United States District Court, N.D. Illinois, Eastern Division
SIDNEY FERENC, LEGACY RE, LTD., ROCK SOLID GELT LIMITED, and 407 DEARBORN, LLC, Plaintiffs,
KAREN BRENNER, FORTUNA ASSET MANAGEMENT, LLC, and MICHAEL HORRELL, Defendants.
JOHN F. GRADY, District Judge.
Before the court is Karen Brenner's and Fortuna Asset Management, LLC's ("FAM") motion to dismiss Count I of the plaintiffs' amended complaint. For the reasons explained below, we deny the defendants' motion.
We will assume that the reader is familiar with our previous opinion in this case, which dismissed a majority of the plaintiffs' claims because they are governed by a binding agreement to arbitrate. See Ferenc v. Brenner , 927 F.Supp.2d 537, 550 (N.D. Ill. 2012). We held that only one claim belonged in this court: 407 Dearborn, LLC's claim against Brenner, FAM, and Horrell for breach of fiduciary duty. Id. at 546. Nevertheless, we dismissed that claim because 407 Dearborn had not satisfied Rule 9(b)'s heightened pleading requirements. Id. at 547-48. The following allegations are drawn from 407 Dearborn's amended complaint.
In March 2009, 407 Dearborn acquired property commonly known as 407 S. Dearborn, Chicago, Illinois (the "Dearborn Property"). (Am. Compl. ¶ 7.) At that time, the manager of the 407 Dearborn was 407 Dearborn Manager, LLC; defendant FAM was the manager of 407 Dearborn Manager; and defendant Brenner was the managing member of FAM. (Id. at ¶ 9.) The complaint further alleges that defendant Michael Horrell held himself out as "co-manager" of 407 Dearborn and exercised " de facto control" over the company. (Id. at ¶ 10.) Horrell and Brenner were close business associates and had "various business interests together." (Id. at ¶ 13.) 407 Dearborn alleges that Horrell and Brenner used their control of the company to cause it to pay improper fees to Horrell and his companies. The amended complaint attaches a "General Ledger" listing payments by 407 Dearborn to Horrell and his affiliates. (Id. at ¶¶ 11-12; see also 407 Dearborn "General Ledger, " attached as Ex. C to Am. Compl.) The "Memo" field of the ledger lists the services that Horrell and his company purportedly rendered (e.g., "Building Repairs, " "Building Supplies, " "Cleaning Contract, " "Leasing Commissions, " Management Fees"). (Id.) The amended complaint refers generically to "mark-ups" and "other excessive charges, " (id. at ¶ 14), but it does not challenge any particular charge on those grounds. The real thrust of the plaintiff's claim appears to be the more than $242, 000 in "Management Fees" that FAM and Brenner allegedly caused the company to pay to Horrell and his affiliates. (See General Ledger at 3-4 (listing "Management Fees" paid to Aurora Real Estate and Management, Goriana Alexander, Mozart's Aria, and Chicago Historic Realty); see also Am. Compl. ¶ 12 (alleging that these parties are affiliated with Horrell).) Chicago Historic Realty added another $19, 000 in "management fees" to the invoices that it submitted to 407 Dearborn for general building maintenance. (See Chicago Historic Realty Invoices, attached as Group Ex. A to Pl.'s Reply.) The plaintiff alleges that Horrell, with the defendants' participation, was billing the company for services that were already being provided by a third-party property manager (Joseph Cacciatore). (Id. at ¶ 11.)
Besides these payments to Horrell and his companies, 407 Dearborn also challenges certain "loan repayments" to the defendants and their affiliates. (Id. at ¶ 18.) On March 4, 2010, 407 Dearborn paid FAM $950, 000, and paid a company called First Chicago Financial LLC $108, 000. (Id.) Four days later, it paid $30, 300 to "Managers." (Id.) And on March 10, 2010, 407 Dearborn made a $71, 969.50 interest payment to FAM. (Id.) 407 Dearborn alleges "on information and belief" that Brenner and/or Horrell were the ultimate recipients of these payments. (Id.) The company "does not have records which demonstrate that [the company] actually received the proceeds of the purported loans." (Id.)
A. Legal Standard
The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 354 (3d ed. 2004). To survive such a motion, "a 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." Ashcroft v. Iqbal , 129 S.Ct. 1937, 1949 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 556 (2007)). When evaluating a motion to dismiss a complaint, the court must accept as true all factual allegations in the complaint. Iqbal , 129 S.Ct. at 1949. However, we need not accept as true its legal conclusions; "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id . (citing Twombly , 550 U.S. at 555).
We previously held that the plaintiff's breach of fiduciary duty claim was governed by Rule 9(b), although we considered it a "close question." Ferenc , 927 F.Supp.2d at 547. 407 Dearborn has not asked us to revisit that question, instead arguing that its amended complaint satisfies Rule 9(b)'s heightened pleading requirements. See DiLeo v. Ernst & Young , 901 F.2d 624, 627 (7th Cir. 1990) (To satisfy Rule 9(b), the plaintiff must allege "the who, what, when, where, and how [of the alleged fraud]: the first paragraph of any newspaper story."; see also Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co. , 631 F.3d 436, 442 (7th Cir.2011) (noting that "the requisite information-what gets included in that first paragraph-may vary on the facts of a given case").
A. Whether 407 Dearborn Has Satisfied Rule 9(b)
The defendants argue that 407 Dearborn's amended complaint is defective because it asserts a "claim" without articulating a particular legal theory. (See Am. Compl. at 1 ("407 Dearborn Claims Against Brenner, FAM, and Horrell").) The Federal Rules of Civil Procedure do not require plaintiffs to plead legal theories in their complaint. See Currie v. Chhabra , 728 F.3d 626, 629 (7th Cir. 2013) ("[W]e remind parties again that there is no duty to plead legal theories."). They merely require the plaintiff to give the defendant notice of his claim. Id . The defendants affect ignorance about the nature of the duty that they allegedly owed 407 Dearborn, and how they were supposed to have breached it. (See Defs.' Mot. at 4-5.) But the plaintiff has clearly spelled out the nature of its claim in the amended complaint. FAM controlled 407 Dearborn Manager, and Brenner controlled FAM. The plaintiff alleges that, in that circumstance, the defendants had a duty to act in the company's best interests. They breached that duty by authorizing the company to pay excessive and duplicative "management fees" to Horrell and his affiliates. 407 Dearborn suggests several legal theories that would permit it to recover damages against the defendants for this conduct. (See Pl.'s Resp. at 2-6 (breach of the defendants' fiduciary duty to plaintiff; knowing participation in Horrell's breach of fiduciary duty; unjust enrichment).) The defendants argue that the plaintiff's claim is a nonstarter because it has not alleged that the defendants made any misrepresentations or material omissions. (See Def.'s Mot. at 6.) We previously held that the plaintiff's claim "sound[ed] in fraud, " see Ferenc , 927 F.Supp.2d at 547, but that does not mean that it must prove the elements of fraud to prevail on a claim for breach of fiduciary duty. Even if the defendants made no effort to conceal what they were doing, that would not entitle them to act contrary to the company's best interests.
The dates and the amounts of the management-fee payments are listed in Exhibit C to the amended complaint, and in the invoices attached to the plaintiff's response brief. We conclude that this is ...