Amari Company, Inc. et al v. Burgess et al

Filing 942

MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 7/11/2011:Mailed notice(mpj, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

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AMARI COMPANY, INC., et al.
Plaintiffs,
v.
JOHN BURGESS, et al.
Defendants.

No. 07 C 1425

MEMORANDUM OPINION AND ORDER
Many moons ago, plaintiffs filed a complaint alleging, inter
alia, violations of the RICO statute, 28 U.S.C. § 1962. Now before
me–-several years, multiple amended complaints, and an incredible
amount of motion practice later-–is defendants’ motion for summary
judgment on the only remaining counts in the complaint, which
assert violations of 18 U.S.C. §§ 1962(c) and (d). For the reasons
that follow, their motion is granted in part.
I.
To prevail under § 1962(c), plaintiffs must ultimately prove
that defendants, being employed by or associated with the entities
sometimes

referred

to

in

this

litigation

as

the

“Non-Party

Corporations,” which I will refer to collectively here as “IPA,”
conducted or participated in the conduct of those entities’ affairs
“through a pattern of racketeering activity.”

H.J. Inc. v.

Northwestern Bell Telephone Co., 492 U.S. 229, 232-33 (1989).

The

essential elements of a this claim are “(1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity.”
Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S. Ct.
3275 (1985).

To prevail under § 1962(d), plaintiffs must further

prove that defendants conspired to commit the foregoing violation.
The “racketeering activity” on which plaintiffs’ complaint is
premised is mail and wire fraud.

See 18 U.S.C. §§ 1341, 1343.

This type of RICO allegation requires plaintiffs to establish that
defendants (1) have participated in a scheme to defraud and (2)
have mailed or knowingly has caused to be mailed a letter or other
material for the purpose of executing the scheme. Richards v.
Combined Insurance Co. Of America, 55 F.3d 247, 249-50 (7th Cir.
1995).

Although neither side’s briefing is remotely helpful in

elucidating whether plaintiffs’ evidence is sufficient to raise a
triable issue in view of the foregoing standards, my own review of
the record–-though the record, too, is utterly confused–-minimally
satisfies me that a jury could find in plaintiffs’ favor.
Although each plaintiff recounts an individual tale of woe
that

is

unique

in

some

of

its

details,

the

basic

plaintiffs’ collective experience with IPA follows.

story

of

Plaintiffs’

first face-to-face contact with IPA was when a salesperson known as
a Senior Area Manager (“SAM”) showed up at their door, ostensibly
(and

sometimes,

but

scheduled appointment.

not

always,

genuinely)

for

a

previously

The SAMs explained that IPA is a prominent

2

and fast-growing business consulting firm endorsed by distinguished
public figures, including three former Presidents of the United
States, that specializes in consulting to small to medium-sized
businesses.

The SAMs then presented the panoply of services IPA

provides and explained how each proceeds: The first step in any
engagement is to have a Business Analyst (“BA”) visit the client,
obtain and review the company’s financial and other relevant
information, and provide a “comprehensive” diagnosis of how the
company is performing and where improvements can be made. The SAMs
explained that IPA’s BAs are highly experienced business people
generally, and that IPA assigns BAs to particular jobs based on the
BA’s expertise in the client’s specific industry or field.
The SAMs then explained that during the BA’s visit, he or she
would collect substantial company information and communicate
frequently with IPA’s home office via phone and fax to consult with
additional experts (including during the so-called “Council Calls,”
discussed below), and to access information for a comparative
business analysis.

At the conclusion of the business analysis (or

“survey” as it is more frequently called), the BA would present his
or her findings, which would reveal any deficiencies in how the
client’s business was run, and would propose recommendations that
may or may not include hiring IPA’s Consulting Services for a
second engagement.

The client would be billed for the survey but

would only have to pay if it was satisfied with the results.

