Atwater v. McLean County Orthopedics, Ltd. et al

Filing 45

ORDER entered by Judge Sara Darrow on August 15, 2017. The 35 motion to dismiss is DENIED. (SC, ilcd)

E-FILED

Tuesday, 15 August, 2017 02:57:02 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
JOHN G. ATWATER, M.D.,
Plaintiff,
v.
MCLEAN COUNTY ORTHOPEDICS,
LTD., an Illinois Corporation, JOSEPH A.
NOVOTNY, M.D., CRAIG W.
CARMICHAEL, M.D., MARK HANSON,
M.D. JEROME W. OAKEY, M.D., JOSEPH
B. NORRIS, M.D., and JOSEPH
NEWCOMER, M.D.,
Defendants.

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Case No. 1:16-cv-01217-SLD-JEH

ORDER
Before the Court is Defendants’ motion to dismiss the second count of the amended
complaint for failure to state a claim. ECF No. 35. For the following reasons, the motion is
DENIED.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY1
Plaintiff Atwater, an orthopedic surgeon, began working for Defendant McLean County
Orthopedics (“MCO”) on October 1, 2001. MCO is a closely held Illinois corporation, whose
directors are the other named physician defendants. Atwater too became a director when he
began working there. See Shareholders’ Agr., Third Am. Compl. Ex. C, ECF No. 32-3. Along
with becoming a director, he bought 12 of the company’s 60 shares. See Stock Purchase
Agreement, Third Am. Compl. Ex. A, ECF No. 32-1. His employment contract specified that,
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In a motion to dismiss, all well-pleaded allegations in the complaint are taken as true and viewed in the light most
favorable to the plaintiff. Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 934 (7th Cir. 2012)
(citation omitted). Accordingly, the material set forth here is, unless otherwise noted, based on allegations in the
Third Amended Complaint, ECF No. 32.

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upon leaving, he would receive a severance payment based on MCO’s accounts receivable.
Employment Agr. 5–6, Third Am. Comp. Ex. B, ECF No. 32-2. A shareholders’ agreement,
separately executed between Atwater and the named defendants, provided that MCO would also
buy back his shares when he left. Shareholders’ Agr. 2.
13 years later, on September 30, 2014, Atwater quit. However, MCO didn’t buy back his
shares or pay him all of the agreed severance. He brought suit in this Court on June 16, 2016,
Compl., ECF No. 2, alleging (I) that MCO breached both the employment contract and the
shareholders’ agreement by not buying back his shares and “failing to pay all compensation”
owed as a severance payment, Compl. 2–3; and (II) that the individually named defendants
breached a fiduciary duty they owed Atwater as a fellow shareholder and director by the same
conduct, namely, not buying back his shares or paying him all of the severance, id. at 3–4.
Atwater amended his complaint, without bringing any new claims. ECF No. 5. Defendants then
moved to dismiss Count II, the breach of fiduciary duty claim against the individual defendants,
on the ground that it was duplicative of the breach of contract claim against MCO, and, in the
alternative, that it failed to allege Count II with sufficient particularity. Mem. Supp. Mot.
Dismiss 4–14, ECF No. 19.2 The Court rejected the first argument, finding that the breach of
contract and breach of fiduciary duty claims were distinct from each other, but granted the
motion to dismiss Count II because, as pleaded, it laid out no factual basis for its allegation that
the individual defendants owed Atwater a fiduciary duty. Dec. 22, 2016 Order 3–7, ECF No. 31.
Atwater filed another amended complaint, ECF No. 32, which is the object of the current motion
to dismiss.
DISCUSSION
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Atwater at first moved to amend the complaint again. See Fed. R. Civ. P. 15(a)(1)(B). However, the next
amended complaint, ECF No. 24, drew another motion to dismiss on exactly the same grounds, ECF No. 26. The
Court’s order addressed itself to these latter documents.

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I.

Legal Standard on a Motion to Dismiss
In reviewing a motion to dismiss, a court must accept as true all well-pleaded facts in the

complaint, and draw all reasonable inferences in favor of the plaintiff. Scanlan v. Eisenberg, 669
F.3d 838, 841 (7th Cir. 2012). A court will dismiss a complaint if it fails to state a claim upon
which relief can be granted. Fed. R. Civ. P. 12(b)(6). In determining whether such a claim has
been stated, a court should first identify pleadings that “because they are no more than
conclusions, are not entitled to the assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662, 679
(2009). It should then take the remaining, well-pleaded factual allegations, “assume their
veracity[,] and . . . determine whether they plausibly give rise to an entitlement to relief.” Id.
This means that a complaint must provide “allegations that raise a right to relief above the
speculative level.” Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir. 2008). A complaint
must also describe its claims in sufficient detail to give a defendant “fair notice of what the . . .
claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)) (alteration in Bell Atlantic).
II.

