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Andrews v. Gerace

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

September 15, 2014

LINDA GERACE, et al., Defendants.


MANISH S. SHAH, District Judge.

In the summer of 2010, Julie Andrews and her sister, Linda Gerace, became co-owners of two corporations located in Maple Park, Illinois. Andrews alleges that after the sisters bought the companies, Gerace, with the help of Gerace's husband and children, began to steal money and other property from the corporations. According to Andrews, Gerace and her family then attempted to cover up their misdeeds by hiding some of the stolen property and by cooking the corporate books-all to the detriment of Andrews, who failed to receive all of the company profits to which she was entitled as co-owner. In 2013, Andrews filed in federal court an individual civil action against Gerace and Gerace's family under the Racketeer Influenced and Corrupt Organizations Act. The complaint also included several state-law claims against the defendants, including fraud, unjust enrichment, and breach of fiduciary duty. The defendants now move to dismiss Andrews's claims pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons discussed below, I grant in part and deny in part defendants' motion.

I. Legal Standard

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that any claim for relief contain "a short and plain statement of the claim showing that the pleader is entitled to relief." The purpose of this requirement is to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). To satisfy these "notice" pleading requirements, the complaint need not set forth detailed factual allegations. Id. (citation omitted). But it must present enough "factual matter, accepted as true, [that the] claim to relief... is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). Where a claim for relief sounds in allegations of fraud, however, the claim is subject to a heightened pleading standard. Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 949-50 (7th Cir. 2013) (citing Fed.R.Civ.P. 9(b)). A party alleging fraud must "state [their claim] with particularity, " Fed.R.Civ.P. 9(b), including the "who, what, when, where, and how" of the fraud, Beyrer, 722 F.3d at 950. Malice, intent, or knowledge may be alleged generally. See Fed.R.Civ.P. 9(b).

Motions under Rule 12(b)(6) are meant "to test the sufficiency of the complaint, not... the merits" of the plaintiff's case. Weiler v. Household Fin. Corp., 101 F.3d 519, 524 n. 1 (7th Cir. 1996) (quoting Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.3d 583, 586 (7th Cir. 1989)). In considering a Rule 12(b)(6) motion to dismiss, I therefore accept as true all well-pleaded factual allegations and draw all reasonable inferences in the plaintiff's favor. Beyrer, 722 F.3d at 946 (quoting Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010)). I do the same for motions to dismiss brought under Rule 12(b)(1). See G & S Holdings LLC v. Cont'l Cas. Co., 697 F.3d 534, 540 (7th Cir. 2012) (citing Scanlan v. Eisenberg, 669 F.3d 838, 841 (7th Cir. 2012)).

II. Facts

In late June of 2010, Julie Andrews (a citizen of Florida, [37][1] ¶ 6) and her sister, Linda Gerace (a citizen of Illinois, id. ¶ 7), discussed the possibility of purchasing two businesses, id. ¶¶ 17, 315. One company, Sycamore Speedway & Associates, was a seasonal race track located in Maple Park, Illinois. See id. ¶¶ 16, 22, 26. The other, Winner's Circle & Associates, was a bar and restaurant, also located in Maple Park, Illinois. Id. ¶¶ 16, 22-23. Gerace told Andrews that if the two sisters became co-owners of the businesses, the companies "would be managed and operated fairly" between the sisters, and all profits would be split equally between them. Id. ¶¶ 17, 315. On July 30, 2010, the sisters each purchased 50 percent of each of the two companies. See id. ¶ 16. Linda financed the purchase of her own shares by taking out a loan from a bank in Florida. See id. ¶ 219.

After the sisters purchased the companies, Andrews alleges that Gerace- with the help of Gerace's family-began to steal money (and other property) from the businesses and thus deprive Andrews of profits to which she was entitled as co-owner. For example, rather than delivering the companies' cash earnings to the businesses' bank accounts, as required by company policy, see id. ¶¶ 39-42, Andrews maintains that Gerace and Gerace's husband, Dan-along with their children Tiffany, Samantha, Brett, and Kelli; and Tiffany's boyfriend, Charles- worked together to pocket a portion of those earnings and then use the stolen funds to buy electronics, automobiles, and other items for the defendants' personal use, see, e.g., id. ¶¶ 63-65, 73, 84, 97, 112, 131-33, 141, 146-47. According to Andrews, Gerace (and daughter Tiffany) also used company monies to fund personal travel for the Gerace family, id. ¶ 69-70, and to pay for a graduation party for Gerace's daughter, Kelli, id. ¶ 72.

