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Putzier v. Ace Hardware Corporation

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

March 30, 2016

MARVIN D. PUTZIER, HOMETOWN HARDWARE, INC. d/b/a HOMETOWN ACE HARDWARE, et al., Plaintiffs,
v.
ACE HARDWARE CORPORATION, Defendant.

          MEMORANDUM OPINION AND ORDER

          RUBÉN CASTILLO, Chief District Judge.

         Before the Court is Plaintiffs' motion for leave to file a fourth amended complaint. (R. 110, Mot. for Leave.) The proposed fourth amended complaint alleges that Defendant Ace Hardware Corporation ("Ace") fraudulently induced Plaintiffs to purchase "Vision 21" Ace franchises and committed fraud when it knowingly provided manipulated and inflated sales projections and false historic performance numbers to Plaintiffs. ( See R. 110-1, Fourth Am. Compl. ¶¶ 3-4.) For the reasons stated below, Plaintiffs' motion for leave to file a fourth amended complaint is granted in part and denied in part.

         BACKGROUND

         Although still at the pleadings stage, this case has become a procedural morass. And, while the Court detailed the factual and complex procedural background of this lawsuit in Putzier v. Ace Hardware Corp., 50 F.Supp. 3d 964');">50 F.Supp. 3d 964, 969-71 (N.D. Ill. 2014), for the purposes of the present motion, it is necessary to discuss a few relevant developments. Plaintiffs' original complaint, filed in the U.S. District Court for the Southern District of Florida, on January 6, 2012, was brought by two named plaintiffs as a class action. (R. 1, Compl. ¶¶ 9-10, 51-57.) The complaint, which pled diversity jurisdiction as its basis for subject-matter jurisdiction pursuant to 28 U.S.C. § 1332(d)(2), alleged various fraud claims against Ace and, specifically, that "Ace provided standardized misleading information to potential and converting" franchisees in order to induce "Plaintiffs to enter into franchise agreements for the establishment and operation of Ace Vision 21 hardware stores." ( Id. ¶¶ 2-3.) On March 1, 2012, Ace filed a separate action to compel arbitration in the U.S. District Court for the Northern District of Illinois and, on October 18, 2012, U.S. District Judge John W. Darrah granted Ace's motion to compel arbitration as to the two named plaintiffs. Putzier, 50 F.Supp. 3d at 971. While the motion to compel arbitration was pending, the district court in Florida stayed the original action. Id.

         Following the arbitration ruling, Plaintiffs moved the district court in Florida to reopen the case and permit them "to file an amended complaint naming new class representatives whose franchise agreements did not include arbitration provisions." Id. The case was reopened and, on December 5, 2012, the first amended complaint was filed identifying six new named plaintiffs. ( Id .; see also R. 21, First Am. Compl. ¶¶ 10-15.) This amended complaint alleged violations of the Illinois Franchise Disclosure Act ("IFDA"), 815 ILL. COMP. STAT. 705/1, et seq., and state law claims for fraudulent inducement and fraud. (R. 21, First Am. Compl. ¶¶ 95-115.) Pursuant to Federal Rule of Civil Procedure 12(b)(6), Ace moved to dismiss the first amended complaint. Putzier, 50 F.Supp. 3d at 971. Without deciding the motion to dismiss, the Florida district court transferred the lawsuit to this Court. Id. Shortly after the transfer, Plaintiffs filed a motion for class certification, but, this Court stayed that motion pending a ruling on Ace's motion to dismiss. Id.