3

All

of the plaintiffs contracted for surveys, which all culminated in
variations on the same, dire warning: the client’s business was on
the brink of imminent failure due to poor management controls.
Luckily, however, the surveys also revealed a quick and efficient
path to salvation: IPA’s expert consultants could begin work the
following day to turn the client’s business around quickly and
efficiently.
Plaintiffs all contracted for IPA’s consulting services.1
Within a day or two, a cadre of IPA employees (at least two and as
many

as

four),

billing

by

the

hour,

arrived

businesses to begin their consulting projects.

at

plaintiffs’

The consultants

typically spent the first day gathering financial information and
faxing it back to IPA’s headquarters, and preparing an apparently
customized

“project

plan,”

followed

by

a

Program” with which to begin the project.
typically

provided

a

list

of

“Value

Enhancement

The latter document

objectives,

strategies,

or

improvements that were necessary to improve the client’s business
results.
Plaintiffs’

descriptions

of

the

consultants’

concrete

activities over the course of the following weeks are generally
vague, but all plaintiffs assert that it became increasingly clear
that little or no progress was being made with respect to the items

1

I use “IPA’s consulting services” as a general description of
the post-survey services offered by IPA and its related businesses.
4

identified in the Value Enhancement Program; that the supposed
“experts” who performed the surveys had little to no experience in
the relevant fields, and the consultants had no idea how to
implement the recommended changes; that IPA could not substantiate
either its endorsements by public figures or its claim to legions
of satisfied customers; and that the bulk of the consultants’ work
product

consisted

of

boilerplate

“templates”

that

were

not

customized to address the problems identified in the surveys.2
Plaintiffs

later

discovered,

moreover,

that

a

number

of

the

representations made by the SAMs and the BAs, which plaintiffs had

2

This is not an exhaustive list of plaintiffs’ complaints.
Defendants are quick to point out that despite the laundry list of
grievances in their affidavits, plaintiffs signed off on weekly
Value Enhancement Reports (“VERs”), which generally reflected some
measure of satisfaction with–-and occasionally outright praise for-the consultants’ work.
Plaintiffs’ generic response (which
appears verbatim in their respective affidavits) is that the VERs
were “glowing but false accounts of progress.” Standing alone, I
would not be inclined to accord much significance to the naked
assertion that the VERs were “false.” But, in the context of more
specific statements about the consultants’ performance, I conclude
that plaintiffs have sufficiently raised a factual dispute. See,
e.g., Decl. of Dennis Kao, Pl.’s L.R. 56.1 Statement, Exh. 13 at 15
(“By December 8, 2005, 416 hours had been billed - way over the
project limit of [360]. Very little had been accomplished save to
make Compsolution utterly chaotic, as described [in discovery
materials]. The special expert in QuickBooks, Beaudette, was not
and he nearly destroyed Compsolution’s bookkeeping system.
To
cover his incompetence, he lobbied us to fire our accountant.
Little or no work product had been supplied.
IPA’s personnel
admitted as much and came back for an eighth week...at no charge,
at which time they dumped most of IPA’s ‘work product’ on us.”
Plaintiff
also
testified
that
IPA’s
“work
product”
was
“boilerplate[,] generated from templates and had no particular
relation to the ‘problems’ identified by [the BA].”
5

relied upon in deciding to engage IPA for consulting services, were
misleading or untrue.
II.
While plaintiffs’ generally sloppy drafting and frequent
citation to portions of the record not included in their exhibits
in opposition to defendants’ motion nearly led me to conclude that
they

had

no

chance

of

prevailing

on

their

claims,

their

shortcomings were matched by defendants’ failure to raise a single
properly reasoned argument in support of their motion.

The first

argument defendants attempt is that plaintiffs cannot prove the
predicate acts of mail and wire fraud. If properly supported, this
argument would indeed sound the death knoll for plaintiffs’ claim.
But defendants’ disordered pronouncements in putative support of
their theory all miss the mark.

For example, defendants insist

that “there is no violation of RICO because defendants are engaged
in a lawful business with legitimate business practices and a
legitimate business model.”
plaintiffs

need

not

This argument is unavailing because

establish

that

IPA’s

entire

business

is

unlawful or illegitimate; what they must show is that defendants
engaged in a “pattern of racketeering activity” in conducting IPA’s
business.

This means they must identify at least two related acts

of mail and wire fraud that “amount to or pose a threat of
continuing criminal activity.” Corley v. Rosewood Care Center,
Inc., 142 F.3d 1041, 1048 (7th Cir. 1998) (quoting H.J. Inc. v.

6

Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989)). A plaintiff
may satisfy this requirement by showing “that the ‘predicate acts
or offenses are part of an ongoing entity’s regular way of doing
business.’

Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016,

1023 (7th Cir. 1992)(quoting H.J. Inc., 492 U.S. at 242-43).
None of defendants’ arguments even purports to examine a)
whether

the

conduct

constitutes

mail

constitutes

a

or

plaintiffs
wire

pattern.3

fraud,
On

the

3

attribute
or

b)

first

to

IPA

whether
issue,

employees

the

“[i]t

conduct
is

well

As best I can follow defendants’ arguments, they appear to be
variations on the following themes: 1) defendants’ business is
legitimate; 2) plaintiffs’ claims properly sound in contract, and
do not amount to violations of RICO; and 3) plaintiffs did not
suffer any injury.
The first theme does not establish an
entitlement to relief for the reason noted above. The second theme
simply misreads plaintiffs’ claims, possibly in an effort to shoehorn the claims into a legal framework with which IPA has
apparently had some success in state court. And the third theme–that plaintiffs suffered no injury–-appears to rest entirely on
plaintiffs’ apparent acknowledgment, in VERs (see fn. 2, infra) and
in “satisfaction letters,” that plaintiffs benefitted from IPA’s
services in some way.
This argument also does not establish
defendants’ entitlement to summary judgment. To begin with, it is
not self-evident that plaintiffs cannot, as a matter of law, have
suffered an injury cognizable under RICO even if they also
benefitted from IPA’s services, and defendants have not made any
argument along those lines. (Their citation to Hexagon Packaging
Corp. v. Manny Gutterman & Associates, Inc., 120 F. Supp. 2d 712
(N.D. Ill. 2000), which does not even direct me to any particular
page or portion of that lengthy decision, plainly does not support
this broad proposition). Moreover, the statements on which
defendants rely do not, contrary to defendants’ suggestion,
constitute legally binding admissions, even if plaintiffs do not
dispute having read and signed the documents in question. While
certainly defendants are entitled to probe plaintiffs’ putative
earlier statements at trial, plaintiffs, too, are entitled to
address any apparent inconsistencies between those statements and
other evidence in the record.
7

established that the crime of mail fraud does not encompass all the
strict requirements of common law fraud.”
251.

Richards, 55 F.3d at

Instead, “the words ‘to defraud’ in the mail fraud statute

have the ‘common understanding’ of ‘wronging one in his property
rights by dishonest methods or schemes,’ and ‘usually signify the
deprivation of something of value by trick, deceit, chicane or
overreaching.’” Id. at 252 (quoting McNally v. United States, 483
U.S.

350,

358

omitted)).

(1987)

(internal

quotation

marks

and

citation

The wire fraud statute has a similar focus, making it

a crime to use the interstate wires in “any scheme or artifice to
defraud, or for obtaining money or property by means of false or
fraudulent pretenses, representations, or promises.” 18 U.S.C.
§ 1343.

Accordingly, while plaintiffs must establish “a scheme to

defraud,” as well as the “intent to implement such a scheme,” they
need not establish a “misrepresentation of present fact” as they
would under the common law.

Richards, 55 F.3d at 252.

Even putting aside plaintiffs’ contested expert reports (which
I have not considered for the purpose of ruling on this motion),
the

record

reveals

several

concrete

examples

of

defendants’

trickery, and the extent to which this trickery was apparently
institutionalized and incorporated into IPA’s standard sales and
business

practices

suggests

that

8

it

was

intentional,

not

inadvertent.4

The so-called “Council Call” made by IPA’s Business

Analysts is a good example.

The affidavit of Nancy Miller (a

twelve-year employee of IPA, who testified based on her personal
experience) explains that Business Analysts arriving at a client
site are required to present a scripted speech known as the
“Institutional,” in which they explain, among other things, the
survey process.

