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Swervo Entertainment Group, LLC v. Mensch

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

April 13, 2017

SWERVO ENTERTAINMENT GROUP, LLC, a Minnesota limited liability company, Plaintiff,
v.
LINDA S. MENSCH, an individual, LINDA S. MENSCH, P.C., an Illinois corporation, BRYAN CAVE, LLP, a Missouri limited liability partnership, RSK ENTERPRISES, LLC, a Delaware limited liability company, and ROBERT S. KELLY p/k/a R. Kelly, an individual, Defendants.

          MEMORANDUM OPINION AND ORDER

          John Z. Lee United States District Judge

         Plaintiff Swervo Entertainment Group, LLC (“Plaintiff”) brings suit against Defendants Linda S. Mensch and Linda S. Mensch, P.C. (collectively, “Mensch”), as well as Bryan Cave, LLP (“Bryan Cave”), RSK Enterprises, LLC (“RSK”), and Robert S. Kelly (“R. Kelly”). Plaintiff alleges that while it was in negotiations with RSK and R. Kelly over the terms of a proposed artist tour agreement, Mensch requested an advance deposit in the sum of $500, 000 as a gesture of good faith in exchange for continuing negotiations. Negotiations eventually broke down, and the advance deposit was never returned to Plaintiff.

         In its Third Amended Complaint, Plaintiff asserts claims for conversion (Count I), fraud in the inducement (Count II), breach of fiduciary duty (Count III), negligence (Count IV), breach of escrow agreement (Count V), unjust enrichment (Count VI), and promissory estoppel (Count VII). Defendants have moved to dismiss the Third Amended Complaint for failure to state a claim to relief pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6). They have also moved to strike Plaintiff's request for attorney's fees. For the reasons stated below, Defendants' motions to dismiss are granted in part and denied in part, and the motion to strike is granted.[1]

         Factual Background [[2]]

         Plaintiff is a Minnesota limited liability company in the business of promoting and producing concerts. See 3d Am. Compl. ¶ 1, ECF No. 52. Its principal place of business is in Minnesota, where its sole member resides. Id. ¶¶ 1-2. RSK is a Delaware limited liability company with its principal place of business in Illinois. Id. ¶ 10. RSK's sole member is music artist R. Kelly, a resident of Georgia. Id. ¶¶ 11-12. Linda Mensch is an attorney and a resident of Illinois, and she is the sole shareholder and officer of the Illinois corporation Linda S. Mensch, P.C. Id. ¶¶ 3-5. At all times relevant to this case, Mensch held herself out to be an attorney of counsel for the law firm Bryan Cave. Id. ¶ 18.[3]

         In January 2016, Plaintiff began negotiations with RSK and R. Kelly regarding a proposed artist tour agreement, whereby Plaintiff would receive the exclusive right to promote and produce certain concerts performed by R. Kelly in exchange for a performance fee. Id. ¶ 16. During these negotiations, RSK and R. Kelly were represented by Mensch. Id. ¶ 17.

         Around January 6, 2016, Mensch requested that Plaintiff wire an advance deposit in the sum of $500, 000 as a gesture of good faith in exchange for continuing negotiations regarding the terms of the tour agreement. Id. ¶ 22. Plaintiff insisted the funds be held in a trust or escrow account and that they not be released until a final tour agreement was executed. Id. ¶ 24. On January 13, 2016, Mensch offered an escrow account at Lakeside Bank in Chicago, Illinois, into which Plaintiff could wire the advance deposit. Id. ¶ 25. According to Plaintiff, Mensch represented at this time that Defendants would return the advance deposit if the parties did not finalize a tour agreement. Id. ¶ 27. Additionally, Mensch represented that Plaintiff retained an absolute and unconditional right to the return of the advance deposit in the event that the parties did not reach a final agreement. Id. ¶ 28. On January 15, 2016, relying upon these representations, Plaintiff transferred the $500, 000 advance deposit to the escrow account. Id. ¶¶ 29-30. The escrow account was entitled “LINDA S. MENSCH, P.C. RSK CLIENT ESCROW ACCOUNT.” Id. ¶ 30.

         On February 5, 2016, Plaintiff sent Mensch a draft of the tour agreement. Id. ¶ 33. In this draft, paragraph 4.4 was entitled “Timing of any payments” and included a provision stating: “Advance of Five Hundred Thousand Dollars ($500, 000.00) upon full execution of this Agreement.” Id. ¶ 34 (emphasis added); id., Ex. 2. Plaintiff asserts that this version of paragraph 4.4 evinces Mensch's understanding that the advance deposit belonged to Plaintiff at all times prior to execution of a tour agreement. Id. ¶ 34.

         On February 23, 2016, Mensch sent Plaintiff a new, revised version of the tour agreement. Id. ¶ 35. In this version, Mensch had modified paragraph 4.4 so that it read: “Advance of Five Hundred Thousand Dollars ($500, 000.00), acknowledged as received.” Id. ¶ 38 (emphasis added); id., Ex. 3. Additionally, Mensch inserted the following language in paragraph 4.5: “[t]he initial deposit in the amount of $500, 000 is hereby acknowledged as received by RSK Enterprises, LLC and all such funds have been authorized by [Plaintiff] to be released from the Linda S. Mensch PC Escrow account.” Id. ¶ 39; id., Ex. 3. Plaintiff never approved these revisions and did not have an opportunity to review or discuss them with Mensch before she unilaterally inserted them. Id. ¶¶ 37, 60.

