United States District Court, S.D. Illinois
MEMORANDUM AND ORDER
J. PHIL GILBERT, District Judge.
This matter comes before the Court on (1) defendants Robert G. Bernhoft and the Bernhoft Law Firm, S.C.'s (collectively "Bernhoft Defendants") motion to strike portions of plaintiffs Orvil Duane Hassebrock ("Mr. Hassebrock") and Evelyn Hassebrock's ("Ms. Hassebrock") (collectively "Plaintiffs") amended complaint and to dismiss plaintiffs' amended complaint (Doc. 44); (2) Plaintiffs' motion to strike the Bernhoft Defendants' reply (Doc. 57); (3) defendant Tim D. Brewer, CPA's ("Brewer") motion to dismiss (Doc. 61); (4) defendants John C. Noggle, CPA ("Noggle") and John C. Noggle, CPA, Inc.'s (collectively "Noggle Defendants") motion to dismiss (Doc. 63); (5) defendant Robert E. Barnes' motion to dismiss (Doc. 92); (6) Barnes' motion for leave to file supplemental authority (Doc. 94); and (7) the Bernhoft Defendants' appeal the magistrate judge's denial of their motion to stay discovery (Doc. 110). For the following reasons, the Court (1) grants in part and denies in part the Bernhoft Defendants' motion to dismiss (Doc. 44); (2) denies Plaintiffs' motion to strike (Doc. 47); (3) denies Brewer's motion to strike and dismiss (Doc. 61); (4) grants in part and denies in part the Noggle Defendants' motion to dismiss (Doc. 63); (5) grants in part and denies in part Barnes' motion to dismiss (Doc. 92); (6) denies as moot Barnes' motion for leave to file supplemental authority (Doc. 94); and (7) denies as moot the Bernhoft Defendants' appeal of the magistrate judge's denial of their motion to stay discovery (Doc. 110).
Taking as true Plaintiffs' complaint, the Court will recount the history relevant to the instant motions. Plaintiffs have a long history of legal troubles including disputes over ownership interests in an oil field venture, attorney malpractice, and a federal criminal tax prosecution. The troubles relevant to the instant motions begin back in the 1990s when Mr. Hassebrock obtained a worker's compensation settlement and invested that settlement in an oil field venture with Deep Rock Energy ("Deep Rock") and Ceja Corporation. Attorneys Sam Feiber and George Woodcock represented Plaintiffs in and settled a claim against Deep Rock stemming from a dispute over an ownership interest in the oil field venture. A dispute arose over the amount of attorneys' fees Plaintiffs owed Feiber and Woodcock out of the settlement.
Meanwhile, Mr. Hassebrock was the subject of a federal criminal tax investigation for failure to pay income taxes. Ultimately, he was convicted of tax evasion and failure to file a tax return for the 2004 tax year in the Southern District of Illinois, Case No. 09-cr-30080-MJR. He was sentenced to three years in prison, three years supervised release, a fine of $74, 000, and ordered to pay $997, 582.19 in restitution to the Internal Revenue Service.
Before Mr. Hassebrock's conviction, Plaintiffs hired the Attorney Defendants to represent them in several matters including: filing suit against Feiber and Woodcock to recover attorneys' fees wrongfully collected; review the Deep Rock settlement; review and potentially file suit over losses resulting in another investment called Semper Libera; represent Mr. Hassebrock in the federal criminal tax investigation; and to prepare and file several years' worth of the Plaintiffs' tax returns. The Attorney Defendants failed to timely file a complaint against Woodcock and Feiber. To remedy that oversight, Plaintiffs allege the Attorney Defendants fraudulently attempted to invoke the discovery rule and asked Mr. Hassebrock to sign a statement indicating he had "just discovered" the wrongful acts of Woodcock and Feiber. The complaint states that "[t]he [Plaintiffs] believed this was wrong, and informed the Attorney Defendants that they would not lie to protect them and that they would inform the judge in the case of their wrongful and negligent acts" (Doc. 39, p. 6). Nevertheless, Mr. Hassebrock signed the statement dated May 8, 2008, attesting that he had "just discovered" the wrongful acts, and that statement was filed in the Circuit Court for the Fourth Judicial Circuit in Marion County, Illinois, in a case entitled Hassebrock v. Fieber & Woodcock, Case Number 2008-L-8. Doc. 44-2, p. 10.
Ultimately, Plaintiffs had to hire another attorney to pursue their case against Fieber and Woodcock. The claim was settled for $75, 000 instead of the more than $400, 000 that Feiber and Woodcock had wrongfully retained. Plaintiffs further allege that the Attorney Defendants wrongfully received at least $20, 000 of the money collected from that settlement and never took any action to recover damages related to the Semper Libera investment.
