Arvegenix, LLC v. Seth et al
ORDER & OPINION Entered by Judge Joe Billy McDade on 4/29/14: IT IS THEREFORE ORDERED that Motion to Dismiss 77 by Third-Party Defendants BioSTL and BioGenerator is GRANTED IN PART AND DENIED IN PART, and Motion to Dismiss 80 by Third-Party Def endants VijayChauhan, Dennis Plummer, and Michael Roth is GRANTED IN PART AND DENIED IN PART. Counts II, III, IV, V, VII, and IX are DISMISSED WITHOUT PREJUDICE. Count VIII is also DISMISSED WITHOUT PREJUDICE as to Third- Party Defendant BioSTL onl y. Count VI is DISMISSED WITH PREJUDICE. For all remaining claims, Defendants' request for a more definite statement is GRANTED. Third-Party Plaintiffs SHALL file an amended pleading within twenty-one days ofthe date of this Order. ( Amended Pleadings due by 5/20/2014.). (TK, ilcd)
Tuesday, 29 April, 2014 12:52:50 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SUDHIR SETH, individually and as
agent of Pennycress Energy Company,
LLC, and Arvens Technology, Inc.,
PENNYCRESS ENERGY COMPANY,
and ARVENS TECHNOLOGY, INC.,
SUDHIR SETH, individually and as
agent of Pennycress Energy Company,
LLC, and Arvens Technology, Inc.,
PENNYCRESS ENERGY COMPANY,
and ARVENS TECHNOLOGY, INC.,
VIJAY CHAUHAN, DENNIS
PLUMMER, MICHAEL ROTH,
BIOGENERATOR, a Missouri not-forprofit corporation, and BIOSTL, a
Missouri not-for-profit corporation,
Case No. 13-cv-1253
ORDER & OPINION
This matter is before the Court on two Motions to Dismiss (Docs. 77, 80), filed
by the Third-Party Defendants in this action, seeking to dismiss the claims brought
against them by Third-Party Plaintiffs for failure to state a claim upon which relief
can be granted. Third-Party Plaintiffs failed to respond to either Motion by the
response deadlines. As a result, under Local Rule 7.1, the Court presumes there is
no opposition to the Motions. The Court has also independently assured that ThirdParty Defendants’ grounds have merit. As explained below, both Motions are
granted in part and denied in part.
Plaintiff/Counter-Defendant Arvegenix, LLC (“Arvegenix”) filed the present
action on June 4, 2013, bringing multiple claims against Sudhir Seth (“Seth”),
Pennycress Energy Company, LLC (“PEC”), and Arvens Technology, Inc. (“ATI”).
(Doc. 1). On November 26, 2013, Seth, PEC, and ATI filed a pleading entitled
“Counterclaim,” which lists ten counts against Arvegenix and also names five ThirdParty Defendants1 in some or all of these claims: BioGenerator, BioSTL, Vijay
Chauhan, Dennis Plummer, and Michael Roth. (Doc. 40). The present Motions
concern only this latter pleading, and relate only to the third-party claims by Seth,
PEC, and ATI, against BioGenerator, BioSTL, Chauhan, Plummer, and Roth.
Accordingly, for purposes of this Order only, the Court will hereafter refer to Seth,
PEC, and ATI collectively as Plaintiffs, and to BioGenerator, BioSTL, Chauhan,
The Court questions the propriety of these parties being brought into this action in
the first place. Seth, PEC, and ATI refer to these five additional parties as
“Counter/Defendants” in the Counterclaim, but as the Court previously suggested,
they are more appropriately considered third-party defendants. (Doc. 76 at 2); see
also Black’s Law Dictionary 1518 (8th ed. 2004) (defining third-party defendant).
Federal Rule of Civil Procedure 14(a)(1) allows a defending party to bring into an
action “a nonparty who is or may be liable to it for all or part of the claim against
it.” Seth, PEC, and ATI do not allege that Third-Party Defendants may be liable to
them for all or part of the claims Arvegenix brought against them, and no other
procedural basis is readily apparent. However, as no party briefed this issue, the
Court will not analyze the matter in depth in this Order, but flags the issue for
Plummer, and Roth collectively as Defendants, despite the third-party nature of the
claims at issue.
On March 13, 2014, the Court dismissed Counterclaim X, exercising its
discretion to decline to entertain the request for a declaratory judgment, because it
was redundant of the other causes of action before the Court and did not serve the
purposes of the Declaratory Judgment Act. (Doc. 76 at 9).2 Accordingly, only nine
claims in Plaintiffs’ Counterclaim remain.
On March 18, 2014, BioGenerator and BioSTL (collectively, “Nonprofit
Defendants”) filed a Motion to Dismiss, seeking dismissal of all claims in the
Counterclaim for failure to state a claim upon which relief can be granted pursuant
to Federal Rule of Civil Procedure 12(b)(6), or alternatively, for a more definite
statement pursuant to Rule 12(e). Defendants Chauhan, Plummer, and Roth
(collectively, “Individual Defendants”) filed their Motion to Dismiss a few days later,
joining the arguments of the Nonprofit Defendants and presenting some additional
arguments for dismissal. These Motions are presently before the Court.