         On June 25, 2014, the Court granted Ace's motion to dismiss. Putzier, 50 F.Supp. 3d 964');">50 F.Supp. 3d 964. The Court concluded, among other things, that: (1) the laws of the Plaintiffs' home states would apply to Plaintiffs' fraud and fraudulent inducement claims, id. at 976; (2) Plaintiffs' IFDA claims would be dismissed as untimely, id. at 979; (3) "the discovery rule tolled the statutes of limitations for Plaintiffs' claims of fraudulent inducement and fraud" and, thus, the Court would not dismiss those claims as untimely, id. at 981; (4) while two of the Plaintiffs did not have standing to pursue their claims against Ace, the Court would grant Plaintiffs "leave to move to substitute the bankruptcy trustee as a party to any amended complaint Plaintiffs may file, " id. at 983-85: and (5) Plaintiffs "failed to meet the heightened pleading requirements imposed by Rule 9(b)" and, thus, the complaint would be dismissed, id. at 988. The Court granted Plaintiffs leave to amend the complaint and replead their fraudulent inducement and fraud claims "provided they are able to plead with sufficient specificity to meet the heightened pleading standard for fraud claims imposed by Rule 9(b)." Id.

         On October 3, 2014, Plaintiffs filed their second amended complaint. (R. 90, Second Am. Compl.) In the second amended complaint, Plaintiffs abandoned their class allegations, expanded their individual allegations (from 25 pages to nearly 100 pages), and included at least twenty plaintiffs, ( Id. ) Before Ace could answer or otherwise plead. Plaintiffs filed a motion for leave to file a third amended complaint. (R. 94, Mot. for Leave to File Third Am. Compl.) The proposed third amended complaint totaled nearly 145 pages and included at least forty plaintiffs. (R. 94-1, Third Am. Compl.) On November 19, 2014, Ace filed a response to Plaintiffs' motion for leave to file a third amended complaint, (R. 98, Opp'n), and on December 19, 2015, Plaintiffs filed their reply, (R. 105, Reply.).

         If all of this were not enough, Plaintiffs filed a motion for leave to file a fourth amended complaint, prior to the Court ruling on Plaintiffs' motion for leave to file a third amended complaint. (R. 110, Mot. for Leave to File Fourth Am. Compl.) Pursuant to Rule 15(a). Plaintiffs sought leave to add additional trustees that represent the bankruptcy estates of franchisees already included in the proposed third amended complaint. ( Id. ¶¶ 1, 10.) The proposed fourth amended complaint is 146 pages long, consists of 747 paragraphs, and includes 44 causes of action.[1] (R. 110-1, Fourth Am. Compl.)

         In response to Plaintiffs' motion for leave to file a fourth amended complaint. Ace states that it will "stand on its [o]pposition to Plaintiffs' motion for leave to file a [t]hird [a]mended [c]omplaint." (R. 111, Opp'n to Mot. for Leave to File Fourth Am. Compl. ¶ 3.) In that opposition, Ace argues that Plaintiffs' motion for leave should be denied because: (1) the shareholder and owner plaintiffs ("Individual Plaintiffs") lack standing to sue for any harm their corporate entities suffered as a result of Ace's alleged fraud, (R. 98, Opp'n at 8-11); (2) fifteen of the Plaintiffs lack standing to pursue their claims because their claims belong to the bankruptcy estate trustees, and those trustees are either not pursuing these claims or have failed to take the necessary steps to pursue them, ( id. at 2-7)[2]; (3) ten of the Plaintiffs' claims are barred by the doctrine of res judicata as a result of default judgments previously obtained by Ace, ( id. at 11-14); (4) at least two Plaintiffs are obligated to arbitrate their disputes pursuant to agreements they signed with Ace, ( id. at 14); and (5) Plaintiffs are improperly pleading their class claims in the alternative, ( id. at 14-15).

