The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge:
MEMORANDUM OPINION AND ORDER
Plaintiff/Counter-Defendant Triumph Packaging Group ("Triumph") and Third-Party Defendants Randall Cecola ("Cecola"), DTG Services Group, Inc. ("DTG"), Kallahan Marketing Group, Inc. ("KMG"), Darwin Technology ("Darwin"), and Tesoro Realty Group LLC ("Tesoro Realty") (collectively, the "Third-Party Defendants") move to dismiss Defendant/Counter-Plaintiff Scott Ward's ("Ward") counterclaims pursuant to Federal Rules of Civil Procedure ("Rule") 12(b)(1) and 12(b)(6). For the following reasons, the Court grants the motion in part and denies it in part.
On November 8, 2011, Triumph filed a seven-count Complaint against Scott Ward ("Ward"), Vital-X Associates, LLC ("Vital-X"), Creative Design Products, Inc. ("CDP"), John Does, Jane Does, and ABC Companies, alleging actual and threatened misappropriation of trade secrets, breach of contract, breach of fiduciary duty, violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), conversion, tortious interference with prospective economic advantage, and civil conspiracy. (R. 1, Compl.) Triumph moved for a temporary restraining order, which Judge Kennelly, in his capacity as Emergency Judge, granted on November 8, 2011. (R. 8, 9.) Triumph also moved for a preliminary injunction, which the Court denied on December 2, 2011, after conducting a hearing on the motion. See Triumph Packaging Grp. v. Ward, 834 F. Supp. 2d 796 (N.D. Ill. Dec. 2, 2011).*fn1
Ward answered the Complaint on January 4, 2012 and filed a Counterclaim and Third-Party Complaint, alleging claims individually and derivatively on behalf of Triumph. (R. 63.) In Count I, Ward, individually, brings a claim for fraudulent inducement against Cecola and Triumph. In Count II, Ward, individually and derivatively on behalf of Triumph, asserts a RICO violation, 18 U.S.C. § 1962(c), against Cecola, the Third-Party Defendants, as well as John Does, Jane Does, and ABC Companies (collectively, "All Defendants"). In Count III, Ward, derivatively on behalf of Triumph, brings a claim for breach of fiduciary duty against Cecola. Ward, individually and derivatively on behalf of Triumph, asserts a civil conspiracy claim against All Defendants in Count IV and a conversion claim against All Defendants in Count V.
Ward alleges the following facts in support of his claims, which the
Court accepts as true for the purpose of this motion.*fn2
See AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir.
2011). Triumph is a privately-owned manufacturer of folding cartons.
(R. 63, Countercl. ¶ 4.) Ward and Cecola are individuals who reside in
and are citizens of Illinois. (Id. ¶¶ 5-6.) Ward is the former Chief
Operating Offer of Triumph, and Cecola is Triumph's Chief Executive
Officer. (Id. ¶¶ 16-17, 19.) DTG, Tesoro Realty, and KMG are Illinois
corporations that Cecola owns and controls. (Id. ¶¶ 7-9.) Darwin is a
business enterprise that Cecola also owns and controls. (Id. ¶
After meeting in September 2004, Ward and Cecola decided to purchase a failing business, turn it around, and run it together. (Id. ¶¶ 22-35.) Cecola told Ward that he had experience owning a temporary agency, but had no manufacturing or management experience. (Id. ¶ 26.) Ward, on the other hand, had 15 years of experience running folding carton operations, and he also had manufacturing experience. (Id. ¶ 27.) Cecola told Ward to scope out a business and that they would be equal partners in any "deal they did." (Id. ¶ 32.)
In August 2005, a bank seized a company named Chapco Carton, and Cecola and Ward decided to purchase it via auction. (Id. ¶¶ 53-54.) They agreed to rename the business Triumph Packaging. (Id. ¶ 55.) At this time, Cecola told Ward that he had "an informal investment group of very private investors, called Trovare, that would be putting up the money for the purchase." (Id. ¶ 56.) He explained that Trovare "consisted of mostly Barrington and Willow Creek Church people that he had done business with in the past," but he refused to reveal the names of the Trovare investors. (Id. ¶¶ 57, 61.) Cecola also assured Ward that "as operators of Triumph . . . he and Ward would have equal agreements and matching ownership opportunity." (Id. ¶ 58.) Specifically, he explained that he and Ward would start out with 5% ownership rights of the company, with the potential of gaining an additional 5%, and that Trovare would own the remaining 90%. (Id. ¶ 59.)
