The opinion of the court was delivered by: Harry D. Leinenweber, JudgeUnited States District Court
MEMORANDUM OPINION AND ORDER
Before the Court are Defendants' Motions to Dismiss Plaintiffs' Consolidated Complaint, and the Consolidated Motion of the two Rubloff entities to dismiss the Counter-Complaint of Defendant The Saint Consulting Group (hereinafter, "Saint"). For the following reasons, the Defendants' Motions to Dismiss are granted and the Rubloff entities' Motion to Dismiss is denied in part and granted in part.
At the heart of this case is the battle for grocery shoppers' dollars in suburban Chicago. Plaintiffs develop shopping centers and say Defendants used sneaky and underhanded tactics to try to kill or delay their developments, which would have included grocery stores that compete with Defendant SuperValu, Inc. ("SuperValu").
Plaintiffs brought actions alleging federal and state antitrust violations, RICO violations, tortious interference with prospective economic advantage, common law fraud, abuse of process and conspiracy to commit overt tortious and unlawful acts.
Defendants do not really deny they were sneaky, but claim being sneaky is legal under the Constitution. Defendant Saint brings Counterclaims against the two Rubloff entities, contending these Plaintiffs paid a former Saint employee to hand over confidential information, which exposed their underhanded tactics. Saint alleges inducement of breach of fiduciary duty, conversion, replevin, tortious interference with contractual relations and misappropriation of trade secrets.
Plaintiff Rubloff Development Group, Inc. ("Rubloff Development") is a Rockford, Illinois corporation. Plaintiff Rubloff Mundelein, LLC ("Rubloff Mundelein") is also in Rockford. (The Rubloff entities are referred to collectively as "Rubloff"). Rubloff develops commercial real estate, including shopping centers. All other Plaintiffs are collectively referred to as "McVickers," and have their primary place of business in Buffalo Grove, Illinois. They, too, develop commercial real estate.
Defendant SuperValu, Inc. ("SuperValu") is a Delaware corporation headquartered in Minnesota. It has interests in many grocery store chains, such as Albertson's, Jewel-Osco, Cub and others.
Defendant Saint is both incorporated in and has its principal place of business in Massachusetts. It is a consulting firm that advertises itself as "protect[ing] clients from unwanted competition" and touts its staff as "Walmart killers."
Rubloff acquired a purchase option on a parcel near Mundelein, Illinois (the "Mundelein Development") that was annexed to the village in 2005. Rubloff planned to develop a shopping center, and signed an agreement with Menards to buy part of the parcel. It also reached an agreement "in principle" with Walmart for another portion of the parcel and signed lease agreements with several other big-name stores. Rubloff expected construction to start in 2007 and finish in 2008.
In December 2005, Rubloff began talking with landowners near the parcel as part of its development efforts. Rubloff contends these meetings were going along just swimmingly -- that nearby landowners did not object to the development in principle -- when it ran into a wall.
Several landowners retained the unfortunately named attorney William Graft ("Graft"), who began pressing certain objections to the development, both in hearings with the village and in court. Landowners objected to the loss of wetlands, possible grease and oil runoff from the parking lot, traffic congestion, landscaping plans, fencing, lighting and other concerns. Two groups of landowners (the "Acker" plaintiffs and the Ivanhoe Country Club "Ivanhoe") sued the Mundelein in the fall of 2007 in Lake County Circuit Court, alleging violations of due process rights in zoning approvals Mundelein had granted. These cases were consolidated. Ivanhoe also filed suit directly against Rubloff in January 2009, alleging nuisance and trespass against the not-yet-developed shopping center. The legal fight continued until January 2011, when Mundelein and Rubloff settled all three lawsuits, with Rubloff agreeing to certain redesigns and paying out a total of $200,000 to various plaintiffs.
The battles caused great delay and the Mundelein development is still not built, and may never be, according to Plaintiffs. Rubloff claims millions of dollars of expenses due to the delays and millions in lost profits.
Meanwhile, in New Lenox, Illinois, McVickers was also planning a shopping center (the "New Lenox Development"). It acquired 73 acres in 2005, and signed land sale contracts with Walmart and Menards. It also had lease or purchase agreements with Aldi Foods and many other big-name stores. Like Rubloff, it expected to break ground in 2007 and complete construction in 2008. It, too, ran into problems getting permits from New Lenox and the Illinois Department of Transportation ("IDOT"). Its construction start was delayed until late 2009, forcing it to pay additional purchase option fees and suffer the loss of several stores. It also claims lost sales tax revenue due to the delays, and attributes Menards' indefinite delay in building on its parcel to the delays.
