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Eric D. Freed, An Individual, and Freed & Weiss LLC, An Illinois Limited Liability Company v. Jpmorgan Chase Bank

August 13, 2012

ERIC D. FREED, AN INDIVIDUAL, AND FREED & WEISS LLC, AN ILLINOIS LIMITED LIABILITY COMPANY, PLAINTIFFS,
v.
JPMORGAN CHASE BANK, N.A., DEFENDANT.



The opinion of the court was delivered by: Judge Feinerman

MEMORANDUM OPINION AND ORDER

Eric D. Freed, an attorney, and Freed & Weiss LLC, a law firm, brought this suit against JPMorgan Chase Bank, N.A., alleging a single count of civil conspiracy to commit fraud under Illinois law. The case arises from a dispute between Freed and Paul M. Weiss, an attorney who owns or owned the LLC along with Freed. Freed alleges that Weiss plotted to exclude him from control of the LLC and to convert its assets to his own use, an allegation Freed is pursuing in a suit he filed against Weiss in Illinois state court. Freed v. Weiss, 2011 CH 41529 (Cir. Ct. Cook Cnty., Ill. filed Dec. 5, 2011). This case concerns what Freed claims to be Chase's involvement in the alleged Weiss plot.

Chase has moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Chase argues that neither plaintiff is entitled or empowered to bring this suit, the reasons being that the conspiracy claim belongs to the LLC and not to Freed individually, and that Freed lacks authority to cause the LLC to sue without Weiss's consent. And putting aside whether either plaintiff properly can bring this suit, Chase argues that the amended complaint fails to adequately allege a conspiracy claim. The motion to dismiss is granted, though Plaintiffs are given an opportunity to replead.

Background

The amended complaint's well-pleaded factual allegations, though not its legal conclusions, are assumed to be true at this juncture. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir. 2010). In evaluating a motion to dismiss, the court must consider "the complaint itself, documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The court also must consider additional facts set forth in Plaintiffs' opposition brief or supported by attachments to the brief, so long as those facts "are consistent with the pleadings." Ibid. The following sets forth the facts as favorably to Plaintiffs as permitted by the amended complaint and other materials that may be considered on a Rule 12(b)(6) motion. It bears mention that many of the facts are in dispute in Freed's state court case against Weiss.

Freed and Weiss were the two members and managers of the LLC. Doc. 13 at ¶¶ 2, 4, 9. Under their partnership agreement, Freed was entitled to 53% of the LLC's profits, and Weiss was entitled to the other 47% until (Freed asserts) Weiss voluntarily terminated from the LLC. Ibid.; Doc. 13-1 at 21. Weiss's wife, Jamie Saltzman Weiss ("Saltzman"), is an employee of the LLC. Doc. 13 at ¶ 5. Beginning as early as 2008, Weiss and Saltzman concocted a scheme to unlawfully cut Freed out of the LLC's management and ownership. Id. at ¶ 8. They planned to do this by taking control of the LLC's finances, moving the LLC's bank accounts from Bank of America to another bank where Freed would lack signatory authority over the funds, and freezing Freed out of the LLC's operations by excluding him from its premises and computer system. Ibid.

Weiss and Saltzman settled on Chase as the destination for the LLC's funds. Id. at ¶ 9. They opened two accounts there, using fraudulent documents to convince Chase that they had authority to move the LLC's funds. Id. at ¶¶ 9-22. Plaintiffs allege that Chase failed to undertake due diligence in accepting Weiss's fraudulent documents and that even a simple investigation would have uncovered the fraud. Id. at ¶¶ 11, 18, 20, 22. Plaintiffs do not allege that Chase was actually aware of or sought to advance Weiss's plan at the time Weiss opened the accounts and transferred the funds to Chase.

In 2011, Freed sought to withdraw from the LLC some money he had previously loaned it. Id. at ¶ 23. Weiss construed this as a "voluntary withdrawal" by Freed from the LLC, and put into action his plan to block Freed from accessing the LLC's property, computer system, and bank accounts. Ibid. Weiss transferred the LLC's funds from Bank of America to the accounts he and Saltzman had opened at Chase. Id. at ¶ 24. Freed responded by sending Chase a letter asserting his legal authority over the LLC's funds and demanding that Chase immediately freeze the accounts Weiss had opened. Id. at ¶ 25; Doc. 13-1 at 29-32. Instead of complying, Chase (acting through an employee) contacted Weiss, alerted him to Freed's freeze demand, advised Weiss that the funds likely would be frozen in response to the demand, and aided Weiss in removing the funds before the accounts could be frozen by helping him obtain a $750,000 cashier's check and move the rest of the funds to another bank. Doc. 13 at ¶ 26. Several weeks later, the same Chase employee helped Weiss arrange to move other funds, which were then about to be deposited in the Chase accounts, to another bank. Id. at ¶ 27.

