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Robert T.E. Lansing v. George W. Carroll

April 11, 2012

ROBERT T.E. LANSING, PLAINTIFF,
v.
GEORGE W. CARROLL, DEFENDANT.



The opinion of the court was delivered by: Judge Blanche M. Manning

MEMORANDUM AND ORDER

After 24 years as business partners, the relationship between plaintiff Robert Lansing and defendant George Carroll deteriorated to the point that Lansing gave Carroll notice that he wanted to end the partnership. Carroll initially agreed to buy out Lansing's shares in the various investment funds they operated, but then failed to do so. Lansing has sued Carroll for breach of contract, fraud, and for a declaratory judgment establishing the parties' rights. Before the court is Carroll's motion to dismiss most of those claims. For the reasons that follow, the motion to dismiss is granted.

BACKGROUND

The following facts are taken from the First Amended Complaint, and accepted as true for purposes of resolving the motion to dismiss. See Scanlan v. Eisenberg, 669 F.3d 838, 841 (7th Cir. 2012).

In 1996, Lansing and Carroll began establishing a group of investment funds they called the Westminster Funds, which were vehicles for investing client monies in commercial real estate. The Westminster Funds is comprised of ten investment funds managed by eleven general partner entities. Lansing and Carroll are the primary members of each general partner entity, and each entity is governed by a separate Operating Agreement. In addition, Lansing and Carroll created Litchfield Advisors, Inc., which provides management services to the Westminster Funds and is governed by a Shareholders Agreement. Because the relevant provisions of the various agreements are essentially identical, for ease of analysis the court will follow the parties' lead and treat the individual Operating Agreements and the Shareholders Agreement collectively as a single Operating Agreement. As was done in the First Amended Complaint, the court shall cite to the Operating Agreement for Westminster Advisors VIII LLC (attached as Exhibit A to the First Amended Complaint [14-1]).

The Operating Agreement contains a buy/sell provision, under which either partner can submit to the other partner an offer to both (1) sell his shares to the other partner, and (2) buy out the other partner's shares. The other partner has 30 days to decide which of those two offers to accept. If the other partner fails to accept either offer within 30 days, then the Offeror (here it was Lansing) obtains the right to purchase the interests of the Offeree (here it was Carroll), and the Offeree is obligated to sell. Any purchase or sale is required to close within 120 days after such right to buy or sell has been exercised. The relevant rights and obligations are set out in § 6.7(2) of the Operating Agreement:

(2) Exercise of Buy-Sell Provision. At any time either the Carroll Owners or the Landing Owners shall be permitted to institute the following compulsory buy-sell provisions:

(a) The Offerors may make an Offer to the Offerees to sell all of the Interests of the Offerors (a "Sell Offer"), and to purchase all of the Interests of the Offerees (a "Purchase Offer"). No Offer shall be subject to the provisions of this Section 6.7 unless such Offer is both an Offer to sell all of the Interests of the Offerors and an Offcer to purchase all of the Interests of the Offerees, and such Offer must specify a price per Interest at which the Offerors is [sic] willing both to sell and to purchase all of the applicable Interests (the "Buy/Sell Price") and that the total purchase price is payable by bank certified, cashier's or treasurer's check. The Offer shall go into effect on the later of the notice of the Offer or when the Offerors place into escrow with a mutually acceptable escrow agent a cash sum equal to five percent (5%) of the Offer amount to purchase. Such escrow shall be included in the purchase consideration and delivered to the Offerees if the Offerees accept the Offer of the Offerors and the Offerors complete the purchase, or shall be returned to the Offerors if the Offerees do not accept the Offer to purchase. Should the Offerors fail to complete a purchase accepted by the Offerees, the funds deposited in escrow shall be promptly paid to the Offerees by the escrow agent. Such Offer shall be irrevocable for a period of thirty (30) days, and the Offerees may, on or before the thirtieth (30th) day after the date of such Offer, accept either the Sell Offer or the Purchase Offer.

(c) Upon acceptance of this Offer, the Offerors shall be required to sell or to purchase, as the case may be. If the Offerees elect to accept the Sell Offer, each Offeree shall be obligated to purchase a pro rata portion of each Offeror's Interest equal to the product of (i) the total number of Interests held by such Offeror multipled by (ii) the quotient of such Offeree's total Interests divided by the total Interests held by all Offerees. If the Offerees fail within such thirty (30) day period to accept such Offer to sell or to purchase, then the Offer shall automatically expire and be of no further force or effect; provided, however, that the Offerors shall thereupon have the right, on or before the fifteenth (15th) day after the expiration of such thirty (30) day period, to purchase the Interests of the Offerees, at the Buy/Sell Price, and if the Offerors exercise such right, the Offerees shall be required to sell their Interests herein. If the Offerors fail to exercise the right to purchase within the time specified, either Declaring Member may thereafter make a new Offer pursuant to this Section 6.7.

(d) If the Offerors or Offerees, as the case may be, exercise rights hereunder to buy or sell, a closing thereunder shall be held at the time and place and on the date specified by the purchasers by written notice to the sellers, which date shall in any case be on or prior to the one hundred twentieth (120th) day after such right to buy or sell has been exercised. The purchasers shall have the right to designate nominees or other designees to accept the Transfer of title to the Company Interests being transferred. A condition precedent to any closing on such purchase shall be that the purchasers shall use commercially reasonable efforts to see that the sellers and any of their principals or Affiliates are released from all liability on any personal guaranties made by them, with respect to the Company's liabilities.