In ruling on a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), “the court must treat all well-pleaded allegations as true and draw all
inferences in favor of the non-moving party.” In re marchFIRST Inc., 589 F.3d 901,
904 (7th Cir. 2009). The pleading must contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To
The Court dismissed this claim on Arvegenix’s Motion to Dismiss. However, the
Court considered the claim as a whole, not just as it applied to Arvegenix. To the
extent the previous Order was not clear, Counterclaim X is dismissed against all
parties, not only against Arvegenix.
survive a motion to dismiss, the challenged pleading must contain sufficient detail
to give notice of the claim, and the allegations must “plausibly suggest that the
[non-movant] has a right to relief, raising that possibility above a ‘speculative
level.’” EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The plausibility
standard requires enough facts “to present a story that holds together,” but does not
require a determination of probability. Swanson v. Citibank, N.A., 614 F.3d 400,
404 (7th Cir. 2010). Though detailed factual allegations are not needed, a “formulaic
recitation of a cause of action’s elements will not do.” Twombly, 550 U.S. at 545.
Under Federal Rule of Civil Procedure 12(e), a party may move for a more
definite statement if the pleading is “so vague or ambiguous that the party cannot
reasonably prepare a response,” and the party must “point out the defects
complained of and the details desired.” Fed. R. Civ. P. 12(e). Whether to grant such
a motion is generally left to the discretion of the trial court. Hummel v. Wells
Petroleum Co., 111 F.2d 883, 886 (7th Cir. 1940).
Plaintiff Seth, as President and CEO of Plaintiffs ATI and PEC, is in the
business of developing technology to make biofuel out of a plant called pennycress.
He formed ATI and PEC to further that business. Since 2008, ATI and its
predecessor entity had a series of research agreements with other organizations,
including the United States Department of Agriculture and Western Illinois
Unless otherwise noted, the Court draws the facts in this section from Plaintiffs’
Counterclaim (Doc. 40), treating their allegations as true and drawing all
reasonable inferences in their favor, in accordance with the motion to dismiss
standard described above.
University, for various pennycress research undertakings, including possible
In fall 2012, Seth, as an agent for ATI and PEC, approached Defendant
BioGenerator in search of investment assistance to begin commercial production of
pennycress for biofuel. BioGenerator, a subsidiary of BioSTL, is a company that
“place[s] inventors and entrepreneurs with investors and technological experts in
order to develop their business ideas.” (Doc. 40 at 4). ATI and BioGenerator entered
into a non-disclosure agreement (“NDA”) on October 9, 2012, to facilitate their
potential relationship and provide protection for any confidential information
shared by Plaintiffs. The NDA provided that confidential information would not be
disclosed to unapproved third parties or used for competitive purposes, and would
be returned or destroyed at the conclusion of the business arrangement. This
agreement is attached as an exhibit to the Counterclaim. (Doc. 40-6).
From fall 2012 to early 2013, Seth was introduced to Individual Defendants
Vijay Chauhan, Dennis Plummer, and Michael Roth, as well as non-party Arnold
Rosielle. BioGenerator represented that these individuals had knowledge and
experience in start-up agribusiness, and that they were pursuing due diligence to
determine whether Plaintiffs had a viable business idea. Plaintiffs provided access
to information about the production of pennycress as well as business information
and present and potential partners. During this time, Chauhan, Plummer, Roth,
and Rosielle represented to Seth that they were meeting with potential investors.
They also altered Seth’s proposed business plans by reducing Seth’s role in the
proposed new business and his expected compensation.
By May 1, 2013, no agreement on the new business had yet been reached
among the involved parties. Shortly thereafter, Individual Defendants, in
collaboration with BioGenerator, formed a new company, Arvegenix, which was
intended to compete with PEC and ATI. BioGenerator allegedly did not require its
consultants to destroy or return Plaintiffs’ confidential information that was
disclosed pursuant to the NDA. In response to Plaintiffs’ request for the return or
destruction of all information provided to BioGenerator and the Individual
Defendants, as BioGenerator consultants, BioGenerator advised they had received
no confidential information. Arvegenix, as well as the Individual Defendants as
Arvegenix’s members, used the information and data provided by Plaintiffs to seek
researchers and partners for their new company. They contacted Plaintiffs’
collaborators in the pennycress industry in an attempt to persuade them to cancel
agreements with Plaintiffs and to instead work with Arvegenix.
Defendants seek dismissal of each of the nine remaining counts in Plaintiff’s
Counterclaim. Each count is addressed in turn, below, after a few preliminary
matters are addressed.
First, throughout the Counterclaim, Plaintiffs make ample use of vague,
conclusory statements, devoid of factual detail. For example, Plaintiffs repeatedly
use the phrase “Counter/Defendants” in nearly every count, which applies
collectively to the three Individual Defendants, the two Nonprofit Defendants, and
Arvegenix. This does not afford adequate notice to each of the Defendants of the
claims against them or allow them to respond appropriately, and it detracts from
the plausibility of Plaintiffs’ claims.
