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A Custom Heating & Air Conditioning, Inc. v. Kabbage, Inc.

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

June 16, 2017

A CUSTOM HEATING & AIR CONDITIONING, INC., Individually and on Behalf of All Others Similarly Situated, Plaintiff,



         Before the Court are myriad Motions to Dismiss filed by Defendant Michael Henry [ECF Nos. 54, 60, 68, 74, 75, 76, and 81]. For the reasons to follow, Defendant Henry's Motions are granted in part. Counts II and III are dismissed for failure to state a claim.

         I. BACKGROUND

         A. Factual Background

         Even in this day and age, some businesses cry their wares via fax. Plaintiff A Custom Heating & Air Conditioning, Inc. (“Custom”) alleges that, on February 17, 2016, Defendants Kabbage, Inc. (“Kabbage”), Gulfco Leasing LLC (“Gulfco”), Michael Henry (“Henry”), and persons unknown caused to be sent to Custom an unsolicited fax advertising money lending services. (ECF No. 52 (“Am. Compl.”) ¶¶ 1-2, 17, 22.) Custom asserts that it had no prior relationship with any Defendant and never gave anyone permission to send the fax. (Id. ¶ 24.) The one-page fax advertised loan products and services “offered, originated, and/or funded by all of the Defendants.” (Id. ¶¶ 18-19.) The bottom of the faxed page states: “To Opt Out of future Faxes - Call 8446355155.” (Id. at Ex. A.) Custom alleges that this fax contains neither a clear and conspicuous opt-out notice nor a ready and costless means for opting out, as required by 47 U.S.C. § 227(b)(2) and 47 C.F.R. § 64.1200. (Id. ¶ 23.)

         In bringing this action on behalf of a class, Custom alleges that Defendants “sent the same facsimile to Plaintiff and more than thirty-nine other recipients without first receiving the recipients' express permission or invitation.” (Id. ¶ 24.) Custom bases this allegation in part on its belief that the fax it received was transmitted by “WestFax, ” a company whose services many high-volume fax senders employ. (Ibid.) Custom defines the class as follows: “All persons who were sent one or more telephone facsimile messages on or after four years prior to the filing of this action, that advertised the commercial availability of property, goods, or services offered by Defendants that did not contain an opt-out notice that complied with federal law.” (Id. ¶ 26.) The current proposed class thus defines putative members without regard to whether they consented to receiving a fax from Defendants.

         Custom filed its original Complaint on February 23, 2016 and later amended it, claiming violations of the Telephone Consumer Protection Act (the “TCPA”), the Illinois Consumer Fraud and Deceptive Business Practices Act (the “ICFA”), and state conversion law. Custom's TCPA count is based on Defendants' transmitting faxes “without first obtaining . . . prior express invitation or permission, ” which faxes failed to comply with the TCPA's opt-out notice requirements. (Am. Compl. ¶¶ 45-47.) Its state-law counts identify this same alleged conduct as the basis for recovery. (See, Id. ¶¶ 54-61, 62-67.) Actual damages under all three counts, according to Custom, are its and putative class members' loss of the paper and toner consumed in printing out the faxes, wear and tear on their fax machines, expenses in employee time from reviewing and routing the faxes, and (ostensibly) anguish caused by the faxes' invasion of privacy. (Id. ¶ 52.) Under the TCPA, Custom seeks statutory damages, to be trebled if the facts show that Defendants acted willfully, along with injunctive and declaratory relief. For its conversion count, Custom asks for an award of “appropriate damages” along with punitive damages, attorneys' fees, and costs. Finally, Custom seeks declaratory and injunctive relief, actual damages, attorneys' fees, and costs under the ICFA.

         B. Procedural Background

         A few months after Custom filed suit, Gulfco petitioned for Chapter 7 bankruptcy. Henry, who is Gulfco's President, sole shareholder, and Chief Operating Officer, agreed during meetings with creditors that Custom's cause of action against Gulfco would be allowed to continue after the close of bankruptcy proceedings:

Trustee: [O]nce the bankruptcy is closed there's no discharge for the corporation. Mr. Henry, I don't know if you're aware that whatever causes of action are against the corporation will be allowed to be continued. . . . You do understand that?
Henry: Yes.

(ECF No. 84 (“Pl.'s Br.”) at 8.) The Court stayed this case pending Gulfco's bankruptcy proceeding. (ECF No. 58.)

