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Peterson v. A Clear Title and Escrow Exchange, LLC

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

March 27, 2017

RONALD R. PETERSON, as Trustee of the Estate of Brent Meder, and MEDER PROPERTY HOLDINGS, LLC, Plaintiffs,
v.
A CLEAR TITLE AND ESCROW EXCHANGE, LLC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Andrea R. Wood, United States District Judge.

         Ronald R. Peterson, in his capacity as Chapter 7 bankruptcy trustee for Brent Meder, and Meder Property Holdings, LLC (together, “Plaintiffs”)[1] have sued various defendants, including Justyna Michalowska, in connection with an alleged scheme to defraud individuals looking for alternative funding sources for real estate projects by misappropriating their escrow accounts. With respect to Michalowska in particular, Plaintiffs assert claims for conspiracy (Count II), common law fraud (Count III), and breach of fiduciary duty (Count VIII). Now before the Court is Michalowska's motion to dismiss the claims against her pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. (Dkt. No. 25.) For the reasons detailed herein, Michalowska's motion is granted as to the conspiracy and fraud claims and denied as to the breach of fiduciary duty claim.

         BACKGROUND

         The following facts are taken from the complaint and assumed to be true for purposes of Michalowska's Rule 12(b)(6) motion. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012).

         Defendants A Clear Title and Escrow Exchange, LLC (“A Clear Title”), Stephen J. Cormier, SRV Associates, LLC, and Marek Harrison promoted a Real Estate Funding Program (“Program”) to many individuals, including Meder.[2] Program participants were told that they could secure funding for real estate projects by depositing approximately 10% of the amount needed into an escrow account to be used to secure a letter of credit or a bank guarantee. (Compl. ¶ 14, Dkt. No. 1.) Program participants were also told that the money would remain in escrow for 15-20 business days and then would be released back to them at closing. Furthermore, while in escrow, the money would never be touched or encumbered, and there would be no liens put against it. (Id. ¶ 15.) Additionally, if a Program participant's real estate deal did not close, 100% of the escrowed funds would be returned. (Id.)

         In or around 2010, Meder was looking to refinance two properties owned by Meder Property Holdings. Michael Spies recommended the Program to Meder and put him in touch with Cormier, who was a Managing Member and Registered Agent of A Clear Title, and Harrison, who was the sole owner and manager of SRV Associates. (Id. ¶¶ 44-45.) At the time, A Clear Title was licensed as a title insurance and escrow agency. (Id. ¶ 3.) On November 5, 2010, Meder, SRV Associates, and A Clear Title entered into an agreement, which provided that Meder would deposit $250, 000 into an escrow account established by A Clear Title. (Id. Ex. 3, Dkt. No. 1-3.)[3] The agreement provided that the escrow funds would only be used to obtain a bank guarantee and that neither SRV nor A Clear Title would have access to the escrow funds unless such access was granted by Meder in writing. (Id.) Harrison and Cormier also repeatedly told Meder that the escrow fund deposits would only be used for proof of funds to purchase a bank guarantee and would not be at risk. (Id. ¶ 49.) After the escrow funds were deposited, Harrison and Cormier provided Meder with false and misleading information regarding the effort to obtain a bank guarantee. The misrepresentations included references to ongoing meetings with banks and other investors. (Id. ¶ 63-64.) At some point, Meder demanded the return of the escrow funds. (Id. ¶ 68.) Despite repeated demands to Cormier and Harrison, the escrow funds were never returned. (Id. ¶ 69.) Plaintiffs now claim that A Clear Title and Cormier utilized those funds for their own benefit. (Id. ¶ 71.)

         Michalowska was a Managing Member of A Clear Title. (Id. ¶ 5.) According to Plaintiffs, at all relevant times, “Michalowska was aware that Cormier was making false statements to Meder and was misappropriating the Meder Escrow Funds as well as other funds in the Fifth Third escrow account.” (Id. ¶ 89.) Plaintiffs further allege that A Clear Title transferred some of the misappropriated escrow funds to Michalowska under the guise of commission checks. (Id. ¶ 30.) They also claim that “[b]y failing to take any action to prevent the false statements and misappropriation of funds, Michalowska knowingly and substantially assisted in fraud, ” that “as a Managing Member of A Clear Title [Michalowska] owed Meder a fiduciary duty to prevent any misappropriation, ” and that “[b]y failing to take any action to prevent misappropriation, Michalowski [sic] breached her fiduciary duties to Meder.” (Id. ¶¶ 89, 129.)

         DISCUSSION

         Under Federal Rule of Civil Procedure 8(a)(2) a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To survive a Rule 12(b)(6) motion to dismiss, the short and plain statement must meet two threshold requirements. First, the complaint's factual allegations must be sufficient to give the defendant fair notice of the claim and grounds upon which it rests. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Second, the 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). While the complaint need not contain detailed factual allegations, there “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). Rather, “[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.” Iqbal, 556 U.S. at 678.

         If the plaintiff is alleging fraud or mistake, the heightened pleading standard of Federal Rule of Civil Procedure 9(b) also applies. The plaintiff “must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). However, “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Id. At a minimum, the complaint must 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.” Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992) (quoting Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990)).

         I. Breach of Fiduciary Duty

         In her motion, Michalowska argues that the breach of fiduciary claim against her should be dismissed because it is not pleaded with the degree of particularity required by Rule 9(b). But fiduciary duty claims are subject only to Rule 8(a), and not the heightened pleading standards of Rule 9(b). See Gondeck v. A Clear Title & Escrow Exch., LLC, No. 11 C 6341, 2012 WL 5200091, at *3 (N.D. Ill. Oct. 22, 2012) (citing Heffernan v. Bass, 647 F.3d 596, 601 (7th Cir. 2006)). Under Illinois law, “in order to state a claim for breach of fiduciary duty, it must be alleged that a fiduciary duty exists, that the fiduciary duty was breached, and that such breach proximately caused the injury of which the plaintiff complains.” Neade v. Portes, 739 N.E.2d 496, 502 (Ill. 2000).[4] A Clear Title was at all relevant times a title insurance and escrow agency. Plaintiffs allege that, as a managing member of A Clear Title, Michalowska owed and breached an independent fiduciary duty to Meder by knowingly permitting funds to be inappropriately withdrawn from escrow. This is sufficient to meet the notice pleading standard of Rule 8. Plaintiffs' claim that Michalowska knowingly breached her fiduciary duties is “plausible on its face” and therefore will not be dismissed.

         II. Common Law Fraud

         In Illinois, the elements of common law fraud are: “(1) a false statement of material fact; (2) defendant's knowledge that the statement was false; (3) defendant's intent that the statement induce the plaintiff to act; (4) plaintiff's reliance upon the truth of the statement; and (5) plaintiff's damages resulting from reliance on the statement.” Cohen v. Am. Sec. Ins. Co., 735 F.3d 601, 613 (7th Cir. 2013) (quoting Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d 584, 591 (Ill. 1996)). In challenging the sufficiency of the common law fraud claim against her, Michalowska argues ...


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