         LEGAL STANDARD

         Federal Rule of Civil Procedure 15(a) provides a liberal standard for amending a complaint. Life Plans, Inc. v. Sec. Life of Denver Ins. Co., 800 F.3d 343, 357 (7th Cir. 2015). Specifically, Rule 15(a) states that "[t]he court should freely give leave when justice so requires, " FED. R. CIV. P. 15(a)(2), and evinces a policy that a party "ought to be afforded an opportunity to test his claim on the merits." Foman v. Davis, 371 U.S. 178, 182 (1962). "The Supreme Court has interpreted this rule to require a district court to allow amendment unless there is a good reason - futility, undue delay, undue prejudice, or bad faith - for denying leave to amend." Life Plans, 800 F.3d at 357-58 (citing Foman, 371 U.S. 178, 182 (1962)). A district court also may "deny a proposed amended pleading if... the moving party... repeatedly fail[s] to cure deficiencies." Gandhi v. Sitara Capital Mgmt., LLC, 721 F.3d 865, 868-69 (7th Cir. 2013).

         The granting or denying of a motion for leave to file an amended complaint is a matter entrusted to the sound discretion of this Court. Foman, 371 U.S. at 182. Indeed, "district courts have broad discretion to deny leave to amend where the amendment would be futile." Charleston v. Bd. of Trs. of U. of Ill. at Chi., 741 F.3d 769, 777 (7th 2013) (citation and internal quotations marks omitted); see also Gonzalez-Koeneke v. West, 791 F.3d 801, 807 (7th Cir. 2015) ("We have recognized, on many occasions, that a district court does not abuse its discretion by denying a motion for leave to amend when the plaintiff fails to establish that the proposed amendment would cure the deficiencies identified in the earlier complaint."). Because a proposed amendment is futile if it would not survive a motion to dismiss, the Court applies the same standard for leave to amend as on a Rule 12(b)(6) motion to dismiss. Runnion ex rel. Runnion v. Girl Scouts of Greater Chi. and Nw. Ind., 786 F.3d 510, 524 (7th Cir. 2015) ("[W]hen the basis for denial is futility, we apply the legal sufficiency standard of Rule 12(b)(6) to determine whether the proposed amended complaint fails to state a claim."); see also McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 685 (7th Cir. 2014) ("District courts may refuse to entertain a proposed amendment on futility grounds when the new pleading would not survive a motion to dismiss." (citation omitted)).

         To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Factual allegations are accepted as true at the pleading stage, but "allegations in the form of legal conclusions are insufficient to survive a Rule 12(b)(6) motion." McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012). "[T]hreadbare recitals of the elements of the cause of action, supported by mere conclusory statements, do not suffice." Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In addition, "[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." Aschroft, 556 U.S. at 678. Finally, in deciding a Rule 12(b)(6) motion, the Court can consider "allegations set forth in the complaint itself, documents that are attached to the complaint, documents that are central to the complaint and are referred to in it, and information that is properly subject to judicial notice." Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013).[3]

         ANALYSIS

         I. Shareholder Standing

         Ace argues that "leave to amend should... be denied because the Individual Plaintiffs do not have standing to bring the claims asserted in the" proposed fourth amended complaint. (R. 98, Opp'n at 8.) Specifically, Ace states that "the Individual Plaintiffs utilized corporate entities - a corporation or limited liability company - to enter into their respective Membership and Brand Agreements with Ace" and, therefore, "only those entities have standing to sue for any harm suffered as a result of their allegedly being fraudulently induced by Ace to enter into the agreements." ( Id. ) In response, Plaintiffs argue that the "Plaintiff-owners of Ace franchise are able to pursue claims against Ace... because allegations in the [amended complaint] establish that Plaintiffs have injuries based upon individual claims." (R. 105, Reply at 10.) The shareholder-standing rule and accompanying case law make clear that the Individual Plaintiffs do not have standing to pursue their claims against Ace.[4]

