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Wells Fargo Bank, National Association v. Leafs Hockey Club, Inc.

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

March 14, 2014

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee under Trust Indenture dated February 1, 2007, Plaintiff/Counter-Defendant,
v.
LEAFS HOCKEY CLUB, INC., Defendant/Counter-Plaintiff.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge.

On May 31, 2013, Plaintiff Wells Fargo Bank (the "Trustee"), [1] as Indenture Trustee under the Trust Indenture dated February 1, 2007, filed a two-count First Amended Complaint against Defendant Leafs Hockey Club, Inc. ("Leafs Hockey") based on the Court's diversity jurisdiction. See 28 U.S.C. § 1332(a). On December 17, 2013, Leafs Hockey filed a three-count Counterclaim against the Trustee alleging a breach of contract claim (Count I), an equitable accounting claim (Count II), and a conspiracy to defraud claim (Count III). Before the Court is the Trustee's motion to dismiss Leafs Hockey's three-count Counterclaim pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). For the following reasons, the Court grants the Trustee's motion to dismiss without prejudice. The Court grants Leafs Hockey leave to file an Amended Counterclaim.

LEGAL STANDARD

I. Federal Rule of Civil Procedure 12(b)(6)

"A motion under Rule 12(b)(6) tests whether the complaint states a claim on which relief may be granted." Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citation omitted). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570). "In reviewing the sufficiency of a complaint under the plausibility standard, [courts] accept the well-pleaded facts in the complaint as true." Alam v. Miller Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013). When ruling on motions to dismiss, courts may also consider documents attached to the pleadings without converting the motion to dismiss into a motion summary judgment, as long as the documents are referred to in the complaint and central to the plaintiff's claims. See Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012).

II. Federal Rule of Civil Procedure 9(b)

In pleading fraud in federal court, Rule 9(b) imposes a higher pleading standard than that required under Rule 8(a)(2). See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 446 (7th Cir. 2011). Specifically, Rule 9(b) requires a pleading to state with particularity the circumstances constituting the alleged fraud. See Fed.R.Civ.P. 9(b); Pirelli, 631 F.3d at 441-42; see also Iqbal, 556 U.S. at 686. This "ordinarily requires describing the who, what, when, where, and how' of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case." AnchorBank, 649 F.3d at 615 (citation omitted); see also Cincinnati Life Ins. Co. v. Beyrer, 772 F.3d 939, 948 (7th Cir. 2013). "Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b); see also Iqbal, 556 U.S. at 686. "[T]he particularity requirement of Rule 9(b) is designed to discourage a sue first, ask questions later' philosophy." Pirelli, 631 F.3d at 441 (citation omitted). "Heightened pleading in the fraud context is required in part because of the potential stigmatic injury that comes with alleging fraud and the concomitant desire to ensure that such fraught allegations are not lightly leveled." Id. at 442.

BACKGROUND

I. Wells Fargo's First Amended Complaint

In its First Amended Complaint, Plaintiff alleges that it is the successor trustee to the Amalgamated Bank of Chicago under the Trust Indenture between the Illinois Finance Authority and the Prior Trustee dated as of February 1, 2007 (the "Trust Indenture"). (R. 13, First Am. Compl. ¶ 1.) Plaintiff alleges that the Illinois Finance Authority raised $20 million through the issuing and selling a series of revenue bonds. ( Id. ¶¶ 7, 8.) The Illinois Finance Authority issued the bonds under the Trust Indenture and loaned the proceeds to LHC, LLC ("LHC"), an Illinois non-profit limited liability company, for the construction and operation of a hockey arena located in West Dundee, Illinois. ( Id. ¶ 1.) Pursuant to the February 1, 2007 Loan Agreement ("Loan Agreement") and Guaranty Agreement ("Guaranty Agreement"), LHC was the borrower and Defendant Leafs Hockey was the guarantor. ( Id. ) Plaintiff further alleges that LHC has failed to make the required payments, and thus is in default. ( Id. ¶ 2.) Also, Plaintiff maintains that Leafs Hockey, as guarantor, has failed to pay its obligations under the February 1, 2007 Guaranty Agreement. ( Id. ) On January 24, 2014, the Court granted Wells Fargo's motion for substitution and appointed UMB Bank, N.A. ("UMB" or the "Trustee") as the successor trustee.

II. Leafs Hockey's Counterclaim

On January 17, 2014, Leafs Hockey filed a three-count Counterclaim against the Trustee alleging a breach of contract claim (Count I), a claim for an equitable accounting (Count II), and a conspiracy to defraud claim (Count III). In Count III, Leafs Hockey also brings the conspiracy to defraud claim as a Third-Party claim against Third-Party Defendants Don LaPato, John Willett, Michael Durkin, and Club-Sports Consulting Group, Inc. ("CSCG").

In its Counterclaim, Leafs Hockey alleges that it repeatedly attempted to obtain information from the Trustee, the Illinois Finance Authority, and CSCG - the manager of operations at the hockey arena - about the distribution and use of funds from the $20 million bond proceeds. ( Id. ¶ 28.) Despite the repeated attempts, Leafs Hockey was unable to learn why approximately $6 to $8 million of the bond proceeds were not used to fund the construction of the hockey arena ( Id. ) Leafs Hockey further alleges that in or around February 2007, when the construction of the hockey arena began, it had approximately $500, 000 in reserves, but by late 2012, approximately $470, 000 of the reserves was missing. ( Id. ¶¶ 30, 31.) Also, Leafs Hockey asserts that in or about 2012, it began to suspect LHC's oversight and CSCG's management of the hockey arena as the cause of the financial irregularities. ( Id. ¶ 32.)

Further, Leafs Hockey alleges that on December 11, 2012, it replaced the entire board of directors of LHC, which included LaPato, Willett, and Durkin. ( Id. ¶¶ 33, 34.) According to Leafs Hockey, within days, CSCG removed all physical records, including all accounting records, from the hockey arena and deleted Leafs Hockey's emails and computer records. ( Id. ¶¶ 36, 37.) After Leafs Hockey terminated CSCG as manager, Leafs Hockey also discovered a remote ...


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