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Al Maha Trading & Contracting Holding Co. v. Ws Darley & Co.

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

June 2, 2014

AL MAHA TRADING & CONTRACTING HOLDING COMPANY, a Saudi Arabian limited liability company, Plaintiff,
W.S. DARLEY & CO., an Illinois corporation, PETER DARLEY, and PAUL DARLEY, Defendants.


JAMES F. HOLDERMAN, District Judge.

On November 12, 2013, Plaintiff Al Maha Trading & Contracting Holding Company ("Al Maha") filed a six-count Amended Complaint (Dkt. No. 51, "Am. Compl." or "Amended Complaint") against Defendants W.S. Darley & Co. ("Darley"), Peter Darley, and Paul Darley (Peter and Paul Darley collectively referred to as the "Individual Defendants, " and with Darley the "Defendants"). In the Amended Complaint's first three counts, Al Maha purports to allege common law fraud and conspiracy (Count I), violation of the Illinois Consumer Fraud Act (Count II), and inducement and participation in breach of fiduciary duty (Count III) against the Defendants. ( Id. ¶¶ 56-68.)

These three purported claims arise out of Al Maha's allegations that Defendants provided Al Maha inflated invoices for fire trucks and equipment as part of a "bribery-kickback" scheme. ( Id. ) According to Al Maha, Defendants agreed to pay Al Maha's Project Manager and Fire Chief, Christopher Gale ("Gale"), if he ensured that Al Maha purchased fire trucks and equipment from Darley. ( Id. )

Before the court are two motions filed by Defendants, Defendants' "Joint Rule 12(b)(6) Motion to Dismiss Counts I-III of Plaintiff's Amended Complaint" (Dkt. No. 73, "Defs' Mot." or the "Motion to Dismiss"), and "Joint Rule 11 Motion for Sanctions" (Dkt. No. 70, "Rule 11 Mot." or "Rule 11 Motion"). Plaintiff Al Maha filed a motion to strike, or in the alternative for leave to file a surreply (Dkt. Nos. 98, 104), which the court took under advisement (Dkt. Nos. 103, 107).

Because each of these pending motions arise out of a common nucleus of facts, the court will analyze them together. As a preliminary matter, the court grants Al Maha leave to file both surreplies. For the reasons set forth below, this court denies both Defendants' Motion to Dismiss and Joint Rule 11 Motion for Sanctions in their entirety.


Procedural History

On March 16, 2012, Al Maha filed its initial Complaint asserting 12 claims against Darley. (Dkt. No. 1.) These claims chiefly alleged that Darley had breached the implied warranty of fitness for a particular purpose, by selling Al Maha six fire trucks that could not operate in Saudi Arabia. ( Id. ) Al Maha also asserted claims based on Darley's alleged failure to disclose these facts. ( Id. ) On July 23, 2012, Darley moved to dismiss Al Maha's initial complaint in its entirety. (Dkt. No. 15.) The court dismissed several of Al Maha's claims but allowed others to remain pending. (Dkt. No. 27 at 1.)

At an October 22, 2013 status conference, the court granted Al Maha leave to file a new pleading. (Dkt. No. 47.) Again, on November 12, 2013, Al Maha filed its Amended Complaint (Dkt. No. 51), asserting in Counts I-III claims for common law fraud and conspiracy, violation of the Illinois Consumer Fraud Act, and inducement and participation in breach of fiduciary duty, respectively. ( Id. ¶¶ 56-68.) Al Maha added two additional defendants to Counts I-III, namely Paul Darley, Darley's President and Chief Executive Officer, and Peter Darley, Darley's Executive Vice President and Chief Operating Officer. ( Id. ¶ 6.) Counts I-III, again, revolve around the allegations that Defendants provided inflated invoices to Al Maha to cover the cost of bribing Al Maha's employee Gale to steer business to Darley. ( Id. ¶¶ 56-68.)

On January 17, 2014, Defendants moved to dismiss Counts I-III of the Amended Complaint, (Dkt. No. 73), and this motion was initially fully-briefed on March 27, 2014, (Dkt. No. 97, the "Reply"). However, Al Maha moved to strike alleged new arguments in Defendants' Reply, or, in the alternative, for leave to file a surreply. (Dkt. No. 104). As a result, the Motion to Dismiss was not fully briefed until April 15, 2014. (Dkt. No. 107.)

