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LHP, LLC v. Chase Bank USA, N.A.

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

December 5, 2016

LHP, LLC and DAVID FIALA, Plaintiffs,
v.
CHASE BANK USA, N.A., Defendant.

          MEMORANDUM OPINION AND ORDER

          Virginia M. Kendall United States District Court Judge

         For the reasons set forth below, Chase Bank USA, N.A.'s (“Chase”) Motion to Dismiss [17] is granted in its entirety. Specifically, Counts I and II are dismissed without prejudice. If Plaintiffs are able to replead with the appropriate specificity for Counts I and II, they shall do so on or before 12/23/16 or the Counts shall be dismissed with prejudice. Counts III, IV, and V are dismissed with prejudice.

         BACKGROUND

         The Court takes the following allegations from the Complaint and treats them as true for the purposes of the Defendant's motion. See Gillard v. Proven Methods Seminars, LLC, 388 F.App'x 549, 549-50 (7th Cir. 2010).

         In February 2010, Plaintiff David Fialia, who owns and operates Plaintiff LHP, LLC (“LHP”), entered into a credit card agreement called a Business Card Agreement with Chase connected to LHP's business bank account. (See Dkt. No. 1-1 at ¶¶ 3-4, 7; see also id. at 20-23.) Chase, through its agents, marketing materials, and corporate communications, represented to the Plaintiffs that they would not be held responsible for fraudulent transactions on their business credit card. (Id. at ¶ 8-9.) Chase made a number of representations, including that “Banks are like partners with the clients, and they are often active participants in their clients' financial affairs.” (Id. at ¶ 10.)

         In 2012, LHP added Don Smith and Emily Burgess, two now-former employees, to the business account. Chase issued business credit cards to Burgess and Smith that were meant to be used solely to purchase goods and services connected to LHP's business. (Id. at ¶ 11-12.) Smith was also a managing member of D.S.S. Heating and AC, LLC. LHP was a customer of DSS Heating. (Id. at ¶ 13.) DSS Heating was authorized to make charges to LHP's Account in instances where goods or services were provided to or on behalf of LHP. (Id. at ¶ 14.) Beginning in July 2012, DSS Heating began to make unauthorized charges on LHP's Account using Smith and Burgess's business credit cards. (Id. at ¶ 16.) Between July 2012 and October 2012, DSS Heating initiated more than fifteen unauthorized charges totaling in excess of $30, 000 even though it did not provide LHP with any goods or services related to the transactions. (Id. at ¶¶ 17-18.) In October 2012, Fiala, notified Chase of the charges. Following an internal investigation, Chase removed the majority of the transactions and successfully recovered $7, 700 of the fraudulent charges from DSS Heating. (Id. at ¶¶ 20-21.) After DSS Heating went out of business, Chase determined that the remaining outstanding charges were valid, refused to credit LHP's Account beyond the $7, 700 and held LHP and Fiala personally liable for the remaining charges. (Id. at ¶ 23.)

         After the Plaintiffs filed a police report, Smith, in June 2013 and as a principal of DSS Heating, admitted that he had initiated the fraudulent transactions and that no goods or services were provided to LHP as part of the transactions. (Id. at ¶¶ 24-26; see also id. at pp. 24-26 (Smith affidavit).) Smith was later indicted for and convicted of fraud in Nebraska.[1] (Id. at ¶ 27.) LHP continued to communicate with Chase throughout 2013 regarding the unauthorized charges, but the Chase representatives were uncooperative, refused to return phone calls, and otherwise failed to provide documentation regarding the charges. (Id. at ¶¶ 28-29.) Chase reported the balance on the account to credit reporting agencies, damaging Fiala's small business and ability to gain credit. (Id. at ¶ 30.)

         This case was originally filed in the Circuit Court of Cook County and was subsequently removed to this Court. (See Dkt. No. 1.)

         LEGAL STANDARD

         A complaint must contain sufficient factual matter to state a claim for relief that is plausible on its face to survive a 12(b)(6) challenge. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is plausible on its face when the complaint contains factual content that supports a reasonable inference that the defendant is liable for the harm. Id. The complaint should be dismissed only if the plaintiffs would not be entitled to relief under any set of facts that could be proved consistent with the allegations. Christensen v. Cty. of Boone, IL, 483 F.3d 454, 458 (7th Cir. 2007) (citations omitted). In making the plausibility determination, the Court relies on its “judicial experience and common sense.” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011) (quoting Iqbal, 556 U.S. at 679). For purposes of this motion, this Court accepts all well-pleaded allegations in the complaint as true and draws all reasonable inferences in the non-movant's favor. See Yeftich v. Navistar, Inc., 722 F.3d 911, 915 (7th Cir. 2013).

         DISCUSSION

         The Complaint alleges five causes of action sounding in fraud (Count I), violation of the Illinois Consumer Fraud Act (“ICFA”) (Count II), negligent misrepresentation (Count III), breach of contract (Count IV), and declaratory judgment (Count V). (See Dkt. No. 1-1.) Chase moves to dismiss the Complaint in its entirety.[2] (See Dkt. No. 17.)

         I. Count I - Fraud

         In Count I, Plaintiffs contend that Chase falsely represented its “zero liability fraud protection” service by representing that there would be no liability or obligation to pay for unauthorized transactions for which no goods or services were purchased. (See Dkt. No. 1-1 at ¶¶ 33-47.) To state a claim for common law fraud, Plaintiffs must plead facts supporting an inference that: “(1) the defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance.” See, e.g., Universal Am. Corp. v. Partners Healthcare Sols. Holdings, L.P., 176 F.Supp.3d 387, 400 (D. Del. 2016). In addition, pursuant to Federal Rule of Civil Procedure 9(b), fraud claims must be pled with particularity. See U.S. ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014), cert. ...


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