United States District Court, N.D. Illinois, Eastern Division
ORDER ON DEFENDANTS' MOTIONS TO DISMISS OR
MATTHEW F. KENNELLY United States District Judge.
plaintiffs in this case are Edward and Suzanne Kosten, who
are husband and wife, and Luke Kosten, their son. The Court
will refer to each of them, as well as defendant George
Kosten, by first name only, to avoid confusion.
lawsuit concerns an entity called Garden Row Foods, Inc.,
which manufactured and distributed sauces. Edward owns 30% of
the company's stock, and Suzanne owns 10%. Luke is not a
shareholder. The defendants are George Kosten, who was the
president of Garden Row; John Reeves, who was its vice
president; U.S. Sauces, LLC; and Union National Bank. George
Kosten and Reeves own the other 60% of Garden Row's
stock, and they are currently the president and vice
president of U.S. Sauces.
allege that in December 2004, George and Reeves shut down
Garden Row, claiming that the business was failing. According
to plaintiffs, at the same time they shut down Garden Row,
George and Reeves established U.S. Sauces and transferred
Garden Row's assets (including its business premises) and
customers to U.S. Sauces, without any compensation for Garden
Row in return. All of this rendered Edward and Suzanne's
Garden Row stock worthless. Union National Bank allegedly
facilitated the transfer by an alleged misapplication of the
alleges that he created copyrighted art and authorized Garden
Row to use it on the labels of its sauces. He alleges that
when Garden Row shut down and U.S. Sauces opened, George,
Reeves, and U.S. Sauces used the copyrighted material on its
corresponding labeling for the same sauces, without his
authorization. Luke (and only Luke) asserts a claim for
breach of copyright, which of course is a claim under federal
law. The other four claims in the complaint are brought only
by Edward and Suzanne, and not by Luke. They are state-law
shareholder derivative claims against Kosten and Reeves for
breach of fiduciary duty; against all of the defendants for
unjust enrichment, conversion, and civil conspiracy; and
against Union Bank for breach of its loan agreement with
defendants have filed motions attacking the complaint. No
defendant contends that the copyright infringement claim
(count 1) is deficient. George, Reeves, and U.S. Sauces
argue, however, that that subject matter jurisdiction is
lacking over the remaining claims (counts 2 through 6)
because there is no independent basis for federal
jurisdiction over those claims, and they are not part of the
same case or controversy as the copyright claim. They argue
in the alternative that Edward and Suzanne did not verify the
shareholder derivative claims as required by Federal Rule of
Civil Procedure 23.1(b) and that those claims should be
severed from the copyright infringement claim. Union Bank
makes the same arguments and also alleges that the derivative
claims are insufficiently pleaded.
concede that there need not be an independent basis
for subject matter jurisdiction for each plaintiff.
See George Kosten, et al. Mot. to Dismiss at 4
(citing Xuncax v. Gramajo, 886 F.Supp. 162, 194 (D.
Mass. 1995)). If a court has original jurisdiction over
certain claims in an action, the court has supplemental
jurisdiction "over all other claims that are so related
to claims in the action within such original jurisdiction
that they form part of the same case or controversy under
Article III of the United States Constitution. Such
supplemental jurisdiction shall include claims that involve
the joinder or intervention of additional parties." 28
U.S.C. § 1367. See, e.g., Stromberg Metal Works,
Inc. v. Press Mechanical, Inc., 77 F.3d 928, 930 (7th
Cir. 1996) (section 1367 permits pendent-party jurisdiction).
Court concludes that the copyright infringement claim derives
from a nucleus of operative fact that is in common with the
shareholder derivative claims. To be sure, the legal
requirements for these claims are not similar, but all of the
claims arise from the alleged improper transfer of the
business and assets of Garden Row by the defendants to U.S.
Sauces-including the right to use the copyrighted artwork.
The Court concludes that the claims are part of the same case
or controversy as section 1367 uses that term and therefore
declines to dismiss counts 2 through 6 for lack of subject
matter jurisdiction. As for defendants' request to sever
those claims, the Court believes that is a matter more
appropriately decided later in the case. There is plainly
enough of a common nucleus for discovery to be conducted in
common. The Court therefore denies without prejudice
defendants' request to sever those claims from count 1.
Court agrees with defendants that the shareholder derivative
claims are not properly verified because they are Dated:ly by
plaintiffs' counsel, and not by Edward and Suzanne.
See Fed. R. Civ. P. 23.1(b). Though there appears to
be little law on the subject, and nothing controlling, the
Court believes that in the usual case, the Rule requires
verification by the plaintiffs, not simply by their attorney.
(This does not appear to be a case in which, as one court put
it, "counsel is substantially more familiar with the
subject matter of the complaint than is the plaintiff, "
which might make verification by counsel sufficient. See
Goldberg v. Meridor, 81 F.R.D. 105, 110 (S.D.N.Y.
1979).) The Court therefore dismisses counts 2 through 6,
with leave to amend to include the necessary verification.
Court overrules Union Bank's contention that counts 2
through 5 are insufficiently pleaded. With regard to the
unjust enrichment claim, it does not appear that the claim is
based on a written contract (which might bar it), and in any
event, federal pleading rules permit a plaintiff to assert
claims in the alternative. Fed.R.Civ.P. 8(d)(3). With regard
to the conversion claim, the complaint sufficiently
identifies the assets claimed to have been converted. And the
conspiracy claim sufficiently alleges an agreement as well as
an underlying tort (conversion).
6, the breach of contract claim against Union Bank is
deficient as currently alleged, because it does not identify
the terms of the contract that allegedly were breached. The
Court therefore dismisses count 6 on this basis as well, with
leave to amend. Plaintiffs would be well advised to attach
the relevant contract(s) to their amended complaint if and
when they file one.
summary, for the reasons described above, the Court denies
defendants' motions to dismiss counts 2 through 6 for
lack of subject matter jurisdiction; denies without prejudice
their motions to sever those same claims; dismisses counts 2
through 6 due to insufficient verification under Rule
23.1(b); and dismisses count 6 for failure to state a claim.
Plaintiffs have leave to file an amended complaint by no
later than January 5, 2017. The case ...