         The shareholder-standing rule "is a prudential limitation on standing, a strand of the standing doctrine that prohibits litigants from suing to enforce the rights of third parties." Nocula v. UGS Corp., 520 F.3d 719, 726 (7th Cir. 2008). In addition, "[a]lthough closely related to the requirements of constitutional standing, [courts] have held that the absence of prudential standing is not jurisdictional in the sense that Article III standing is, but nevertheless may be raised by the court on its own, even though the parties have not noticed it." Id. (citations and internal quotations marks omitted). "Under general principles of United States corporate law, as well as under Illinois law, a stockholder of a corporation has no personal or individual right of action against third persons for damages that result indirectly to the stockholder because of an injury to the corporation." Twohy v. First Nat'l Bank of Chi., 758 F.2d 1185, 1194 (7th Cir. 1985); see also Franchise Tax Bd. of Cal. v. Alcan Aluminum Ltd., 493 U.S. 331, 336 (1990).[5] The Seventh Circuit has explained the reasoning for this rule: if the corporation and the shareholder are allowed to sue for damages arising out of the same injury, the shareholder's suit would result in "double counting." Mid-State Fertilizer Co. v. Exch. Nat'l Bank of Chi., 877 F.2d 1333, 1335 (7th Cir. 1989). Notably for purposes of this decision, the shareholder-standing rule applies equally to closely held corporations. See Rawoof v. Texor Petroleum Co., Inc., 521 F.3d 750, 757 (7th Cir. 2008) (holding that shareholder-standing rule barred sole shareholder from bringing suit over his corporation's loss of a franchise); see also Kush v. Am. States Ins. Co., 853 F.2d 1380, 1384 (7th Cir. 2000) ("The fact that the company is closely held does not persuade us to deviate from the general rule.").

         There are two commonly recognized exceptions to the shareholder-standing rule. Specifically, a shareholder may sue for injuries to her corporation: "(1) where there is a special duty, such as a contractual duty, between the wrongdoer and the shareholder, and (2) where the shareholder suffered an injury separate and distinct from that suffered by other shareholders." 12B William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 5911 (2000): see also Twohy, 758 F.2d at 1194 ("Certain often overlapping exceptions to the general rule have been recognized such as where a special contractual duty exists between the wrongdoer and shareholder or where the shareholder suffers an injury separate and distinct from that suffered by other shareholders." (citation and internal quotation marks omitted)). Under the second exception, "a shareholder [may] pursue an action originating from an injury to the corporation if he has suffered a direct, personal injury independent of the derivative injury common to all shareholders." Rawoof, 521 F.3d at 757. Neither of these exceptions applies to the Individual Plaintiffs.

         First, Plaintiffs do not sufficiently allege that a special duty, such as a separate contract, exists between Ace and the Individual Plaintiffs.[6] While in some instances Plaintiffs allege that both the Individual Plaintiffs and the corporate entity Plaintiffs entered into franchise agreements with Ace, [7] the actual Brand and Membership Agreements demonstrate otherwise. In support of its opposition to Plaintiffs' motion for leave, Ace attached the Brand and Membership Agreements entered by the parties. (R. 98, Opp'n at 4 n.3; see also R. 98-2-R. 98-21, Exhibits B-U to Opp'n.) Every single one of these agreements was entered into between Ace and the corporate entity Plaintiffs. ( See, e.g., R. 98-8, Ace Brand Agreement at 2 ("This Agreement is made and entered into by and between ACE... and Lifestyle Capital Partners, LLC...."); see also R. 98-16, Ace Brand Agreement at 2 ("This Agreement is made and entered into by and between ACE... and Conway Ace Hardware, Inc.").) In addition, the signatory to all of these agreements is a representative of the corporate entity. ( See R. 98-8. Ace Brand Agreement at 9, 19; see also R. 98-16, Ace Brand Agreement at 9.) "When an exhibit incontrovertibly contradicts the allegations in the complaint, the exhibit ordinarily controls, even when considering a motion to dismiss." Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013). The Brand and Membership Agreements make clear that the only contractual relationship that exists between Ace and the parties is between Ace and the corporate Plaintiffs. Thus, the Individual Plaintiffs cannot bring suit individually and avail themselves of the independent duty exception to the shareholder-standing rule.