Perhaps the most egregious example is the inclusion of BioSTL as a
Defendant in every one of Plaintiffs’ claims, despite the fact that the only two
factual allegations specifically related to BioSTL in the entire pleading are (1) that
BioGenerator is a subsidiary of BioSTL (Doc. 40 at 4), and (2) in the alreadydismissed Count X, that BioSTL was required to prevent collaborators from using
confidential information obtained pursuant to the NDA (Doc. 40 at 19). BioSTL was
even named in several claims in which BioGenerator was not named as a
Defendant, even though many of Plaintiffs’ general factual allegations are targeted
at BioGenerator. If BioSTL’s status as a parent company to BioGenerator is the sole
basis for BioSTL’s liability, Plaintiffs should indicate as much, and BioSTL can then
assess the legal soundness of such liability. Alternatively, if BioSTL is directly
liable for its own actions, Plaintiffs must state what these actions were.
Defendants request, in the alternative to dismissal, a more definite
statement under Rule 12(e). The primary defect and missing detail they point out is
the failure to specify which Defendants are alleged to have been involved in which
conduct. (Doc. 78 at 22). For the claims that are not dismissed, this alternative
request for a more definite statement is granted. Plaintiffs must be more specific in
repleading any of their dismissed third-party claims. The occasional grouping of
multiple or all Defendants may be fine in some contexts, but the allegations must
adequately indicate which Defendants are responsible for or liable for which
conduct. Plaintiffs’ amended pleading should provide sufficient detail as to the
conduct of specific parties and make more specific allegations that will allow
Defendants to prepare a response.
Second, Defendants argue that several of Plaintiffs’ claims, at least in part,
are based on alleged theft of trade secrets, and that the claims are thus precluded
by the Illinois Trade Secrets Act (“ITSA”), 765 Ill. Comp. Stat. 1065/1 to 1065/9. The
ITSA provides that:
(a) Except as provided in subsection (b), this Act is intended to displace
conflicting tort, restitutionary, unfair competition, and other laws of
this State providing civil remedies for misappropriation of a trade
(b) This Act does not affect:
(1) contractual remedies, whether or not based upon
misappropriation of a trade secret . . . ;
(2) other civil remedies that are not based upon misappropriation
of a trade secret; . . . .
765 Ill. Comp. Stat. 1065/8. This has been interpreted to mean that the ITSA is the
“exclusive remedy under Illinois law for misappropriation of trade secrets.”
AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 921 (N.D. Ill. 2001).
There is limited Illinois case law on the full extent of this displacement, and
the Illinois Supreme Court has yet to address it, but a recent Seventh Circuit case
illuminates the issue. The court concluded that only claims that rest on the
misappropriation of secret information are precluded; claims such as fraud or theft
that “would be sound even if the [information] were a public record” are not
precluded by the ITSA. Hecny Transp., Inc. v. Chu, 430 F.3d 402, 404-05 (7th Cir.
2005). The court also cited a comment from the Uniform Law Commissioner on the
uniform act on which the ITSA is based, stating the displacement provision “does
not apply to duties imposed by law that are not dependent upon the existence of
competitively significant secret information, like an agent's duty of loyalty to his or
her principal.” Id. at 405 (internal quotation marks omitted). Thus, to the extent
Plaintiffs’ claims are based on an alleged misappropriation of their secret
information by Defendants, the claims are precluded and can only be brought under
the ITSA. This limits the scope of some of Plaintiffs’ counts, as addressed below
when discussing the specific claims.
Counts I and II
Defendants challenge Counts I and II of the Counterclaim, arguing these
defamation claims are not actionable and are not adequately pleaded. Count I is a
defamation per se claim, in which Plaintiffs allege Defendants publicly made false
statements that (1) Seth was “not capable of being part of a management team of a
startup company,” (2) “investors would refuse to invest in a company in which Seth
was part of the management team,” and (3) “investors who had never met Seth
stated that he was incapable of being on a management team of a startup
company.” (Doc. 40 at 10). They allege, on information and belief, that the
statements were made to “third parties, including other customers, potential
customers, capital investors, and other industry professionals.” (Doc. 40 at 10).
Count II, listed as “Damage Per Quod,” which the Court interprets as a defamation
per quod claim, adds that these false statements caused ATI and PEC to lose
business opportunities, interfered with Seth’s relationships with collaborators, and
diminished the reputation of Plaintiffs. (Doc. 40 at 11).
In Illinois,4 “[t]o state a defamation claim, a plaintiff must present facts
showing that the defendant made a false statement about the plaintiff, that the
defendant made an unprivileged publication of that statement to a third party, and
that this publication caused damages.” Green v. Rogers, 917 N.E.2d 450, 459 (Ill.
2009). A defamation per se claim, as alleged in Count I, requires that the harm from
the statement be obvious and apparent on its face, and must fall into one of five
categories, including, as relevant for this litigation, words that “impute a person is
unable to perform or lacks integrity in performing her or his employment duties” or
that “impute a person lacks ability or otherwise prejudices that person in his or her
profession.” Id. Defamation per quod claims do not require statements to be in these
categories, and allow for extrinsic evidence to show the harmful meaning of the
statements. Bryson v. News Am. Publ’ns, Inc., 672 N.E.2d 1207, 1221 (Ill. 1996).