Plaintiffs further allege that the Attorney Defendants hired defendant John C. Noggle, without Plaintiffs' knowledge, to prepare and file their tax returns. Noggle prepared inaccurate tax returns. For instance, he categorized the Deep Rock settlement as a "land settlement" rather than an "oil field" settlement. Plaintiffs complained of the inaccuracies and asked the Attorney Defendants to prepare accurate tax returns. The Attorney Defendants then retained Brewer whose tax returns were also "grossly inaccurate." Nevertheless, the Attorney Defendants had the Brewer's inaccurate tax returns filed with IRS Special Agent James Dye. Thereafter, Plaintiffs terminated the Attorney Defendants. Plaintiffs estimate that they paid the Attorney Defendants more than $181, 330.
Mr. Hassebrock filed his pro se complaint on September 2, 2010. Thereafter, Mr. Hassebrock obtained counsel and filed his first amended complaint on March 22, 2013, in which Ms. Hassebrock was added as a plaintiff and Barnes, Jeffrey A. Dickstein, the Noggle Defendants, and Brewer were added as defendants. Plaintiffs' first amended complaint, the operative complaint, alleges the following causes of action: (1) Count One - negligence against all defendants; (2) Count Two - breach of contract against all defendants; (3) Count Three - legal malpractice against the Attorney Defendants; (4) Count Four - breach of fiduciary duty against the Accounting Defendants; (5) Count Five - negligent misrepresentation against the Accounting Defendants; (6) Count Six - aiding and abetting against the Accounting Defendants; and (7) Count Seven - violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("Illinois Consumer Fraud Act") against the Attorney Defendants. Each remaining defendant has filed a motion to dismiss. The Court will consider each of these motions, along with Plaintiffs' motion to strike and the Bernhoft Defendants appeal of the magistrate judge's order, in turn.
2. Motion to Strike (Doc. 57)
The Court will initially take up Plaintiffs' motion to strike the Bernhoft Defendants' reply. Plaintiffs argue the Court should strike the reply because Bernhoft Defendants failed to state exceptional circumstances and file a motion for leave to file a reply. The Bernhoft Defendants did, however, set forth their exceptional circumstances. Further, this district does not require parties to seek leave of court to file a reply. Plaintiffs cite to a case which cites to the Local Rules for the Central District of Illinois, not the Southern District of Illinois. Accordingly, the Court denies Plaintiffs' motion to strike.
3. Motion to Dismiss Standard
When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to state a claim, 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). This requirement is satisfied if the complaint (1) describes the claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds upon which it rests and (2) plausibly suggests that the plaintiff has a right to relief above a speculative level. Bell Atl., 550 U.S. at 555; see Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007). "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." Iqbal, 129 S.Ct. at 1949 (citing Bell Atl., 550 U.S. at 556).
In Bell Atlantic, the Supreme Court rejected the more expansive interpretation of Rule 8(a)(2) that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief, " Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Bell Atlantic, 550 U.S. at 561-63; Concentra Health Servs., 496 F.3d at 777. Now "it is not enough for a complaint to avoid foreclosing possible bases for relief; it must actually suggest that the plaintiff has a right to relief... by providing allegations that raise a right to relief above the speculative level.'" Concentra Health Servs., 496 F.3d at 777 (quoting Bell Atl., 550 U.S. at 555).
Nevertheless, Bell Atlantic did not do away with the liberal federal notice pleading standard. Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007). A complaint still need not contain detailed factual allegations, Bell Atl., 550 U.S. at 555, and it remains true that "[a]ny district judge (for that matter, any defendant) tempted to write this complaint is deficient because it does not contain...' should stop and think: What rule of law requires a complaint to contain that allegation?" Doe v. Smith, 429 F.3d 706, 708 (7th Cir. 2005) (emphasis in original). Nevertheless, a complaint must contain "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl., 550 U.S. at 555. If the factual detail of a complaint is "so sketchy that the complaint does not provide the type of notice of the claim to which the defendant is entitled under Rule 8, " it is subject to dismissal. Airborne Beepers, 499 F.3d at 667. The Court further notes it may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment. Ennenga v. Starns, 677 F.3d 766, 773 (7th Cir. 2012) (Fed. R. Civ. P. 12(d)).