Analysis
Defendants take much the same tack in their new motion to dismiss as they took in its

predecessor. They argue that the latest version of the complaint fails to allege breach of
fiduciary duty with sufficient specificity. This time, however, their attack fails, because there is
no real uncertainty as to what Atwater alleges was done, and he alleges enough.
Before, the Court agreed with Defendants that “Atwater’s bare assertion that ‘[t]he MCO
Director Defendants, by virtue of their positions, owed [him] fiduciary duties,’” Dec. 22, 2016
Order 6, was insufficiently detailed, because “by virtue of their positions” did not explain what
about those positions, or Atwater’s, created the duties in question, and Defendants thus had

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insufficient notice under Rule 8(a) of what gave rise to the duties, or what the duties were
supposed to be.3 Atwater appears to have remedied this deficiency in his new pleading, but
Defendants claim to detect another weakness, this time in the allegations of breach, rather than
duty. (Recall that to make out a claim of breach of fiduciary duty under Illinois law, Atwater
must allege “(1) a fiduciary duty on the part of the defendant[s], (2) a breach of that duty, (3) an
injury, and (4) a proximate cause between the breach and the injury.” Alpha School Bus Co., Inc.
v. Wagner, 910 N.E.2d 1134, 1158 (Ill. App. Ct. 2009).)
The allegations at issue are:
18. The MCO Director Defendants breached their fiduciary duties to Plaintiff by
deviating from their usual and customary accounting practices after Plaintiff’s
resignation to the detriment of Plaintiff.
19. The MCO Director Defendants breached their fiduciary duties to Plaintiff by
agreeing to alter compensation practices relevant to Plaintiff after Plaintiff’s
resignation to the detriment of Plaintiff.
20. As a direct and proximate result of the MCO Director Defendants’ breach of
their fiduciary obligations, the MCO Director Defendants have been unjustly
enriched.
21. As a direct and proximate result of the MCO Director Defendants’ breach of
their fiduciary obligations, Plaintiff has been deprived of compensation to which
he is entitled.
Third Am. Compl. 4–5. Defendants argue that these charges don’t describe a nexus between the
change in accounting practices and Defendants’ failure to buy back Atwater’s shares and pay
him severance. See Mem. Supp. Mot. Dismiss 6 (“Count Two pleads nothing more than that the
Physician-Defendants changed accounting and/or compensation practices, and that Plaintiff was
somehow harmed as a result of the change.”). Put another (simpler) way, Defendants demand
more details about how they are supposed to have altered their accounting practices, or what

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“A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the
pleader is entitled to relief[.]” Fed. R. Civ. P. 8(a).

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those practices are supposed to have been, or something of that nature. Defendants are arguing
not that Atwater has pleaded himself out of court, but that he has not pleaded enough, and thus
failed to comply with the strictures of Rule 8(a)(2).
Although a claim “must contain a minimal level of factual detail . . . that level is indeed
very minimal.” E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 779 (7th Cir. 2007).
Requiring a plaintiff to engage in detailed factual pleading interferes with the goals of a notice
pleading system in at least two ways:
First, and most importantly, the number of factual details potentially relevant to
any case is astronomical, and requiring a plaintiff to plead facts that are not
obviously important and easy to catalogue would result in “needless
controversies” about what is required that could serve only to delay or prevent
trial. Second, a plaintiff might sometimes have a right to relief without knowing
every factual detail supporting its right; requiring the plaintiff to plead those
unknown details before discovery would improperly deny the plaintiff the
opportunity to prove its claim.
Id. at 779–80 (internal citations omitted). Both rationales apply here. Atwater’s core claim is
easily summarized—he left his job, and his former colleagues failed to pay him as they had
promised to do. It is not obvious why details about this non-payment should be multiplied in the
body of his pleading, particularly given that Atwater alleges omissions rather than actions. What
would the parties or the Court benefit from reviewing allegations about how Defendants
ordinarily conducted their business dealings, or about what specific payments they might have
made to Atwater but did not, or what form those payments might have taken? And, turning to
the second Concentra rationale, even as it is not clear what such allegations would add, it is also
not clear why Atwater should be required to make such detailed assertions about material he may
well seek in discovery, but not yet possess.
Defendants’ lengthy argument that they cannot tell from the face of the complaint how
they are “somehow” supposed to have breached their duties thus misses the point. Mem. Supp.
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Mot. Dismiss 6. Plainly, they are supposed to have done so by not paying Atwater; the details, in
the form of factual support, will come, or not, in discovery. Similarly misplaced is Defendants’
apparent belief that Atwater needs to detail, or even allege, “nefarious intent or conduct.” Id. at
7. As the Illinois Supreme Court has repeatedly explained, all that a plaintiff need allege to state
a claim for breach of fiduciary duty is that “a fiduciary duty exists, that the fiduciary duty was
breached, and that such breach proximately caused the injury of which the plaintiff complains.”
Neade v. Portes, 739 N.E.2d 496, 502 (Ill. 2000). The claim that Atwater’s former business
partners failed to pay him does not involve misrepresentation, and so does not sound in fraud, as
breach of fiduciary duty claims sometimes do, and trigger the heightened pleading standards of
Rule 9(b). See Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990) (holding that a fraud claim
must allege “the identity of the person making the misrepresentation, the time, place, and content
of the misrepresentation, and the method by which the misrepresentation was communicated to
the plaintiff”).
CONCLUSION
Accordingly, the motion to dismiss, ECF No. 35, is DENIED.
Entered this 15th day of August, 2017.
s/ Sara Darrow
SARA DARROW
UNITED STATES DISTRICT JUDGE

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