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US Dealer License, LLC v. Us Dealer Licensing LLC

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

December 23, 2019

US DEALER LICENSE, LLC and ANIK SHAH, Plaintiffs,
v.
US DEALER LICENSING LLC and RICHARD DANDINO, Defendants.

          MEMORANDUM OPINION AND ORDER

          HON. VIRGINIA M. KENDALL UNITED STATES DISTRICT JUDGE.

         This is a breach of contract dispute stemming from the Plaintiffs' purchase of Defendants' businesses. Defendants now move to partially dismiss the complaint. The motion to dismiss [Dkt. 27] is granted. Counts II, III, IV, V, VI, and VII are dismissed without prejudice. If Plaintiffs wish to file an amended complaint, they must do so within 28 days of the entry of this order.

         BACKGROUND

         On a motion to dismiss under Rule 12(b)(6), the Court accepts the complaint's well-pleaded factual allegations, with all reasonable inferences drawn in the non-moving party's favor, but not its legal conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014). The facts below are drawn from Plaintiffs' Amended Complaint (Dkt. 24).

         Defendant Richard Dandino operated a business that facilitated wholesale automobile dealership licenses for auto dealerships in Michigan and Missouri. (Dkt. 24 ¶¶ 4, 6.) The business consisted of setting up dealership entities, providing office space, providing logistical support, and assisting with dealership licensing, administrative functions, and books and records for auto dealership customers. (Id. ¶ 7.) Defendant U.S. Dealer Licensing LLC (“Licensing LLC”) performed these services in Missouri, and another entity, USDL Services LLC (“USDL”), performed the same services in Michigan. (Id. ¶ 8.)

         In April 2018, Plaintiff Anik Shah and his associate, Edward Bergmann, began negotiating with Dandino to purchase the operations and assets of Licensing LLC and USDL. (Id. ¶ 5.) Shah and Bergmann agreed to purchase both entities and they set up an Indiana LLC called U.S. Dealer License LLC (“US Dealer”) to facilitate the purchase. (Id. ¶ 13.) On May 1, 2018, U.S. Dealer entered into an asset purchase agreement (the “Purchase Agreement”) with Licensing LLC and USDL. (Id. ¶ 14, see also Id. at 14-22.) U.S. Dealer purchased all aspects of Licensing LLC and USDL except for certain real estate holdings in Indiana, which were subject to a lease agreement between the parties. (Id.) The purchase price was $1, 250, 000.00, which was separated into two payments: $1, 150, 000 in cash at closing, and a promissory note secured by Shah for the additional $100, 000 made payable to Dandino. (Id. ¶¶ 15-16; see also Id. at 37-39.)

         During the sale negotiations, Dandino told Shah and Bergmann that the Missouri business had customers and was operational, but that they would have to get the Michigan business up and running. (Id. ¶ 10.) In the Purchase Agreement, Defendants represented that at the time of execution, “there [were] no actions, suits, or proceedings pending, or, to the Seller's knowledge, threatened or anticipated before any court or governmental or administrative body or agency affecting these assets.” (Id. ¶ 19; see also Id. at 27, § G(4)). Unbeknownst to Plaintiffs, however, there were “regulatory and licensing decisions against clients of Defendants in Missouri” at the time the Purchase Agreement was executed. (Id. ¶ 22.) In fall 2017, the Missouri Department of Revenue determined that Licensing LLC's client applicants were denied franchise auto dealership licenses because the rented space and services offered by Licensing LLC did not satisfy Missouri licensing requirements. (Id.) Licensing LLC's clients were actively litigating and seeking declaratory relief in Missouri to challenge the Department of Revenue's licensing denials. (Id. ¶ 23.) Dandino was aware of the ongoing litigation at the time the Purchase Agreement was executed, but he never told Plaintiffs about any pending or threatened litigation or regulatory actions affecting Licensing LLC's or USDL's ability to operate in Missouri or Michigan. (Id. ¶¶ 20, 25-28.) Dandino was aware that one of his employees had been deposed in connection with the litigation and he was aware that Licensing LLC's clients had requested that Licensing LLC pay their attorneys' fees. (Id.) Dandino retained legal counsel in Missouri to represent Licensing LLC and its customers in the declaratory relief litigation, and he was receiving copies of legal filings as early as October 2017. (Id. ¶ 30.)

         The declaratory judgment litigation was ultimately unsuccessful, and at least seven of Licensing LLC's clients were denied dealership franchise licenses. (Id. ¶ 32.) The result of the litigation “effectively ended” Licensing LLC's ability to operate in Missouri. (Id. ¶ 33.) The ability of Licensing LLC and USDL to operate in Missouri and Michigan was a material and principal consideration Plaintiffs relied on in executing the Purchase Agreement. (Id. ¶ 21.) If Shah and Bergmann had been aware of the Missouri litigation and its impact on Licensing LLC's ability to operate, they would not have executed the Purchase Agreement on the terms specified. (Id. ¶ 36.) Plaintiffs suffered significant financial loss as a result of Dandino's failure to disclose the Missouri litigation before the sale. (Id. ¶ 37.)

         Dandino personally negotiated and made all material representations to Plaintiffs regarding the assets at issue and the terms of the Purchase Agreement and accompanying promissory note. (Id. ¶ 39.) After the sale, Dandino withdrew all the money paid from the Purchase Agreement, transferred it to personal accounts, and “effectively shut down Licensing [LLC].” (Id. ¶ 41.) While running Licensing LLC, Dandino co-mingled personal and business funds and failed to operate the business as a separate legal entity from his personal transactions. (Id. ¶ 42.)

         Plaintiffs now bring claims against Licensing LLC for breaching the Purchase Agreement (Count I), and, alternatively, promissory estoppel (Count III) and unjust enrichment (Count V). Plaintiffs also bring claims against Dandino for breaching the promissory note (Count II), fraud (Count VII)[1], and, alternatively, promissory estoppel (Count IV) and unjust enrichment (Count VI).

         LEGAL STANDARD

         On a motion to dismiss under Rule 12(b)(6), the Court construes the complaint in the light most favorable to the plaintiff, accepts the factual allegations as true, and draws all reasonable inferences in the plaintiff's favor. Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010). A complaint need contain only a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). That statement must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and raise a right to relief above the speculative level. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). However, a plaintiff's claim need only be plausible, not probable. Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 935 (7th Cir. 2012). Evaluating whether a plaintiff's claim is sufficiently plausible to survive a motion to dismiss is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011) (citing Iqbal, 556 U.S. at 678).

         Rule 9(b) requires a party alleging fraud to “state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). This “ordinarily requires describing the ‘who, what, when, where, and how' of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case.” AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011) (citation omitted); see also Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014). Rule 9(b) applies to “all averments of fraud, not claims of fraud.” Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007). “A ...


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