To cover up their theft, Andrews asserts that the defendants hid some of the stolen cash in various locations, including at Tiffany and Charles's home, in safety-deposit boxes at several banks, and in a locker at Dan's workplace. See id. ¶¶ 77, 116, 121, 238. In addition, says Andrews, Gerace (and others) tried to cover up their theft by denying Andrews access to company records and other property, id. ¶ 33-34, doctoring the companies' accounting books to reflect less profit than was actually earned by the businesses, id. ¶¶ 225-28, and, on multiple occasions, sending Andrews falsified earnings documents by mail, see id. ¶¶ 212, 214. Andrews maintains that the monthly checks she received from Gerace and Gerace's daughter Tiffany-purporting to total half of the entire profits earned by the businesses each month-were similarly inaccurate. See id. ¶ 220.

In February 2013, Andrews sued Gerace in the District Court for the Northern District of Illinois. [1]. Also named as defendants were Gerace's husband, Dan, their four children (Tiffany, Samantha, Brett, and Kelli), and Tiffany's boyfriend, Charles Olson. Id. [2] Andrews's amended complaint, [37], contained six claims, each asserted against all defendants: violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) (Count I), id. ¶¶ 247-303; conspiracy to violate RICO (Count II), id. ¶¶ 304-313; common-law fraud (Count III), id. ¶¶ 314-24; conspiracy to defraud (Count IV), id. ¶¶ 325-29; unjust enrichment (Count V), id. ¶¶ 330-33; and breach of fiduciary duty (Count VI), id. ¶¶ 334-37.

III. Analysis

In support of their motion to dismiss, defendants argue: (1) Andrews lacks standing to bring her RICO claims, see [44] at 13; (2) regardless of standing, Andrews's RICO claims are deficient and should be dismissed, see id. at 5-12; and

(3) Andrews's state-law claims are also deficient and should be dismissed (or, if the RICO claim is dismissed, the Court should decline to exercise supplemental jurisdiction over the other claims), see id. at 13-15. Because I find that Andrews lacks standing to bring her RICO claims-and, with one exception, also lacks standing to bring her state-law claims-I do not reach defendants' arguments concerning the sufficiency of those claims under Rule 12(b)(6). As I find that Andrews does have standing to bring an individual action for promissory fraud against Linda Gerace (the exception noted above), I do address the sufficiency of the allegations underlying that claim.

A. Standing

1. The RICO Claims (Counts I and II)

Defendants posit that Andrews cannot assert an individual RICO action against the defendants because, as a shareholder of the two corporations, Andrews does not have standing to seek relief for injuries sustained directly by those companies (and only indirectly by Andrews). See id. at 13. Defendants are correct that, where the consequences of a RICO operation fall directly on a corporation and its shareholders suffer only by virtue of being shareholders, "the RICO claim belongs to the corporation, and not the shareholder." Gagan v. Am. Cablevision, Inc., 77 F.3d 951, 959 (7th Cir. 1996) (citing Sears v. Likens, 912 F.2d 889, 892 (7th Cir. 1990); Flynn v. Merrick, 881 F.2d 446, 449 (7th Cir. 1989); Rylewicz v. Beaton Servs., Ltd., 888 F.2d 1175, 1178-79 (7th Cir. 1989)). Only where a shareholder has suffered an "individual and direct injury" does she have standing to bring a RICO claim on her own behalf. Flynn, 881 F.2d at 450.[3]

Andrews argues that she has alleged in her complaint a direct injury[4] and therefore has standing to bring an individual RICO action. See [50] at 13. I disagree. The heart of Andrews's complaint is her contention that Gerace, with the help of Gerace's husband and children, stole earnings and other property from the companies and wrongfully converted those stolen assets to personal use. See, e.g., [37] ¶ 63 (alleging that Gerace took "thousands of dollars of cash paid in exchange for the [c]ompanies' goods and services"); id. ¶¶ 65-66 (alleging theft of "Money Cans full of cash, " preventing "thousands of dollars of earnings and profits from being accounted for by the [c]ompanies"); id. ¶ 73 (alleging conversion of stolen profits into electronic equipment that Gerace ...

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