Defendants first argue that the statements Plaintiffs allege were defamatory
are statements of opinion, and thus not actionable. The First Amendment of the
United States Constitution does not include a distinct privilege for all statements of
opinion. Milkovich v. Lorain Journal Co., 497 U.S. 1, 19-21 (1990).5 Rather, a court
The matter of choice of law for this defamation claim has not been briefed. Rather,
Defendants assume that Illinois substantive law applies to all claims. Plaintiffs,
having not responded to the Motions, do not weigh in on the matter. For purposes of
this Order, the Court will accept Defendants’ assumption that Illinois substantive
5 Some of the Illinois cases that Defendants cite could be read to create a bright-line
rule that statements of opinion cannot be the basis of defamation claims, but as the
citations all relate to First Amendment restrictions on defamation law, these
interpretations of constitutional restrictions are not binding authority; rather, the
Court applies federal case law when interpreting the federal constitution. That is
not to say the Illinois Supreme Court could not itself narrow Illinois defamation law
to exclude statements of opinion as a matter of state law, not federal constitutional
must consider the statement more closely. Statements that are hyperbole, parody,
or figurative, are generally protected. Id. at 16-17. If a speaker makes a statement
that is plainly a subjective view or interpretation, “rather than claiming to be in
possession of objectively verifiable facts,” the First Amendment protects the speech
and it is not subject to a defamation claim. Giant Screen Sports v. Canadian
Imperial Bank of Commerce, 553 F.3d 527, 534 (7th Cir. 2009). Accordingly, even if
phrased as an opinion, a statement is not constitutionally protected from
defamation claims if it implies an assertion of fact, such that the statement can
reasonably be interpreted as “stating actual facts.” Milkovich, 497 U.S. at 20; see
also Giant Screen Sports, 553 F.3d at 533 (“The First Amendment also affords
protection from liability to a speaker expressing an opinion that does not misstate
The first alleged defamatory statement, that Seth was “not capable of being
part of a management team of a startup company,” seems to be an opinion that
cannot be objectively verified, and does not imply an assertion of fact or that the
speaker possessed objective facts. This statement is similar to one in Sullivan v.
Conway, 157 F.3d 1092 (7th Cir. 1998). In Sullivan, the statement that the plaintiff
was “a very poor lawyer,” in contrast with specific factual statements about his
work or integrity, was not actionable because it is “so difficult to verify or refute
that it cannot feasibly be made a subject of inquiry by a jury.” Id. at 1097. Similarly,
here, Defendants were stating a general opinion that Seth was incapable of being
part of a startup management team, without asserting or implying any facts in
law, but that does not appear to have happened in this context. See Imperial
Apparel, Ltd. v. Cosmo’s Designer Direct, Inc., 882 N.E.2d 1011, 1021-22 (Ill. 2008).
support. This statement is not subject to a defamation claim under First
The second statement, that “investors would refuse to invest in a company in
which Seth was part of the management team,” suffers a similar fate. This
statement too is simply an opinion that cannot be verified. It is phrased in the
future tense, aiding an understanding that no factual basis is implied but that it is
simply the opinion of the speaker. Thus, this statement is also protected by the
First Amendment and cannot be the subject of Plaintiffs’ defamation claims.
The third alleged statement, on the other hand, does assert objectively
verifiable fact. A statement that “investors who had never met Seth stated that he
was incapable of being on a management team of a startup company,” by purporting
to relate a statement made by someone else that may or may not have actually been
made, can reasonably be interpreted as stating a fact. The truth or falsity of
whether any investors made such statements could potentially be verified.
Accordingly, this alleged statement alone can be the basis of Plaintiffs’ defamation
claims, as it is not constitutionally protected, and the Court turns to Defendants’
other arguments against the defamation claims.
Defendants’ second argument against Plaintiffs’ defamation claims is that
Plaintiffs failed to “meet Illinois’ particularity requirement” for defamation per se
claims in Count I. (Doc. 78 at 7). Although Illinois law has a heightened factual
pleading requirement for defamation cases, federal courts apply federal notice
pleading requirements, not state pleading requirements. Muzikowski v. Paramount
Pictures Corp., 322 F.3d 918, 926 (7th Cir. 2003). This means the ordinary notice
pleading standards, requiring a plausible claim that gives fair notice, is all that
Plaintiffs must satisfy. See, e.g., Concentra Health Servs., Inc., 496 F.3d at 776. A
complaint that does not provide any context for the statement does not state a
plausible claim for relief, and does not give adequate notice of the claim. See
McGreal v. AT&T Corp., 892 F. Supp. 2d 996, 1017 (N.D. Ill. 2012).
In Count I, Plaintiffs allege that all of the Defendants made the false
statements, specified the false statements, and asserted, on information and belief,
that the statements were made to “third parties, including other customers,
potential customers, capital investors, and other industry professionals.” (Doc. 40 at
10). The only key information missing is when the statements were made and in
what form, but this information can be inferred from the general factual allegations
incorporated in this claim, which indicate the statements were made while
Defendants were contacting entities in the pennycress biofuel industry to solicit
business for Arvegenix. (See Doc. 40 at 8-9). Accordingly, Count I satisfies federal
pleading standards, though only barely.