         Second, the Individual Plaintiffs do not allege that they suffered an injury separate and distinct from the injuries suffered by other shareholders or by the corporation as a whole. As a preliminary matter, Plaintiffs make no attempt to differentiate between the claims asserted by the corporate entities and the owners of these corporate entities. Specifically, most of the causes of action for fraud and fraudulent inducement are brought jointly by the franchise entity and its shareholders. ( See, e.g., R. 110-1. Fourth Am. Compl. at 127 ("Fraudulent Inducement on Behalf of Plaintiffs Joseph Rasmus and R&H Resources"); id. at 129 ("Fraud on Behalf of Plaintiffs Joseph Rasmus and R&H Resources").) This conflation in pleading makes it difficult for this Court to determine which alleged injuries are unique to the Individual Plaintiffs.

         In addition, the proposed fourth amended complaint makes clear that the Individual Plaintiffs' alleged injuries are identical to any other shareholder's injuries - the loss of their investment. For example, in support of Plaintiff West's fraudulent inducement claim, the proposed amendment alleges that "Mr. West was damaged as a result of Ace's actions by investing approximately $300, 000... that he never would have but for Ace's fraud." ( Id. ¶ 416; see also id. ¶ 452 (similar allegation as to Mr. Pitochelli); id. ¶ 464 (similar allegation as to Mr. Beam).) In support of Plaintiff Don West's fraud claim, the proposed amendment alleges that "[a]s a result of Ace's fraud, Mr. West was damaged by the amount he invested in reliance on Ace's statements." ( Id. ¶ 421, see also id. ¶ 457 (similar allegation as to Mr. Pitochelli); see also id. ¶ 469 (similar allegation as to Mr. Beam).) The Individual Plaintiffs' damages boil down to the loss of their investment and the eventual loss of each of their corporate franchises. Courts have repeatedly held that allegations of this type are insufficient to establish a loss separate and apart from other shareholders. See, e.g., Massey v. Merrill Lynch & Co., 464 F.3d 642, 646 (7th Cir. 2006) ("Corporate losses are investor losses as well.... [T]he long-standing rule is that a harm to a corporation that harms a shareholder only through a diminution in share price cannot amount to a distinct and separate injury because all shareholders are essentially harmed in the same manner." (internal quotation marks omitted)); Lawson v. BNSF Ry., 2:15-CV-0094-TOR, 2015 WL 6442741, at *6 (E.D. Wash. Oct. 23, 2015) ("A reduction in [the company's] value would negatively impact any shareholder of [the company]."); Fiore v. McDonald's Corp., No. CV-95-2708, 1996 WL 91908, at *5 (E.D.N.Y. Feb. 23, 1996) ("Because [the shareholders] assigned their rights as franchisees to their wholly-owned corporations, any injuries arising out of damage to the value of the franchises can only be asserted by these corporations.").

         In defense of their claims, Plaintiffs argue that the individual shareholders have standing to pursue their claims because "they not only lost their investments, but they lost their homes, and in many instances had to declare personal bankruptcy." (R. 105. Reply at 11.) More specifically, Plaintiffs claim that the individuals have suffered losses "beyond those... [suffered by] the corporate entities, " such as having to "sign personal guarantees, " take "out a... home equity loan, " withdraw money from their retirement accounts, "put up collateral to secure funding." "incur[]... credit card debt, " and spend their "inheritance." ( Id. at 10, 11 n.9 (citing R. 110-1, Fourth Am. Compl.).) However, courts have repeatedly held that the execution of a personal guarantee or a personal financial loss is not necessarily an injury distinct from those of other shareholders or the corporation. See, e.g., Lawson, 2015 WL 6442741, at *6 ("While Plaintiffs have arguably shown, at least on the pleadings, they suffered personal economic loss as a result of [the defendant's] conduct, this is insufficient because their personal loss merely derives from their employment at and ownership of Rail Logistics."); Cent. Jersey Freightliner, Inc. v. Freightliner Corp., 987 F.Supp. 289, 301 (D.N.J. 1997) (concluding that the sole shareholder did not have standing to maintain an action against the defendant despite the fact that the sole shareholder "was a guarantor of the financing transactions and was injured by misrepresentations made by defendant"); Lui Ciro, Inc. v. Ciro, Inc., 895 F.Supp. 1365, 1381 (D. Hi. 1995) (concluding that the individual shareholders did not have standing to sue even though they had alleged that they had "risked their wealth, including their house, through their guarantees"); Hengel, Inc. v. Hot N Now. Inc., 825 F.Supp. 1311, 1318 (N.D. Ill. 1993) ("[P]laintiffs' assertions of personal guarantees are insufficient to show that [individual plaintiffs]... have a private cause of action for their remaining claims."). Simply put, the Individual Plaintiffs' assertions of personal losses are insufficient to show that they have a right to pursue their claims individually against Ace.