4. Bernhoft Defendants' Motion to Dismiss (Doc. 44)
The Bernhoft Defendants filed their motion to dismiss arguing that the First, Second, Third, and Seventh causes of action against them should be dismissed. Specifically, they contend that (1) the claims arising from the Deep Rock settlement and Semper Libera are barred by the statute of limitations; (2) the claims based on allegations of deficient performance related to tax issues are barred by the doctrine of issue preclusion; and (3) the cause of action contained in Count Seven should be dismissed because attorneys are not subject to the Illinois Consumer Fraud Act. The Court will consider each argument in turn.
a. Statute of Limitations Claims
In Count One, Plaintiffs allege the Bernhoft Defendants were negligent for failing to file a complaint against Fieber and Woodcock prior to the expiration of the statute of limitations period. Plaintiffs further allege the Bernhoft Defendants failed to timely file a complaint to recover damages related to their investment in Semper Libera and they negligently failed to supervise and retain satisfactory replacement accounting services or review the Accounting Defendants' work.
Under Illinois law
[a]n action for damages based on tort, contract, or otherwise (i) against an attorney arising out of an act or omission in the performance of professional services... must be commenced within 2 years from the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought.
735 ILCS 13-214.3(b). Subsection 13-214.3(b) "incorporated the discovery rule, ' which serves to toll the limitations period to the time when the plaintiff knows or reasonably should know of his or her injury." Snyder v. Heidelberger, 953 N.E.2d 415, 418 (Ill. 2011).
i. Fieber and Woodcock Claim
First, the Court will address whether the statute of limitations bars the Plaintiffs' claim against the Bernhoft Defendants for failing to file a claim against attorneys Fieber and Woodcock before the statute of limitations had run. The Plaintiffs' complaint itself indicates that the Plaintiffs knew that the Bernhoft Defendants were fraudulently trying to use the "discovery rule" to bypass the statute of limitations requirement. The complaint even indicates that Plaintiffs threatened to inform the judge of the attorneys' "negligent behavior" and "they would not lie to protect [the Attorney Defendants]." Despite the knowledge that the affidavit contained false allegations concerning the discovery of Fieber and Woodcock's negligent performance, Mr. Hassebrock signed that affidavit on May 8, 2008, in an effort to work with the attorneys to save his claim. Based on the face of the Plaintiffs' complaint combined with Mr. Hassebrock's state-court affidavit it is easy to conclude that Mr. Hassebrock knew of the Bernhoft Defendants' negligent behavior by at least May 8, 2008. Plaintiffs thus had until May 8, 2010, to file a timely complaint. Mr. Hassebrock, however, did not file his initial complaint until September 2, 2010. As such, the statute of limitations bars Plaintiffs' claims against the Bernhoft Defendants for failing to timely file claims against Fieber and Woodock.
ii. Semper Libera Investment Claim
Next, the Bernhoft Defendants argue that the Semper Libera claim was not asserted in the original complaint and the allegations in the amended complaint do not relate back to the original complaint. They do not argue that, had the claim been asserted in the original complaint, the Semper Libera claim would have been untimely.
Pursuant to Federal Rule of Civil Procedure 15(c), "[a]n amendment to a pleading relates back to the date of the original pleading when the law that provides the applicable statute of limitations allows relation back." Here, because Illinois law provides the applicable statute of limitations, Illinois relation-back law is applicable. Illinois law provides for relation back only when the following two requirements are met: "(1) the original complaint was timely filed, and (2) the amended complaint grew out of the same transaction or occurrence set forth in the original pleading." Henderson v. Bolanda, 253 F.3d 928, 933 (7th Cir. 2001) (citing 735 ILCS 5/2-616(b)). An amended complaint will generally relate back to the original complaint "if the factual situation upon which the action depends remains the same and has been brought to defendant's attention by the original pleading." Henderson, 253 F.3d at 933 (citing 6A Charles Alan Wright, Arthur R. Miller and Mary Kay Kane, Federal Practice and Practice and Procedure Civil 2d, § 1497 at 95 (1990)).
In considering Hassebrock's initial pro se complaint, the Court is mindful that "district courts have a special responsibility to construe pro se complaints liberally...." Donald v. Cook County Sheriff's Dept., 95 F.3d 548, 555 (7th Cir. 1996). Further, the Illinois Supreme Court has explained that courts should "liberally construe" Illinois' relation-back doctrine. Porter v. Decatur Memorial Hosp., 882 N.E.2d 583, 590 (Ill. 2008). "[B]oth the statute of limitations and section 2-616(b) [of the relation-back doctrine] are designed to afford a defendant a fair opportunity to investigate the circumstances upon which liability is based while the facts are accessible." Id. The reasoning "behind the same transaction or occurrence' rule is that a defendant is not prejudiced if his ...