On January 13, 2014, Defendants moved, pursuant to Rule 11 of the Fed. R. Civ. Pro., for an order imposing sanctions also based on the Amended Complaints allegations of a bribery-kickback scheme. (Dkt. No. 70.) This motion was initially fully-briefed on March 13, 2014. (Dkt. No. 95, "Rule 11 Reply".) However, again, Al Maha moved to strike alleged new arguments in the Rule 11 Reply, (Dkt. No. 98), resulting in the Rule 11 Motion not being fully briefed until April 2, 2014, (Dkt. No. 102).

Al Maha's May 2008 Factual Allegations

Al Maha is organized under the laws of the Kingdom of Saudi Arabia with its principal place of business in Al Khobar, Saudi Arabia. (Am. Compl. ¶ 4.) Since about 1982, Al Maha has "provid[ed] manpower services in the fields of Fire and Rescue to customers exclusively in Saudi Arabia, principally in the fields of marine, aviation and industrial activities." ( Id. ¶10.)

From July 2007, Gale was Al Maha's contractual employee, holding the position of Fire Chief, Project Manager, and later Executive Project Manager. (Am. Compl. ¶19.) Gale's Employment Contracts prohibited him from "directly or indirectly engag[ing] in any other employment, service or business as long as he is employed by [Al Maha]." ( Id. ) Gale reported to Khalid Al-Qahtani ("Al-Qahtani"), Al Maha's CEO, and to Sulaiman Al Enizi ("Al Enizi"), Al Maha's Vice President. ( Id. ¶ 20.) Gale was responsible for recommending to Al Maha fire truck and equipment sellers. ( Id. ¶ 21.)

On February 26, 2008, Gale made his first contact with Darley, in an email to Individual Defendants, stating that he was seeking to lease fire trucks for Al Maha. ( Id. ¶ 23; see also Dkt. No. 91, "Pl's Resp.", Ex. 3.) The text of this email was specifically addressed to "Paul". (Pl's Resp., Ex. 3.)

From February 26, 2008 to late May 2008, Paul Darley directly sent or received ten emails to or from Gale relating to Al Maha's potential purchase of fire trucks and equipment. (Pl's Resp., Exs. 3-4, 8.) On May 1, 2008, Peter Darley sent an email to Gale, copying Paul Darley, and attaching Darley's initial pro forma price quotes to Al Maha for fire trucks and equipment. (Am. Compl. ¶ 25; Pl's Resp. Exs. 5-6.)

Gale did not attempt to negotiate a price reduction from Darley and did not seek bids from Darley's competitors. (Am. Compl. ¶ 29.) Instead, on May 20, 2008, Gale sent Paul and Peter Darley an email requesting that Darley alter its pro forma invoices to reflect new, higher price quotes to Al Maha for the fire trucks and equipment. ( Id. ¶ 29; Pl's Resp. Ex. 8.) Gale stated, "Here is the pricing list that we would like to have indicated on the pro-forma quotations per the commission fee." (Pl's Resp., Ex. 8.) The text of the email was again specifically addressed to "Paul". ( Id. )

On May 21, 2008, Peter Darley emailed Gale and another Darley employee, copying Paul Darley. (Am. Compl. ¶ 30; Pl's Resp. Exs. 8-10.) In this email, Peter Darley provided Gale the new invoices as requested, adopted the higher prices Gale sought in his May 20, 2008 email, and even highlighted the original, lower quotes in a side-by-side comparison with the new prices. ( Id. )

Al Maha relied upon Darley's representations in its May 21, 2008 invoices for fire trucks and equipment. (Am. Compl. ¶ 35.) Neither Gale nor Defendants disclosed to Al Maha that Darley's price quotes had been increased to pay Gale a "commission", nearly five times his annual salary. ( Id. ) Gale advised Al-Qahtani about the desirability of making its purchases from Darley, ( Id. ¶ 22), and Al-Qahtani approved payment of Darley's price quotes based on Gale's recommendation, (Pl's Resp. at 13). Between July 2008 and March 2009, Al Maha paid Darley $2, 931, 000.00 for the fire trucks and $1, 434, 000.00 for the equipment. (Am. Compl. ¶ 34; Pl's Resp., Ex. 11.)

