The opinion of the court was delivered by: Hon. Harry D. Leinenweber
MEMORANDUM OPINION AND ORDER
Pending before the Court are (1) Defendants' Motion to Dismiss and/or Strike portions of Plaintiff's First Amended Complaint; (2) Defendants' Motion for Leave to File a Surreply in Opposition to Summary Judgment; (3) Plaintiff's Motion for Summary Judgment; and (4) Defendants' Motion to Transfer Venue pursuant 28 U.S.C. § 1404(a). For the reasons stated herein, Defendants' Motion to Dismiss and/or Strike is granted in part and denied in part; Defendants' Motion for Leave to File a Surreply is granted; Plaintiff's Motion for Summary Judgment is denied; and Defendants' Motion to Transfer Venue is granted.
Plaintiff, Chicago Male Medical Clinic, LLC, (the "CMMC" or "Plaintiff") is an Illinois limited liability company that treats men with erectile dysfunction as well as other related medical issues. Defendant Ultimate Management, Inc., ("UMI") is a California corporation that licenses and oversees the operation of a national affiliation of medical clinics (including CMMC) that collectively do business under the name "National Male Medical Clinics," ("NMMC"). Defendant Jeffrey Fromberg ("Fromberg") is a director and officer of UMI.
On or about November 10, 2010, Plaintiff and UMI entered into a Continuing Consultation and Compensation Agreement ("the Agreement"). Under the Agreement, UMI agreed to assist Plaintiff in setting up a medical clinic and agreed to consult with Plaintiff on how to operate and market the medical clinic effectively. The terms of the Agreement were that Plaintiff would pay UMI a $300,000 set up fee along with a percentage of daily gross revenue in exchange for UMI's assistance in the marketing of the clinic, the training of employees, and the assistance with various operational tasks.
Plaintiff alleges that the Agreement was a franchise offering. Plaintiff claims that because the Agreement was a franchise agreement, UMI was required to abide by the Illinois Franchise Disclosure Act (the "IFDA"). UMI disputes this fact and argues that the Agreement merely established a consulting relationship between the parties.
On August 15, 2011, Plaintiff filed its initial complaint against UMI and Fromberg (collectively, the "Defendants") in the Circuit Court of Cook County. On October 24, 2011, UMI filed a Counterclaim against Plaintiff alleging breach of contract. On April 11, 2012, the Circuit Court of Cook County granted Plaintiff leave to amend its Complaint. In the First Amended Complaint, Plaintiff specifically claims that (1) Defendants violated Section 5 of the IFDA (Count I); (2) Defendants violated Section 6 IFDA (Count II);
(3) Defendants are liable for common law fraud (Count III); and (4) Defendants violated the Illinois Consumer Fraud & Deceptive Business Practices Act (the "ICFA") (Count IV).
On May 22, 2012, UMI filed a Motion to Dismiss Plaintiff's First Amended Complaint. Less than a month later, while at a deposition, UMI discovered that complete diversity existed between the parties. Shortly thereafter, UMI filed a Notice of Removal which transferred the case from the Circuit Court of Cook County to this Court.
Currently before the Court are (1) UMI's Motion to Dismiss and/or Strike Portions of Plaintiff's First Amended Complaint; (2) Defendants' Motion to File a Surreply in Opposition to Plaintiff's Motion for Summary Judgment; (3) Plaintiff's Motion for Summary Judgment with respect to Counts I and II; and (4) Defendants' Motion to Transfer Venue pursuant to 28 U.S.C. § 1404(a).
A. UMI'S Motion to Dismiss and/or Strike
On July 19, 2012, UMI filed a Motion to Dismiss and/or Strike Portions of Plaintiff's First Amended Complaint. In it, UMI requests that the Court (1) dismiss counts II, III and IV of Plaintiff's Complaint; (2) strike paragraph 16 of Plaintiff's Complaint; and (3) strike Plaintiff's prayer for punitive damages for all counts in the Complaint. UMI also requests that the Court dismiss Counts II, III, and IV with prejudice. It alternatively asks that if the Court permits Plaintiff to amend these claims, that the Court strike paragraph 28 and paragraph 37 of the Complaint.
