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Shepard v. Lustig

United States District Court, N.D. Illinois, Eastern Division

December 13, 2012

William SHEPARD; Walter B. Posner; Christopher T. Michaels; Michael Miller; the Florence Posner Revocable Trust Dated 07/27/2001, a trust; Joseph Moretti; and Elisa H. Posner, Plaintiffs,
Miles LUSTIG; Grant Lustig; Lustig Capital, LLC, an Illinois limited liability company; ME Layz, LLC, and Illinois limited liability company; L & N Partnership, an Illinois partnership; Client Funding Solutions Corporation, an Illinois corporation; and W & M Trading Corporation, an Illinois corporation, Defendants.

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Allan A. Ackerman, Allan A. Ackerman, P.C., John Thomas Moran, The Moran Law Group, Chicago, IL, for Plaintiffs.

Michael Joseph Morrisroe, Scott Allen Berndtson, Morrisroe & Associates Ltd., Bloomingdale, IL, for Defendants.


JOHN W. DARRAH, District Judge.

Certain Defendants [1]— Miles Lustig (" Miles" ), Grant Lustig (" Grant" ), and Lustig Capital, LLC— move to dismiss Count III of the Amended Complaint filed by Plaintiffs, pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief may be granted. For the reasons presented below, Defendants' Motion to Dismiss is granted.


Defendants removed the instant action from the Circuit Court of Cook County, Illinois, on October 25, 2011. The initial complaint, filed by Plaintiffs in Cook County on August 17, 2011, alleged three separate counts: (I) a violation of the Illinois Business Corporation Act, 805 ILCS 5/12.56; (II) a common-law claim of breach of fiduciary duty; and (III) a civil violation of the Racketeer Influenced and Corrupt Organizations Act (" RICO" ), 18 U.S.C. §§ 1861, et seq. With leave of the Court, Plaintiffs filed an amended complaint on August 15, 2012.[2] Defendants move to dismiss Count III of the Amended Complaint, the RICO claim, arguing Plaintiffs failed to properly plead the RICO claim with particularity and failed to properly plead a pattern of racketeering activity or the existence of an enterprise, as required by 18 U.S.C. § 1861.

Plaintiffs allege the following facts in support of their claims, which must be accepted as true for purposes of this Motion to Dismiss. See AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir.2011)( AnchorBank ). Plaintiffs include six Illinois individual residents and a trust, also located in Illinois. (Am. Compl. ¶¶ 1-7.) Defendant Miles Lustig is also an Illinois

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resident and the father of Defendant Grant Lustig. ( Id. ¶ 8.) Miles and Grant are members and managers of Defendant Lustig Capital, LLC. ( Id. ¶¶ 8-9.) Miles is also an officer of Defendants Clients Funding Solutions Corporation and W & M Trading Corporation, while Grant is a member of Defendant ME LAYZ, LLC. ( Id. )

In September 2006, Miles and Grant formed Workforce Financial, Inc. (" Workforce Financial" ). ( Id. ¶ 16.) Grant was the president of Workforce Financial until his resignation in July 2011. ( Id. ) Miles was previously employed as a trader at the Chicago Mercantile Exchange for many years. ( Id. ¶ 17.) Miles and Grant solicited investments for Workforce Financial and, from March 2009 through December 2010, raised over $1.3 million in capital from investors (none of whom are parties to this suit). ( Id. ¶¶ 18-19.)

In late 2009 and early 2010, Miles and Grant approached Plaintiffs with an investment opportunity, representing to Plaintiffs that by investing money with Miles and Grant, they would receive a significant return on their investments. ( Id. ¶¶ 20-21, 67(e)(i).) Grant and Miles met with Plaintiff Walter Posner in December 2009, outside the Chicago Board of Trade, to discuss making a capital investment in a new project. ( Id. ¶ 67(e)(i).) Grant and Miles also contacted many other potential investors, including the other Plaintiffs, to obtain the necessary start-up capital to form Workforce Financial. ( Id. ¶ 67(e)(ii).) Grant indicated to the investors, including Plaintiffs, that he would operate Workforce Financial on a full-time basis with Miles' regular oversight. ( Id. ) From February to April of 2010, Defendants held additional meetings with prospective investors, including several at Morton's Steakhouse restaurant in Northbrook, Illinois. ( Id. ¶ 67(e)(iii).) At these meetings, Grant and Miles explained that the Workforce Financial business model consisted of issuing low denominational, unsecured consumer loans and that the industry of these unsecured loans was government-regulated and a rapidly growing field. ( Id. ) At these investor meetings, Grant and Miles provided Plaintiffs with a 3-year plan of Workforce Financial's business model, including sample loans, a schedule of operating expenses, and a sample statement of loan durations and sizes. ( Id. ) This financial information for Workforce Financial was also sent through the mail to Plaintiff Posner in April 2010; Miles represented to Posner that March 2010 had been the company's best month yet. ( Id. ¶ 67(e)(iv).) In March and April of 2010, Grant and Miles conducted meetings with the potential investors, including Plaintiffs, at Morton's Steakhouse; Attorney Robert Gerber also appeared at these meetings and to assure the investors that an investment in Workforce Financial was a prudent one. ( Id. ¶¶ 67(e)(v)-(vi).) At the meeting at Morton's in April 2010, Plaintiffs agreed to invest money with Grant and Miles. ( Id. )

On June 4, 2010, Miles and Grant established Workforce Investors, LLC (" Workforce LLC" ), a limited liability company into which Plaintiffs' investments would be placed. ( Id. ¶ 22.) Grant is the manager of Workforce LLC. ( Id. ) Plaintiffs invested $3 million in Workforce LLC during 2010; these investments were made by delivering checks, payable to Workforce LLC, to Miles or Grant. ( Id. ¶¶ 23-24.) The purpose of Workforce LLC, according to the Operating Agreement, was to make revolving credit loans to Workforce Financial, pursuant to a Credit Agreement signed by each Plaintiff and Grant, in his capacity as Workforce LLC's manager and Workforce Financial's president. ( Id. ¶¶ 26-27.) Plaintiffs were to receive shares of stock in Workforce Financial in exchange for investment in Workforce LLC. ( Id. ¶ 28.) Plaintiffs were to receive interest on their

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investments at a rate of ten percent annually; these interest payments were to be made monthly. ( Id. ¶ 33.) However, Plaintiffs have never received any interest payments, or any other return on their investments with Workforce Financial or Workforce LLC. ( Id. ¶ 36.) Instead, Plaintiffs' investments were used by Grant and Miles for their own personal purposes, including cash withdrawals, investing in bars and restaurants, purchasing a currency exchange, purchasing a condominium in Florida, and furnishing funds to other entities operated by Miles and Grant. ( Id. ¶ 35.) Grant and Miles conspired and formed a scheme to defraud Plaintiffs, by convincing Plaintiffs to invest in Workforce LLC and Workforce Financial, when Grant and Miles knew they would not pay Plaintiffs interest nor return their principal investments. ( Id. ¶ 67(a).) Grant and Miles used wires and the mail to execute their scheme of defrauding Plaintiffs. ( Id. ¶ 68.) On several occasions, funds were wired from Workforce Financial to Lustig Capital; however, these transactions were recorded in Workforce ...

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