         Plaintiffs rely on two cases in support of their argument that they have "more than adequately demonstrated that they, in addition to their individual businesses, suffered substantial injuries." (R. 105, Reply at 11-12.) However, neither one of these cases persuades the Court. In Eden v. Miller, 37 F.2d 8 (2d Cir. 1930), an out of Circuit case from almost 90 years ago, the U.S. Court of Appeals for the Second Circuit permitted the individual plaintiffs' breach of contract claims because it was these individual plaintiffs who had "entered into an oral agreement with the defendant, " and "the fact that the formation of a corporation was one of the things that the plaintiffs agreed to" did not change the outcome. Id. at 8-9. In addition, the court explicitly stated that the "corporation... was not a party" to the contract. Id. at 9. The facts of Eden demonstrate one of the exceptions to the shareholder-standing rule - a separate contractual relationship between the defendant and the individual shareholder. This Court has already determined that Plaintiffs have not pled that a separate contractual relationship exists between the Individual Plaintiffs and Ace, and thus Eden does not apply.

         Plaintiffs also rely upon Zokoych v. Spalding, 344 N.E.2d 805 (Ill.App.Ct. 1976), but that case is factually distinguishable. In Zokoych, the plaintiff - the former president and a shareholder of a corporation - brought suit against other shareholders of the same corporation alleging that they had "wrongfully and unlawfully conspired and agreed upon a plan to defraud plaintiff by forcing plaintiff out as an officer and director of [the corporation], by appropriating and converting... [for another shareholder's] use plaintiff's entire stock ownership in [the corporation], and by appropriating and converting the assets...." Id. at 658. The plaintiff also alleged that "his ownership has been totally lost and destroyed, " that "[h]is business reputation and good will have been irreparably destroyed, and that [h]is salary and other benefits were denied'" to him. Id. at 659. In light of these allegations, the Illinois Court of Appeals concluded that these actions "caused injury both to the corporation and to plaintiff individually as a stockholder, " but that the "gravamen of the complaint is an injury to the plaintiff." Id. at 663-64. As such, Zokoych is factually distinguishable from the instant lawsuit because the Zokoych allegations made clear that the individual plaintiff suffered an injury (i.e., damage to his reputation) separate and distinct from the other shareholders.

         The Court recognizes that the Individual Plaintiffs have suffered catastrophic financial injuries - oftentimes the loss of their entire wealth and resultant bankruptcy - and that precluding their claims against Ace appears to be a harsh outcome. However, it is their wholly owned corporations that entered into the franchise agreements with Ace. These very same corporations are the ones that suffered the injury. All of the shareholders suffered the same injury - the loss of their investment. As such, the shareholder-standing rule prevents the Individual Plaintiffs from pursuing these claims. However, this holding does not preclude the corporations from attempting to recover for their losses, and for any recovery to be directed straight to the Individual Plaintiffs as shareholders and owners.

