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Steelcast Limited v. Makary

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

October 7, 2019

STEELCAST LIMITED, an Indian Corporation, as a member of STEELCAST LLC, an Illinois LLC, and derivatively on behalf of STEELCAST LLC, Plaintiff,
v.
VAUGHN W. MAKARY, Defendant. VAUGHN W. MAKARY, Counter-Plaintiff,
v.
STEELCAST LIMITED, an Indian Corporation, Counter-Defendant.

          MEMORANDUM OPINION AND ORDER

          YOUNG B. KIM UNITED STATES MAGISTRATE JUDGE.

         Plaintiff/Counter-Defendant Steelcast Limited, as a member of and derivatively on behalf of Steelcast LLC (“SLLC”), brings this action against Defendant/Counter-Plaintiff Vaughn W. Makary, claiming that Makary breached his fiduciary duties to Steelcast Limited. Makary in turn filed counterclaims, alleging slander of title and abuse of process based on what he characterizes as Steelcast Limited's “baseless claims” for constructive trust and the recording of lis pendens notices against Makary's personal residences. Before the court is Steelcast Limited's motion to dismiss Makary's counterclaims. For the following reasons, the motion is granted:

         Background

         Taking Makary's allegations as true at the pleadings stage and drawing all reasonable inferences in the light most favorable to Makary, see Gutierrez v. Peters, 111 F.3d 1364, 1368-69 (7th Cir. 1997), SLLC sold steel castings in the United States, which Steelcast Limited manufactured in India, (R. 70, Makary's Countercl. ¶ 5). Steelcast Limited and Makary & Associates, Inc. were SLLC's only members, and Makary served as SLLC's manager. (Id.) Makary did not receive any compensation for serving as the manager, and SLLC rarely realized a profit. (Id.)

         In May 2015 the parties agreed to dissolve SLLC. (Id. ¶ 7.) At that point SLLC had no cash. (Id. ¶ 8.) Nonetheless, Steelcast Limited demanded that Makary pay $109, 907.60 for allegedly collected receivables it is owed. (Id. ¶ 7.) For his part, Makary demanded that Steelcast Limited reimburse SLLC for United States taxes that SLLC had paid on Steelcast Limited's behalf. (Id. ¶ 10.)

         To recover money allegedly owed to it, Steelcast Limited filed this lawsuit claiming that Makary breached his fiduciary duties owed to it. (Id. ¶¶ 12-13; see also R. 61, Second Am. Compl. (“SAC”) ¶¶ 15-16, 22-40.) “[T]o apply pressure in this litigation, ” Makary asserts that Steelcast Limited also filed four constructive trust claims on his personal residences in Illinois and Florida. (R. 70, Makary's Countercl. ¶¶ 13, 24-40.) Steelcast Limited then recorded lis pendens against Makary's residences on November 3, 2017, “recording notice of this litigation against Makary for breach of fiduciary duty, [and] describing the nature of the action as a ‘Lien foreclosure.'” (Id. ¶ 14 & Ex. 1 at 6.) Makary then filed counterclaims alleging counts of slander of title and abuse of process. (Id. ¶¶ 1-2, 27-40.) Steelcast Limited now moves to dismiss these counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6). (R. 74, Pl's. Mot. & Mem.)

         Analysis

         In seeking to have Makary's counterclaims dismissed under Rule 12(b)(6), Steelcast Limited argues that: (1) the recording of lis pendens to give notice of constructive trust claims is an “absolutely privileged act” shielding them from liability for slander of title; and (2) the filing of constructive trusts and lis pendens does not constitute an “irregular use of the judicial process” for an abuse of process claim. (R. 74, Pl.'s Mem. at 2-3.) A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint, see Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997), rather than the merits of the case. Under Rule 8(a), all that is required to meet the sufficiency standard is “a short and plain statement of the claim showing that the pleader is entitled to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing Fed.R.Civ.P. 8(a)) (quotation omitted). Under that standard “[a] pleading that offers ‘labels and conclusions' or a ‘formulaic recitation of the elements'” of the claim is insufficient. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). Instead, the factual allegations must give the defendants “fair notice of what the claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555 (quotation omitted). The allegations must also be facially plausible, meaning that they provide enough factual content to allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

         A. Slander of Title Counterclaim

         To state a claim for slander of title under Illinois law, [1] a plaintiff must prove a “false and malicious publication, oral or written, of words which disparage [its] title to property resulting in special damages.” Ringier Am., Inc. v. Enviro-Technics, Ltd., 284 Ill.App.3d 1102, 1104-05 (1996) (internal quotations and citation omitted). “Malice” is defined as knowledge that “the disparaging statements were false or that the defendant made the statements in reckless disregard of their falsity.” Id. at 1105. Steelcast Limited argues that the filing of lis pendens cannot give rise to liability for slander of title because such notices “do[] no more than accurately inform [the] reader of the existence of” claims. (R. 74, Pl.'s Mem. at 2.) As a result, statements in lis pendens are “in no sense ‘false'” and are absolutely privileged, according to Steelcast Limited. (Id. (quoting Ringier, 284 Ill.App.3d at 1106).)

         For support Steelcast Limited relies upon Illinois decisions recognizing “a narrow class of cases” extending the absolute privilege to statements in lis pendens, “provided the underlying litigation makes allegations affecting some ownership interest in the subject property.” Ringier, 284 Ill.App.3d at 1105-06 (noting that the Florida law is the same and citing Procacci, 402 So.2d at 426); Gordon-Dahm v. BMO Harris Bank, N.A., 2018 IL App (2d) 170082, ¶ 28. Even when such statements are made with malice, the privilege “provides complete immunity from civil action . . . because public policy favors the free and unhindered flow of such information.” Ringier, 284 Ill.App.3d at 1105. The court in Ringier reasoned:

It would be anomalous to hold that a litigant is privileged to make a publication necessary to bring an action but that he can be sued for defamation if he lets anyone know that he has brought it, particularly when he is expressly authorized by statute to let all the world know that he has brought it.

Id. at 1106 (quoting Albertson v. Raboff, 46 Cal. 2d 375, 380 (1956)); see also Gordon-Dahm, 2018 IL App (2d) 170082, ¶ 28 (accord).[2]

         Makary tries to distinguish the case law cited by Steelcast Limited, arguing that the present case “has absolutely nothing to do with [his] personal real estate whatsoever.” (R. 76, Makary's Resp. at 2.) Makary contends that this case centers on fiduciary duty claims, not an ownership interest in his real property or even a fraudulent transfer. (Id. at 4-5.) Thus, Makary argues that the statements in the lis pendens do not “affect[] some ownership interest in the subject propert[ies]” and cannot qualify for the privilege. (Id. at 2 (quoting Gordon-Dahm, 2018 IL App (2d) 170082, ΒΆ 28).) According to him, Steelcast Limited's claims that Makary used ...


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