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UIRC-GSA Holdings, Inc. v. William Blair & Company, L.L.C.

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

January 11, 2018

UIRC-GSA Holdings Inc., Plaintiff,
v.
William Blair & Company, L.L.C., And Michael Kalt, Defendants, William Blair & Company, L.L.C., Counter-Plaintiff,
v.
UIRC-GSA Holdings, Inc. and Urban Investment Research Corp., Counter-Defendants, William Blair & Company, L.L.C., Third-Party Plaintiff,
v.
Rainier Realty Acquisition Gp., L.L.C., and Rainier GSA Portfolio I, L.L.C., Third-Party Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, United States District Court Judge

         On April 12, 2016, Plaintiff UIRC-GSA Holdings, Inc. (“UIRC”) brought its Fourth Amended Complaint against Defendants William Blair & Company (“Blair”) and Michael Kalt, collectively, “Defendants, ” alleging copyright infringement in violation of 17 U.S.C. § 101 et seq. and professional negligence. Blair has since filed a third-party complaint against Rainier Realty Acquisitions GP (“RRA”) and Rainer GSA Portfolio I (“Rainier GSA”) (RRA and Rainier GSA collectively “Rainier” or “Third-Party Defendants”) alleging that RRA and Rainier GSA each have a duty to indemnify Blair against UIRC's claims in this litigation and breach of contract claims against both entities. RRA has moved to dismiss Count V (implied indemnity), and Rainier has collectively moved to dismiss Counts III (contractual indemnity against Rainier GSA), IV (breach of contract against Rainier GSA), and VII (contractual contribution against Rainier GSA) of Blair's complaint.

         BACKGROUND

         Blair was UIRC's investment banker in connection with its bond offering, the proceeds of which were used to acquire a portfolio of real estate properties. (R. 89, Fourth Am. Compl. ¶ 6.) This case arises from Blair's alleged copyright infringement of UIRC's bond documents and use of those documents to solicit other clients. (Id. ¶¶ 13-16.) In considering this motion, the Court presumes familiarity with the background of this action as set forth in previous orders and does not recite a detailed background here. The Court will provide a brief factual background, particularly as it pertains to the new allegations in Blair's Amended Third-Party Complaint.

         I. Factual Background

         RRA is a Texas real estate investment company that provides preferred equity and mortgage debt to quality commercial properties in growth markets throughout the United States, and specifically it is in the business of acquiring and operating GSA buildings, some of which are financed through the sale of GSA revenue bonds. (R. 148, Am. Third-Party Compl. ¶¶ 2-3.) Blair alleges that RRA has “formed supervised or controlled the formation of at least 18 portfolio companies, each of which was formed to be the borrower for a particular bond offering, ” and typically these portfolio companies are called “Rainier GSA Portfolio. . .” (Id. ¶ 4.)

         On or about February 5, 2015, Blair entered into an engagement agreement with RRA to render financial advisory and investment banking services (the “Rainier Engagement Letter”). (Id. ¶ 10.) Under the Rainier Engagement Agreement, Blair was tasked with assisting RRA with the issuance of GSA revenue bonds for the acquisition of a portfolio of properties leased to the GSA. (Id. ¶ 11.) Blair was required to assist in the preparation of any solicitation materials, the private placement memorandum used for the deal, and other offering materials. (Id.) In the Agreement, RRA acknowledged that “Blair is not and will not be construed as a fiduciary of [RRA] and will have no duties or liability to . . . [RRA] . . . by virtue of this agreement, and the retention of Blair hereunder, all of which duties and liabilities are hereby expressly waived.” (Id. ¶ 12.) RRA also agreed to rely on its own counsel and advisors for “legal, accounting, tax, and similar advice.” (Id.) Blair alleges that RRA understood and agreed that it was solely responsible for the documents prepared in connection with its own GSA revenue bond offering and that Blair was not offering RRA legal advice under the Agreement. (Id. ¶ 13.)

         On or about January 30, 2015, Blair and RRA separately entered into an indemnity agreement (the “Rainier Indemnity Agreement”), which they incorporated by reference into the Rainier Engagement Agreement. (Id. ¶ 14.) In the Indemnity Agreement, RRA agreed to indemnify and hold harmless Blair “from and against any and all losses, claims, damages, or liabilities (collectively, ‘Losses') and reasonable expenses incurred by them (including all fees and expenses of Blair's . . . incurred at [RRA's] request or otherwise incurred and reasonably required in connection with the investigation of any pending or threatened claims or preparation for any pending or threatened litigation or other proceedings) . . . arising out of or relating to Blair's engagement under such letter agreement.” (Id. ¶ 15.) The Indemnity Agreement also states that RRA “will not, without the prior written consent of Blair, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder . . . unless such settlement . . . includes an unconditional release of Blair . . . from all liability arising out of such claim, action, suit, or proceeding.” (Id. ¶ 16.) The Indemnity Agreement also indemnifies “Other Identified Parties” including “the respective members, principals . . . of Blair and its affiliates.” (Id. ¶ 17.) The Agreement also included a “Contribution Clause” providing that if the indemnification was unavailable to Blair, RRA “shall contribute to the amount paid or payable by Blair . . . as a result of such Loss in such proportion as is appropriate to reflect no only the relative benefits received by [Blair and RRA] but also the relative fault of [Blair and RRA].” (Id. ¶ 18.) In connection with Blair's engagement with RRA, Blair worked with RRA on deal documents governing the issuance of GSA revenue bonds on behalf of RRA. (Id. ¶ 19.)