1. Dismissal of Counts II, III, IV
UMI argues that Counts II, III, and IV of Plaintiff's Complaint should be dismissed because Plaintiff failed to plead with the requisite particularity adequately. UMI alleges that all three of these claims involve allegations of fraud, therefore requiring Plaintiff to satisfy the more stringent pleading standards of Federal Rule of Civil Procedure 9(b). Plaintiff does not dispute the applicability of Rule 9(b), but instead argues that its pleading is adequate.
On a Motion to Dismiss under Rule 12(b)(6), the Court accepts as true all well-pleaded facts in the Complaint and draws all inferences in Plaintiff's favor. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011). A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). Plaintiffs generally need not allege "detailed factual allegations," but must offer more than conclusions or "a formulaic recitation of the elements of the cause of action[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
However, when pleading fraud in federal court, Rule 9(b) imposes a higher pleading standard than that required under Rule 8. See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 446 (7th Cir. 2011). Rule 9(b) provides: "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." FED. R. CIV. P. 9(b).
A complaint alleging fraud must provide "the who, what, when, where, and how" of the circumstances constituting fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).
Additionally, "Rule 9(b)'s standard can apply to counts based on fraudulent conduct, not just counts of fraud." Telefonix, Inc. v. Response Eng'g, Inc., No. 12-C-4362, 2012 U.S. Dist. LEXIS 161756 at *7-8 (N.D. Ill. Nov. 13, 2012). The Seventh Circuit has opined that when a plaintiff alleges violations under Section 6 of the IFDA, the pleading "must include the same elements required to state a claim of common law fraud." Derson Group, Ltd. v. Right Management Consultants, Inc., 683 F.Supp. 1224, 1228 (N.D. Ill. 1988) citing Proimos v. Fair Automotive Repair, Inc., 808 F.2d 1273, 1276 (7th Cir. 1987). Similarly, the Seventh Circuit instructs that when a claim under the ICFA alleges "fraudulent activity" then the "dictates of Rule 9(b) apply." Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust, 631 F.3d at 446.
Here, Plaintiff's claim under the ICFA is premised on "deception, fraud, false pretense, false promise misrepresentation or concealment." [Dkt. 1-3 at 14]. As such, the Court finds the heightened pleading standards under Rule 9(b) apply to Counts II, III, and IV.
Count II of Plaintiff's Complaint alleges that UMI violated Section 6 of the IFDA by "inducing CMMC [Plaintiff] to invest in their clinic and to pay the substantial fees charged by Ultimate [UMI] based on lies and deception . . ." Pl.'s First Amend. Compl. at 8; [Dkt. 1-3 at 9]. Plaintiff bases its claim on the fact that UMI's representation of having valuable, proprietary information was false, and Defendants' representation that other clinics were profitable was also false. In the Complaint, Plaintiff states that these were material misrepresentations which were intended to induce Plaintiff's reliance, and proximately caused Plaintiff to sustain significant monetary losses. UMI argues this pleading lacks the requisite particularity under Rule 9(b) because Plaintiff fails to specify what specific representations were allegedly false and fails to plead that UMI knew the representations were false at the time it made them.
Section 6 of the Illinois Franchise Disclosure Act is entitled "fraudulent practices." It provides:
In connection with the offer and sale of any franchise made in this State, it is unlawful for any person, directly or indirectly, to:
(a) employ any device, scheme or artifice to defraud.
(b) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statement made in the light of the circumstances under which they are made, not misleading.
(c) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. 815 ILL. COMP. STAT. 705/6.
As previously mentioned, in order to state a claim under this Section of the IFDA a plaintiff must plead the elements of common law fraud. See Proimos, 808 F.2d at 1276 (finding "the critical portion of the Act [IFDA] is modeled on the SEC's Rule 10b-5, which has been understood to contain the same elements . . . [that] are part of fraud."). In Illinois, in order to state a valid fraud claim a plaintiff must allege that (1) the defendant made a false statement of material fact; (2) the defendant knew or believed the material fact was false at the time the defendant made the statement; (3) the defendant made the statement with the intent to induce action by the plaintiff; (4) the defendant did induce plaintiff's action in reliance on the truthfulness of the statement; and (5) the defendant injured the plaintiff as result of the plaintiff's reliance. Athey Products Corp. v. Harris Bank Roselle, 89 F.3d 430, 434 (7th Cir. 1996).