Finally, Defendants’ third argument is that Plaintiffs failed to plead special
damages in Count II. (Doc. 78 at 8-9). To plead a defamation per quod claim, a
plaintiff must state his special damages. Lott v. Levitt, 556 F.3d 564, 570 (7th Cir.
2009). Again, federal pleading standards apply, so the standard is that set forth in
Federal Rule of Civil Procedure 9(g), not in Illinois case law. See Pippen v.
NBCUniversal Media, LLC, 734 F.3d 610, 613-14 (7th Cir. 2013). Accordingly,
Plaintiffs’ special damages “must be specifically stated.” Fed. R. Civ. P. 9(g). This
means the “pleadings must demonstrate some actual pecuniary loss.” Action Repair,
Inc. v. Am. Broad. Cos., Inc., 776 F.2d 143, 150 (7th Cir. 1985).
In Count II, Plaintiffs’ only allegation relating to monetary damages is that
the false statements “caused ATI and PEC to lose potential collaboration with
various individuals and entities that would be able to provide venture capital for
the commercial production of pennycress through ATI and PEC.” (Doc. 40 at 11).
This does not give any indication of what the special damages from the statements
might be, and does not demonstrate any actual pecuniary loss. Thus, Count II must
be dismissed for failure to specifically state the special damages required to
maintain a defamation per quod claim.
To summarize, of the defamation claims raised in Counts I and II, the only
claim that remains is Count I, and only insofar as it relates to the third alleged
defamatory statement, that “investors who had never met Seth stated that he was
incapable of being on a management team of a startup company.”
Counts III and IV
In Count III, Plaintiffs bring a claim of tortious interference with business
relationships, and Count IV is a tortious interference with business expectancies
claim. Both are stated as against all Defendants.
As a preliminary matter, it is not clear that these are separate causes of
action; rather, it appears Counts III and IV bring the same cause of action, just
using different words for it. See, e.g., River Park, Inc. v. City of Highland Park, 667
N.E.2d 499, 507 (Ill. App. Ct. 1996) (listing the elements of a tortious interference
claim, which includes both business relationships and expectancies). There does
appear to be a separate tort in Illinois for intentionally interfering with a contract.
See, e.g., Fellhauer v. City of Geneva, 568 N.E.2d 870, 877-78 (Ill. 1991)
(distinguishing between a claim for interfering with existing contracts and a claim
for interfering with prospective economic advantages or expectancies). However,
Plaintiffs do not allege that Defendants actually interfered with any contracts, even
if they allegedly tried, so that cannot be the claim Plaintiffs bring. This Court will
leave for another day the question of whether there is truly any distinction between
Counts III and IV, and for purposes of this Order treats them as separate claims
with virtually identical elements. If Plaintiffs replead these claims, they must
ensure they have a good faith basis for listing them as separate counts.
The elements of tortious interference with business relationships or
expectancies claims are: (1) a reasonable business expectancy or the reasonable
expectation of a continued valid business relationship; (2) the defendants knew of
the relationship or expectancy; (3) the defendants intentionally interfered with the
relationship or expectancy, causing it to fail to ripen as expected; and (4) damage to
plaintiff. See id.; River Park, 667 N.E.2d at 507. Here, Plaintiffs have only pleaded
the bare elements of the claim, without any specific factual allegations in support.
Simply alleging that defendants interfered with the relationship or expectancy does
not adequately state a claim, as that is merely a legal conclusion. See Redd v.
Nolan, 663 F.3d 287, 292 (7th Cir. 2011). There are insufficient factual allegations
to indicate which of Plaintiffs’ business relationships and expectancies are
specifically involved. Further, it is unclear how any alleged interference caused
Plaintiffs’ expectancies to be unfulfilled. Without this key information, Plaintiffs
have failed to state a plausible claim for relief. Accordingly, Counts III and IV must
To guide any future repleading of these claims, the Court notes Defendants’
additional argument against them, that they are precluded by the ITSA. However,
Counts III and IV are not necessarily premised on any secret information, and
would be viable even if the information Plaintiffs alleges Defendants used had been
public information. Thus, the Court sees no basis for the tortious interference
claims to be displaced by the ITSA.
Count V is a Lanham Act unfair competition claim based on alleged false or
misleading statements in connection with goods or services, creating liability
pursuant to 15 U.S.C. § 1125(a)(1). Defendants raise numerous deficiencies with
The most obvious initial problem with a claim under 15 U.S.C.
§ 1125(a)(1)(B),6 which is the false advertising prong of the provision, is that there
are no allegations of any commercial advertising undertaken by Defendants.
Commercial advertisement is a required element of a false advertising claim. See
Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 819 (7th Cir. 1999). Advertisement
is a specific subset of commercial speech, which involves “promotion to anonymous
recipients.” First Health Grp. Corp. v. BCE Emergis Corp., 269 F.3d 800, 803-04
(7th Cir. 2001). Plaintiffs offer no suggestion that the statements at issue fell within
Plaintiffs quote all of subsection (a)(1) in paragraph 55 of the Counterclaim, even
though the subsection recites two conceptually different claims. Though not clear
that Plaintiffs intend to bring their claim under the false advertising prong, the
Court analyzes it for purposes of thoroughness.
the scope of advertisement or promotion. To the extent Plaintiffs intend to bring a
false advertising claim, the claim fails and is dismissed.
