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Hudgens v. Pratha Entertainment Inc.

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

March 14, 2017

GREG HUDGENS, Plaintiff,
v.
PRATHA ENTERTAINMENT, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, District Court Judge

         On May 20, 2016, Plaintiff Greg Hudgens brought the present six-count Complaint against Defendants Pratha Entertainment, William Soulier, Urszula Borodzinska, Mark Debowski, and Ramona Burns, collectively, “Defendants, ” alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., and violations of Illinois law, including civil conspiracy, rescission, breach of contract, corporate oppression, and breach of fiduciary duty. Debowski removed this action from the Circuit Court for 18th Judicial Circuit, DuPage County to this Court on November 17, 2016. Before the Court is Defendant's motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court grants Defendant's motion.

         BACKGROUND

         Plaintiff Greg Hudgens, a Chicago resident, was a founder and shareholder in Pratha Entertainment (“Pratha”), an Illinois corporation that operates the Martini Room, a tavern in Kane County, Illinois. (R. 1, Compl. ¶ 1.) Soulier, Borodzinska, and Debowski, collectively, “the Pratha Defendants, ” all residents of DuPage County, were Plaintiff's fellow shareholders in Pratha. (Id. ¶¶ 4-6.) Plaintiff alleges that the Pratha Defendants conspired with Ramona Burns, the final defendant, to frame Plaintiff for sexual assault. (Id. ¶¶ 27-28.)

         Plaintiff alleges that he formed Pratha with a college roommate in 2004 and became the sole owner of Pratha in 2005. (Id. ¶ 10.) In August 2006, Plaintiff sold 23.75% of his shares in Pratha to Debowski and 23.75% of his shares to Borodzinska. (Id. ¶ 11.) Plaintiff also entered into a Stock Purchase Agreement with Soulier, under which Soulier acquired 10% of the shares of Pratha for $13, 000, with $8, 000 payable at the time of closing and the additional $5, 000 due within 30 days of closing. (Id. ¶¶ 12-13.) In addition, the Stock Purchase Agreement required Soulier to make a $3, 000 capital contribution to Pratha and to pay 10% interest on any amount due under the Agreement. (Id. ¶ 14.) Plaintiff alleges that Soulier paid $3, 000 toward the $13, 000 stock acquisition price, but never paid the remaining $10, 000 or any interest, and never made a capital contribution to Pratha. (Id. ¶ 15.)

         Between 2007 and 2010, Plaintiff had the Pratha Defendants primarily operate Pratha while he left Chicago to pursue other business interests. (Id. ¶ 16.) Plaintiff then returned to Chicago in 2010 and became more involved with Pratha's operations. (Id. ¶ 17.) In 2012, Plaintiff alleges that he discovered that the Pratha Defendants had misappropriated funds from Pratha for their personal expenses. (Id. ¶ 18.) Plaintiff further alleges that he confronted the Pratha Defendants about their misappropriation of funds, and as a result, in May 2012, they conspired with Ramona Burns to frame him for assault and thereby exclude him from Pratha's operations. (Id. ¶¶ 19-20.)

         According to Plaintiff, on May 24, 2012, while in the Martini Room, Burns flirted with him and initiated physical contact with him. (Id. ¶ 21.) After the physical contact, Borodzinska called Plaintiff and told him that the Martini Room's cameras captured the physical contact between Plaintiff and Burns. (Id.) Plaintiff alleges that Burns told him the Pratha Defendants were framing him so they could remove him from Pratha, and she offered to not move forward with sexual assault allegations if Plaintiff made her his partner at Pratha. (Id. ¶¶ 21-22.) On June 4, 2012, Plaintiff was arrested for committing battery against Burns. (Id. ¶ 23.) Plaintiff alleges that the Pratha Defendants have assisted with his prosecution on Burns' charges. (Id.) On June 8, 2012, Soulier sold 3% of his shares in Pratha to Borodzinska. (Id. ¶ 24.) Plaintiff alleges that on June 18, 2012, the Pratha Defendants held a Pratha shareholder meeting and voted Plaintiff out as President, banned him from the Martini Room, and advised Plaintiff that his shares in Pratha were worthless. (Id. ¶ 25.)