UMI alleges that the first and second elements are missing from Count II of Plaintiff's Complaint. The Court agrees.
Count II of the Complaint begins by reciting Section 6 of the IFDA and then proceeds to claim that UMI violated Section 6 by inducing Plaintiff to invest in one of its companies "through lies and deception." [Dkt. 1-3 at 9.]. Plaintiff further alleges that two of those "lies" were UMI's representation of possessing proprietary information and UMI's "unsubstantiated pro forma projection." [Dkt. 1-3 ¶¶ 19(a)-(b)]. In the Complaint, Plaintiff fails to allege with any degree of specificity what proprietary information its claim is based upon and fails to plead what specific information in the pro forma projections was unsubstantiated. Moreover, Plaintiff completely fails to allege that at the time UMI made these representations it knew them to be false. Thus, the Court finds Plaintiff's pleading with respect to Count II insufficient for the purposes of Rule 9(b) and dismisses Count II without prejudice. See Hoffman v. Nationwide Mut. Ins., No. 10-CV-3841, 2011 WL 3158708, at *5-6 (N.D. Ill. July 26, 2011) (dismissing a plaintiff's fraud claims because the plaintiff merely contended that the material misrepresentations made by defendants were contained in the business plans and pro formas that the defendant gave plaintiff); see also Shair v. Qatar Islamic Bank, No. 08-CV-1060, 2009 WL 691249, at *5-6 (N.D. Ill. Mar. 16, 2009) (dismissing a plaintiff's fraud claim because the plaintiff failed to allege what exact statements the defendant made that were false and failed to allege that defendant knew them to be false at the time it made them).
b. Count III Common Law Fraud
Count III of Plaintiff's complaint attempts to allege common law fraud. Interestingly, unlike Count II, in Count III Plaintiff makes the requisite allegation that UMI knew its misrepresentations were false. However, in doing so, Plaintiff merely states that UMI's misrepresentations and omissions "were known by Ultimate [UMI] to be false." Pl.'s First Amend. Compl. at 11 [Dkt. 1-3 at 12]. Plaintiff fails to make any allegation regarding how or why UMI knew that its representations were false. The Court finds this conclusory assertion also fails to satisfy the heightened requirements of Rule 9(b). See Greer v. Advanced Equities, Inc., 683 F.Supp.2d 761, 768 (N.D. Ill. 2010) (dismissing plaintiff's fraud claim because the claimant merely alleged that the defendants "knew or should have known that the representations and omissions that were made were untrue.")
As further support, similar to Count II, the Court finds the Plaintiff's allegations regarding what the material misrepresentations are that form the basis of the fraud claim to be insufficiently pled. The Court also points out that in Count III, Plaintiff alleges that the material misrepresentations for its common law fraud claim are based on the allegations of paragraph 18 in the Complaint. However, paragraph 18 is the merely the language of Section 6 of the IFDA. The Court presumes that this is a typographical error and Plaintiff intended this portion of Count III to reference paragraph 19 in Count II. Pl.'s First Amend. Compl. at 9 [Dkt. 1-3 at 10]. However, the Court refuses to predict what Plaintiff intends to plead. See Stanard v. Nygren, 658 F.3d 792, 798 (7th Cir. 2011) (affirming a district court's dismissal of a complaint because the complaint's "grammatical, syntactical, and typographical errors contributed to an overall sense of unintelligibility.")
Notwithstanding the error, the Court finds the claimed misrepresentations in paragraph 19 fall short of the pleading requirements under Rule 9(b). In order to plead a misrepresentation sufficiently for common law fraud the "complaint must specify the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to plaintiff." Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990). The Court finds Plaintiff fails to set forth these details with the requisite particularity and dismisses Count III without prejudice.
Count IV of Plaintiff's Complaint alleges that UMI violated the ICFA because UMI sold franchises in the State of Illinois and made false "financial performance representations in violation of the applicable regulations promulgated by the FTC." Pl.'s First Am. Compl. at 13; [Dkt. 1-3 at 14.]. UMI argues that Plaintiff fails to plead sufficiently that Plaintiff, a corporation, has standing as a consumer to bring this claim, and alternatively argues that even if Plaintiff has standing, the Complaint fails to meet the heightened pleading requirements under Rule 9(b).