Ward and Triumph met at a Palatine restaurant on August 15, 2005, at which time Cecola presented Ward with a partnership agreement and employment agreement. (Id. ¶ 67.) Ward was dissatisfied with the employment agreement and expressed tentativeness about the partnership. (Id. ¶¶ 68-69.) He did not sign the agreements at that time, and over the next week, he came to Cecola with several questions. (Id. ¶¶ 69-70.) Cecola reaffirmed to Ward that they were equal partners in the business, had the same deal, and would operate the company and make the day-to-day decisions. (Id. ¶¶ 71, 73, 75.) Following those representations, Ward "signed the agreement with Cecola's assurance that he and Ward would be . . . equal partners." (Id. ¶ 77.) Ward and Cecola also agreed to take the same salary. (Id. ¶ 95.) At an auction on September 6, 2005, Cecola and Ward purchased Chapco Carton, which became Triumph Packaging. (Id. ¶ 86.)
Ward "turned things around" quickly at Triumph. (Id. ¶¶ 89-90.) Triumph earned a profit in its first month of new ownership and had its highest sales in two years. (Id. ¶ 91.) At some point in 2006, Triumph became short on cash. (Id. ¶¶ 96-97.) Ward began struggling to operate Triumph, and Cecola began spending less time at Triumph. (Id. ¶ 103.) Ward became frustrated that Cecola was not holding up his end of the bargain and was not able to obtain financing for Triumph. (Id. ¶¶ 104-06.) Triumph had a very bad year in 2006. (Id. ¶ 107.)
In the spring of 2007, Cecola questioned Ward as to why Triumph's raw material costs had risen. (Id. ¶ 109.) In the process of investigating the answer, Ward learned from Triumph's controller, Jerry Poch, that Cecola had told him to send payments to Cecola's companies, DTG and Darwin, under the raw materials category to hide them. (Id. ¶¶ 110-13.) When Ward confronted Cecola, he denied telling Poch to hide payments. (Id. ¶ 117.) Instead, Cecola told Ward that the payments were to the Trovare investors to repay them for their initial $850,000.00 investment to purchase the company. (Id. ¶ 118.) Later in 2007, Ward asked Poch how much money Triumph had paid toward the Trovare loan, and Poch told him that it had paid $900,000.00. (Id. ¶ 123.) Poch told him that the principal balance on the loan was $650,000.00. (Id. ¶ 124.) The principal balance had remained unchanged after an initial $200,000.00 payment in 2005. (Id. ¶ 125.) Ward was very upset and confronted Cecola about the loan, to which Cecola responded that "it was just the deal with investors." (Id. ¶ 128.)
In June of 2007, Cecola suggested to Ward that he sign a new employment agreement. (Id. ¶ 170.) Cecola re-confirmed to Ward that they were equal partners and that they would have the same deal on any acquisitions that the company made. (Id. ¶ 169.) Ward and Cecola agreed that if Triumph added an additional plant, Ward's salary would increase. (Id. ¶ 173.) Ward "reluctantly" signed the new employment agreement. (Id. ¶ 174.)
In early 2008, Ward followed up with Poch regarding the status of the Trovare loan, and Poch told him that Triumph had paid $1,200,00.00 toward the $850,000.00 loan and that the principal balance was still $650,000.00. (Id. ¶ 161.) When Ward confronted Cecola about the loan at this time, Cecola's story changed. He explained that it was not really a loan, but a management fee. (Id. ¶¶ 163-64.) Ward and Cecola disagreed about whether paying management fees was appropriate since Ward and Cecola were managing Triumph. (Id. ¶¶ 165-66.) At this time, Triumph was paying DTG and Darwin approximately $30,000.00 per month in management fees. (Id. ¶ 167.)
