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Dempsey v. Nathan

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

September 30, 2014

RICHARD NATHAN, et al., Defendants.


MARVIN E. ASPEN, District Judge.

Plaintiff Gregory Dempsey ("Dempsey" or "Plaintiff"), filed an eleven-count complaint alleging various state and federal law claims against Defendants Richard Nathan ("Nathan"), RTC Industries, Inc. ("RTC"), the City of Rolling Meadows ("the City"), and Detective Anthony Peluso of the Rolling Meadows Police Department ("Detective Peluso"). Plaintiff alleges violations of 42 U.S.C. § 1983 against all defendants, as well as state law tort claims of false arrest, malicious prosecution and conversion against Nathan and RTC, and breach of contract and unjust enrichment against RTC. Plaintiff also seeks indemnification from the City for damages arising out of Detective Peluso's actions.

Presently before us are two motions to dismiss Plaintiff's Third Amended Complaint ("amended complaint"). Both motions were filed pursuant to Federal Rule of Civil Procedure 12(b)(6), the first by Nathan and RTC (the "Nathan Defendants"), and the second by the City and Detective Peluso (the "City Defendants"). All Defendants also challenge Plaintiff's standing to bring claims related to his former residence and personal property. For the reasons stated below, we grant both motions in part and deny both motions in part.


The following facts are drawn from Plaintiff's amended complaint and are accepted as true for the purposes of these Rule 12(b)(6) motions. From 2008 through 2011 Dempsey worked with a two-person startup company to develop a product intended to prevent soccer goals from tipping over and injuring players. (Am. Compl. ¶¶ 8-10.) In May 2011, Dempsey and RTC entered into a proposed partnership/joint venture agreement to further develop and promote the product. ( Id. ¶ 14.) The parties also drafted a "term sheet, " which they agreed would form the basis of the future formal joint venture agreement. ( Id. ¶¶ 16-17.) Sometime before executing the formal agreement, Dempsey began working at RTC; his employment continued through the end of January 2012. ( Id. ¶¶ 16, 26, 30; Opp'n to Nathan Defs. MTD at 8.) Nathan Defendants paid Dempsey for the first few months of his work, but then stopped paying him in the fall of 2011. (Am. Compl. ¶ 20.) After that time, he did not receive any compensation from RTC for his work. ( Id.; Opp'n to Nathan Defs. MTD at 8.) In January 2012, Nathan presented Dempsey with a formal joint venture agreement that was vastly different from the term sheet the parties had agreed to the previous May. (Am. Compl. ¶ 23.) Dempsey refused to agree to the modified terms and left RTC at the end of January. ( Id. ¶¶ 28-30.)

On February 6, 2012, Nathan told Detective Peluso of the Rolling Meadows Police Department that Dempsey had stolen RTC property. ( Id. ¶ 31.) On February 27, 2012, Detective Peluso, without a warrant, searched Dempsey's former home and garage. ( Id. ¶¶ 35-36.) While Detective Peluso was in the home, Nathan sent a truck and two RTC employees to the property to assist with the search. ( Id. ¶¶ 38-39.) Detective Peluso permitted the RTC employees to search the home and take approximately thirty-two boxes of Dempsey's property back to RTC's office, without making any effort to inventory or photograph the items removed. ( Id. ¶¶ 40-43, 67.) On March 7, 2012, Nathan authorized Detective Peluso to sign a criminal complaint on his behalf, alleging that Dempsey had stolen two pieces of RTC property. ( Id. ¶ 45.) Thereafter, Dempsey was arrested and prosecuted. Dempsey maintains that he was never in unauthorized possession of RTC property, ( id. ¶ 47), and that Defendants knew the charges against him were false, ( id. ¶¶ 46, 49). In August 2012, a jury found Dempsey not guilty on all charges. ( Id. ¶¶ 59, 63.)

Based on the facts above, Plaintiff filed a third amended complaint on December 23, 2013 in the Circuit Court of Cook County. On February 5, 2014, Defendants removed the case to federal court. Defendants now move to dismiss the third amended complaint in its entirety. In his oppositions to Defendants' motions to dismiss, Plaintiff withdrew his civil conspiracy claim, thus Count V is dismissed. (Opp'n to Nathan Defs. MTD at 8; Opp'n to City Defs. MTD at 8.) We address the remaining counts in turn.


I. Standing

Plaintiff brings four federal and state law claims that are related to Defendants' conduct towards his former residence and personal property: Count III (§ 1983 Illegal Search); Count IV (§ 1983 Illegal Seizure); Count VII (Conversion); and Count XI (Unjust Enrichment). In support of these claims, Plaintiff alleges that Defendants illegally searched his home and seized property from his garage in violation of his Fourth Amendment rights. (Am. Compl. ¶¶ 35-43, 64-69, 85-92.) He also alleges that Nathan Defendants' wrongfully converted the property removed from Plaintiff's garage for their own use, and that they were thereby unjustly enriched. ( Id. ¶¶ 108-17, 135-40.) Defendants argue that these claims should be dismissed because Plaintiff had lost all interest in the property at issue before the search and seizure occurred. (City Defs. MTD at 4-9; Nathan Defs. MTD at 12-15, 18-19.) Although not consistently framed as such, Defendants' arguments are factual challenges to Plaintiff's standing and to our subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). See Apex Digital Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009). Because our first duty in every suit is to determine whether we have subject-matter jurisdiction, we must resolve these challenges at the outset. Johnson v. Wattenbarger, 361 F.3d 991, 992 (7th Cir. 2004).

