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Glen Flora Dental Center, Ltd. v. First Eagle Bank

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

September 23, 2019

GLEN FLORA DENTAL CENTER, LTD., et al., Plaintiffs,
FIRST EAGLE BANK, et al., Defendants.



         Plaintiffs-five dental practices and their common management company, Dental Practice Development (DPD)-sue two DPD managers, alleging that those managers conspired with Defendant First Eagle Bank and one of its agents to defraud the practices out of more than $4 million. Plaintiffs sue under the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. § 1961, et seq. and state-law causes of action.

         In September 2018, this Court dismissed Plaintiffs’ original complaint, finding that it failed to plausibly state RICO claims and giving Plaintiffs leave to replead. [71]. Plaintiffs subsequently filed their first amended complaint (FAC), [77] and Defendants now renew their motions to dismiss, [82] [85] [88] [91]. For the reasons explained below, this Court grants in part and denies in part First Eagle’s and Francione’s motions, and denies Kelliher’s and Vihnanek’s motions.

         This Court presumes familiarity with, and incorporates by reference, its prior opinion granting Defendants’ motions to dismiss Plaintiff’s original complaint. [71]. Therefore, the Background section briefly revisits the facts in this case, and details only the additional allegations that Plaintiffs added in their FAC. Likewise, this Court will not repeat in detail its prior legal analysis or the required elements of each cause of action.

         I. Background

         Plaintiffs comprise five related dental practices-Glen Flora Dental Center, River West Smile Center, Oral Kare Network II Ltd., All Family Dental Ltd., Beverly Shores Smile Center Ltd.-and their management service, DPD. [77] ¶¶ 7–12, 17. They sue Larry Kelliher and Lenny Vihnanek, two former employees of DPD. Id. ¶¶ 15–16. They also sue First Eagle Bank and First Eagle’s former employee, Mikki Francione, who is Vihnanek’s sister-in-law. Id. ¶¶ 13–14.

         Plaintiffs claim that sometime before 2010, Kelliher and Vihnanek hatched a scheme to steal money from Plaintiffs, and subsequently executed the scheme by diverting money from Plaintiffs’ accounts. Id. ¶¶ 45–49. Kelliher and Vihnanek enlisted the help of Francione to carry out this scheme, id. ¶¶ 57–58, and between 2010 and June 2016, Vihnanek and Kelliher coordinated with Francione at First Eagle to prioritize payment and authorize checks benefitting themselves, their families, and personal creditors. Id. ¶¶ 62–63. Plaintiffs’ principals fired Kelliher in June 2016 for “gross mismanagement” of Plaintiffs’ accounts and discovered over “the next several months . . . the existence and extent of [Defendants’ alleged] scheme.” Id. ¶¶ 215, 228.

         While the original complaint asserted a Section 1962(c) RICO claim against each of the Defendants, see [1] ¶ 84, the FAC asserts that claim only against Kelliher and Vihnanek, [77] ¶ 230. Plaintiffs also bring RICO conspiracy claims against all Defendants. See Id . ¶¶ 240, 248, 259, 268. Plaintiffs’ remaining claims sound in Illinois state-law. Id. ¶¶ 279–314.

         II. Legal Standard

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted.” Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). To survive a motion to dismiss, a complaint must provide a “short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), giving the defendant “fair notice” of the claim “and the grounds upon which it rests, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint must also contain “sufficient factual matter” to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

         A claim has facial plausibility “when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). Accordingly, “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 803 (7th Cir. 2008). In evaluating a complaint, this Court accepts all well-pled allegations as true and draws all reasonable inferences in the plaintiff’s favor. Iqbal, 556 U.S. at 678. But this Court need not accept a complaint’s legal conclusions as true. Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009).

         As to the fraud-based portions of their claims, Rule 9(b) also demands that claimants “state with particularity the circumstances constituting fraud.” Particularity requires that plaintiffs “describe the who, what, when, where, and how of the fraud-the first paragraph of any newspaper story.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441–42 (7th Cir. 2011) (internal quotation marks omitted); Slaney v. The Intern. Amateur Athletic Federation, 244 F.3d 580, 597 (7th Cir. 2001) (“allegations of fraud” within a civil RICO complaint are “subject to the heightened pleading standard” of Rule 9(b)). Although different cases require different levels of detail for a complaint to satisfy Rule 9(b), id. at 442, plaintiffs must provide “precision and some measure of substantiation, ” United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 776 (7th Cir. 2016) (internal quotation marks omitted).

