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West Michigan Debt Collection, Inc. v. Weber

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

January 17, 2018

West Michigan Debt Collection, Inc., Plaintiff,
v.
Gerald H. Weber, Jr., et al., Defendants.

          ORDER

          Philip G. Reinhard Judge

         For the reasons stated below, the motions of Holmstrom [56] and McGreevy [62] are granted in part and denied in part. The motions are granted as to Counts II, III, and IV and denied as to Count V. Counts II, III, and IV are dismissed without prejudice. Plaintiff shall file any amended complaint as to Counts II through IV on or before February 9, 2018.

         STATEMENT - OPINION

         Plaintiff, West Michigan Debt Collections, Inc., a Michigan corporation with its principal place of business in Michigan, brings this action against defendants, Gerald H. Weber, Jr. (“Weber”), Ronald E. Swenson (“Swenson”), Patti Weber (“Patti”), Joann Swenson (“Joann”), Zachary Knutson (“Knutson”), Wildcat Capital Enterprises, LLC (“Wildcat”), North Rock Real Estate, LLC (“North Rock RE”), North Rock Development Partners, LLC (“North Rock DP”), First Boston Property Management Corporation (“First Boston”), Prairie Services, LLC (“Prairie”), HolmstromKennedy, P.C. (“Holmstrom”) and McGreevy Williams, P.C. (“McGreevy”) All defendants are citizens only of Illinois.[1] The amount in controversy exceeds $75, 000. Subject matter jurisdiction is proper under 28 U.S.C. § 1332(a)(1).

         Plaintiff is the owner of a Michigan state-court judgment against Weber and Swenson. This action is an attempt to realize on that judgment under various theories against various parties. Plaintiff seeks to register and enforce the Michigan state-court judgment against Weber and Swenson (Count I). Plaintiff also asserts claims for fraudulent transfers (Count II & III), fraud (Count IV), civil conspiracy and aiding and abetting (Count V), and asks for a declaratory judgment declaring certain defendants to be the alter egos of Weber and Swenson and for the piercing of the corporate veil as to certain defendants (Count VI). Holmstrom [56] and McGreevy [62] move to dismiss counts II through V against them pursuant to Fed.R.Civ.P. 9(b), 12(b)(1) and 12(b)(6).[2]

         PNC Equipment Finance, LLC (“PNC”) obtained a judgment against Weber and Swenson in case number 11cv4922 in the United States District Court for the Northern District of Illinois, Eastern Division (“PNC Case”), in the amount of $25, 546, 359.87. Patti, Weber's wife, and Joann, Swenson's wife, formed Wildcat. Wildcat then purchased PNC's judgment against Weber and Swenson, along with all PNC's “right, title, liens, encumbrances and interest in” citations to discover assets issued in that case against Weber and Swenson. Wildcat, Weber and Swenson then entered an agreed turnover order (“ATO”) transferring assets of Weber and Swenson to Wildcat and crediting Weber and Swenson the sum of $500, 000 against the outstanding judgment. Wildcat also caused wage deduction orders (“WDOs)” to be entered directing North Rock RE to deduct during each pay period 15% of Weber and Swenson's non-exempt gross compensation until the judgment plus interest and costs is paid in full to Wildcat. These wage deduction orders “have priority over any subsequent wage deduction order or lien except for Spouse/Child Support Orders or Liens.”

         The complaint alleges the ATO was entered to render Weber and Swenson insolvent for the purpose of making them appear uncollectible to their legitimate creditors. The ATO effectively diverted all non-exempt assets and income of Weber and Swenson to Wildcat in order to frustrate their creditors' ability to collect from them. Attached to plaintiff's response to the motions to dismiss, are answers to wage deduction summonses served by plaintiff on Weber and Swenson in state court proceedings. In those proceedings, plaintiff registered its judgment against Weber and Swenson. It then served wage deduction summonses on North Rock RE. The answers filed by North Rock RE show the prior WDOs entered in favor of Wildcat in the PNC Case. The answers show no available wages payable to plaintiff because of the prior WDOs.

         The crux of plaintiff's complaint is that the actions just described were undertaken to “indefinitely frustrate the attempts of legitimate creditors from collecting” against Weber and Swenson. Plaintiff contends all of the defendants played some role in this scheme and that their actions were unlawful.