There are two types of challenges to standing: facial and factual. Facial challenges require the court to only look at the four-corners of the complaint to determine whether the plaintiff alleged a basis for subject-matter jurisdiction. Apex, 572 F.3d at 443. Factual challenges, however, permit the district court to "look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Id. at 444 (quoting Evers v. Astrue, 536 F.3d 651, 656-57 (7th Cir. 2008)). On a factual challenge, when a defendant presents evidence that calls a plaintiff's standing into question "[t]he presumption of correctness that we accord to a complaint's allegations falls away, ' and the plaintiff bears the burden of coming forward with competent proof that standing exists." Id. (quoting Commodity Trend Serv., Inc. v. Commodity Futures Trading Comm'n, 149 F.3d 679, 685 (7th Cir. 1998)). Here, Defendants' standing challenges are factual and thus we will consider evidence outside the pleadings to resolve the issues. See McGreal v. AT&T Corp., 892 F.Supp.2d 996, 1007 (N.D. Ill. 2012) (considering evidence outside the pleading and finding that plaintiff did not have standing to bring Fourth Amendment claims on motion to dismiss); Triumph Packaging Grp. v. Ward, 877 F.Supp.2d 629, 639 (N.D. Ill. 2012) (considering evidence outside the pleading to dismiss plaintiff's conversion claim for lack of standing).

To find Article III standing, "(1) a plaintiff must have suffered an injury in fact:' an invasion of a legally protected interest which is concrete and particularized, and actual and imminent; (2) there must be a causal connection between the injury and the conduct complained of; and (3) it must be likely that the injury will be redressed by a favorable decision." Swanson v. City of Chetek, 719 F.3d 780, 783 (7th Cir. 2013) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 2136 (1992)). In addition, a plaintiff has standing to bring Fourth Amendment search and seizure claims only if he "had a legitimate expectation of privacy" in the property at issue. United States v. Carlisle, 614 F.3d 750, 756 (7th Cir. 2010) (quoting Rakas v. Illinois, 439 U.S. 128, 143, 99 S.Ct. 421, 430 (1978)). Important in this case, a plaintiff typically cannot establish "injury in fact" where it is clear that he does not have an interest in the property that underlies his claims. See Matter of FedPak Sys., Inc., 80 F.3d 207, 213 (7th Cir. 1996) (finding that plaintiff lacked standing to seek a clarification order from the court because it "no longer owns any intellectual property rights" in the subject property); Duggan v. Terzakis, 275 F.Supp.2d 968, 972 (N.D. Ill. 2003) (finding that plaintiffs who did not have a property interest did not have standing to bring state law claims); see also United States v. 8402 W. 132nd St., Palos Park, Ill., 103 F.Supp.2d 1040, 1042 (N.D. Ill. 2000) ("A court's consideration of a claimant's interest in property is merely a proxy for examining injury in fact."). Likewise, whether the plaintiff had a property or possessory interest in the property at issue is of critical importance to the "legitimate expectation of privacy" inquiry. Rakas, 439 U.S. at 148, 99 S.Ct. at 433.

In support of their motion to dismiss, Defendants produced evidence that as of February 18, 2012-nine days before the search and seizure at issue-Plaintiff had lost legal and possessory interest in the real and personal property at issue in this case. (City Defs. MTD at 6-8; Nathan Defs. MTD at 13-14.) Specifically, Defendants attached to their motions documents filed with the Circuit Court of DuPage County in the foreclosure proceeding U.S. Bank National Ass'n as Trustees v. Gregory S. Dempsey et. al., No. 10 CH 1164: a Sheriff's Report of Sale and Distribution, an Agreed Motion for Possession and attachments, and an Order Confirming Sale (Order Approving) and Order of Possession. (City Defs. MTD, Exs. 2, 3, 6; Nathan Defs. MTD, Ex. F.) These court filings show that Plaintiff's former residence was sold to a third party at a public auction on January 26, 2012, that Plaintiff agreed to surrender possession of the real property on or before February 12, 2012, and that Plaintiff released all rights to his personal property in the garage after February 17, 2012. ( Id. ) This evidence is credible and calls into question whether Plaintiff had any legitimate interest in the property on or after February 27, 2012, when the search and seizure occurred. See United States v. Curlin, 638 F.3d 562, 565 (7th Cir. 2011) (finding no expectation of privacy where defendant was evicted from residence two weeks before the alleged search). By offering reliable evidence that Plaintiff did not have an interest in the disputed property, Defendants sufficiently supported their factual challenge to Plaintiff's standing. Thus, the burden shifts to Plaintiff to come forward with proof that standing exists. Apex, 572 F.3d at 444.

In his opposition, Plaintiff concedes that he lost ownership of the residence before February 27, 2012 and does not dispute the authenticity of the foreclosure documents attached to Defendants' motions. Instead, he defends his interest in the property by arguing that the subsequent owner agreed that he could continue to store his personal property in the garage through the end of February. (Opp'n to City Defs. MTD at 6.) But, assuming for the moment that such an agreement would be sufficient to confer a property or privacy interest, Plaintiff did not produce any evidence to support the existence of the alleged agreement. Particularly because the Surrender of Possession agreement, which is signed by Plaintiff, states "[a]ny extension of the Vacate Date must be approved by OWNER in writing prior to the Vacate Date, " we would expect to see written proof if such an agreement in fact existed. (City Defs. MTD, Ex. 3 (emphasis added).) We find that Plaintiff has not met his "burden of coming forward with competent proof that standing exists" for the claims related to his former residence and personal property. Apex, 572 F.3d at 444. Therefore, we dismiss Counts III, IV, VII, and XI for lack of subject-matter jurisdiction. See Wiegel v. Stork Craft Mfg., Inc., 891 F.Supp.2d 941, 943 ...

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