In February 2008, Triumph was facing "huge cash flow problems" and was "having trouble paying its bills." (Id. ¶¶ 180, 192.) Around this same time, Cecola purchased a new $100,000.00 car. (Id. ¶ 186.) Ward learned around this time that Cecola did not turn in expense reports to Triumph, and that Triumph paid Cecola's companies "no matter what." (Id. ¶¶ 188, 190.)
In April 2008, Triumph "was in serious jeopardy of missing pay-roll payments to its employees." (Id. ¶ 197.) Ward called Cecola about the issue, and Cecola told Ward that "if the company has to miss payroll then the company will have to miss payroll." (Id. ¶ 200.) Ward then took out a second mortgage on his house and gave Triumph a check for $50,000.00 so that Triumph could pay its employees. (Id. ¶¶ 202-203.) Cecola eventually repaid Ward, but Ward had to pay taxes on $10,000.00 of the loan repayment. (Id. ¶ 204-05.)
In May or June of 2008, Triumph acquired a second plant in Thomaston, Georgia. (Id. ¶ 212.) In the fall of 2008, Ward noticed that KMG was receiving checks from the Thomaston plant in the amount of $10,000.00 per month. (Id. ¶ 215.) Cecola told Ward that this was Thomaston's portion of the management fee for the Trovare Group investors. (Id. ¶ 216.)
In 2009, Triumph grew by 40%, but cash flow remained an issue. (Id. ¶¶ 225, 227.) Ward signed yet another employment agreement, which "outlin[ed] a new bonus arrangement" and an "additional 5% ownership" if "they met the performance criteria." (Id. ¶ 228.) Although Ward expected to get "a decent bonus," the company missed its goals due to its payment of the management fees. (Id. ¶¶ 230-31.) Ward did not receive a performance bonus, but he did receive a $10,000.00 bonus for securing new business. (Id. ¶ 232-33.)
In April 2011, Triumph received notice that it was the subject of an Internal Revenue Service ("IRS") audit. (Id. ¶ 304.) The IRS fined Triumph for an incorrect calculation on depreciation, and Triumph had to pay back taxes from 2008. (Id. ¶ 306.)
At some unidentified point in time, Ward learned that Cecola funneled money through those companies before forwarding it on to Trovare investors tax-free. (Id. ¶¶ 236-41.) In January 2011, Ward learned that Cecola owned Tesoro Realty, the company to which Triumph paid $35,000.00 per month in rent for the Thomaston plant. (Id. ¶¶ 275-77, 281.) On September 19, 2011, Cecola terminated Ward's employment. (Id. ¶ 327.)
The standard the Court employs on a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction depends on the purpose of the motion. See Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009); United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003) (en banc), overruled on other grounds by Minn-Chem, Inc. v. Agrium, Inc., --- F.3d ----, 2012 WL 2403531 (7th Cir. June 27, 2012). If a defendant challenges the sufficiency of the allegations regarding subject matter jurisdiction, the Court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in favor of the plaintiff. See Apex Digital, 572 F.3d at 443-44; United Phosphorus, 322 F.3d at 946. If, however, the defendant denies or controverts the truth of the jurisdictional allegations, the Court may look beyond the pleadings and view any evidence submitted to determine if subject matter jurisdiction exists. See Apex Digital, 572 F.3d at 443-44; United Phosphorus, 322 F.3d at 946; see also St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007). "Where jurisdiction is in question, the party asserting a right to a federal forum has the burden of proof, regardless of who raises the jurisdictional challenge." Craig v. Ontario Corp., 543 F.3d 872, 876 (7th Cir. 2008).
"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims."
AnchorBank, 649 F.3d at 614 (internal quotation and citation omitted). Pursuant to Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)).
"In evaluating the sufficiency of the complaint, [courts] view it in the light most favorable to the plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from the allegations in the plaintiff's favor." AnchorBank, 649 F.3d at 614. "To survive a motion to dismiss, the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face . . . . A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 934-35 (7th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (internal quotation marks omitted)). "The complaint 'must actually suggest that the plaintiff has a right to relief, by providing allegations that raise a right to relief above the speculative level.'" Id. at 935 (citing Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., 536 F.3d 663, 668 (7th Cir. 2008)). "[A] plaintiff's claim need not be probable, only plausible: 'a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a ...