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True North Enterprises, LLC v. Hendricks

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

April 30, 2014

TRUE NORTH ENTERPRISES, LLC, Plaintiff,
v.
JOHN W. HENDRICKS, JR., Defendant.

MEMORANDUM OPINION

SAMUEL DER-YEGHIAYAN, District Judge.

This matter is before the court on Defendant John W. Hendricks, Jr.'s (Hendricks) motion to dismiss and motion in the alternative to stay. For the reasons stated below, the motion to dismiss is granted, and the alternative motion to stay is stricken as moot.

BACKGROUND

Plaintiff True North Enterprises, LLC (True North) alleges that it is a private equity firm that invests in a variety of businesses. True North contends that in 2012, it became interested in purchasing Luck E Strike, a Missouri corporation that manufactures and distributes fishing lures. True North asserts that on December 21, 2012, it entered into a stock purchase agreement with Hendricks (2012 SPA), in which True North purchased what Hendricks represented to be seventy percent of the stock in Luck E Strike. In relation to the 2012 SPA, Hendricks allegedly provided True North with Luck E Strike's financial statements for the twelve-month periods ending in August 31, 2011 and August 31, 2012. True North and Hendricks also allegedly entered into an employment agreement in which Luck E Strike agreed to continue Hendricks' employment as Luck E Strike's president.

Approximately two months after the execution of the 2012 SPA, True North allegedly began to have concerns about Hendricks' employment at Luck E Strike. In or around April 2013, True North, as majority shareholder of Luck E Strike, allegedly began discussing Hendricks' terms of resignation, and subsequently decided to purchase his remaining equity in Luck E Strike. In anticipation of the transaction, Hendricks allegedly provided True North with the March 2013 Balance Sheet showing the assets and liabilities of Luck E Strike. Approximately five months after the execution of the 2012 SPA, True North and Hendricks allegedly executed a second stock purchase agreement on May 7, 2013 (2013 SPA), in which True North purchased Hendricks' remaining thirty percent of stock in Luck E Strike. True North claims that it has since discovered that Hendricks allegedly made certain misrepresentations in the 2013 SPA and the March 2013 Balance Sheet.

True North includes in its complaint a breach of contract claim alleging misrepresentations regarding claims against Luck E Strike (Count I), a breach of contract claim alleging misrepresentations regarding percentage ownership (Count II), a breach of contract claim alleging misrepresentations regarding transferability of shares (Count III), a fraud claim alleging misrepresentations regarding claims against Luck E Strike and stock ownership (Count IV), a fraud claim alleging misrepresentations regarding Luck E Strike's financial condition (Count V), and a claim for declaratory relief (Count VI). Hendricks now moves to dismiss all claims or, in the alternative, to stay the instant action.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(1) (Rule 12(b)(1)) requires a court to dismiss an action when it lacks subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1); see also Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995)(stating that when reviewing a motion to dismiss brought under Rule 12(b)(1), the court "must accept as true all well-pleaded factual allegations, and draw reasonable inferences in favor of the plaintiff"). When subject matter jurisdiction is not apparent on the face of the complaint and is contested, "the district court may properly look beyond the jurisdictional allegations of the complaint... to determine whether in fact subject matter jurisdiction exists." Sapperstein v. Hager, 188 F.3d 852, 855-56 (7th Cir. 1999)(internal quotations omitted)(quoting United Transportation Union v. Gateway Western Railway Co., 78 F.3d 1208, 1210 (7th Cir. 1996)). The burden of proof in regards to a Rule 12(b)(1) motion is on the party asserting that the court has subject matter jurisdiction. Id.

In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court must draw all reasonable inferences that favor the plaintiff, construe the allegations of the complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in the complaint. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 622 (7th Cir. 2012); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). A plaintiff is required to include allegations in the complaint that "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level'" and "if they do not, the plaintiff pleads itself out of court." E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007)(quoting in part Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)); see also Morgan Stanley Dean Witter, Inc., 673 F.3d at 622 (stating that "[t]o survive a motion to dismiss, the complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, " and that "[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")(quoting Ashcroft v. Iqbal, 556 U.S. 662 (2009))(internal quotations omitted).

DISCUSSION

I. Breach of Contract Claims (Counts I-III)

Hendricks contends that True North has failed to state a breach of contract claim and that the court lacks subject matter jurisdiction over such claims. True North alleges that Hendricks materially breached the 2013 SPA in making certain misrepresentations. (Compl. Par. 1). Under Illinois law, the elements of a breach of contract claim are: "(1) offer and acceptance, (2) consideration, (3) definite and certain terms, (4) performance by the plaintiff of all required conditions, (5) breach, and (6) damages." Ass'n Ben. Servs., Inc. v. Caremark RX, Inc., 493 F.3d 841, 849 (7th Cir. 2007)(citing MC Baldwin Fin. Co. v. DiMaggio, Rosario & Veraja, LLC, 845 N.E.2d 22, 30 (Ill.App.Ct. 2006)). Hendricks does not contest that the 2013 SPA was a valid and enforceable contract.

A. Claims Relating to Luck E Strike

Hendricks argues that Count I should be dismissed for failure to state a claim "in light of the unambiguous meaning of the subject contract." (MTD 1). True North claims in Count I that Hendricks materially breached the 2013 SPA in making misrepresentations regarding existing potential claims against and affecting Luck E Strike. (Compl. 13). More specifically, True North alleges that pursuant to Section 3.4 of the 2013 SPA, Hendricks "represented and warranted that there are no... claims, at law or in equity, or before or by any Person pending or, to the Knowledge of the Seller, threatened against or ...


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