Further, a required element for a claim pursuant to the other prong of the
subsection, § 1125(a)(1)(A), is that the false or misleading statement must be “likely
to cause confusion, or to cause mistake.” 15 U.S.C. § 1125(a)(1)(A). The only
allegation relating to this element is that false statements “caused confusion with
university and federal governmental collaborators of Seth, PEC and ATI.” (Doc. 40
at 13). This is simply a bare recital of the element, and does not state a plausible
basis for the claim. Plaintiffs must allege a sufficient factual basis to state a
plausible claim for relief, which they have failed to do. Accordingly, Count V must
Count VI alleges unfair competition under Illinois common law. Defendants
raise two primary problems with this claim. First, they argue that this claim is
“little more than a reiteration of [Plaintiffs’] other claims,” and suffers from the
same flaws. (Doc. 78 at 14). Second, they note the claim also appears to be based on
alleged theft and misuse of trade secrets, which is preempted by ITSA.
There are numerous other, more substantive deficiencies with this claim, as well,
that the Court need not address given the clear failure to state a claim for lack of
pleadings related to confusion or mistake. For example, it is not clear that
statements to potential investors are the type of statements intended to be covered
by the Lanham Act. See Bretford Mfg., Inc. v. Smith Sys. Mfg. Corp., 419 F.3d 576,
581 (7th Cir. 2005) (“Consumers rather than producers are the objects of the [unfair
competition] law’s solicitude.”); Hot Wax, 191 F.3d at 819-20 (referring to
statements to consumers or customers). It is also unclear whether the solicitation of
investments or grants comes within the qualification in § 1125(a)(1) that the
representation must be “in connection with any goods or services.” See, e.g., Leis v.
Davidson, 955 F. Supp. 2d 821, 825 (N.D. Ill. 2013) (concluding that false
statements to potential investors do not fall under Lanham Act).
It appears the tort of unfair competition in Illinois is largely an
amalgamation of several other similar claims. One Illinois court referred to unfair
competition as a “broad spectrum of law.” Duo-Tint Bulb & Battery Co. v. Moline
Supply Co., 360 N.E.2d 798, 801 (Ill. App. Ct. 1977). Although seemingly a broad
tort, there are no Illinois cases reciting the elements of an unfair competition claim.
See Custom Bus. Sys., Inc. v. Boise Cascade Corp., 385 N.E.2d 942, 944 (Ill. App. Ct.
1979). As one federal district court noted, the form of unfair competition that relates
to interfering with relationships with others, like Plaintiffs’ Count VI, “apparently
falls under the rubric of tortious interference with prospective economic advantage.”
Zenith Elecs. Corp. v. Exzec, Inc., 93 C 5041, 1997 WL 798907, at *14 (N.D. Ill. Dec.
24, 1997) (citing Soderlund Bros. v. Carrier Corp., 663 N.E.2d 1, 8–10 (Ill. App. Ct.
1995); Corroon & Black of Ill., Inc. v. Magner, 494 N.E.2d 785, 794 (Ill. App. Ct.
1986)), aff’d, 182 F.3d 1340 (Fed. Cir. 1999).
Here, Plaintiffs have alleged no cause of action in Count VI distinct from
their other claims, and have thus failed to state a claim upon which relief can be
granted. As the court in Zenith Electronics concluded, this Court also concludes that
this claim is really a tortious interference claim, which is raised in Counts III and
IV. Plaintiffs have not shown that this is a distinct cause of action, and Illinois
cases suggest, at least based on facts such as these, that is not. See Soderlund Bros.,
663 N.E.2d at 8-10. As a matter of law, this claim fails, as it is simply a reiteration
of Plaintiffs’ tortious interference claims.
Additionally, Plaintiffs’ allegations in this claim almost exclusively relate to
confidential information that was allegedly misappropriated by Defendants. As
discussed above, the ITSA precludes common law claims based on such conduct.
Accordingly, this affords another basis for the dismissal of this claim, as it is
displaced by the ITSA. Count VI is thus dismissed with prejudice on these
In Count VII, Plaintiffs allege a common law claim of unjust enrichment. A
claim for unjust enrichment requires allegations “that the defendant has unjustly
retained a benefit to the plaintiff's detriment, and that defendant’s retention of the
benefit violates the fundamental principles of justice, equity, and good conscience.”
HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672, 679 (Ill.
1989). The defendant’s wrongful conduct can be based, for example, on fraud or on
implied contract. Gagnon v. Schickel, 983 N.E.2d 1044, 1052 (Ill. App. Ct. 2012).
The doctrine does not apply if there is an express contract that governs the
relationship of the parties. Id.; see also People ex rel. Hartigan v. E & E Hauling,
Inc., 607 N.E.2d 165, 177 (Ill. 1992); La Throp v. Bell Fed. Sav. & Loan Ass’n, 370
N.E.2d 188, 195 (Ill. 1977).
