalous matter may be stricken from a pleading. The Ward entities seek dismissal of Counts III and IV and striking of the jury demand.
As indicated above, Count III alleges that the Ward entities are alter egos of the Ray entities and that they are liable for the claims made in Count I, asserting fraud, and Count II, a breach of contract claim. In Count III, Plaintiff seeks to benefit from the equitable doctrine that "[i]f one corporation is merely a dummy or sham for another corporation, the distinct corporate entities will be disregarded and the two corporations will be treated as one." Gass v. Anna Hosp. Corp., 911 N.E.2d 1084, 1091 (Ill. App. Ct. 2009). In order to pierce the corporate veil, Plaintiff must ultimately show that "(1) there is such a unity of interest and ownership that the separate personalities of the corporations no longer exist and (2) circumstances exist so that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences." Id.; In re Rehabilitation of Centaur Ins. Co., 606 N.E.2d 291, 300 (Ill App. Ct. 1992) (for the alter ego doctrine to apply "two requirements must be met. First, there must be such a unity of interest and ownership that the separate personalities of the corporation and the dominating individual or entity no longer exist. Second, the facts must be such that an adherence to the fiction of separate corporate existence would endorse a fraud or promote injustice."); See also Van Dorn Co. v. Future Chemical and Oil Corp., 753 F.2d 565, 569-570 (7th Cir. 1985). The first prong is determined based on a variety of factors including:
(1) inadequate capitalization; (2) failure to issue stock; (3) failure to observe corporate formalities; (4) nonpayment of dividends; (5) insolvency of the debtor corporation; (6) nonfunctioning of the other officers or directors; (7) absence of corporate records; (8) commingling of funds; (9) diversion of assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors; (10) failure to maintain arm's-length relationships among ...