         The proposed fourth amended complaint, as alleged, demonstrates that the Individual Plaintiffs lack prudential standing. Thus, to the extent the shareholder and owner Plaintiffs bring individual claims on behalf of their Ace franchises, the Court denies Plaintiffs' motion for leave to amend the complaint as futile. See, e.g., Hollywood Mobile Estates Ltd. v. Seminole Tribe of Fl., 641 F.3d 1259. 1262 (11th Cir. 2011) ("Because we also conclude that [the plaintiffs] lacked prudential standing to sue the Secretary, we affirm the denial of the motion for leave to amend the complaint as futile."): United States v. All Funds on Deposit with R.J. O'Brien & Assocs., 11 C 4175, 2012 WL 1032904, at *8 (N.D. Ill. May 9, 2014) (denying motion for leave to amend because, even after amendment, the insurance company would still "lack statutory and prudential standing" and, thus, the "proposed amendment would be futile").

         II. Trustee Standing

         Ace's next argument is that many of the Plaintiffs lack prudential standing because it is the trustees of their respective bankruptcy estates that are the real parties in interest.[8] (R. 98, Opp'n at 4-7.) In its original motion to dismiss, Ace argued that Plaintiffs Douglas Lorenz and Arvada Ace "did not have standing to pursue [the] claims in their own names" because Lorenz had filed for Chapter 7 bankruptcy protection on September 22, 2010, and "did not schedule any claim against Ace as an asset in his bankruptcy petition, " nor did "the bankruptcy trustee administer such a claim." Putzier, 50 F.Supp. 3d at 981 (citation and internal quotation marks omitted). In the prior opinion, the Court explained that "Ace's argument that this action belongs to Lorenz's bankruptcy estate presents a prudential question of who is the real party in interest' under Rule 17(a)." Id. at 982, Specifically, "[f]iling a Chapter 7 bankruptcy petition creates a bankruptcy estate comprised of all legal or equitable interests of the debtor in property as of the commencement of the case.'" Id. (quoting 11 U.S.C. § 541(a)(1)). "[V]irtually all property of the debtor at the time he files for bankruptcy - including any causes of action - becomes property of the bankruptcy estate.'" Id. (citation and internal quotation marks omitted). In addition, "[t]he trustee appointed in Chapter 7 bankruptcy alone has authority to administer and dispose of property" - including the right to pursue pre-petition causes of action. Id. (citation omitted).

         After considering the allegations contained in Plaintiff Lorenz's claims, the Court concluded that Lorenz's "interest in this cause of action against Ace remains with the bankruptcy estate" and that "[t]he bankruptcy trustee, rather than Lorenz or Arvada Ace, is the real party in interest under Rule 17(a), and only the bankruptcy trustee appointed to Lorenz's Chapter 7 case is entitled to bring these claims." Id. at 983. However, in the interest of justice and fairness to the bankruptcy estate, the Court declined to dismiss Lorenz and Arvada Ace's claims due to their lack of prudential standing and, instead, granted Plaintiffs leave to "move to substitute the bankruptcy trustee as a party to any amended complaint Plaintiffs may file." Id. at 984-85. The Court also cautioned Plaintiffs that "[i]f the trustee does not seek to substitute into this action or ratify Lorenz's and Arvada Ace's claims, those claims will be dismissed." Id. at 985. Ace's present opposition to the motion for leave makes similar arguments regarding a slew of additional Plaintiffs, but with slight variations. (R. 98, Opp'n at 4-7.) The Court addresses these arguments in turn.

         A. Plaintiffs Who Have Filed Bankruptcy but Have not Named the Trustees as Parties in the Fourth Amended Complaint

         Plaintiff George Martin filed for Chapter 7 bankruptcy protection on January 5, 2010, in the U.S. Bankruptcy Court for the Western District of North Carolina, and he did not schedule any claim against Ace as an asset in his petition.[9] R. 1, In re Martin, 10-30017 (Bankr. W.D. N.C. ). Likewise, Plaintiff Edward Pitochelli filed for Chapter 7 bankruptcy protection on July 7, 2012, in the U.S. Bankruptcy Court for the District of Connecticut, and he did not schedule any claim against Ace as an asset in his petition. R. 1, In re Pitochelli, 12-21730 (Bankr. D. Conn.). Ace argues that Plaintiffs Martin and Pitochelli are named as plaintiffs in the fourth amended complaint; however, because they filed for bankruptcy "after the closure of their Ace stores, " their claims "belong to their estates, and they have no right to pursue them in their own names." (R. 98. Opp'n at 6.) Plaintiffs' reply does not specifically address these two plaintiffs. The Court's reasoning in its original motion to dismiss is on point. Putzier, 50 F.Supp. 3d at 981-85.