         By March 23, 2017, the Gulfco bankruptcy had closed. On April 14, 2017, Custom filed a motion to re-open discovery prior to May 3, 2017, which was the date set for the next status conference in the case. (See, ECF No. 71.) The Court was not able to hear it until May 3, 2017, and on that date lifted the discovery stay and set briefing schedules on Henry's Motions to Dismiss. (See, ECF Nos. 79, 80.) But about a week before the Court lifted the stay, on April 27, 2017, Custom served a subpoena on WestFax for production of documents. Henry filed a misconduct complaint with the Illinois Attorney Registration and Disciplinary Commission against Custom's counsel, the law firm of Bock and Hatch, concerning issuance of this subpoena during the stay. (See, ECF No. 85 at Ex. III.)

         Henry alleges that he offered to settle Custom's claim for all that it is worth by sending to Custom a settlement proposal accompanied by a check for $1, 500.00. Although counsel for Custom avers that neither his law firm nor Custom received a $1, 500.00 check from Gulfco, Henry strenuously states otherwise, providing to the Court a letter dated March 1, 2016 addressed to Custom's registered agent:

Based on this lawsuit and your claim of $1, 500 owed and to spare the expense of Litigation enclosed is Check Number 1151 in the Amount of $1, 500.00 drawn on Chase Bank. Your company authorized us to send you this information if you do not accept this check and terminate the Litigation we will list you [as] a creditor in the bankruptcy filing for the company. Gulfco Leasing, LLC is a Florida corporation and was dissolved on February 25, 2016 and in accordance with Florida Law this check is to settle debts of the corporation as we liquidate its assets.

(ECF No. 85 at Ex. I.)

         C. Additional Background on the Parties

         Defendant Henry has a well-documented history of abusing the litigation process as a plaintiff. As the Seventh Circuit recounted in Henry v. United States, 360 Fed.Appx. 654 (7th Cir. 2010), Henry filed six pro se cases in the Northern District of Illinois from December 2006 to October 2007 concerning his 1999 tax liability. After receiving an unfavorable ruling in one of those cases, Henry sent threatening emails addressed to the presiding judge as well as a number of other government officials involved in his lawsuit. In December 2007, the Northern District of Illinois Executive Committee issued an order that barred Henry from filing any new civil cases in this district but permitted him to seek modification or rescission of the order after nine months.

         Likewise, counsel for Custom has few claims to litigation piety. In a prior TCPA class action, the Seventh Circuit noted that the law firm of Bock and Hatch engaged in two forms of misconduct. See, Creative Montessori Learning Ctr. v. Ashford Gear LLC, 662 F.3d 913 (7th Cir. 2011). First, “the firm “obtain[ed] material from [a third party] on the basis of a promise of confidentiality that concealed the purpose of obtaining the material, a purpose inconsistent with maintaining confidentiality and likely to destroy [the third party's] business.” Id. at 917. Second, it “impl[ied] in the letter to [a putative class member] that there already was a certified class to which [it] belonged.” Ibid. Ultimately, the court reversed class certification based on counsel's “demonstrated lack of integrity” and inability to instill “confidence that they would prosecute the case in the interests of the class.” Ibid.


         When considering a Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction, a district court accepts as true all well-pleaded factual allegations and draws reasonable inferences from the allegations in favor of the plaintiff. Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993). The court may also look beyond the allegations of the complaint and consider affidavits and other documentary evidence to determine whether subject-matter jurisdiction exists. Ibid. Mootness is evaluated under Rule 12(b)(1); it involves constitutional limitations on Article III jurisdiction, which requires a live case or controversy and demands that the parties maintain a personal stake in the case “through all stages of federal juridical proceedings, trial and appellate.” Spencer v. Kemna, 523 U.S. 1, 7 (1998) (citations and quotations omitted). A case is moot when the plaintiff no longer “suffer[s], or [is no longer] threatened with, an actual injury traceable to the defendant and likely to be redressed by a favorable judicial decision.” Id. (citation and quotations omitted). When nothing remains to litigate, dismissal is appropriate under Rule 12(b)(1) because the plaintiff “has no remaining stake” in the case. Holstein v. City of Chicago, 29 F.3d 1145, 1147 (7th Cir. 1994) (citation and quotations omitted).

         To survive a Rule 12(b)(6) motion to dismiss, a complaint “must state a claim that is plausible on its face.” Adams, 742 F.3d at 728 (quoting Bell Atl. Corp. v. Twombly,550 U.S. 544, 570 (2007)). A claim enjoys “facial plausibility when the plaintiff pleads sufficient factual content that allows the court to draw the reasonable inference that the defendant is liable for the alleged misconduct.” Adams, 742 F.3d at 728 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A plaintiff must allege that all elements of his claim are satisfied, but cannot survive a Rule 12(b)(6) motion to dismiss by alleging only legal conclusions. Reynolds v. CB Sports Bar, Inc., 623 ...

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