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Amari Company, Inc. v. Burgess

United States District Court, N.D. Illinois

July 2, 2013

AMARI COMPANY, INC., et al., Plaintiffs,
v.
JOHN R. BURGESS, et al., Defendants

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For Amari Company, Inc., a Masschusetts Corp., a New Hampshire corporation, Plaintiff: Leon Irwin Edelson, Edelson IP Law Group, Ltd., Bannockburn, IL; Merle L. Royce, II, Law Offices of Merle L. Royce, Chicago, IL; Michael R. Needle, PRO HAC VICE, Michael R. Needle PC, Philadelphia, PA; Saul R. Wexler, Attorney, Chicago, IL.

For Central Radiator Cabinet Company, Inc., Greater Dallas Wholesale Company, Inc., a Texas Corporation, Hinsdale Sales & Rentals, Inc., a New Hampshire Corporatin, doing business as Robust/Valley Rentals, Sales & Service, HRJL Architects, Inc., an Ohio Corporation, Joseph E. Clouse, Inc., a Florida Corporation, Mills Mfg., Inc., a Minnesota corporation, Precision Painting and Decorating, Inc., an Illinois corporation, Capital Removal, Cool Access, LLC, EVCO Commercial Construction Corp, Glenn Terry Transport, Inc, Granite Transformations, MSI Ready Mix, Inc., Philipsburg Electric & Supply, Inc., Progressive Enterprises of Colorado Springs, Inc, Captains Select Seafood, Minnesota Corporation, Valley Management, Inc., Plaintiffs: Merle L. Royce, II, Law Offices of Merle L. Royce, Chicago, IL; Michael R. Needle, PRO HAC VICE, Michael R. Needle PC, Philadelphia, PA; Saul R. Wexler, Attorney, Chicago, IL.

For Gilbert-American Companies, a Texas Co., Gig's Inc., a Massachusetts Limited Liability Company formerly known as MJP Contracting, Inc., Integrated Sign and Graphic, Incorporated, Kyle's Discount Stuff, a Kansas Partnership, Trinks Brothers, LLC, a Connecticut Limited Liability Corporation, Tring Corporation, Bradley M. Griffin, a Texas corporation doing business as Home Theater Design Group, DePatco, Inc., Gunnison Metal Shop, Inc, Handley Heat & Air, Industrial Resource Group, LLC, John Cardullo & Sons, Inc., JRP Construction, LLC, Robert S. Chamberlain, Compsolution VA, Inc., Plaintiffs: Stephen G. Kehoe, LEAD ATTORNEY, Law Offices of Stephen G. Kehoe, Chicago, IL; Leon Irwin Edelson, Edelson IP Law Group, Ltd., Bannockburn, IL; Merle L. Royce, II, Law Offices of Merle L. Royce, Chicago, IL; Michael R. Needle, PRO HAC VICE, Michael R. Needle PC, Philadelphia, PA; Saul R. Wexler, Attorney, Chicago, IL.

Gunnison Metal Shop, Inc., Plaintiff, Pro se.

For John R Burgess, Gregg Steinburg, Defendants: Ronald Lee Bell, LEAD ATTORNEY, Ronald L. Bell & Associates, Buffalo Grove, IL; Ryan D Johnson, LEAD ATTORNEY, Christopher Anthony Harris, Johnson & Harris, LLC, Buffalo Grove, IL; Chad M. Upham, PRO HAC VICE, The Nunley Firm, Boerne, TX; Courtney Anne Cloutier, Ronald Bell & Associates, Buffalo Grove, IL; James Ken Nunley, PRO HAC VICE, The Nunley Firm, Pllc, Boerne, TX.

For Tyler Burgess, Defendant: Ronald Lee Bell, LEAD ATTORNEY, Ronald L. Bell & Associates, Buffalo Grove, IL; Ryan D Johnson, LEAD ATTORNEY, Christopher Anthony Harris, Johnson & Harris, LLC, Buffalo Grove, IL; Chad M. Upham, PRO HAC VICE, The Nunley Firm, Boerne, TX; Courtney Anne Cloutier, Ronald Bell & Associates, Buffalo Grove, IL; Gary J. Wojtan, Wojtan, vallone & Melin, P.c., Cheektowaga, NY; James Ken Nunley, PRO HAC VICE, The Nunley Firm, Pllc, Boerne, TX.