         III. Analysis

         A. Counts I–V: RICO Claims

         The RICO Act permits private civil plaintiffs to sue under § 1964(c) for violations of the statute that proximately damage the plaintiff’s business or property. Holmes v. Sec. Inv’r Prot. Corp., 503 U.S. 258, 265–68 (1992). To establish a violation of § 1962(c), Plaintiffs must allege: (1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985).

         Defendants’ renewed motions to dismiss argue that Plaintiffs’ FAC insufficiently establishes the pattern prong for a § 1962(c) violation. [83] at 16–17; [86] at 19–21; [89] at 14–24; [91] at 5–8. A pattern of racketeering activity “consists, at the very least, of two predicate acts of racketeering committed within a ten-year period.” Jennings v. Auto Meter Prods., Inc., 495 F.3d 466, 472 (7th Cir. 2007). Plaintiffs must also satisfy the “continuity plus relationship” test: that is, Plaintiffs must show that the predicate acts relate to each other and present a “threat of continuity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 236–50 (1989). To establish continuity, Plaintiffs must show either “open-ended” continuity, meaning that the predicate acts have no obvious termination point, or “closed-ended” continuity, meaning the acts have ceased but previously extended over “a substantial period” of time. Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992).

         1. RICO Pattern: Predicate Acts

         As stated in its prior opinion, the original complaint’s primary deficiency concerned Plaintiffs’ failure to plead the predicate acts of wire fraud with sufficient particularity. [71] at 12. This Court finds that the FAC cures this deficiency.

         In the FAC, Plaintiffs assert predicate acts of mail fraud under 18 U.S.C. § 1341 and interstate transfers of stolen money under 18 U.S.C. § 2314. [77] ¶¶ 106– 14, 115–24. And this time, unlike the original complaint, Plaintiffs allege with specificity the fraud-based transactions purportedly underlying the RICO scheme. See Id . ¶¶ 105, 111, 121; [77-3].

         For instance, Plaintiffs allege that Kelliher transacted 260 times with American Express between February 26, 2010 and June 27, 2016 to pay his personal expenses from Plaintiffs’ accounts. [77] ¶ 111(a). An exhibit to the Amended Complaint details each American Express transaction by account (name and number), date, transaction type, and amount. [77-3] at 10–13. To take another example, the FAC asserts that Kelliher transacted twelve times with the University of Southern California (USC) via online payments from Plaintiffs’ accounts between June 2013 and May 2015 totaling $21, 499. [77] ¶ 111(h). These transactions, according to Plaintiffs, benefitted Kelliher and his daughter, who attended USC. Id. Additionally, an exhibit to the FAC sets forth each transaction with USC, including the amount of each transaction, date, transaction type, and account number. [77-3] at 37. These representative examples, and others in the FAC, demonstrate that Plaintiffs have pled with particularity multiple predicate acts committed within a ten-year period. Jennings, 495 F.3d at 472.

         Despite this, Kelliher argues that Plaintiffs omit “crucial transactions of loans” that he made to them, which ostensibly would undermine the plausibility of the purported RICO narrative while proving that Kelliher conducted the transactions to repay himself. [91] at 6. This Court, however, remains confined to Plaintiffs’ current allegations, which it must accept as true. See AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011) (on a motion to dismiss, courts must take as true all well- pled factual allegations). The allegations plausibly establish that Kelliher engaged in the transactions for non-legitimate, fraudulent purposes.

         Vihnanek also contends that the Section 1962(c) claim should be dismissed against him, because the FAC does not allege that he “personally conducted even one” of the allegedly fraudulent transactions. [86] at 12. This argument misses the mark, because it erroneously assumes that Vihnanek must have personally performed the mailings or interstate transfers to incur liability.

         Contrary to Vihnanek’s assumption, a mail fraud defendant “d[oes] not have to mail the check himself to be guilty of mail fraud. He only needed to cause it to be mailed or to commit some act that would cause the mailing of the check to be reasonably foreseeable.” United States v. Swan, 250 F.3d 495, 500 (7th Cir. 2001). Similarly, a person charged under § 2314 “need not actually have transported the [stolen] property across state lines . . . so long as he or she caused or induced another to do so.” R.E. Davis Chem. Corp. v. Nalco Chem. Co., 757 F.Supp. 1499, 1513 (N.D. Ill. 1990). Here, Plaintiffs allege that between 2010 and 2016, Vihnanek (along with Kelliher) spoke regularly with Francione and instructed her to pay checks to personal creditors and family members of Kelliher. [77] ¶¶ 64–65. Plaintiffs also allege that Vihnanek directed Kelliher to initiate the ...

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