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Jackson Avenue Subs, Inc. v. 407 Dearborn, LLC

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

September 6, 2016

JACKSON AVENUE SUBS, INC., et al, Plaintiffs,
407 DEARBORN, LLC, et al., Defendants.


          SIDNEY I. SCHENKIER United States Magistrate Judge

         Plaintiffs Jackson Avenue Subs, Inc. ("JAS"), Feroz Fazal, Iqbal Ali, and Subway Real Estate Corp. ("SREC") (collectively "plaintiffs"), have filed a four-count complaint against Defendants 407 Dearborn, LLC ("407 Dearborn"), Jeffrey A. Silver, and Sidney Ferenc (collectively "defendants"), asserting claims of breach of contract and alter ego liability (doc. # 1-1, Ex. A: Compl.). Presently before the Court is defendants' motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (doc # 17: Defs.' Mot.). For the reasons set forth below, defendants' motion to dismiss is granted in part and denied in part.


         We begin with the allegations in the Complaint, which we accept as true for the purposes of the motion. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). This lawsuit stems from defendants' alleged breach of a lease agreement ("the Lease") for failing to return a security deposit, as well as from the alleged breach of a lease termination agreement ("the Termination Agreement") that required defendants to make payments to plaintiffs during a specified period. Because the Complaint attaches as exhibits the Lease and the Termination Agreement, we consider both documents as part of the pleadings for the purposes of the motion to dismiss. See Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009) (holding that it was within the district court's discretion to consider, on a motion to dismiss, documents to which the complaint referred that were concededly authentic and central to the plaintiffs claim).

         The Lease, attached to the complaint as Exhibit A, was entered into by SREC and Old Colony Partners Limited Partnership (to which 407 Dearborn is the successor in interest) on January 22, 2003, for a space located at 407 S. Dearborn Street in Chicago, Illinois (Compl. ¶ 12; Ex. A, at 44). The Lease provided that SREC may sublease the premises to a franchisee/licensee for use as a Subway sandwich shop (Id. ¶ 13). Mr. Fazal and Mr. Ali were franchisees/licensees who subleased the property, and JAS is the entity that operated the Subway on their behalf (Id. ¶¶ 14-15). SREC paid $5, 500.00 as a security deposit to 407 Dearborn (Id. ¶ 16). Section 4 of the Lease states that "[i]f Tenant shall have fully complied with all of the covenants and conditions of this Lease the amount of the security deposit then held by the Landlord, shall be repaid to Tenant, without interest, within thirty (30) days after the expiration or sooner termination of this Lease" (Compl. Ex. A ¶ 4, at 7).

         Plaintiffs allege that the Termination Agreement was entered into on January 31, 2014 "by plaintiffs and defendants" (Compl. ¶ 18). The Termination Agreement, attached to the Complaint as Exhibit B, does not identify Mr. Ferenc as a party to the agreement; Mr. Silver signed the Termination Agreement, but only in his capacity as Escrowee (Compl. Ex. B, at 8).

         Section 3 of the Termination Agreement provides that upon the Termination Agreement date, plaintiffs would vacate the premises and 407 Dearborn would compensate plaintiffs for a period of time called the "Go Dark Period" (Compl. ¶ 19), The Go Dark Period and payments would terminate upon the occurrence of specific events related to the building being fit for resumption of operation of a Subway restaurant, a new lease being entered into with the new owner, and the health department issuing final approval (Compl. Ex. B ¶ 3, at 2-3). The Termination Agreement provided that 407 Dearborn would compensate "Subway®" in the amount of $3, 150.00 per month and "Fazal/Ali" in the amount of $5, 000.00 per month during the Go Dark Period (Id.). Paragraph 3 of the Termination Agreement included a "note" specifying that the payments to Mr. Fazal and Mr. Ali would be made from an escrow account held by Mr. Silver as Escrowee, which was to be funded with $90, 000.00 deposited by 407 Dearborn upon the sale of the property that was subject to the Termination Agreement (Id.). Although the Complaint alleges that the escrow account shall cover "payments owed described in Section 3 of the Termination Agreement, " which would include both the payments to SREC and to Mr. Fazal and Mr. Ali (Compl. ¶ 23), the note in the Termination Agreement states that funds in the escrow account would be disbursed to cover the payments due under paragraph 3(b), which is the paragraph describing the payments to Mr. Fazal and Mr. Ali (Comp. Ex. B ¶ 3(b), at 3). The Termination Agreement does not state that funds in the escrow account would be disbursed to SREC to satisfy the payments it was due to recover, pursuant to paragraph 3(a), during the Go Dark Period.

         Plaintiffs allege that the events ending the Go Dark Period have not yet occurred and that as of the filing of the Complaint on March 30, 2016, payments under the Termination Agreement are owed to SREC in the amount of $31, 500.00, and to Mr. Fazal, Mr. Ali, and JAS in the amount of $55, 000.00 (Compl. ¶¶ 25-26). Plaintiffs also allege that the $5, 500.00 security deposit was never returned, in violation of the Lease (Id. ¶¶ 27-28). Thus, plaintiffs allege they are owed a total of $92, 000.00 as of March 31, 2016 (Id. ¶ 31).


         Plaintiffs have sued defendants on four grounds: two breach of contract claims against 407 Dearborn for failing to make the required payments under the Termination Agreement and for failing to return the security deposit; a breach of contract claim against Mr. Silver as Escrowee; and an alter ego claim against Mr. Ferenc as director, officer, and/or owner of 407 Dearborn, which seeks to pierce the corporate veil and hold him personally liable for the payments allegedly required of 407 Dearborn (Compl. ¶¶ 32-59). The parties agree, and both the Lease (Compl. Ex. A ¶ 45.4, at 34) and the Termination Agreement (Id., Ex. B ¶ 11(b), at 5) provide, that Illinois law applies.

         "In reviewing the sufficiency of a complaint, we must accept all well pled facts as true and draw all permissible inferences in favor of the plaintiff." Agnew v. Nat'l Collegiate Athletic Ass'n, 683 F.3d 328, 334 (7th Cir. 2012). To determine if plaintiffs' allegations are sufficient to state a claim, we must determine if they both give the defendants notice of the claims to which they must respond and make the asserted claims "plausible on [their] face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also Agnew, 683, F.3d at 334 ("The Federal Rules of Civil Procedure require only that a complaint provide the defendant with 'fair notice of what the,, . claim is and the grounds upon which it rests'"). "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." Barnett v. Webster, 658 F.3d 742, 752 (7th Cir.2011) (citing Iqbal, 556 U.S. at 678).


         In Count I, plaintiffs claim that SREC is entitled to $3, 150.00 per month and Mr. Ali, Mr, Fazal, and JAS collectively are entitled to $5, 000.00 per month under the Termination Agreement (Compl. ¶¶ 33-34). Plaintiffs allege the events that would terminate the payment obligations have not occurred (Id. ¶ 35).

         Defendants argue that Count I should be dismissed, apparently in its entirety, because it improperly includes JAS among the plaintiffs to whom payment is due, when in fact Paragraph 3 of the Termination Agreement does not identify JAS as an entity entitled to any payments (Defs.' Mot. at 2). Defendants' argument is not framed clearly; while in one passage the motion says Count I should be dismissed, two sentences later, defendants appear to narrow their request to seeking dismissal only of "[a] 11 claims purportedly brought by or on behalf of JAS . . . ." (Id.). In any event, there is no basis to dismiss a claim by SREC, Mr. Ali, and Mr. Fazal simply because a plaintiff ...

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