         The first matter to address is jurisdiction. Holmstrom and McGreevy separately move to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction arguing the case against them is not ripe for adjudication. The court is “obligated to consider its jurisdiction at any stage of the proceedings and ripeness, when it implicates the possibility of [the] Court issuing an advisory opinion, is a question of subject matter jurisdiction under the case-or-controversy requirement.” Wisconsin Cent., Ltd. v. Shannon, 539 F.3d 751, 759 (7th Cir. 2008) (quotation marks and citations omitted). “Ripeness reflects constitutional considerations that implicate Article III limitations on judicial power, as well as, prudential reasons for refusing to exercise jurisdiction.” Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 670 n. 2 (2010) (quotation marks and citation omitted). “In evaluating a claim to determine whether it is ripe for judicial review, we consider both the fitness of the issues for judicial decision and the hardship of withholding court consideration.” Id. (quotation marks and citation omitted). “A claim is not ripe for adjudication if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998) (quotation marks and citations omitted). On a motion to dismiss for lack of subject matter jurisdiction all well-pleaded factual allegations are accepted as true and all reasonable inferences are drawn in favor of the plaintiff. Citadel Securities, LLC v. Chicago Bd. Options Exchange, Inc., 808 F.3d 694, 698 (7th Cir. 2015). The court may “consider matters outside the pleadings, such as the exhibits attached to Plaintiff's Response.” Cochran v. BMA Management, Ltd., No. 08-cv-0215-DRH, 2008 WL 4530692, * 2 (S.D. Ill. Oct. 7, 2008), citing, Roman v. U.S. Postal Serv., 821 F.2d 382, 385 (7th Cir. 1987).

         Holmstrom and McGreevy argue plaintiff's claims against them are not ripe because plaintiff has not alleged it has made any failed attempt to collect its judgment from Weber and Swenson that failed because of an act by Holmstrom or McGreevy. Nor, they argue, has plaintiff alleged it has made any failed attempt to collect its judgment from Wildcat on a veil piercing or alter ego theory that failed because of an act of Holmstrom or McGreevy. They contend the claims against them are entirely speculative as the claims rest on a contingent future event that may not occur - plaintiff being unable to collect its judgment against Weber, Swenson or Wildcat. Plaintiff's only response to the lack of ripeness argument is that the “claims are ripe because the alleged conduct has siphoned all assets from Gerald Weber and Ronald Swenson that otherwise would be available to pay Plaintiff's judgment.”

         The complaint alleges McGreevy, as counsel for Weber and Swenson, submitted the ATO which had been prepared by Holmstrom, and that this was done to render Weber and Swenson insolvent for the purpose of making them appear uncollectible to their legitimate creditors. The ATO effectively diverted all non-exempt assets and income of Weber and Swenson to Wildcat in order to frustrate their creditors' ability to collect from them. The WDOs were prepared by Holmstrom. In Exhibit C to plaintiff's complaint, which is an order entered in the PNC Case, Judge Bucklo found that Wildcat had conceded that a Holmstrom attorney came up with the idea for forming Wildcat to purchase the PNC judgment. Attached to plaintiff's response to the motion to dismiss, are answers to wage deduction summonses served by plaintiff on Weber and Swenson in state court proceedings. In those proceedings, plaintiff registered its judgment against Weber and Swenson. It then served wage deduction summonses on North Rock RE. The answers filed by North Rock RE show the prior WDOs entered in favor of Wildcat in the PNC Case. The answers show no available wages payable to plaintiff because of the prior WDOs.

         Considering the allegations in the complaint and the information contained in plaintiff's response to the motions to dismiss, plaintiff has sufficiently alleged a ripe controversy. Plaintiff has shown an attempt to collect its judgment from Weber and Swenson that was thwarted by the prior WDOs and ATO. Neither McGreevy nor Holmstrom cite any authority for the proposition that the case is not ripe because the possible inability of plaintiff to collect its judgment from Weber, Swenson, and Wildcat is a contingent future event that may not occur. The court did not find any authority for such a proposition. The actions are alleged to have hindered and delayed collection of the judgment. The allegations of this present injury are sufficient. This case is ripe for adjudication and subject matter jurisdiction is secure.

         Holmstrom and McGreevy each argue the complaint fails to meet the pleading requirements of Fed.R.Civ.P. 9(b). Rule 9(b) provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” They contend the complaint does not allege fraud with sufficient particularity.

What is required in the way of particularity in pleading fraud depends on the purpose of imposing such a heightened requirement of pleading-so at odds with the notice-pleading theory of the federal rules. The purpose is to minimize the extortionate impact that a baseless claim of fraud can have on a firm or an individual. In the typical commercial case there is a substantial interval between the filing of the complaint and the completion of enough pretrial discovery to enable the preparation and disposition of a motion by the defendant for summary judgment. Throughout that period a claim of fraud will stand unrefuted, placing what may be undue pressure on the defendant to settle the case in order to lift the cloud on its reputation. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable ...

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