Freed and the LLC sued Weiss and Saltzman in Illinois state court, id. at ¶ 28, and brought this separate suit against Chase, also in state court. Chase removed the suit to federal court on the ground that it falls within the court's diversity jurisdiction. Doc. 1 at ¶¶ 7-15. The removal was appropriate. The parties are diverse. Freed is a citizen of Florida, while the LLC's members are citizens of Florida (Freed) and Illinois (Weiss, if indeed he remains a member), making the LLC a citizen of Florida and Illinois. Id. at ¶ 8; Doc. 13 at ¶¶ 1-2, 4; see Thomas v. Guardsmark, LLC, 487 F.3d 531, 534 (7th Cir. 2007) ("For diversity jurisdiction purposes, the citizenship of an LLC is the citizenship of each of its members."). Chase is a national banking association whose organization certificate lists Ohio as the location of its main office, Doc. 1 at ¶ 10, making Chase a citizen of Ohio. See Wachovia Bank v. Schmidt, 546 U.S. 303, 307 (2006) ("a national bank . is a citizen of the state in which its main office, as set forth in its articles of association, is located"). The amount-in-controversy requirement is satisfied by Plaintiffs' allegation that they suffered at least one million dollars in damages. Doc. 1-1 at ¶ 32.

Discussion

Plaintiffs' sole claim in this case is that Chase's alleged actions constituted civil conspiracy to commit fraud. The parties agree that Illinois law controls, so that is the law the court will apply. See McFarland v. Gen. Am. Life Ins. Co., 149 F.3d 583, 586 (7th Cir. 1998). "The elements of a civil conspiracy [under Illinois law] are: (1) a combination of two or more persons, (2) for the purpose of accomplishing by some concerted action either an unlawful purpose or a lawful purpose by unlawful means, (3) in the furtherance of which one of the conspirators committed an overt tortious or unlawful act." Fritz v. Johnston, 807 N.E.2d 461, 470 (Ill. 2004); see also Adcock v. Brakegate, Ltd., 645 N.E.2d 888, 894 (Ill. 1994) (defining civil conspiracy as "a combination of two or more persons for the purpose of accomplishing by some concerted action either an unlawful purpose or a lawful purpose by unlawful means").

It is unclear whether the amended complaint seeks to implicate Chase in the entire scope of the supposed Weiss conspiracy or in merely a limited component of the conspiracy. The complaint describes a long-term plot by Weiss and Saltzman to deprive Freed of his share of the LLC's management and profits, which began as early as 2008 and encompassed Weiss and Saltzman's creation of the accounts at Chase, their transfer of the LLC's funds to those accounts, and their transfer of the funds out of Chase so as to evade Freed's freeze demand. Doc. 13 at ¶¶ 8-27. The complaint plausibly could be read as asserting that Chase was complicit in this entire scheme, for it alleges that Chase assisted Weiss and Saltzman in setting up their accounts and blames Chase for failing to exercise due diligence before accepting their fraudulent documentation. Id. at ¶¶ 9, 11, 18, 20, 22, 24.

If Plaintiffs indeed intend to stake that broad claim, their allegations are insufficient. The allegations assert that Chase aided Weiss and Saltzman in setting up and using accounts with Chase and that Chase fell short of the level of diligence that banks should exercise in such circumstances. Plaintiffs do not say that Chase was actually aware of Weiss and Saltzman's plot or that it knew they were doing anything wrongful; to the contrary, by alleging that Chase failed to make the investigation that would have uncovered the plot, Plaintiffs necessarily imply that Chase was ignorant of it. Nor could it plausibly be inferred from the facts alleged that Chase knew of the scheme, much less agreed to join it. "[A] civil conspiracy is based upon intentional activity," and "the element of intent is satisfied when a defendant knowingly and voluntarily participates in a common scheme." Adcock, 645 N.E.2d at 894. Conversely, "[t]here is no such thing as accidental, inadvertent, or negligent participation in a conspiracy," and "[a] defendant who innocently performs an act which happens to fortuitously further the tortious purpose of another is not liable under the theory of civil conspiracy." Ibid.; see also Jones v. City of Chicago, 856 F.2d 985, 993 (7th Cir. 1988) (Illinois law). The amended complaint fails to allege that Chase knew of the conspiracy from its inception and intended to join it, and so Plaintiffs' claim must be dismissed to the extent it charges that Chase was involved in the entire conspiracy. The dismissal is without prejudice, so if Freed can allege consistent with Rule 11(b) that Chase knew of the conspiracy from its inception and intended to join it, he may file a second amended complaint with allegations to that effect.

The complaint also can be read to allege Chase's involvement in a limited component of the conspiracy. Upon learning that the LLC's funds had been transferred to Chase, Freed sent Chase a letter demanding that it freeze the accounts. Doc. 13 at ¶ 25. According to the amended complaint, "with full knowledge of" the freeze demand, a Chase employee "telephoned Weiss and Saltzman, told them of Freed's correspondence, informed them that the funds would likely be frozen, and aided and abetted Weiss and Saltzman in the removal of the LLC's funds from Chase Bank," and then, "acting on [the Chase employee's] advice and direction," Weiss obtained a cashier's check for some of the funds and transferred the rest to another bank. Id. at ¶ 26. The same employee emailed Weiss several weeks later with advice on how to divert funds that were soon to come into the account, also in ...


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