For Jacie C Zolna, Respondent: Adrian M. Vuckovich, Collins Bargione & Vuckovich, Chicago, IL; George B. Collins, Collins & Bargione, Chicago, IL.

OPINION

John J. Tharp, Jr., United States District Judge.

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MEMORANDUM OPINION AND ORDER

The plaintiffs, sixteen businesses in various industries, allege that the three individual defendants used various corporate entities they controlled (which the Court collectively refers to as " IPA" unless otherwise required) in a pattern of racketeering activity that swindled the plaintiffs into purchasing expensive but unnecessary or worthless business management and tax consulting services. See 18 U.S.C. 1962(c). The defendants have moved for summary judgment on the basis that res judicata bars the claims of eight plaintiffs. But as will be seen, the prior judgments on which the defendants base their motion do not bar the plaintiffs' RICO claim; the defendants were not parties to the prior

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cases and the prior judgments in any event are a mixed bag that does not support the premise of the motion, namely, that the plaintiffs have already litigated, and lost, the claim they assert in this case. For these reasons and as more fully set forth below, the defendants' motion for summary judgment is denied.

BACKGROUND

This civil RICO action was filed on March 13, 2007, by 21 small businesses (or their owners) across the country, against John Burgess, Tyler Burgess, and Gregg Steinburg, as well as the various IPA companies and certain other individuals. Currently, sixteen plaintiffs remain, and the defendants are the two Burgesses (who are father and son) and Gregg Steinburg; they are all owners and/or officers of the IPA companies. With apologies to Mr. Steinburg, the Court will refer to the individual defendants in this case collectively as " the Burgesses" so as to distinguish them from the IPA plaintiffs in the state court actions that give rise to the res judicata claims this order addresses.

Eight of the plaintiffs in this case were sued by IPA in several state court cases at various times, most after this lawsuit commenced, for total or partial nonpayment of fees due under their consulting contracts. Pursuant to a forum selection clause in the contracts, the lawsuits were filed in the Circuit Court of Lake County, in the Nineteenth Judicial Circuit of Illinois. The cases were all of the type subject to mandatory arbitration under Illinois Supreme Court Rule 86 as implemented by the Nineteenth Judicial Circuit. Under that Court's Local Rule 17.01(c), " all civil actions, except confessions of judgment on promissory notes, will be subject to mandatory arbitration if each claim is exclusively for money in an amount exceeding $10,000 but not exceeding $50,000, exclusive of interest, costs, and attorneys' fees." Any party who appears for the mandatory arbitration hearing may " reject" the award and petition for trial under Supreme Court Rule 93.

On May 8, 2007 (just months after this RICO suit was filed), the IPA entities [1] filed suit as follows: (1) 07 AR 519 by IPA and ITA against DePacto, Inc.; (2) 07 AR 533 by ITA-IS against DePacto, Inc.; (3) 07 AR 554 by IPA and ITA against BMGI; (4) 07 AR 720 by IPA against IRG. These three defendants--DePacto, BMGI, and IRG--were not plaintiffs in the RICO suits at the time they were sued, but before IPA sued them in state court, they had notified IPA of their intent to join the RICO case pursuant to an amended complaint.

In August 2007 the RICO complaint was amended, bringing the number of plaintiffs to 40. A motion to dismiss was denied on December 4, 2007 ( see Dkt. # 70). A month later, on January 14, 2008, IPA sued all 40 RICO plaintiffs and their then-attorney, Robert Reda, for defamation, based on the publication of the Amended Complaint. Reda then resigned from representing the RICO plaintiffs to avoid a conflict of interest. Subsequently, some efforts were made to negotiate a global settlement of the RICO and defamation suits, but no settlement was reached. The defamation case is now stayed.

On February 13, 2009, IPA filed more collection suits in Lake County against various RICO plaintiffs. The IPA entities [2]

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filed suit as follows: (1) 09 SC 1569, a small-claims case by IPA against Compsolutions VA, Inc.; (2) 09 AR 356 by ITA against Compsolutions; (3) 09 AR 355 against Jeffrey and Lisa Handley by IPA, ITA, and AA; (4) 09 AR 357 by IPA against Tring Corporation; (5) 09 AR 358 by IPA against Robert Chamberlain; (6) 09 AR 359 by IPA against Amari Company, Inc. All told, then, after the RICO case was filed, there were 10 lawsuits by IPA entities filed against eight RICO plaintiffs filed in Lake County, all of them subject to mandatory arbitration except for a single small-claims court filing.