         On March 8, 2016, Plaintiff requested that Mensch return the advance deposit if the parties were unable to finalize the tour agreement by March 11, 2016. Id. ¶ 43. Later that day, Mensch left Plaintiff's counsel a voicemail confirming her receipt of this request. Id. ¶ 45.

         As of March 14, 2016, the parties had not reached a final agreement, so Plaintiff sent written correspondence to Mensch demanding return of the advance deposit. Id. ¶ 49. Mensch did not respond to this request or return the advance deposit. Id. ¶ 50. On March 18, 2016, Plaintiff sent written correspondence to a managing partner of Bryan Cave's Chicago office, again requesting return of the advance deposit. Id. ¶ 51. Bryan Cave denied receiving the advance deposit and further denied having any control over the escrow account. Id. ¶ 52. The parties never finalized a tour agreement, but the advance deposit was never returned to Plaintiff. Id. ¶¶ 53-54.

         Legal Standard

         A motion under Rule 12(b)(6) challenges the sufficiency of the complaint. Christensen v. Cnty. of Boone, Ill., 483 F.3d 454, 457 (7th Cir. 2007). Under the federal notice pleading standards, “[a] plaintiff's complaint need only provide a short and plain statement of the claim showing that the pleader is entitled to relief, sufficient to provide the defendant with fair notice of the claim and its basis.” Tamayo, 526 F.3d at 1081 (internal quotation marks omitted); see also Fed R. Civ. P. 8(a)(2). When considering a motion to dismiss under Rule 12(b)(6), the Court must “accept[ ] as true all well-pleaded facts alleged, and draw[ ] all possible inference in [the plaintiff's] favor.” Tamayo, 526 F.3d at 1081.

         Additionally, a complaint must allege “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 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). For a claim to have facial plausibility, a plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. Plausibility, however, “does not imply that the district court should decide whose version to believe, or which version is more likely than not.” Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010).

         When a complaint alleges fraud, the heightened pleading standard set forth in Rule 9(b) applies, rather than the liberal pleading standard of Rule 8(a). See Fed R. Civ. P. 9(b); Graue Mill Dev. Corp. v. Colonial Bank & Trust Co. of Chi., 927 F.2d 988, 992 (7th Cir. 1991). Under Rule 9(b), a complaint must plead allegations of fraud with particularity. Fed.R.Civ.P. 9(b).

         Analysis

         I. Conversion

         In Count I of the Third Amended Complaint, Plaintiff brings a claim of conversion, alleging that Defendants have wrongfully assumed control of Plaintiff's $500, 000 advance deposit without authorization. 3d Am. Compl. ¶ 61. In moving to dismiss Count I, Defendants argue that Plaintiff has failed to sufficiently allege the elements of a conversion claim.

         To state a claim for conversion under Illinois law, a plaintiff must allege: (1) the defendant's unauthorized and wrongful assumption of control, dominion, or ownership of the plaintiff's property; (2) the plaintiff's right in the property; (3) the plaintiff's absolute and unconditional right to the immediate possession of the property; and (4) a demand for the possession of property. G.M. Sign, Inc. v. Elm St. Chiropractic, Ltd., 871 F.Supp.2d 763, 767 (N.D. Ill. 2012) (quoting General Motors Corp. v. Douglass, 565 N.E.2d 93, 96-97 (Ill.App.Ct. 1990)).

         An asserted right to money generally does not support a claim for conversion under Illinois law. Horbach v. Kaczmarek, 288 F.3d 969, 978 (7th Cir. 2002). An exception to this general rule exists where the money at issue is “specific chattel”-that is, “a specific fund or specific money in coin or bills.” Id. (internal quotation marks omitted). In addition, to prove that its right to the money was absolute and unconditional, the plaintiff must show that “the money claimed, or its equivalent, at all times belonged to the plaintiff.” Id. (emphasis in original) (quoting In re Thebus, 483 N.E.2d 1258, 1261 (Ill. 1985)).

         Here, the $500, 000 advance deposit qualifies as “specific chattel, ” as the deposit constituted a determinable amount and was segregated in an escrow account. See DeGeer v. Gillis, 707 F.Supp.2d 784, 789 (N.D. Ill. 2010). But Plaintiff's allegations do not indicate that the advance deposit absolutely and unconditionally belonged to Plaintiff at all times. To the contrary, the allegations show that Plaintiff's right to the advance deposit, once it was placed into the escrow account, was explicitly conditioned upon the parties' inability to execute a final tour agreement. See 3d Am. Compl. ¶ 28 (emphasis added) (“Mensch agreed that Plaintiff retained an absolute and unconditional right to the return of the Advance Deposit in the event that Plaintiff and [RSK and R. Kelly] were unable to successfully negotiate and execute a final Tour Agreement.”); id. ¶ 61 (emphasis added) (“Plaintiff transferred [the advance deposit] to [Mensch and Bryan Cave] on the condition that the funds be held by them in an escrow account until Plaintiff and [RSK and R. Kelly] executed a final Tour Agreement.”).

         Because Plaintiff alleges that its right to the return of the advance deposit was subject to a condition, Plaintiff cannot show that this right was absolute and unconditional, and Plaintiff therefore cannot state a claim for conversion. See Horbach, 288 F.3d at 977-78 (affirming dismissal of conversion claim under Illinois law where plaintiff's right to return of allegedly converted money was conditional upon defendants' failure to meet certain performance conditions); DeGeer, 707 F.Supp.2d at 789-91 (dismissing conversion claim under Illinois law where plaintiff's right to allegedly converted money was subject to conditions). Accordingly, Defendants' motion to dismiss Count I is granted.[4] Given Plaintiff's allegations regarding the circumstances ...


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