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Kravetz v. Bridge to Life, Ltd.

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

September 14, 2017

LAWRENCE KRAVETZ, JONATHAN KRAVETZ, CARRIE KRAVETZ, and STEVEN BROOKS, Plaintiffs,
v.
BRIDGE TO LIFE, LTD., a Wyoming corporation, STEVEN SCHWEIGHARDT, THOMAS KELLER, JEROME LISS, JOEL SEGAL, RICHARD BIRCH, MICHAEL HOLICK, and SHAWN RICE, in their capacities as Directors of BRIDGE TO LIFE, LTD., Defendants.

          OPINION AND ORDER

          Joan H. Lefkow, U.S. District Judge

         Lawrence Kravetz, Jonathan Kravetz, Carrie Kravetz, and Steven Brooks filed suit against Bridge to Life, Ltd. (BTL) and its board of directors, including Steven Schweighardt, Thomas Keller, Jerome Liss, Joel Segal, Richard Birch, Michael Holick, and Shawn Rice, for breach of contract (count I), promissory estoppel (count II), unjust enrichment (count III), breach of fiduciary duty (count IV), breach of the implied covenant of good faith and fair dealing (count V), conversion (count VI), and declaratory judgment (count VII). Defendants have moved to dismiss all counts against the directors as well as counts V, VI, and VII against BTL under Federal Rule of Civil Procedure 12(b)(6).[1] (Dkt. 21.) On August 18, 2017, the court issued an Opinion and Order as to the claims brought by Lawrence Kravetz (Order). (Dkt. 37.) For the reasons stated below, the motion is granted in part and denied in part as to Jonathan Kravetz, Carrie Kravetz, and Steven Brooks.

         ANALYSIS

         The court described the factual background in its Order and will not repeat it here.

         I. Res Judicata

         A. Jonathan Kravetz and Carrie Kravetz

         In its Order, the court held that all claims brought by Lawrence Kravetz against the directors and counts V and VI brought by Lawrence Kravetz against BTL were barred by res judicata based on the Delaware litigation. Because Jonathan and Carrie brought the same claims and were parties to the same Delaware litigation, the same reasoning applies. Accordingly, all of their claims against the directors as well as counts V and VI against BTL are dismissed with prejudice.

         B. Stephen Brooks

         Although Brooks was not a party to the Delaware suit, defendants argue that his claims are also barred by res judicata because he was in privity with the Kravetzes. This argument fails. “The concept of privity pertains to the relationship between a party to a suit and a person who was not a party but whose interest in the action was such that he [or she] will be bound by the final judgment as if he [or she] were a party.” Bradley v. Div. of Child Support Enf't ex rel. Patterson, 582 A.2d 478, 480 (Del. 1990) (citation omitted and brackets in original). “Parties are in privity for res judicata when their interests are identical or closely aligned such that they were actively and adequately represented in the first suit. Aveta Inc. v. Cavallieri, 23 A.3d 157, 180 (Del. Ch. 2010). Defendants argue that because Brooks, like the Kravetzes, seeks shares of stock, their interests are aligned. But here, each plaintiff, including Brooks, has a different legal interest: his or her own unique shares. Brooks seeks his 25, 000 undiluted shares, which are separate and independent from those sought by the Kravetzes. Nor did Brooks have a preexisting legal relationship with the Kravetzes. See Kohls v. Kenetech Corp., 791 A.2d 763, 769 (Del. Ch. 2000), aff'd, 794 A.2d 1160 (Del. 2002) (“An individual stockholder is not, solely because of potentially aligned interests, presumed to act in the place of (and with the power to bind) the other stockholders.”). Accordingly, none of Brooks's claims is barred by res judicata.

         II. Breach of the Implied Covenant of Good Faith and Fair Dealing (Count V)

         Defendants argue that count V should be dismissed because Illinois law does not recognize an independent cause of action for breach of the implied covenant of good faith and fair dealing. Brooks, however, invokes the internal affairs doctrine and claims that Wyoming law-which does recognize an independent cause of action-applies.

         The internal affairs doctrine, recognized by Illinois, is “a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs-matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders-because otherwise a corporation could be faced with conflicting demands.” CDX Liquidating Tr. v. Venrock Assocs., 640 F.3d 209, 212 (7th Cir. 2011) (quoting Edgar v. MITE Corp., 457 U.S. 624, 645, 102 S.Ct. 2629, 73 L.Ed. 269 (1982)); see also 805 Ill. Comp. Stat. Ann. 5/13.05 (prohibiting Illinois from regulating foreign corporations' internal affairs). Defendants respond that, because common law claims for contract damages “do not look inward to determine how a corporation should govern itself, ” the internal affairs doctrine does not apply. (Dkt. 32 at 10.)

         The internal affairs doctrine “is recognized throughout the states, and by the Supreme Court as well.” Resolution Tr. Corp. v. Chapman, 29 F.3d 1120, 1122 (7th Cir. 1994), overruled on other grounds by Atherton v. FDIC, 519 U.S. 213, 117 S.Ct. 666, L.Ed. 656 (1997).[2] “With respect to stock issues, the local law of the state of incorporation has nearly always been applied.”[3] Restatement (Second) of Conflict of Laws § 302 rptr. n.1 (1971). Here, the breach of contract claim relates to the issuance of stock, clearly a matter “peculiar to the relationship[] . . . between the corporation . . . and shareholders.” CDX Liquidating, 640 F.3d at 212 (quotation omitted); see also Kimmel v. Wirtz, 793 F.Supp. 818, 820 (N.D. Ill. 1992) (noting that the Illinois Supreme Court has considered suits to compel the issuance of stock to affect a corporation's internal affairs); Patriot Sci. Corp. v. Korodi, 504 F.Supp.2d 952, 957 (S.D. Cal. 2007) (applying internal affairs doctrine to breach of contract claim regarding stock dispute). Accordingly, Brooks's claim for breach of the implied covenant of good faith and fair dealing is governed by Wyoming law, BTL's state of incorporation.

         The Wyoming Supreme Court has recognized that “parties to a commercial contract may bring a claim for breach of the implied covenant of good faith and fair dealing based on a contract theory.” Scherer Const., LLC v. Hedquist Const., Inc., 2001 WY 23, ¶ 24, 18 P.3d 645, 655 (Wyo. 2001) (adopting § 205 of the Restatement (Second) of Contracts). In short, “[t]he implied covenant of good faith and fair dealing requires that neither party commit an act that would injure the rights of the other party to receive the benefit of their agreement, ” such as to interfere or fail to cooperate in the other party's performance. Id. at ¶ 19, 18 P.3d at 653. In Scherer Const., a landowner imposed an overnight deadline on a contractor to complete a “punch list.” The contractor could not have performed on such short notice, and the landowner engaged another contractor to finish the work (as the contract allowed). Although the court only remanded for further proceedings, the case implies that an unreasonable deadline could be a breach of the landowner's promise of good faith and fair dealing. The ...


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