All of this bad fortune would likely have been attributed simply to the whim of NIMBY ("Not In My Backyard") residents had it not been for a man named Greg Olson ("Olson"). Or, more accurately, a man named Leigh Mayo ("Mayo"), which was Greg Olson's real name. Mayo contacted Rubloff co-founder Robert Brownson ("Brownson") in August 2009 and dropped a bombshell.
Mayo was an agent provocateur for Saint and used the pseudonym of Olson to organize local opposition to the Mundelein development. SuperValu had retained Saint in 2007 and Mayo, in turn, had engaged Graft to represent community landowners before the Mundelein Village board and in the state court proceedings. Plaintiffs allege community members were never told that Graft was actually being paid by SuperValu. Saint's practice was to have "project managers" like Mayo use pseudonyms, even employing e-mail accounts utilizing the pseudonyms.
Over the course of several meetings, Saint alleges, Brownson, a lawyer, learned that Mayo had signed a confidentiality agreement but nonetheless induced him (by paying Mayo) to turn over roughly 3,000 Saint documents. The documents revealed that Saint's avowed purpose was to delay or kill the development, and delays won at village hearings and in court were celebrated with glee. In one report to SuperValu, Saint boasted "the hearings under administrative review could take an enormous amount of time as court dockets are clogged and a Judge will allow us to present testimony for as long as we desire." Pl.'s Compl. 8. Attorney Graft celebrated delays as well, updating Saint on litigation progress and also reveling in delays. "Happy 1 year Anniversary, by the way. We cost these guys [Rubloff] a ton of money," he wrote to Saint. Id. at 14.
Other questionable tactics included the rewriting of expert reports for use in litigation, "backchannel" communications with a Lake County judge to try to get a read on how that litigation would turn out, and attorney Graft's failure to promptly forward settlement offers to his landowner clients, presumably as another delay tactic.
The exposure of these documents to public light in a Wall Street Journal article cost Saint at least one client, it alleges.
Plaintiffs and Saint agreed to proceed to summary judgment on one count of Plaintiffs' First Amended Complaint, which sought a declaratory judgment that "no privilege, trade secret, or other protection exists" in the Saint documents Rubloff acquired.
The Court reviewed the documents and ruled on June 30, 2011 on a declaratory judgment count that Saint's various contentions, including claims of confidential business information, were without merit. The one exception to this ruling was twelve pages dealing with an unrelated Hoffman Estates matter and attorney Graft. Saint claimed the same attorney-client privilege in regard to those twelve pages that it had in regard to Graft legal documents concerning the Mundelein development. The Court found no privilege as to the latter documents because Saint was not Graft's client (the landowners were), even if Graft had been paid by Saint or SuperValu. But because there was no evidence before the Court on whether a similar client arrangement existed in the Hoffman Estates matter, the Court presumed the documents were indeed privileged.
On September 15, 2011, the Court denied a motion to reconsider the summary judgment, despite Saint's contention that Rubloff was threatening further exposure of the documents to leverage a settlement.
On a motion to dismiss, all of a plaintiff's and counter-plaintiff's allegations are treated as true. FED. R. CIV. P. 12(b)(6); Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714, at *2 (7th Cir. March 7, 2012). Complaints and counter-complaints will survive a motion to dismiss if they contain sufficient factual matter to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009). However, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. at 1940.
Claims of fraud are subject to a heightened pleading standard, requiring a pleader to state with "particularity" the circumstances of fraud. FED. R. CIV. P. 9(b).
III. DEFENDANTS' MOTIONS TO DISMISS
1. Antitrust Standing and Injury
The statutory language allowing private prosecution of antitrust laws has been construed to limit the bringing of such action to (1) those who have suffered the type of injury antitrust laws were intended to prevent and (2) those whose injuries are a result of defendants' unlawful conduct. Serfecz v. Jewel Food Stores, 67 F.3d 591, 595 (7th Cir. 1997) (hereinafter, Serfecz II). The former is commonly referred to as "antitrust injury" and the latter as "antitrust standing." Kochert v. Greater Lafayette Health Servs., 463 F.3d 710, 716-719 (7th Cir. 2006). The Supreme Court has outlined "several factors to be considered in determining whether a plaintiff is the proper party to bring a private action under the antitrust laws: (1) the causal connection between the antitrust violation and the plaintiff's injury; (2) the nature of the plaintiff's injury and the relationship between the plaintiff's injury and the type of activity sought to be redressed under the antitrust laws; and (3) the speculative nature of the plaintiff's claim for damages and the potential for duplicative recovery or complex apportionment of damages." Serfecz II, 67 F.3d at 595-596 (quoting Associated Gen. Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 537-546 (1983)).
