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Steines v. Menrisky

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

May 23, 2017

THOMAS J. STEINES, Plaintiff/Counter-Defendant,
v.
SUSAN MENRISKY, Defendant, and DONALD W. MENRISKY, Defendant/Counter-Plaintiff/Third-Party Plaintiff,
v.
SHERYL STEINES, Third-Party Defendant.

          MEMORANDUM OPINION AND ORDER

          GARY FEINERMAN, JUDGE

         Thomas Steines brought this suit against his former business partner, Donald Menrisky, and Menrisky's wife, Susan Menrisky, seeking damages and injunctive relief. Doc. 98. The Menriskys answered, Doc. 102, and Donald brought counterclaims against Thomas and third-party claims against his wife, Sheryl Steines, Doc. 95. The Steineses now move under Federal Rule of Civil Procedure 12(b)(6) to dismiss some of the counterclaims and third-party claims. Doc. 108. The motion is granted in part and denied in part.

         Background

         In resolving a Rule 12(b)(6) motion, the court assumes the truth of the operative pleading's well-pleaded factual allegations, though not its legal conclusions. See Zahn v. N. Am. Power & Gas, LLC, 815 F.3d 1082, 1087 (7th Cir. 2016). The court must also consider “documents attached to the [pleading], documents that are critical to the [pleading] and referred to in it, and information that is subject to proper judicial notice, ” along with additional facts set forth in Donald's brief opposing dismissal, so long as those additional facts “are consistent with the pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013). The facts are set forth as favorably to Donald as those materials allow. See Pierce v. Zoetis, 818 F.3d 274, 277 (7th Cir. 2016). In setting forth those facts at this stage, the court does not vouch for their accuracy. See Jay E. Hayden Found. v. First Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir. 2010).

         Donald and Thomas founded Simplesoft, a software company, about twenty years ago. Doc. 95 at ¶¶ 1, 3, 10. Donald and Thomas both contributed to the early development of the company, with Thomas running the Chicago division and Donald running the Dayton, Ohio division. Id. at ¶ 11. Although initially the Steineses owned all Simplesoft shares, in 1997 Sheryl gave up her shares, which were transferred to Donald, who became a 50% owner of the company. Id. at ¶ 14. In recent years, Susan took on an “operations manager” role, with responsibility for several management functions, such as benefits and health insurance. Id. at ¶ 20. Donald, Susan, Thomas, and Sheryl currently are directors and officers of Simplesoft. Id. at ¶¶ 1-4. The board is divided evenly between the Steines and Menrisky families. Id. at ¶ 15.

         For several years, the Chicago division (run by Thomas) focused on information technology services for computer system infrastructure, while the Dayton division (run by Donald) focused on software development. Id. at ¶ 21. During that time, the Chicago division generated more revenue than the Dayton division. Id. at ¶ 22. Thomas and Donald nonetheless distributed profits evenly, which became a source of tension. Id. at ¶ 23. To resolve that tension, Thomas and Donald entered into what has been called the “Grand Bargain.” Id. at ¶ 24. Under the Grand Bargain, if one division was more profitable than the other, the difference would be paid as a bonus to whomever headed up the higher-earning division, after which (for tax reasons) the profits would be equally divided. Id. at ¶¶ 24-25.

         In the early 2000s, Donald began to resell “customer relationship management software” and offer other customer-service focused products out of the Dayton division. Id. at ¶ 26. Over time, this caused the Dayton division to grow and become more profitable, while the Chicago division shrunk. Id. at ¶ 29. Thomas sold a particular product line and set of contracts to Collier Computing out of the Chicago division, initially splitting Collier's $100, 000 up-front payment with Donald. Id. at ¶¶ 30-31. Thomas then announced his plan to retain the remainder of the Collier sale proceeds because, in his view, they were generated by the Chicago division. Id. at ¶ 31. Thomas would end up collecting over $100, 000 of those proceeds. Id. at ¶ 32.

         Although the Chicago division's business had shrunk, Thomas continued to do work for Simplesoft, largely in the form of accounting, taxes, and payroll management. Id. at ¶¶ 33, 35. He also performed, on Simplesoft's behalf, consulting services for Kraft Foods. Id. at ¶ 34. In 2011, Thomas declared himself finished with Simplesoft and began to shift to his own bank account the proceeds derived from the Kraft account. Id. at ¶ 36. Thomas and Donald then agreed that Donald would buy Thomas's Simplesoft stock. Id. at ¶ 37. The agreed buyout price was to be equal to the payments Donald had received from the Collier sale. Id. at ¶ 37. Thomas agreed to continue performing accounting and payroll functions, in exchange for Simplesoft continuing to pay for his health insurance. Id. at ¶ 39.

         Simplesoft has been making payments to Thomas pursuant to the buyout agreement for the past several years. Id. at ¶ 43. Overall, those payments have totaled an amount “in the neighborhood” of the agreed-upon buyout price. Ibid. Donald requested an accounting to confirm that his end of the bargain was complete, but Thomas did not comply. Id. at ¶ 44. Nor did Thomas offer Donald access to Simplesoft's financial records in QuickBooks. Ibid. Donald continued to press for access to the QuickBooks file, and Thomas continued to refuse. Id. at ¶ 46. As Donald became increasingly concerned, Thomas continued to refuse his demand and also committed numerous accounting practice errors, such as failing to make payroll on time. Id. at ¶ 47. When Donald confronted Thomas, Thomas accused Donald of “screwing him, ” with no further elaboration. Id. at ¶ 48. Thomas then said that he was going to start taking a salary for himself, and Donald strongly objected. Id. at ¶ 49.

         In January 2016, Thomas finally turned over the QuickBooks file, which the Menriskys' accountant reviewed. Id. at ¶ 51. The accountant observed several abnormalities. Id. at ¶ 52. There were several instances that, according to Donald, amounted to theft by Thomas, including payments to himself or Sheryl for their own use, without notice to or approval of the Menriskys. Id. at ¶ 55. At that point, Donald notified Thomas that he intended to transfer all banking and accounting functions to Dayton, made arrangements for customers to send payments to an Ohio bank account, and engaged a third-party contractor to manage payroll. Id. at ¶¶ 58-60.

         Thomas brought this suit in June 2016, on his own behalf and also purportedly on behalf of Simplesoft, against the Menriskys. Doc. 1. The Menriskys answered, and Donald filed a third-party complaint against Sheryl and counterclaims against Thomas. Doc. 26. Simplesoft then was dismissed as a plaintiff, without prejudice to Thomas filing derivative claims for Simplesoft's benefit. Doc. 36. The pleadings have been amended several times; the operative complaint is the second amended complaint, Doc. 159, and the operative counterclaims and third-party claims are the first amended counterclaims and third-party claims, Doc. 95.

         Discussion

         Donald has eleven counterclaims against Thomas, which allege individual and derivative claims sounding in fiduciary duty, conversion, conspiracy to commit conversion, breach of contract, theft of corporate opportunity, and unjust enrichment. Doc. 95 at ¶¶ 64-151. He seeks a variety of relief, including a forced sale of shares, dissolution, an accounting, and compensatory and punitive damages. Id. at ¶¶ 64-151. Donald's third-party claims against Sheryl, individual and derivative, sound in breach of fiduciary duty, conspiracy to commit conversion, unjust enrichment, and constructive trust. Id. at ¶¶ 152-91. The Steineses have moved to dismiss Counterclaims VI through XI and Third-Party Claims I, III, IV, and V in their entirety, and to partially dismiss Counterclaims IV and V and Third-Party Claim II. Doc. 108.

         I.Counterclaims ...


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