         LEGAL STANDARD

         I. Rule 12(b)(6)

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must “give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). Under the federal notice pleading standards, a plaintiff's “factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Put differently, a “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). In determining the sufficiency of a complaint under the plausibility standard, courts must “accept all well-pleaded facts as true and draw reasonable inferences in the plaintiffs' favor.” Roberts v. City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016).

         II. Pleading Standard

         The parties dispute whether Plaintiff is required to plead the predicate acts of fraud with particularity under the heightened requirements of Federal Rule of Civil Procedure 9(b). In pleading fraud in federal court, Rule 9(b) imposes a higher pleading standard than that required under Rule 8. See United States ex rel. Hanna v. City of Chicago, 834 F.3d 775, 779 (7th Cir. 2016). Specifically, Rule 9(b) requires a pleading to state with particularity the circumstances constituting the alleged fraud. See Fed. R. Civ. P. 9(b). Applying this standard to a RICO claim, the plaintiff must, at a minimum, “describe the two predicate acts of fraud with some specificity and state the time, place, and content of the alleged false representations, the method by which the misrepresentations were communicated, and the identities of the parties to those misrepresentations.” Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 658 (7th Cir. 2015), reh'g denied, 807 F.3d 839 (7th Cir. 2015), and cert. denied, 136 S.Ct. 1607 (2016). “Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b).

         Here, Plaintiff alleges Defendants committed the following predicate acts with the goal of ousting Plaintiff from control of Pratha: embezzlement, falsification of testimony, initiation of false charges, and operating Pratha in a manner designed to devalue Plaintiff's stock. (Compl. ¶ 32.) Assuming for the moment that these are in fact separate acts of racketeering activity, [1] three of the alleged predicate acts-embezzlement, falsifying testimony, and initiating false charges- sound in fraud and thus are subject to the heightened pleading requirements of 9(b).[2] Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014) (“a claim that sounds in fraud-in other words, one that is premised upon a course of fraudulent conduct-can implicate 9(b)'s heightened pleading requirements”) (citations omitted); French v. Corrigan, 432 F.2d 1211, 1213 (7th Cir. 1970) (allegations of false testimony must be pleaded with particularity); Perlman v. Zell, 938 F.Supp. 1327, 1333 (N.D. Ill. 1996), aff'd, 185 F.3d 850 (7th Cir. 1999) (analyzing RICO embezzlement scheme under 9(b)); Bernstein v. Heritage Union Life Ins. Co., No. 1:13-CV-3643, 2017 WL 395702, at *3 (N.D. Ill. Jan. 30, 2017) (explaining that action for abuse of legal process sounds in fraud). Plaintiff's final alleged predicate act-operating the business in a manner designed to devalue Plaintiff's stock-does not sound in fraud, and thus, for this predicate act Plaintiff need only “provide a short and plain statement of the claim” showing that he is entitled to relief. Fed.R.Civ.P. 8(a)(2).

         ANALYSIS

         I. Federal RICO Claim

         “The civil RICO cause of action arises under 18 U.S.C. § 1964(c), ” RWB Servs., LLC v. Hartford Computer Grp., Inc., 539 F.3d 681, 685 (7th Cir. 2008), which provides, “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue. . .” 18 U.S.C. § 1964(c). Under § 1962(d), it is unlawful “for any person to conspire to violate any of the provisions” of § 1962. 18 U.S.C. § 1962(d). “The [RICO] conspiracy provision is concerned with the agreement to participate in an endeavor, which if completed would violate a substantive provision of the Act.” Domanus v. Locke Lord LLP, 847 F.3d 469, 479 (7th Cir. 2017). Subsection (c) is the relevant substantive provision here. Under § 1962(c), it is unlawful for “any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). A claim under § 1962(c) thus “requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 831 F.3d 815, 822 (7th Cir. 2016). The Seventh Circuit has made clear that RICO was not “not intended to allow plaintiff to turn garden-variety state law fraud claims into federal RICO actions.” Jennings v. Auto Meter Products, Inc., 495 F.3d 466, 472 (7th Cir. 2007); see also Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1025-1026 (7th Cir. 1992) (“RICO has not federalized every state common-law cause of action available to remedy business deals gone sour.”).

         II. ...


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