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Goulding v. Osceola Gold, Inc.

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

February 21, 2017

RANDALL S. GOULDING, as assignee of the original plaintiff, SECURITIES COUNSELORS, INC., Plaintiff,
OSCEOLA GOLD, INC., a Delaware Corporation, and PIZZ, INC., a Nevada Corporation, Defendants.



         Securities Counselors, Inc. ("Securities Counselors") originally sued defendants Osceola Gold, Inc. ("Osceola Gold") and Pizz, Inc. ("Pizz") (collectively "defendants" or "counterplaintiffs") in Illinois state court. Defendants removed the action to federal court and filed a motion to dismiss (docs. #1, 7). In response, Securities Counselors sought leave to file an amended complaint, and plaintiff Randall S. Goulding ("Mr. Goulding, " "plaintiff or '"counterdefendant") as assignee of Securities Counselors was granted leave and filed a First Amended Complaint ("FAC") (docs. #13: Motion to Amend; doc. # 16: First Amen. Compl.). The FAC asserts four counts-breach of contract, unjust enrichment, quantum meruit, and account stated-seeking recovery of $191, 173.63 in fees for legal services plaintiff allegedly provided defendants. Defendants filed a motion to dismiss the FAC for failure to state a claim (doc. # 18), which this Court denied (doc. # 30).

         Thereafter, defendants filed an answer to the FAC, along with affirmative defenses and counterclaims (doc. #31: Ans. to First Amend. Compl, Affirm. Def. and Counterclaims). Defendants-counterplaintiffs (whom, for convenience, we will refer to simply as defendants) pled seven affirmative defenses as well as the following counterclaims: (a) breach of contract in connection with an attorney-client agreement (I); (b) breach of contract in connection with a mining agreement (II); (c) fraud (III); (d) fraud in the inducement (IV); (e) fraudulent concealment by a fiduciary (V); and (f) constructive fraud in a contract (VI). Plaintiff now has moved to dismiss the counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, and to strike and dismiss defendants' affirmative defenses ("Motion to Strike and Dismiss") (doc. # 33: Motion to Strike and Dismiss). Plaintiffs motion is fully briefed (doc. # 34: Defs.' Resp.). For the reasons below, the Court grants in part and denies in part plaintiffs motion.[2]


         The following allegations are taken from the defendants' affirmative defenses and counterclaims and are presumed true for purposes of the Motion to Strike and Dismiss. See Deutsche Bank National Trust Co, v. Cannon, No. 12 C 5225, 2016 WL 212488, at n. 2 (N.D. Ill. Jan. 19, 2016); Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Forrest v. Universal Savings Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007).

         Defendants and Mr. Goulding entered into a contract for Mr. Goulding to provide legal services to bring a mining project public as set forth in the parties' Attorney-Client Agreement dated April 28. 2015 (the "Attorney-Client Agreement") (Counterclaim I. ¶ 1).[3] Mr. Goulding allegedly misrepresented that he was in good standing with the Financial Industry Regulatory Authority ("FINRA") (Counterclaim III, * 1). Defendants claim that Mr. Goulding knew, at the time he made this misrepresentation, that he was not in good standing with FINRA because he had been suspended from the practice of law for fraud against the United States in 1994. and was at the time currently engaged in litigation in which the Securities and Exchange Commission was accusing him of securities fraud (Id., ¶ 5). As a consequence of Mr. Goulding not being in good standing, FINRA would not accept an opinion for a name change, symbol change or reverse split and, therefore, Mr. Goulding failed to perform these services which were required under the Attorney-Client Agreement. (Id., ¶ 3; Counterclaim I, ¶ 4). Mr. Goulding also failed to make the necessary filings to make the public company OTC Pink current with OTC Markets; nor did he make the initial filings to obtain DTC eligibility (Counterclaim I, ¶¶ 5-6).

         Defendants allege that, in addition, Mr. Goulding was unable to perform a reverse merger with Counter Development Technologies, Inc. ("ENTI"), or deliver ENTI without debts or lawsuits as required under the Attorney-Client Agreement, even though he had falsely represented that he would be able to deliver the ENTI vehicle (Id. ¶ 3). Mr. Goulding allegedly knew, at the time of the representation, that he would not be able to deliver ENTI because he owed ENTI's owner a considerable sum of money and the owner would not deliver the ENTI vehicle without payment, which Mr. Goulding could not secure (Counterclaim III, ¶ 6).

         Defendants and Mr. Goulding entered into a second contract entitled Mining Rights/Stock Purchase Agreement (the "Mining Agreement"), pursuant to which Mr. Goulding was to provide legal services in an effort to bring a mining project public (Counterclaim II, ¶ 1). Mr. Goulding failed to perform on the Mining Agreement by failing to deliver a 1934 Act reporting company and to make necessary 1934 Act filings (Id., ¶¶ 3-4).