Requested Inferences from the May 2008 Allegations

Al Maha argues that there are several key, reasonable inferences that must be drawn from the above emails. First, even though the emails do not specifically state that the commission would be paid to Gale, (Pl's Resp., Ex. 8), it would be inconsistent with typical business practices for Darley as the seller to pay a commission to Al Maha the buyer, (Pl's Resp. at 6, 9). Such a commission would come out of Al Maha's own payment to Darley for the fire trucks and equipment. ( Id. ) Instead, Al Maha argues a reasonable inference is that Gale intended, and the Individual Defendants understood that Gale was soliciting a payment for himself. ( Id. at 6-7.)

Additionally, Al Maha argues comparing Darley's original price quotes with Gale's requested price list shows that Gale's prices were $470, 000 higher, making it reasonable to infer that difference was the payment Gale anticipated. (Am. Compl. ¶¶ 25, 27, 29; Pl's Resp. Exs. 6, 8-10.) According to Al Maha, the fact that Gale's proposed price list did not separately break out this commission also supports the inference that Gale intended and the Individual Defendants understood that Gale's payment would not be disclosed to Al Maha. (Pl's Resp. at 7.)

Al Maha believes that various facts support the inference that Darley intended to influence Gale through its payment. Individual Defendants, in spite of their business experience, failed to question Gale on whether Al Maha authorized the payment, ignoring various warning signs to the contrary. ( Id. at 10.) Gale requested payment after receiving Darley's initial price quotes, and that amount was added to Al Maha's purchase price. ( Id. at 11.) The substantial amount of this payment, $470, 000, itself supports the inference it was intended to influence Gale. ( Id. at 11.)

Al Maha also points to various facts to support the inferences Paul Darley knew Gale was asking Darley to inflate its invoices, pay Gale these excess funds, and conceal this plan from Al Maha. Al Maha argues that Paul Darley was Darley's point person for negotiating various aspects of the purchase with Gale. ( Id. at 11; see also id. Exs. 3-4, 8.) Additionally, Paul Darley was copied on Peter Darley's email attaching Darley's original quotes, and in response Gale specifically sent his email requesting that the quotes increase to Paul Darley. ( Id. at 11; see also id. at Ex. 8.) Finally, Paul Darley was copied on Peter Darley's email to Gale were the former agreed to increase the invoices and also pay a commission. ( Id. Exs. 8-10.)

Al Maha believes it is unlikely Peter Darley would have acted unilaterally in approving the payment to Gale, considering (1) Gale's initial request for payment was sent to Paul Darley and (2) Peter Darley copied Paul Darley on his response email. ( Id. ) Rather, Al Maha believes Paul Darley gave either explicit or implicit consent to Peter Darley when he allegedly approved payment to Gale. ( Id. )

Al Maha's Factual Allegations from November 2008 to March 2009

On November 5, 2008, immediately after Al Maha made payment on one of the fire trucks, Gale sent an email to Peter Darley, requesting "the first wire transfer of $75, 000 against the fire truck in Dubai." (Am. Compl. ¶ 36; Pl's Resp., Ex. 12.) Gale gave wiring instructions to a personal bank account in Bahrain. ( Id. ) Peter Darley immediately authorized payment to Gale's account, and Darley wired payment that same day. ( Id .; see also Pl's Resp., Ex. 13.)

In late November, Peter Darley was concerned that Al Maha's payments to Darley were slowing down. (Am. Compl. ¶ 37; Pl's Resp. Ex. 14.) Peter Darley suspected that Gale's immediate supervisor, Al Enizi, was the cause. ( Id. ) On November 20, 2008, Peter Darley emailed Gale, stating: "I also ask that you resolve what is needed with Sulaiman [Al Enizi] and provide me with a united direction for commission payments as this may also be part of the reason for the delay on your end." ( Id. )

In a January 5, 2009 email to Peter Darley, Gale indicated that he and Al Enizi had agreed to split the payment 50/50. ( Id. ¶ 39; Pl's Resp., Ex. 15.) On March 3, 2009, Peter Darley sent an email to Gale stating: "we red [sic] final pay today so send me final breakdown and agreed upon wire info with sulamain [Al Enizi]." (Am. Compl. ¶ 43; Pl's Resp. Ex. 18.) Gale promptly emailed Peter Darley with wiring instructions for his and Al Enizi's bank accounts in Bahrain. ( Id. ) On March 6, 2009, Peter Darley sent an email to Darley's CFO authorizing wire transfers to Gale and Al ...

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