"The ICFA is a regulatory and remedial statute intended to protect consumers, borrowers, and business persons against fraud, unfair methods of competitions and other unfair and deceptive business practices." Hickman v. Wells Fargo Bank, N.A., 683 F.Supp.2d 779, 793-94 (N.D. Ill. 2010). In order to state a claim under the ICFA the plaintiff must allege "(1) a deceptive or unfair act or practice by the defendant; (2) the defendant's intent that the plaintiff rely on the deceptive or unfair practice; and (3) the unfair or deceptive practice occurred during a course of conduct involving a trade or commerce." Id. In addition to this, "a private cause of action under the ICFA requires a showing of proximate causation." Oshana v. Coca-Cola Co., 472 F.3d 506, 514-15 (7th Cir. 2006).
UMI claims that Plaintiff fails to establish standing because a business only has standing to sue under the ICFA if the business alleges that the misconduct is directed at the market in general.
Plaintiff argues that UMI's assertion is without merit since Plaintiff is a consumer under the ICFA. The Court disagrees.
Section (e) of the ICFA provides the definition of a "consumer" for the purposes of the ICFA. It provides:
(e) The term "consumer" means any person who purchases or contracts for the purchase of merchandise not for resale in the ordinary course of his trade or business but for his use or that of a member of his household. 815 ILL. COMP. STAT. 505/1(e) 2007).
Plaintiff fails to allege that it purchased merchandise (which pursuant to 815 ILL. COMP. STAT. 505/1(b) includes intangible rights) that it used for its personal use. Moreover, the Court cannot fathom any way that consulting or franchise services for a business could be used for personal use as the statute requires. Because of this, the Court rejects Plaintiff's argument that it has standing as a consumer under the ICFA. See Williams Electronic Games v. Garrity, 366 F.3d 569, 579 (7th Cir. 2004) (holding that for the purposes of the ICFA the plaintiff must be a consumer pursuant to the statute and reasoning that "the business purchaser is [generally] not a consumer because his only use of the purchased product is as an input into the making of a product that he sells, in contrast to the individual who consumes a six-pack of beer for pleasure or nutrition rather than incorporating the beer into a product . . . "). Thus, the Court finds Plaintiff fails to allege that it has standing to support a claim under the ICFA. The Court also notes that Plaintiff here again fails to satisfy Rule 9(b) with respect to this claim.
Therefore, because the Court does not find Plaintiff to be a consumer under the ICFA, the Court dismisses Count IV of Plaintiff's Complaint with prejudice.
d. Dismissal of Counts II and III Without Prejudice
UMI requests that the Court dismiss Counts II, III, and IV with prejudice. UMI argues such a dismissal is appropriate because even if Plaintiff sufficiently pleads its claims, the claims will still fail under Illinois law because Plaintiff's claims are based upon the fact that UMI made false and misleading pro forma projections and representations as to future income, are thus not actionable in Illinois. Plaintiff responds that its claims are not merely based on representations as to future income, but instead are based upon "projection[s] represented as being based on past performance." Pl.'s Resp. in Opp. to Defs.' Mot. to Dismiss at 4.
The Court agrees with UMI pursuant to Count IV for the reasons stated above. However, the Court, cognizant of the fact that a dismissal with prejudice is in effect an adjudication on the merits, dismisses Counts II and III of Plaintiff's Complaint without prejudice and grants Plaintiff leave to amend the complaint. See ElBey v. Village of South Holland, No. 11-C-4949, 2012 WL 1658301 at *9 (N.D. Ill. May 11, 2012) (stating "[i]n deciding whether to dismiss with prejudice (and foreclose any attempts to amend the complaint) this Court is mindful that the Court should "freely give leave [to amend] when justice so requires.") citing FED. R. CIV. P. 15(a)(3).
The Court directs Plaintiff to be sufficiently specific if it chooses to re-plead these claims, and urges Plaintiff to familiarize itself with the relevant Illinois law. Accordingly, the Court grants Plaintiff thirty (30) ...