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Richard Knorr International, Ltd. v. Geostar

August 25, 2010

RICHARD KNORR INTERNATIONAL, LTD., AND RICHARD KNORR, INDIVIDUALLY, PLAINTIFFS,
v.
GEOSTAR, INC., A FOREIGN CORPORATION, MACAO DEVELOPMENT COMPANY, A FOREIGN CORPORATION, ROCO KI MANAGEMENT, INC., A FOREIGN CORPORATION, ROCO KI SERVICES, INC., A FOREIGN CORPORATION, MACAO BEACH RESORT, INC., A FOREIGN CORPORATION, ESTATES AT MACAO BEACH RESORT, INC., A FOREIGN CORPORATION, MACAO BEACH REAL ESTATE, INC., A FOREIGN CORPORATION, HACIENDAS ACQUISITION, INC., A FOREIGN CORPORATION, MACAO ACQUISITION, INC., A FOREIGN CORPORATION, AND RESORT RESOURCES, INC., A FOREIGN CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Honorable David H. Coar

MEMORANDUM OPINION AND ORDER

Richard Knorr and Richard Knorr International, Ltd. ("RKI") have filed suit against Geostar, Inc. and several of its subsidiary corporations for breach of contract, breach of fiduciary duties, and constructive fraud. The defendants have moved to dismiss Knorr's first amended complaint for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). Now that the jurisdictional dust has settled, five of the defendants remain parties to this motion: Macao Beach Resort ("MBR"), Estates at Macao Beach Resort ("EMBR"), Haciendas at Macao Beach Resort ("HMBR") (collectively, "the Operating Companies"); Geostar; and Resort Resources. (See Dkt. No. 125, Memorandum Opinion and Order of 3/30/2010.) For the reasons set forth below, their motion to dismiss for failure to state a claim is GRANTED.

FACTS*fn1

The relevant allegations in the complaint, which the court must take as true for present purposes, are as follows: Richard Knorr and his architectural and real-estate-development firm RKI (collectively, "Knorr") conceived of "Roco Ki," a combination of a destination resort and residential community to be situated on the Caribbean shore of the Dominican Republic. In 2001, Knorr was introduced to Geostar, an investment company that develops high-end hotel and real-estate projects around the world, and Geostar "sought to be the primary sponsor, financier, and owner of the Roco Ki development."

Geostar then formed "an intricate network of off-shore corporations to act as holding companies and tax shelters, and to disguise the beneficial ownership of the Roco Ki development." Most of these subsidiaries share agents, officers, and directors with Geostar; moreover, Geostar and Macao Development Company ("Macao") "exercise complete and direct control" over the other subsidiaries' activities. Knorr is a minority shareholder in the Operating Companies. The majority shareholder in HMBR is Macao; the complaint says nothing further about ownership of MBR or EMBR.

From 2003-2006, representatives of Geostar and its subsidiaries met at Knorr's Chicago office "to fashion a joint enterprise for the Roco Ki development." The purpose of the meetings was "to discuss and plan the land acquisition, to plan and implement sales and marketing strategies, to plan and formalize any consulting contract formation, to plan and formalize investment and subscription agreements, to plan and implement the accounting and budgetary policies and procedures, and to plan and formalize the schedule of financing." These meetings were held at Knorr's office because neither Geostar nor any of its subsidiaries had any office space in the United States.

The initial phase of the Roco Ki project was the development of the land owned by the three Operating Companies, known as Parcel A. As construction and development on Parcel A progressed, disputes arose between Knorr and the defendants "about numerous matters including, but not limited to, the development, financing, and overall management of the Roco Ki development." In an effort to settle these disputes, Knorr and the defendants entered mediation. On April 2, 2007, the parties reached a settlement agreement at a mediation session conducted by retired federal judge Richard B. McQuade, Jr. Knorr has attached to his complaint a letter from Judge McQuade setting out the terms of the agreement. (See Compl., Ex. A.) The agreement provides, among other things, that Knorr would relinquish his intellectual property and his equity in the Roco Ki venture, in exchange for $40,000,000 plus a beachfront estate and one or two marina slips at Roco Ki. The defendants were also to continue the parties' "present arrangement" of making $120,000 "transitional" payments to Knorr every other week until the purchase of his stock was completed on the agreed upon five-year schedule. Knorr is no longer managing the Roco Ki development.

In 2008, Knorr filed this suit. In Count I, he alleges that Geostar and the Operating Companies have breached the settlement agreement by refusing to close the sale of Knorr's stock in the Operating Companies and by failing to make the required payments and real-estate transfers. In Count II, Knorr alleges that Geostar and HMBR have breached their fiduciary duties to Knorr by engaging in various schemes to deplete HMBR of the assets that were to be used to satisfy their obligations under the settlement agreement. In Count III, Knorr alleges that Geostar, the Operating Companies, and Resources committed constructive fraud by engaging in these schemes and by deceiving Knorr into believing that they were capable of performing the settlement agreement. Further details are set forth below, as they become relevant to the court's analysis of each claim.

LEGAL STANDARD

To survive a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a complaint need only contain a "short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), that is, "a claim to relief that is plausible on its face." Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) (Twombly applies to "all civil actions"). This requirement imposes two relatively low hurdles. First, a complaint "must describe the claim in sufficient detail to give the defendant 'fair notice of what the claim is and the grounds upon which it rests.'" EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 127 S.Ct. at 1964). Second, the allegations "must plausibly suggest that the defendant has a right to relief, raising that possibility above a 'speculative level.'" Concentra, 496 F.3d at 776. If the allegations do not suggest a right to relief-if for instance, a plaintiff relies merely on conclusions, labels, or formulaic recitations of the elements of a cause of action-a Rule 12(b)(6) motion should be granted. See Twombly, 550 U.S. at 570.

Where, as here, the plaintiff submits along with its complaint copies of contracts or other documents referenced therein, the court also may consider those documents without converting a motion to dismiss into one for summary judgment. Beanstalk Group, Inc. v. AM General Corp., 283 F.3d 856, 858 (7th Cir. 2002). That includes a purported copy of an agreement to which the statute of frauds applies. See id.

ANALYSIS

Count I: Breach of Contract In Count I, Knorr alleges that Geostar and the Operating Companies have breached the parties' mediated settlement agreement.*fn2 The defendants correctly respond that the statute of frauds bars this claim because the alleged agreement was never set forth in a signed writing.

Oral settlement agreements are enforceable in Illinois, subject to the statute of frauds. Lynch, Inc. v. SamataMason, Inc., 279 F.3d 487, 490 (7th Cir. 2002) (Illinois citations omitted). The Frauds Act provides, as relevant here, that "no action shall be brought... upon any agreement that is not to be performed within the space of one year from the making thereof" unless the agreement is "in writing, and signed by the party to be charged therewith." 740 ILCS 80/1 (2010). Similarly, an action for breach of "any contract for the sale of lands, tenements or hereditaments or ...


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