In Serfecz II, a shopping center owner (Serfecz) sued a grocery store chain, Jewel, and a shopping center under antitrust laws. Jewel had moved out of Serfecz's center to a nearby center, but refused to relinquish the empty store in Serfecz's center to prevent competition by a new tenant.
Because the alleged antitrust activity was monopolization of the grocery store market in the local area, the district court and appellate court found Serfecz had neither antitrust standing nor injury relative to the grocery store market. As neither a competitor nor customer of a grocery store, (Serfecz was deemed a supplier of lease space to grocery stores) Serfecz's injury (lost value to his shopping center) was too indirect to the antitrust activity alleged. Serfecz II, 67 F.3d at 598. He also had no antitrust standing because he was not the party who could most efficiently vindicate the purposes of the antitrust laws. Id. at 598 (suggesting competing grocery stores or Jewel customers would have standing).
"Where a more directly injured class of potential plaintiffs exists, we are left with very little leeway to address the likelihood of whether any members of that class would actually bring suit. While the result may be somewhat frustrating in this particular case, it does provide a straightforward rule of law." Serfecz v. Jewel Food Stores, No. 92-C-4171, 1994 U.S. Dist. LEXIS 12239, at *27-28 (N.D. Ill. August 31, 1994) (hereinafter, Serfecz I).
But when the antitrust activity was defined as an attempt to monopolize the retail shopping center market, the outcome was different. Serfecz had both antitrust standing and injury. In that instance, plaintiffs were "direct participants in this market." Serfecz II, 67 F.3d at 599; Serfecz I, 1994 U.S. Dist. LEXIS 12239 at *33-34.
Plaintiffs argue that, under Serfecz II, they too have standing when the market is framed as the retail shopping center market. This is true, and the Court finds Plaintiffs have the requisite antitrust standing in the shopping center market, but not the grocery store market.
However, Serfecz II, where one of the defendants was a shopping center, also shows why Plaintiffs in this case do not have anticompetitive injury in the shopping center market.
In Serfecz II, anticompetitive injury as a result of the antitrust activity was clear: One of the defendants was a participant in the shopping center market and was trying to foreclose competition in that market.
Here, Plaintiffs have clearly stated the anticompetitive injury to the grocery store market (SuperValu's retention of high market share allows it to raise grocery prices) but not to the shopping center market. Plaintiffs note they have incurred millions of dollars in damages, and that the Mundelein development may have been successfully scuttled. But the antitrust laws protect competition, not competitors. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977). Plaintiffs have not alleged their injury was a result of any anticompetitive activity of Plaintiffs with respect to the shopping center market.
That is not surprising because SuperValu (a grocery store chain) and Saint (their consultant) logically would have an interest in the shopping center market only as incidental to the grocery store market. That is why Plaintiffs repeatedly refer to shopping center developments only in terms of Wal-Mart. (E.g., "The objective of the conspiracy was to increase SuperValu's market power by preventing competition from Wal-Mart at the Mundelein Development." Pls.' Compl. 29.)
"Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation." Serfecz II, 67 F.3d at 595. There is a proximate cause element. Id. "[P]laintiffs must prove antitrust injury, which is to say . . . [one] that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be the type of loss that the claimed violations . . . would be likely to cause." Brunswick, 429 U.S. at 488, 489 (1977) (citations omitted).
Here, there is no causal connection between the antitrust violation (restraining competing grocery stores in the Chicagoland area to raise grocery prices) and the Plaintiffs' injury (loss of a shopping center or its devaluation).
Antitrust actions require that Plaintiffs allege an injury to the public, not just themselves. Pelfresne v. Vill. Of Lindenhurst, 03-6905, 2004 U.S. Dist. LEXIS 14176 *44 (N.D.Ill. July 26, 2004). There is no allegation as to the anticompetitive effect upon the retail shopping center market, be it in increased prices or decreased output.
Thus, the Court finds that Plaintiffs' injuries are too remote from the anticompetitive behavior and effects alleged (restriction of trade of grocery stores, leading to higher grocery prices).
Both Defendants and Plaintiffs acknowledge in their briefs that, for the purposes of the actions alleged here, federal and Illinois antitrust acts ...