There is yet one more state court law suit necessary to complete the picture, this one filed before the filing of the RICO suit: number 06 AR 3, a contract claim by IPA against Central Radiator Cabinet Co., which became an original plaintiff in the RICO suit--and which is not targeted by the Burgesses' res judicata motion. The Central Radiator case was consolidated with the four 2007 cases (two against DePacto, and one each against BMGI and IRG); these five cases collectively will be called the " 2007 cases." Central Radiator is the only RICO plaintiff that attempted to mount a counterclaim in state court. Its original class-action counterclaim, for consumer fraud, breach of fiduciary duty, and breach of contract, was dismissed, but evidently it was re-pled. IPA moved to dismiss or to abate the counterclaim; the motion to dismiss was denied, but the court granted the defendant's request for " a plea in abatement." [3] In its June 7, 2007 order, the Court abated the counterclaim of Central Radiator while " leaving it open to renew the suit in another place or forum or at another time."

The defendants in the 2007 cases (again, the plaintiffs in this case) moved under Illinois Code of Civil Procedure Rule 2-619(a)(3) to stay the consolidated lawsuits pending the outcome in the RICO action. Under that rule, a case may be voluntarily dismissed or stayed if " there is another action pending between the same parties for the same cause." 735 ILCS 5/2-619(a)(3); Kellerman v. MCI Telecommunications Corp., 112 Ill.2d 428, 493 N.E.2d 1045, 1053, 98 Ill.Dec. 24 (Ill. 1986). Although the RICO suit was pending against only John Burgess, Tyler Burgess, and Gregg Steinburg as individuals, and the state-court plaintiffs were the IPA companies themselves, the state defendants argued that their federal RICO action was " between the same parties" because the individuals controlled the entities and had identical interests with respect to the litigation. The state defendants further argued that they could not obtain complete relief in the state cases because the court would not allow their counterclaims. In support, the state defendants attached an order showing that the court had granted IPA's motion to abate Central Radiator's counterclaims for fraud and misrepresentation but " leaving it open to renew the suit in another place or forum or at another time."

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In response to the motion to stay, the IPA companies argued that the RICO case involved different claims and parties than their state-court collections actions. The Circuit Court agreed and denied the motion to stay the 2007 cases. The certified Bystander's Report (a summary of the proceedings prepared by the parties and certified by the court) of the court's ruling reflects that the circuit court determined that the two actions did not involve the " same parties" because the state plaintiffs--the IPA companies--were not named as defendants in the RICO action. The state defendants appealed the ruling and lost. The appellate court reasoned that the state defendants did not present clear and convincing evidence that the federal defendants (Burgess et. al) controlled the state plaintiffs (IPA) for purposes of the " same parties" inquiry. That decision was issued on July 23, 2008; thereafter, the 2007 cases proceeded in state court.

After IPA filed the 2009 cases, the state court defendants--by then with a new attorney, replacing Mr. Reda--tried moving for a stay again, on December 28, 2009. In response the state-court plaintiffs moved for default judgment, arguing that the defendants' answers had been due on December 28, and they had not been given leave to otherwise plead. (Upon withdrawal of the state defendants' prior attorney in November, the court had ordered the defendants to answer the complaints by December 28). The court ultimately denied the motions to stay, holding that they were not timely. The court also denied the motion for default judgment and ordered the defendants to answer the complaints. Only one appeal from the denial of the stay was filed (by Compsolutions, in the small-claims matter), but it was rendered moot before it was decided because the underlying claim proceeded to arbitration without an in-person appearance by Compsolutions, which foreclosed any attempt to reject the arbitration award that it was ordered to pay to IPA. Accordingly, the 2009 suits, like the 2007 suits, proceeded in state court while the RICO action continued in this Court.

The state defendants did not seek any affirmative relief in the state court actions, such as a refund of the moneys they already had paid to IPA, whether because their RICO suit was pending, or because the circuit court had granted abatement of Central Radiator's counterclaim. All of the state defendants defended the collections suits on the grounds of fraud, however, and it is these assertions that give rise to the Burgesses' res judicata motion. Each answer asserts an affirmative defense of fraud in the inducement and sets forth the manner in which the IPA companies allegedly scammed the state defendants/RICO plaintiffs into contracting for useless consulting services. Each case proceeded to a bench trial, and in each case, the court (the same judge in every case) rejected (not always, but ...


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