Here, Plaintiffs allege that Defendants were unjustly enriched because they
received the benefit of information from Plaintiffs without compensating Plaintiffs
for that valuable information. As stated, Plaintiffs allege that they provided
valuable research and business information to Defendants without an agreement
that they would receive any compensation, but without pleading any basis for why
this enrichment is unjust. It is unclear whether this claim is premised on fraud by
Defendants, or an implied contract, or some other basis to find wrongful conduct. In
fact, Plaintiffs fail to allege any wrongful conduct by Defendants, other than to state
generally that retention of the information “violates fundamental principles of
justice, equity, and good conscience.” (Doc. 40 at 15). As such, the claim is
inadequately stated and must be dismissed.
For purposes of facilitating any future repleading decisions, the Court notes
three further hurdles. First, Plaintiffs’ pleadings in the Counterclaim, as well as the
NDA attached as an exhibit to the Counterclaim (Doc. 40-6), demonstrate that the
relationship between Plaintiffs and at least BioGenerator was governed by a
contract.8 Plaintiffs also seemingly allege in other parts of the Counterclaim that
the contract governs the relationship between Plaintiffs and the other Defendants
insofar as it relates to the dissemination of information about ATI and the
pennycress industry.9 Therefore, Plaintiffs’ unjust enrichment claim may fail as a
matter of law as to some or all parties because of the NDA.
Second, it appears Plaintiffs, by incorporating the paragraphs of Count VI
relating to unfair competition and alleging deception, may intend to base their
unjust enrichment claim on fraudulent acts by Defendants. If Plaintiffs do intend
fraud to be a basis for unjust enrichment, they should keep in mind the heightened
pleading requirements in Rule 9(b) for allegations of fraud. See Pirelli Armstrong
Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 447-48 (7th
BioGenerator was not named as a Defendant in this claim, so perhaps Plaintiffs
realized this limitation.
9 However, Plaintiffs could plead this claim in the alternative, in the event the
Court finds the relationship between Plaintiffs and the remaining Defendants were
not governed by this contract. See Guinn v. Hoskins Chevrolet, 836 N.E.2d 681, 705
(Ill. App. Ct. 2005).
Finally, as this claim is alleged, it appears to be squarely foreclosed by the
ITSA. The allegations relate only to Defendants’ taking and using Plaintiffs’
prennycress research and industry information, which Plaintiffs allege throughout
the Counterclaim was confidential information. Accordingly, this claim may be
precluded by the ITSA.
Plaintiffs bring Count VIII pursuant to the Illinois Deceptive Trade Practices
Act, specifying four deceptive trade practices from the provision that they
apparently allege Defendants violated. 815 Ill. Comp. Stat. 510/2(a)(3), (5), (8), and
As it relates to BioSTL specifically, Plaintiffs do not state sufficient factual
allegations against it in this claim.10 The only allegation that could be read to
include BioSTL, because it refers collectively to all of the Defendants, is insufficient
to state a claim against BioSTL. (Doc. 40 at 16). The paragraph goes to only one of
the elements, alleging three false representations, and does not address damages or
harm to Plaintiffs—the paragraph in Count VIII that does address damages refers
only to the misconduct of Arvegenix and the Individual Defendants, not BioSTL.
Thus, the claim is dismissed as against BioSTL.
Defendants also argue that because this claim and the Lanham Act claim
have the same factual basis, this claim too must be dismissed. (Doc. 78 at 17; Doc.
81 at 5). However, Plaintiffs allege more detail in this count than in Count V.
Simply because the other count was dismissed for failing to state a claim does not
BioGenerator is also not named as a Defendant in this claim at all.
require that Count VIII, stated with more specificity, also be dismissed. The
Individual Defendants have not given adequate reason for dismissal of this claim,
and the Court finds that Count VIII gives sufficient notice of the claim against
them. Plaintiffs allege the Individual Defendants made false or misleading
statements, disparaged Plaintiffs, and made specific false representations of their
expertise, access to seed stock, and customer list. That coupled with the harm to
Plaintiffs sets forth an adequate claim under the Illinois Deceptive Trade Practices
Act. Aside from the collective references to Defendants, which should be changed by
Plaintiffs in their amended pleading, Defendants have sufficient notice of the
factual basis for Plaintiffs’ claim, and it is supported by sufficient factual allegations
to raise the claim to a plausible level. Though a far cry from a model pleading,
Count VIII suffices to state a claim against the Individual Defendants.
Finally, Count IX alleges a violation of the Illinois Consumer Fraud and
Deceptive Business Practices Act (“ICFA”), 815 Ill. Comp. Stat. 505/2. The elements
of a claim under this act are “(1) a deceptive act or practice by the defendant; (2) the
defendant's intent that the plaintiff rely on the deception; and (3) the occurrence of
the deception during a course of conduct involving trade or commerce.” Robinson v.
Toyota Motor Credit Corp., 775 N.E.2d 951, 960 (Ill. 2002). This claim is clearly
inadequately stated, as the three allegations are only very generic and vague
allegations that Defendants “engaged in unfair methods of competition and/or
unfair or deceptive acts,” that this caused “consumer confusion in the agriculture
and biofuels community,” and that Plaintiffs suffered “substantial damages.” (Doc.
