United States District Court, N.D. Illinois, Eastern Division
Mosholu, Inc., Michael Margules, and Edward Amaral, as assignees of John Beckstedt, Plaintiffs,
Sean Gavin and Malcom Herzog, Defendants.
MEMORANDUM OPINION AND ORDER
Honorable Thomas M. Durkin United States District Judge.
Mosholu, Inc., Michael Margules, and Edward Amaral, as
Assignees of John Beckstedt, sued defendants Sean Gavin and
Malcolm Herzog for breach of contract and unjust enrichment.
Defendants move to dismiss plaintiffs' complaint pursuant
to Federal Rule of Civil Procedure 12(b)(1), contending that
the Court lacks subject matter jurisdiction because this case
is ancillary to a collection proceeding pending in the
Circuit Court of Cook County. R. 8. For the following
reasons, the Court denies defendants' motion to dismiss.
12(b)(1) authorizes the Court to dismiss any claim for which
the Court lacks subject matter jurisdiction. Article III,
Section 2 of the U.S. Constitution defines the outer bounds
of the Court's subject matter jurisdiction; generally, a
federal court's jurisdiction in a civil case arises from
a federal question or diversity among the parties.
See 28 U.S.C. §§ 1331, 1332; see also
Rabe v. United Air Lines, Inc., 636 F.3d 866, 872 (7th
Cir. 2010). The plaintiff bears the burden of establishing
the Court's subject matter jurisdiction once a defendant
challenges it. Lujan v. Defenders of Wildlife, 504
U.S. 555, 561 (1992). When deciding a Rule 12(b)(1) motion,
the Court must “accept as true all well-pleaded factual
allegations and draw all reasonable inferences in favor of
the plaintiff.” St. John's United Church of
Christ v. City of Chi., 502 F.3d 616, 625 (7th Cir.
2012, defendants Gavin and Herzog each agreed to pay
Beckstedt $1, 050, 000 in exchange for a transfer of 25%
ownership interest in When 2 Trade Group, LLC
(“W2TG”). R. 1 ¶¶ 8-10, 17-18, 23-24.
It is undisputed that neither defendant paid Beckstedt.
Id. ¶¶ 12-13; R. 13 at 4-5. Defendants
claim they did not pay because Beckstedt never transferred
the W2TG interests to them. R. 13 at 3-4.
January 31, 2017, the same plaintiffs who later brought this
lawsuit filed a petition to register a $1, 675, 000
California state court judgment against Beckstedt in Cook
County Circuit Court. Margules v. Beckstedt, No. 17
L 050107 (Ill. Cir. Ct.). After registering the judgment,
plaintiffs initiated garnishment proceedings in Cook County
Circuit Court against Beckstedt and W2TG. Id. Those
proceedings are ongoing. See id.
January 11, 2018, the Cook County Circuit Court entered an
order documenting an agreement between the parties. Beckstedt
(as judgment debtor) agreed to assign to plaintiffs (the
judgment creditors) “all of [Beckstedt's] right,
title and interest in . . . all claims by Beckstedt against
Sean Gavin related to the transfer of membership interest in
[W2TG]; and . . . all claims by Beckstedt against Malcom
Herzog related to the transfer of membership interest in
[W2TG].” R. 8-1. The order provides that “[a]ny
recovery obtained by the Judgment Creditors from either Gavin
or Herzog, when received, shall be applied towards
satisfaction of the judgment entered against
Beckstedt.” Id. On January 22, 2018, Beckstedt
executed the assignments described in the January 11, 2018
order. R. 1-1; R. 1-2.
April 16, 2018, plaintiffs filed this case. R. 1. They seek
$1, 050, 000 from each defendant under breach of contract and
unjust enrichment theories for failing to compensate
Beckstedt for the interests in W2TG defendants allegedly
received in 2012. R. 1 ¶¶ 12-13. Plaintiffs say
this Court has diversity jurisdiction under 28 U.S.C. §
1332 because plaintiffs are citizens of California and
defendants are citizens of Illinois, and the amount in
controversy exceeds $75, 000. Id. ¶¶ 1-6.
motion to dismiss argues that this case is an ancillary
garnishment action that must proceed in the Cook County
Circuit Court. In support, defendants rely primarily on
Pinellas Cty. v. Great Am. Mgmt., & Inv., Inc.,
762 F.Supp. 221 (N.D. Ill. 1991). In Pinellas,
Pinellas County registered a Florida state court judgment in
Cook County Circuit Court. Id. at 222. In the
underlying proceeding, Pinellas County had sued various
defendants for engineering failures in a water pipeline
system. See id. Pinellas County then filed an action
in federal court asserting diversity jurisdiction and
alleging that an Illinois-based management company possessed
two promissory notes payable on demand to one of the
defendants in the Florida action. Id. Pinellas
County sought to satisfy the judgment registered in Cook
County Circuit Court by garnishing the management
company's notes pursuant to the Illinois garnishment
statute, 735 ILCS 5/12-701. Id. The district court
dismissed Pinellas County's action for lack of subject
matter jurisdiction, holding that a “plain
reading” of 735 ILCS 5/12-701 suggested that
garnishment actions are “post-judgment proceeding[s] in
which jurisdiction is retained by the court which entered the
judgment.” Id. at 223. Additionally, the
Pinellas court explained, “[n]othing in the
language or history” of the Illinois Uniform
Enforcement of Foreign Judgments Act (“UEFJA”)
indicated that the district court could “transmute a
foreign state court judgment into [a] federal court judgment
for the purposes of collection.” Id. at 224.
say this case is just like Pinellas. The Court
disagrees. The plaintiffs in this case do not seek relief
under the Illinois garnishment statute to collect on a
foreign state court judgment. See R. 1. They seek
judgments against defendants for breach of defendants'
2012 agreements with Beckstedt and for unjust enrichment.
true that plaintiffs likely could have sought the same relief
in a garnishment proceeding pursuant to 735 ILCS
5/2-1402(c)(6), which “applies when [a] third party
may be indebted to the debtor and allows the
judgment creditor to maintain a separate action on that
basis.” Rizvi v. Allstate Corp., 833 F.3d 724,
726 (7th Cir. 2016) (emphasis in original).
Defendants-third-parties to the Circuit Court action-may be
indebted to Beckstedt, the judgment debtor in Circuit Court,
and plaintiffs as judgment creditors could have sued
defendants under 735 ILCS 5/2-1402(c)(6) to try to collect
fact that plaintiffs could have brought a garnishment
proceeding instead of a breach of contract and unjust
enrichment action does not mean they had to do so, or that
they had to do so in Cook County Circuit Court. To the
contrary, the Seventh Circuit has held that a garnishment
proceeding pursuant to 735 ILCS 5/2-1402(c)(6) is a
removable, “independent” action properly
adjudicated by a federal court where there is a basis for
subject matter jurisdiction and the action “brings in a
new party and raises new and distinct disputed issues.”
Travelers Prop. Cas. v. Good, 689 F.3d 714, 725 (7th
Cir. 2012); accord Rizvi v. Alikhan, 2015 WL
3906031, at *3 (N.D. Ill. June 24, 2015), aff'd sub
nom. Rizvi, 833 F.3d 724 (“Since the garnishment
action involves a new party and new issues, ...