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Escobedo v. Ram Shirdi Inc.

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

September 15, 2014

RAM SHIRDI INC., ET AL., Defendant.


ROBERT M. DOW, Jr., District Judge.

Plaintiff Margarita Escobedo's six-count third amended complaint alleges sexual harassment and retaliation (Counts I and II) under Title VII of the Civil Rights Act and the Illinois Human Rights Act, assault and battery and intentional infliction of emotional distress (Counts III and IV) under Illinois law, and violations of the Fair Labor Standards Act and the Illinois Minimum Wage Law (Counts V and VI). She has sued Defendants Ram Shirdi Inc. (d/b/a Motel 6 of Calumet Park, IL #4501), American Hotel Partners, Inc., Pervez Akhtar, Vivak Khanna, Gorav Khanna, and Ajai Agnihotri. Defendants Ajai Agnihotri and Vivak Khanna have moved to dismiss the counts against them for lack of subject matter jurisdiction and failure to state a claim. For the reasons set forth below, the Court grants in part and denies in part Defendants' motions to dismiss [195 and 198]. To the extent that Defendants have moved to dismiss for lack of subject matter jurisdiction pursuant to 12(b)(1), their motions are denied. However, their motions are granted with respect to their 12(b)(6) arguments that Plaintiff has failed to state a claim, and Plaintiff's claims against Defendants Ajai Agnihotri and Vivak Khanna are dismissed without prejudice.

I. Background

Defendant Vivak Khanna was president of Defendant corporations, Ram Shirdi, Inc. and American Hotel Partners, Inc., and Defendant Ajai Agnihotri was their secretary. At all relevant times, Defendants each owned 50 percent of these corporations.[1] Defendants and their corporations were in the business of operating hotels.

In September 2009, Defendants hired Plaintiff Margarita Escobedo as a housekeeper for their Motel 6 in Calumet Park, Illinois. Plaintiff alleges that during her employment, her manager, Pervez Akhtar (also a defendant) sexually harassed her, and, when she resisted, Akhtar demoted her, reduced her work schedule, docked her pay, and eventually suspended her without pay. She also alleges that she worked, but was not compensated for, overtime.

Plaintiff filed an original and two additional complaints against Ram Shirdi Inc., American Hotel Partners, Inc., and Pervez Akhtar, claiming sexual harassment, retaliation, assault and battery, intentional infliction of emotional distress, and violations of the Fair Labor Standards Act and the Illinois Minimum Wage Law. After the hotel was repossessed by the lender and the corporations completed Chapter 7 bankruptcy, Plaintiff amended her complaint a fourth time to add claims against Vivak Khanna, Gorav Khanna, and Ajai Agnihotri. Although Plaintiff brings her six substantive claims against only the corporations and Akhtar, she also seeks to hold Defendants Khanna and Agnihotri personally liable by piercing the corporate veil.[2] In May 2014, Defendants Vivak Khanna and Ajai Agnihotri moved to dismiss, arguing that all of the claims against them should be dismissed because Plaintiff lacks standing to bring a veil-piercing claim, and thus, that the Court lacks subject matter jurisdiction. Alternatively, Defendants move to dismiss on the ground that Plaintiff has failed to state a veil-piercing claim.

II. Legal Standard

The purpose of a Rule 12(b) motion to dismiss is not to decide the merits of the case. A Rule 12(b)(6) motion tests the sufficiency of the complaint, Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir.1990), while a Rule 12(b)(1) motion tests whether the Court has subject matter jurisdiction. Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). In reviewing a motion to dismiss under either rule, the Court takes as true all factual allegations in Plaintiffs' complaint and draws all reasonable inferences in their favor. Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007); Long, 182 F.3d at 554. To survive a Rule 12(b)(6) motion to dismiss, the claim first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief" (Fed. R. Civ. P. 8(a)(2)), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Second, the factual allegations in the claim must be sufficient to raise the possibility of relief above the "speculative level, " assuming that all of the allegations in the complaint are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir.2007) (quoting Twombly, 550 U.S. at 555). "A pleading that offers labels and conclusions' or a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). However, "[s]pecific facts are not necessary; the statement need only give the defendant fair notice of what the * * * claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly, 550 U.S. at 555) (ellipsis in original).

Turning to Defendants' challenge to Plaintiff's standing, there are two types of 12(b)(1) challenges-factual and facial-and they have a "critical difference." Apex Digital Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009). When a defendant argues that "the plaintiffs' complaints, even if true, were purportedly insufficient to establish injury-in-fact, " the challenge is a facial one. Id. at 443-44. "Facial challenges require only that the court look to the complaint and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction." Id. at 443 (citing Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990)). Factual challenges, however, lie "where the complaint is formally sufficient but the contention is that there is in fact no subject matter jurisdiction.'" Id. (citing United Phosphorus, Ltd. v. Angus Chem. Co., 332 F.3d 942, 946 (7th Cir. 2003)). Courts may look beyond the complaint only when a defendant brings a factual attack against jurisdiction, such as here, where Defendants claim that Plaintiff lacks standing due to proceedings before the bankruptcy court. Id.

III. Analysis

A. FRCP 12(b)(1) Motions

Defendants contend that Plaintiff lacks standing to pursue her claims against Defendants Ajai Agnihotri and Vivak Khanna because Plaintiff's claims against Defendants are general claims of the bankruptcy creditors and Plaintiff lost standing to pursue these claims when Ram Shirdi Inc. and American Hotel Partners filed for bankruptcy. More specifically, Defendants argue that Plaintiff's only claim against Defendants is a veil-piercing claim and such a claim does not allege "any injury, let alone a personal injury." Defendants contend that Plaintiff's veil-piercing claim falls within the trustee's purview because the injury plaintiff alleges-that the corporations will not be able to pay any judgment plaintiff obtains for the corporations' retaliation and overtime violations-is an injury felt by all creditors. Defendants also note Plaintiff's allegation that Defendants "dissipated" the corporations' assets "after learning of Plaintiff's charge of discrimination and Federal Complaint." This allegation, Defendants argue, further demonstrates that Plaintiff is seeking to usurp the trustee's power because dissipation of corporate assets harms every creditor.

As pointed out by Defendants, alter ego claims may be brought in bankruptcy by the trustee of a bankrupt corporation. See Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1346 (7th Cir. 1987). However, trustees have standing to bring only those claims which apply to all creditors of the debtor corporation generally. Id. at 1349. As the Seventh Circuit stated in Koch Refining : "If the liability is to all creditors of the corporation without regard to the personal dealings between such officers and such creditors, it is a general claim." Id. Alternatively, "the trustee has no standing to bring personal claims of creditors. A cause of action is personal' if the claimant himself is harmed and no other claimant or creditor has an interest in the cause." Id. at 1348 (emphasis in original).

Defendants' argument fails for two reasons. First, the Ram Shirdi and American Partners' bankruptcy trustee was discharged on August 8, 2013 and both cases were closed soon after. See Case Nos. 13-BK-25356 and 13-BK-25358 (N.D. Ill. Bankr.). As a result, there currently is no trustee to bring Plaintiff's alter ego claim. While reopening the cases could produce a trustee, neither reopening a bankruptcy case nor appointing a trustee is an automatic operation certain to occur. See In re Bianucci, 4 F.3d 526, 528 (7th Cir. 1993) (a court has broad discretion when it comes to reopening cases and granting a motion to reopen is not mandatory); Fed.R.Bankr.P. 5010 (a trustee can be appointed in a reopened case only after obtaining from the court an express finding that one is necessary "to protect the interests of creditors and the debtor or to insure efficient ...

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