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On Command Video Corp. v. Roti

April 30, 2010


The opinion of the court was delivered by: Judge Robert W. Gettleman


Plaintiff/Counter-Defendant, On Command Video Corporation ("OCV"), has filed a two-count complaint against Defendant/Counter-Plaintiff, Sam Roti ("Roti"), alleging fraud and, under a theory of piercing the corporate veil, seeking enforcement of a default judgment entered against Markwell Properties, LLC ("MP")--of which Roti is allegedly the alter ego--in Colorado state court and registered in the Circuit Court of Cook County, Illinois. In response to the complaint, Roti has filed counterclaims alleging fraudulent inducement and breach of contract. Roti has also raised seven affirmative defenses: (1) unclean hands, (2) fraud, (3) estoppel, (4) failure to mitigate damages, (5) waiver, (6) assumption of risk, and (7) failure to state a claim.

OCV has filed a motion to dismiss the counterclaims pursuant to Fed. R. Civ. P. 12(b)(6) and to strike five of the affirmative defenses (unclean hands, fraud, estoppel, waiver, assumption of risk) pursuant to Fed. R. Civ. P. 12(f). For the reasons stated below, OCV's motion to dismiss Roti's counterclaims and to strike Roti's first, second, third, fifth, and sixth affirmative defenses is granted.


The facts alleged in the complaint are taken as true for purposes of the instant motion. Bontkowski v. First Nat'l Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). OCV provides cable programming and pay-per-view movie services to hotels. Roti was the sole member and agent of MP. In addition, Roti formed Markwell Hillside, LLC ("MH"), through which he purchased Holiday Inn Hillside ("the Hotel") located at 4400 Frontage Road, Hillside, Illinois.

OCV had an existing contract with the previous owners of the Hotel, and MH assumed this contract when it bought the Hotel. In or about November 2004, OCV and MH attempted to renew the contract, but MH could not secure the necessary credit approval. Roti alleges that OCV's representative, David Redpath ("Redpath"), suggested that MP step into MH's shoes to save the contract, and that OCV was informed that MP owned few assets. Roti further alleges that OCV orally represented that Roti would have no personal liability for the contract. At the time, OCV allegedly knew this representation was false and intended to pursue Roti personally for debts incurred by MP.

On December 28, 2004, Roti signed a video services agreement ("the VSA") with OCV through August 16, 2012, as "Member" and "Registered Agent" of MP. OCV signed the VSA on February 4, 2005. No personal guaranty was signed.

In his answer to OCV's complaint, Roti denies that MP was served with OCV's May 3, 2007, complaint for breach of contract in the Denver County District Court in Colorado. MP failed to appear, and a default judgment was entered on October 16, 2007, in the sum of $261,058.31. On September 17, 2008, OCV registered the Colorado judgment in the Circuit Court of Cook County, Illinois. OCV brought the instant case to hold Roti personally liable for the judgment.


Motion to Dismiss

The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to rule on its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). When considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court accepts all well-pleaded allegations of the complaint as true and draws all reasonable inferences in the counter-plaintiff's favor. See McMillan v. Collection Prof'ls, Inc., 455 F.3d 754, 758 (7th Cir. 2006). Nevertheless, the complaint must plead sufficient facts to suggest plausibly that the plaintiff is entitled to relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955 (2007).

Allegations of fraud are subject to a heightened pleading standard. Fed. R. Civ. P. 9(b). Fraud must be pled with particularity, which means the complaint must allege the "who, what, when, where and how" of the fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).

Fraudulent Inducement (First Counterclaim)

Roti's first counterclaim alleges that MP, not Roti, entered into the contract with OCV based on a fraudulent representation that OCV would not enforce the contract against Roti. In addition to the likely conclusion that the alleged representation was a promise of future conduct that would not be recognized as fraudulent under Illinois law,*fn2 the first counterclaim appears to be nothing more than a defense to the underlying ...

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