40 at 17). Plaintiffs do not even allege that Defendants’ intended Plaintiffs to rely
on the deception, and it is unlikely, given the general facts alleged elsewhere in the
Counterclaim, that they can do so. Although Defendants again use Illinois pleading
standards to make their argument, they are still ultimately correct that Plaintiffs
have inadequately pleaded this claim. There are simply no factual allegations in
support of this claim with any level of detail. Plaintiffs fail to state a claim in Count
IX, and it must be dismissed.
There is a further problem with Count IX that the Court notes in the event
Plaintiffs attempt to replead this claim: The ICFA does not appear to apply to the
facts of this case as alleged. The ICFA is “intended to protect consumers, borrowers,
and business persons against fraud, unfair methods of competition, and other unfair
and deceptive business practices.” Robinson v. Toyota Motor Credit Corp., 775
N.E.2d 951, 960 (Ill. 2002). Although competitors may bring a claim under the Act,
there must still be a relationship to consumer protection or must involve practices
directed toward the general market. See, e.g., Speakers of Sport, Inc. v. ProServ,
Inc., 178 F.3d 862, 868 (7th Cir. 1999); Athey Prods. Corp. v. Harris Bank Roselle,
89 F.3d 430, 436-37 (7th Cir. 1996); Lake Cnty. Grading Co. of Libertyville, Inc. v.
Advance Mech. Contractors, Inc., 654 N.E.2d 1109, 1115 (Ill. App. Ct. 1995). There
is no indication of any consumer protection concerns in this case. Plaintiffs have not
alleged, and it cannot be inferred from the facts alleged, that any of the entities
allegedly subject to false information by Defendants are consumers. Unless
Plaintiffs can show there are consumer protection issues that relate to the
allegations, they cannot replead this claim.
As it is entirely unclear what the factual basis is for this claim, the Court also
notes that in the event it is based on the misappropriation of confidential
information, this claim would also be precluded by the ITSA.
Counts I and II are dismissed with prejudice regarding the first and second
alleged defamatory statements, that Seth was “not capable of being part of a
management team of a startup company,” and that “investors would refuse to invest
in a company in which Seth was part of the management team.” These statements
cannot be reasonably interpreted to assert facts, so cannot be the subject of
defamation claims. Count I remains only insofar as it relates to the third alleged
defamatory statement, that “investors who had never met Seth stated that he was
incapable of being on a management team of a startup company.” Count II, to the
extent it proceeds on the basis of this same statement, is dismissed without
prejudice for failure to specifically state special damages.
Counts III, IV, V, VII, and IX are dismissed without prejudice. Count VIII is
also dismissed without prejudice, but only as to Defendant BioSTL. Count VI is
dismissed with prejudice, as the unfair competition claim based on facts such as
Plaintiffs allege either is not a separate claim from Counts III and IV under Illinois
law, or is precluded by the ITSA.
For the few remaining claims, Defendants’ request for a more definite
statement is granted. Plaintiffs must file an amended pleading within twenty-one
days of the date of this Order that provides more detail as to the specific Defendants
involved in each claim. In the amended pleading, all dismissed claims must either
be omitted or repleaded in a manner consistent with this Order. If Plaintiffs fail to
file an amended pleading within this time, the dismissal of all dismissed claims
against Defendants will be final for purposes of this case, and any claims that were
not dismissed will be stricken pursuant to Rule 12(e).
Importantly, Arvegenix did not move to dismiss Counts I-IX of the
Cournterclaim. As noted above, Arvegenix previously filed a motion to dismiss
Count X, which was granted, and it also filed an Answer to the remaining
counterclaims stated against it. Accordingly, Counts I-IX are not dismissed as to
Arvegenix. However, because of the flaws addressed in this Order, and because
Plaintiffs are already being ordered to file an amended counterclaim pleading to
remove or replead all dismissed claims, Plaintiffs would be wise to take heed of the
flaws and fix them with respect to Arvegenix, as well. If Plaintiffs choose to leave in
any of the flawed claims simply because they were not dismissed against Arvegenix,
the Court invites Arvegenix to file a motion for judgment on the pleadings to
challenge these inadequate claims.
IT IS THEREFORE ORDERED that Motion to Dismiss (Doc. 77) by ThirdParty Defendants BioSTL and BioGenerator is GRANTED IN PART AND DENIED
IN PART, and Motion to Dismiss (Doc. 80) by Third-Party Defendants Vijay
Chauhan, Dennis Plummer, and Michael Roth is GRANTED IN PART AND
DENIED IN PART. Counts II, III, IV, V, VII, and IX are DISMISSED WITHOUT
PREJUDICE. Count VIII is also DISMISSED WITHOUT PREJUDICE as to ThirdParty Defendant BioSTL only. Count VI is DISMISSED WITH PREJUDICE. For all
remaining claims, Defendants’ request for a more definite statement is GRANTED.
Third-Party Plaintiffs SHALL file an amended pleading within twenty-one days of
the date of this Order.
Entered this 29th day of April, 2014.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?