         The alleged fraudulent transactions upon which Plaintiffs Martin and Pitochelli base their claims - the purchase of their franchise and signing of the Brand and Membership Agreements - occurred prior to the filing of their bankruptcy cases in 2010 and 2012, respectively. (R. 110-1. Fourth Am. Compl. ¶¶ 134-154, 284-302.) Therefore, and Plaintiffs do not dispute, Plaintiffs Martin and Pitochelli's claims are "sufficiently rooted in the prebankruptcy past" and are, thus, "property of the bankruptcy estate[s]." Putzier, 50 F.Supp. 3d at 983. Because Plaintiffs Martin and Pitochelli's claims are property of the bankruptcy estates, the bankruptcy trustees & mdash; rather than Martin or Pitochelli - are the real parties in interest under Rule 17(a), and only the bankruptcy trustees are entitled to bring these claims. Id.

         The next question is "whether the Court should dismiss [Martin and Pitochelli's] claims due to their lack of prudential standing." Id. Plaintiffs' standard response throughout this litigation has been to request more time to cure these deficiencies. Id. at 983 ("Plaintiffs argue that... the Court should grant time for the bankruptcy trustee appointed to Lorenz's case to consider whether to pursue this claim[.]"); see also R. 105, Reply at 9. Plaintiffs' requests can go no further. This Court has given Plaintiffs ample time to identify and name the proper parties in this lawsuit. In fact, the Court directed Plaintiffs to name the proper parties in this lawsuit nearly two years ago. Putzier, 50 F.Supp. 3d at 985. In addition, Ace pointed out these deficiencies as they relate specifically to Plaintiffs Pitochelli and Martin in its opposition to Plaintiffs' motion for leave to file a third amended complaint, (R. 98, Opp'n at 6); however, Plaintiffs did not cure these deficiencies when they sought leave to file their fourth amended complaint, (R. 110-1, Fourth Am. Compl. ¶¶ 17, 34). Despite having abundant notice of the problem, Plaintiffs continually fail to properly name, join, ratify, or substitute these real parties in interest.

         As the Court explained in its first order, "[i]f the trustee does not seek to substitute into this action or ratify [the plaintiffs']... claims, those claims will be dismissed." Putzier, 50 F.Supp. 3d at 985. As such, because Plaintiffs Martin and Pitochelli lack prudential standing, Plaintiffs' motion for leave to file an amended complaint as to these Plaintiffs' claims is denied. See, e.g., Nationwide Acceptance Corp. v. Markoff, Krasny, Goldman, Grant, 99 C 5632, 2000 WL 1230434, at *4 (N.D. Ill. Aug. 23, 2000) (granting motion to dismiss after the counter-claimant was informed of the "issue of improper standing, " but "[s]even months later, the court is not satisfied that [the counter-claimant's] claim was properly abandoned, and the court has not received notice that the trustee ratified [the counter-claimant's] commencement of this case"): Davis v. Avco Fin., 158 B.R. 1000, 1003-04 (N.D. Ind. 1993) (dismissing complaint and sanctioning counsel after debtor plaintiffs were advised that the trustee was the real party in interest to bring the lawsuit at a pre-trial conference and were "given sufficient time to correct the procedural error, but... failed to do so").

         B. Whether Some of the Plaintiffs' Bankruptcy Estates Have Abandoned These Claims, thus Permitting ...


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