The opinion of the court was delivered by: Joe Billy Mcdade United States Senior District Judge
Tuesday, 22 March, 2011 08:41:05 AM
Clerk, U.S. District Court, ILCD
Before the Court are the Motion for Default Judgment filed by Plaintiffs (Doc. 18), the Motion for Reconsideration filed by Plaintiffs (Doc. 21), and the Motion to Dismiss filed by Defendants ILS Financing, Inc. and Ward Feed Yard, Inc. For the reasons set forth below, the Motion for Default Judgment is DENIED WITHOUT PREJUDICE, the Motion for Reconsideration is GRANTED, and the Motion to Dismiss is GRANTED IN PART.
Plaintiff's Amended Complaint (Doc. 20) alleges that Defendants Mark Ray and Berwick Black Cattle Company, (collectively referred to as the "Ray Parties"), engaged in a so-called "ponzi scheme" when they solicited and accepted investments from Plaintiff in their cattle raising business. The claims made by Plaintiff were the subject of a previous Motion to Dismiss and an Order entered on March 17, 2010 (Doc. 17) (hereinafter "previous Order"). The Amended Complaint attempts to cure pleading deficiencies highlighted by the Court. These deficiencies primarily related to confusion as to the relationship between Defendants.
In the Amended Complaint, Plaintiff essentially asserts that the Ray Parties are alter egos of each other and that Defendant Ward Feed Yard, Inc. ("Ward") is the alter ego of the Ray Parties. Plaintiff further alleges that Defendants Ward and ILS Financing, Inc. ("ILS") are wholly owned subsidiaries of WFY Holding Co. ("WFY"). Additionally Plaintiff alleges that ILS assumed Ward's role in financing the Ray Parties' cattle operation in late 2005, thereby becoming liable for any damages that may be imposed against Ward in this case. Count I of the Amended Complaint alleges that the Ray Parties committed fraud, and Count II alleges that the Ray Parties breached contracts, namely written guarantees given Plaintiff respect to the investments and the partnership arrangements, by failing to make timely principal and interest payments. Count III is an alter ego claim directed against Ward. Plaintiff specifically alleges that during a "control period," (June 2005 to December 2006), Ward "exercised such substantial ~ dominion and control over the business and financial affairs of the Ray Parties . . . that the Ray Parties became the alter egos and mere instrumentalities of Ward." Count IV alleges a state law claim pursuant to Illinois' Fraudulent Transfer Act directed against Ward. Finally, Count V alleges successor liability against ILS.
The Ray Parties have not entered an appearance in this action, and entry of default was entered on September 30, 2010. In their Motion to Dismiss, Ward and ILS essentially argue that Plaintiff's Amended Complaint failed to comply with this Court's previous order of dismissal.
In that previous Order, this Court found that Plaintiff had sufficiently plead a "unity of interest and ownership" and the "promotion of injustice," Gass v. Anna Hosp. Corp., 911 N.E.2d 1084, 1091 (Ill. App. Ct. 2009); Sea-Land Services, Inc. v. Pepper Source, 941 F.2d 519, 524 (7th Cir. 1991), and thus had sufficiently stated an alter ego breach of contract claim but not a fraud claim against Ward. However, this Court found that Plaintiff failed to state an alter ego based claim against ILS (and other Defendants named in the previous Complaint), and had failed to outline the relationship between Ray and Berwick. Plaintiff was then ordered to file more definite statements outlining these relationships.*fn1 This Court further noted that an "alter ego" claim is not freestanding but merely a means of imposing liability on underlying claims, namely the fraud and breach of contract claims. See Peetoom v. Swanson, 778 N.E.2d 291, 295 (Ill. App.Ct. 2002). The import of this observation is that a freestanding alter ego claim is not viable. And, while Plaintiff may assert that Ward is liable, under an alter ego theory, with respect to the breach of contract claim, his fraud claim was generally vague and was insufficient to allow a reasonable inference that liability would attach to Ward on an alter ego theory.*fn2
Thus, Plaintiff was given leave to re-plead the fraud claim consistent with Federal Rule of Civil Procedure 9, that is, he was directed to plead fraud with particularity. Finally, with respect to the state law fraudulent transfer claims, this Court found that Plaintiff's claims against ILS and other original Defendants were vague and insufficiently pled. Plaintiff was directed to file a more definite statement.*fn3 With respect to Ward, this Court found that Plaintiff's claims arise from the "insider preferences" clause of Illinois' Fraudulent Transfer Act (UFTA). 740 ILL. COMP.
STAT. § 160/6(b), and that Plaintiff sufficiently stated a cause of action. However, this Court found that the claim was time-barred. In summary, this Court directed Plaintiff to provide a more definite statement with respect to each of the Counts in a manner consistent with the holdings of the previous Order.
Each Count and argument will now be taken in turn.
I. Count I: Fraud Against The Ray Parties
In Count I, Plaintiff has elected to only proceed against the Ray Parties and not against Ward and ILS. In this claim, Plaintiff asserts that:
The Ray Parties' representations to plaintiff, directly and through Mr. Throgmartin, that the funds plaintiff sent to the Ray Parties during the period roughly late 2004 through September 2005 were being used to purchase cattle through cattle partnerships were untrue. (Amended Comp. ¶ 62).
Plaintiff goes on to allege that the statements were untrue, that Plaintiff had a right to rely on the statements, and that he in fact reasonably relied on these statements to his detriment. (Am. Comp. ¶¶ 63, 65, ...