         As a federal court sitting in diversity, we apply Illinois state substantive law to determine the elements of the claims that have been pled, as defendant argues that Illinois applies and plaintiff does not argue otherwise. Gocsel v. Boley Intern. (U.K.) Ltd., 806 F.3d 414. 419 (7th Cir. 2015) citing Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). However, we apply federal procedural rules and federal case law interpreting those rules. Id.[4]

         In assessing a motion to strike, the Court considers Federal Rule of Civil Procedure 12(f). Under Rule 12(1) "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). "Affirmative defenses arc pleadings and, therefore, are subject to all pleading requirements of the Federal Rules of Civil Procedure." Heller Financial, Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286. 1294 (7th Cir. 1989). "While the Seventh Circuit has not addressed whither the Twomhfy-Iqbal standard applies to affirmative defenses, judges in this district have generally found these requirements to apply." Edwards v. Mack Trucks, Inc., 310 F.R.D. 382. 386 (N.D. Ill. 2015); Maurice Sporting Goods, Inc. v. BB Holdings, Inc., No. 15 C 11652. 2016 WL 4439948. at * 1 (N.D. Ill. Aug. 23. 2016) ("The Court--along with many others in this district--examines affirmative defenses by reference to Twomhly's 'plausibility' pleading standard").

         At the same time, we apply these standards mindful that motions to strike affirmative defenses are "disfavored" unless they serve to "remove unnecessary clutter from the case." Heller Financial. 883 F.2d at 1294. "Affirmative defenses will be stricken 'only when they are insufficient on the face of the pleadings."" Williams v. Jader Fuel Co., Inc., 944 F.2d 1388, 1400 (7th Cir. 1991) quoting Heller Financial, 883 F.2d at 1294. A motion to strike an affirmative defense "will not be granted unless it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense, and are inferable from the pleadings." Williams, 944 F.2d at 1400 (citations and quotations omitted). We address plaintiffs motion to strike defendants" affirmative defenses in Section III below.

         In assessing plaintiffs motion to dismiss, we consider Federal Rule of Civil Procedure 12(b)(6). Motions to dismiss pursuant to Rule 12(b)(6) challenge the sufficiency of a pleading. Ualiinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811. 820 (7th Cir. 2009). A Rule 12(b)(6) motion to dismiss a counterclaim is subject to the same standards as a motion to dismiss a complaint. See Northern Trust Co. v. Peters, 69 F.3d 123. 129 (7th Cir. 1995). The Court construes all well-pleaded allegations of the counterclaims in the light most favorable to defendants, accepting as true all well-pleaded facts. United Central Bank v. Davenport Estate LLC, 815 F.3d 315. 318 (7th Cir. 2016). and drawing ail reasonable inferences in their favor. White v. Keely, 814 F.3d 883, 887-88 (7th Cir. 2016). To survive a motion to dismiss under Rule 12(b)(6), not only must a counterclaim provide fair notice of the claim's basis, but it also must allege enough facts to show that, on its face, the requested claim is plausible, and not just possible. Bell Atlantic Corp. v. Twomhty, 550 U.S. 544. 570 (2007). See also Fed. R.Civ.P, 8(a)(2). While the counterclaim need not set forth "detailed factual allegations." "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         When a claim alleges fraud, the federal rules add an elevated pleading standard, which requires that '"a party must state with particularity the circumstances constituting fraud or mistake." Federal Rule of Civil Procedure 9(b), see also Camasla v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014). The Seventh Circuit has described this standard as requiring a complaint to "describe the 'who, what, when, where, and how" of the fraud- 'the first paragraph of any newspaper story" United Stales ex rel. Presses-v. Acacia Mental Health Clinic. LLC, 836 F.3d 770. 776 (7th Cir. 2016) (citations omitted). "While Rule 9(b) "does not require a plaintiff to plead facts that if true would show that the defendant's alleged misrepresentations were indeed false, it does require the plaintiff to state 'the identity of the person making the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff."" Camasta, 761 F.3d at 737 quoting Uni*quality. Inc. v. Injotronx. Inc., 974 F.2d 918. 923 (7th Cir. 1992).

         The Seventh Circuit has warned that '"courts and litigants often erroneously take an overly rigid view of the formulation" and that the precise details that must be included in a complaint 'may vary on the facts of a given ease.""" Presser, 836 F.3cl at 776 (citations omitted). "Nevertheless, plaintiffs must "use some ... means of injecting precision and some measure of substantiation into their allegations of fraud.""" Id. quoting 2 James Wm. Moore et al, Moore's Federal Practice § 9.03[l][b], at 9-22 (3d ed. 2015). We address plaintiffs motion to dismiss in Section IV below.[5]


         Plaintiff moves to strike all of defendants' affirmative defenses (Motion to Dismiss and Strike at 5-11). Defendants pled seven affirmative defenses: (1) failure to state a claim; (2) breach of fiduciary duties; (3) unclean hands; (4) frustration of purpose - Attorney Client Agreement; (5) frustration of purpose-Mining Agreement; (6) illegality-Mining ...

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