         Blair also represented UIRC on unrelated deals and worked with UIRC on placement memoranda relating to the creation and issuance of revenue bonds relating to different GSA properties. (Id. ¶ 25.) UIRC filed a copyright infringement lawsuit against Rainier GSA and served a subpoena on Blair seeking certain documents, and, after responding to the subpoena, Blair sent a letter to RRA's counsel notifying RRA of its costs and expenses incurred in relation to the subpoena and reserving the right to seek reimbursement pursuant to the Rainier Indemnity Agreement. (Id. ¶¶ 26-29.) Blair did not receive a response from RRA. (Id. ¶ 29.) On October 11, 2016, UIRC settled with Rainier GSA, but Blair never received any notice from RRA of the settlement as the Indemnity Agreement required, nor did RRA request Blair's consent to settle the underlying action with UIRC or obtain an unconditional release from UIRC of Blair relating to any claims in this case. (Id. ¶¶ 30-31.) Blair claims, on information and belief, that RRA had no intention of abiding by its obligations to Blair under the Indemnity Agreement, and thus attempted to secretly settle with UIRC to remove itself from the litigation. (Id. ¶ 32.)

         Also on October 11, 2016, UIRC filed an amended complaint against Blair, relating to its work for RRA. (Id. ¶ 33.) On November 4, 2016, Blair's counsel sent RRA a renewed demand for indemnification and defense and notified RRA of its breach of the Indemnity Agreement, but on December 13, 2016, RRA declined Blair's request for indemnification. (Id. ¶¶ 34-35.) Since the filing of the complaint against Blair, Blair has incurred significant legal costs and expenses defending itself against UIRC's claims, which arise from RRA's engagement. (Id. ¶ 37.)

         II. Alter Ego Allegations

         Blair alleges that, at some time following the execution of the Engagement Agreement, RRA formed Rainier GSA under the supervision and control of Robert Jones, president of RRA. (Id. ¶ 20.) RRA and Rainier GSA have the same business address-13760 Noel Road, Suite 800, Dallas, Texas. (Id. ¶ 21.) Blair alleges that RRA formed Rainier GSA as a “single, special-purpose and bankruptcy-remote entity to carry out the bond offering contemplated by [RRA's] agreements with Blair.” (Id. ¶ 22.) Specifically, Blair alleges that RRA formed Rainier GSA with the sole purpose of issuing the GSA bonds described in RRA's agreements with Blair and owning the entities that acquired each separate commercial property as part of the offering. (Id. ¶ 23.) Blair claims that RRA formed Rainier GSA for the sole purpose of owning each property-owning entity and issuing and securing all the bonds necessary to acquire the properties. (Id. ¶ 24.) Blair further alleges that RRA referred to itself as Rainier GSA's “sponsor” in this transaction and provided the acquisition debt and equity. (Id.)

         Blair also alleges that Rainier GSA has no separate personality from RRA and is merely an “alter ego” of RRA for purposes of Blair's claim. (Id. ¶ 38.) Blair claims that Rainier GSA exists solely as the issuer of the bond offering RRA and Blair prepared and as such, is a “mere façade” of RRA's operations handling the bond offering. (Id. ¶ 39.) According to Blair, RRA and Robert Jones, RRA's President, exclusively manage Rainier GSA for the sole purpose of issuing bonds RRA and Blair offered. (Id. ¶ 40.) Rainier GSA does not file an annual franchise tax report, does not have functioning officers and directors, does not have formal shareholder or director meetings, and thus, Blair claims that it fails to observe corporate formalities. (Id. ¶¶ 41-43.) In addition, Blair alleges that adhering to the fiction of separation between RRA and Rainier GSA would promote injustice because it would allow RRA to argue that Rainier GSA's settlement with UIRC did not trigger any notice obligation for RRA thus leaving Blair without the benefit of its bargain in the Indemnity Agreement and allowing RRA to intentionally avoid its indemnification and notice obligations to Blair. (Id. ¶¶ 44-45, 47.) Blair also alleges, on information and belief, that this fictional separation between the entities allowed Rainier GSA to enter into a settlement agreement with UIRC that released RRA from liability. (Id. ¶ 46.) According to Blair, Rainier GSA's managing members are all “co-founders of Rainier Companies” and Rainier GSA shares a business address with RRA. (Id. ¶ 48.)

         III. Procedural Background

         While the Court has issued several opinions in this litigation, the only opinion relevant to this motion is the Court's August 25, 2017 Opinion dismissing Blair's Third-Party Complaint without prejudice. (R. 142, August 25, 2017 Opinion.) In that Opinion, the Court dismissed Blair's contractual claims against Rainier GSA because only RRA and Blair were parties to the Engagement Agreement and the Agreement did not apply to RRA's subsidiaries. (Id. 6-7.) The Court also refused to pierce RRA's corporate veil because Blair had not alleged sufficient facts, or any facts at all, to warrant a finding that Rainier GSA was Blair's alter ego. (Id. 8-10.) The Court also dismissed Blair's implied indemnity claim because the parties had already included an ...


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