Operating Agreement (attached as Exhibit A to the First Amended Complaint [14--1] at 15-16).

In addition, the Operating Agreement contains a choice of law provision under which Illinois law governs its interpretation, construction, and enforcement. Id. at 17. It also contains the following integration clause: "This Agreement contains the entire agreement among the parties hereto relating to the Company." Id.

On November 1, 2010, Lansing sent a letter to Carroll pursuant to § 6.7(2)(a) of the Operating Agreement in which he offered to either buy Carroll's interests in the Westminster Funds, or to sell to Carroll his own interests, for $14,045,000, less Carroll's unmet or future capital obligations. On November 26, 2010, Carroll responded with a letter in which he accepted Lansing's offer to sell. He also deposited 5% of the sales price into escrow, and set the closing for March 29, 2011. However, Carroll never showed up to the closing and never consummated the purchase. After the sale fell through, Lansing twice demanded that Carroll release the $702,250 in escrowed funds to him, but Carroll has not done so.

On April 3, 2011, Lansing wrote to Carroll stating that as a consequence of Carroll's failure to purchase Lansing's shares, the terms of the Operating Agreement now gave Lansing the right to purchase Carroll's shares for the previously offered price of $14,045,000, and required Carroll to forfeit his $702,250 in escrow. In a letter dated April 5, 2011, Carroll rejected Lansing's interpretation of the Operating Agreement under which Lansing purported to have acquired the right to purchase Carroll's shares and to the funds in escrow. Specifically, under Carroll's interpretation, the Operating Agreement addresses only the failure of the Offeror (Lansing) to complete a purchase of the shares of the Offeree (Carroll), in which case the Offeree acquires the right to purchase the Offeror's shares and to the funds in escrow. According to Carroll, the Operating Agreement does not address the situation of an Offeree's failure to purchase the Offeror's interests.

Despite Carroll's response, Lansing went ahead and scheduled June 21, 2011, as the closing date on which he intended to complete his purchase of Carroll's interests in the Westminster Funds. In advance of the closing date, on June 17, 2011, Lansing sent Carroll a Transfer Agreement and a copy of a cashier's check in the amount of $13,016,385.72, representing the $14,045,000 purchase price Lansing previously offered, less Carroll's $21,678.18 unmet and $1,006,936.10 future capital obligations to the Westminster Funds. Carroll responded to his receipt of the Transfer Agreement and a copy of the cashier's check by stating that he needed more time to evaluate the situation. Lansing then delayed the closing date by one day, to June 22, 2011.

Lansing attended the June 22, 2011, closing, but Carroll did not. Lansing extended the closing date to June 29, 2011, but, again, Carroll did not participate. As a result, Lansing considered Carroll's interests to have passed to him.

Lansing then filed the instant suit against Carroll. The First Amended Complaint consists of three counts. In Count I, Lansing seeks a declaratory judgment that under the terms of the Operating Agreement (1) Lansing (and his designee, Realty Portfolio Holdings LP) acquired Carroll's interests in the Westminster Funds as of June 29, 2011, and (2) Carroll owes Lansing the $702,250 placed in escrow. In Count II, Lansing alleges that Carroll breached the Operating Agreement and the November 26, 2010, agreement to purchase Lansing's interests by failing to

(1) close the purchase of Lansing's interests within 120 days of November 26, 2010; (2) tender the $702,250 that Carroll placed in escrow; (3) honor Lansing's right to purchase Carroll's interests after Carroll failed to purchase Lansing's interests; (4) voluntarily relinquish control of his interests to Lansing at the closings scheduled for June 22, 2011, and June 29, 2011; and (5) act in good faith.

In Count III, Lansing alleges that Carroll made "various false representations" about his ability to purchase Lansing's shares. First Am. Compl. [14-1] ¶ 69. However, the only false representations alleged are: (1) when Carroll's attorney "informed" Lansing's attorney on March 17, 2011, that Carroll had the money to close by March 29, 2010, and (2) draft transaction documents and correspondence sent by Carroll's attorneys to Lansing's attorneys beginning on March 22, 2011. Id. ¶ 71.

Carroll has moved to dismiss Counts I and III in their entirety, and the portions of Count II in which Lansing alleged that that Carroll breached the parties' contracts by failing to (1) tender the $702,250 that Carroll placed in escrow; (2) honor Lansing's right to purchase Carroll's interests after Carroll failed to purchase Lansing's interests; (3) voluntarily relinquish control of his interests to Lansing; and (4) act in good faith.

ANALYSIS

I. Standard of Review

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). The Seventh Circuit explained that this "[r]ule reflects a liberal notice pleading regime, which is intended to focus litigation on the merits of a claim rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (internal quotations omitted); see also McCormick v. City of Chicago, 230 F.3d 319, 322-24 (7th Cir. 2000) (stating that claims under 42 U.S.C. § 1983 are not subject to a heightened pleading standard, but are only required to set forth sufficient allegations to place the court and the defendants on notice of the gravamen of the complaint).

However, a complaint must contain "enough facts to state a claim to relief that is plausible on its face" and also must state sufficient facts to raise a plaintiff's right to relief above the speculative level. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007). In Ashcroft v. Iqbal, the Supreme Court stated that a claim has facial plausibility "when the plaintiff pleads factual content that allows the court to draw the reasonable ...


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