According to the speech (which appears in the

record as part of IPA’s 2000 Business Analyst Training Manual), the
Business Analyst explains, “I’ll be making several long distance
calls back to my office in Chicago.... I’ll be calling and asking
to have my Council assembled, which is a group of individuals who
have expertise in

your

industry.5

I rely on my Council in

assisting me, not only in identifying problems, but also in making

4

Defendants argue that plaintiffs’ case rests upon the
opinions of their experts but acknowledge that the expert reports
are “loosely supported” by the declarations of plaintiffs
themselves. Defendants have it wrong. While defendants’ criticism
of plaintiffs’ declarations as “carbon-copied” and “factually
inaccurate” is justified in some respects, the declarations are not
so deficient as to warrant complete disregard (nor do defendants go
so far as to suggest they should be stricken), and the experiences
they describe--however carelessly at times--are sufficient, in view
of other evidence in the record, to enable a reasonable jury to
find in plaintiffs’ favor, with or without the support of
plaintiffs’ experts.
5

Apparently, at some point Business Analysts referred to their
“Research Staff” rather than their “Council,” but with the same
representation the “Research Staff” was “a group of individuals who
have expertise in your industry” and assist in “identifying
problems” and “making recommendations as to how we overcome the
problems.” See, e.g., Pl.’s L.R. 56.1 Statement, Exh. 4 at p. 22
para. 7; Decl. Of Dennis Kao, Pl.’s L.R. 56.1 Statement Exh. 13 at
9.
9

recommendations as to how we overcome the problems.”

After

gathering information about the client’s business, the Business
Analyst makes the previously explained “Council Call,” in the
client’s presence, ostensibly discussing the client’s problems with
a group of experts.

According to the Miller Affidavit, however,

these calls were a “charade.”
at ¶ 41(D).

Pl.’s L.R. 56.1 Statement, Exh. 24

In fact, there was no council of experts at all.

If

the Business Analyst was experienced, his or her call was simply
placed on hold while he or she pretended to speak to a group of
experts.

If the client insisted on speaking to the “Council,” an

IPA employee would have to “scramble to find anyone who happened to
be in the office to pretend to be part of this ‘council of
experts.’” Id.
While I may be inclined to agree with defendants that certain
of the practices plaintiffs complain of fall within the broad
category of “puffery,” it is difficult to see how the Council Call
“charade” can be characterized as anything other than a “dishonest
method” of achieving a sale.6

The evidence reveals that the calls

6

The “Council Call” charade is qualitatively different from
the “puffing” and expressions of opinion that courts have declined
to find fraudulent in the cases defendants cite. See Royal Business
Machines v. Lorraine Corp., 633 F.2d 34, 42 (7th Cir.
1980)(statements that machines were “high quality” and that
frequency of repair was “very low” amounted to “puffing”); Lefebvre
Intergraphics v. Sanden Mach. Ltd., 946 F. Supp. 1358, 1366 (N.D.
Ill., 1996) (statement that printing press “would produce
commercially acceptable work” was merely “dealer talk”). Moreover,
these cases dealt with state law claims of fraudulent
misrepresentation, not federal mail and wire fraud, which reach
10

were specifically designed to “condition” the potential customers
to believe that his or her business suffered from “deficiencies”
that additional IPA services could repair.

As IPA’s 2004 Survey

Training Manual explains,
The purpose of the call is to have the client overhear
what the analyst is saying to the SSD.7
It is to
merchandise and further implant in the client’s mind what
his problems are and what these problems are costing
him.... If the SSD asks a question, it is for the purpose
of giving the analyst a “talking point.” The questions
should not be answered yes or no, as this answer does not
condition the client. The analyst must expound on the
question so that the client is conditioned that there is
a deficiency in the business regarding the question
posed.... This is a golden opportunity to take control,
establish urgency, get a focus of the survey and
agreement to the problems, and condition the client. For
this reason it is mandatory that every analyst complete
an Opening Research Staff Call on every job.
Pl.’s L.R. 56.1 Statement, Exh. 4 at 15.
Indeed, numerous plaintiffs have testified that when deciding
whether to engage IPA for additional services, they relied on the
Business Analysts’ representation (along with a catalog of others
later revealed to be, at a minimum, misleading) that a group of
industry experts had participated in diagnosing problems with their
businesses and in formulating recommendations. See, e.g., Decl. of
Dennis Kao, Pl.’s L.R. 56.1 Statement Exh. 13 at 9.

This, one may

“false promises and misrepresentations as to the future as well as
other frauds involving money or property.”
7

I.e., the Survey Services Director, whose function at that
stage is to act as the analyst’s “Wing Man, to guide you to the GO”
see Pl.’s L.R. 56.1 Statement, Exh. 4 at 5.
11

reasonably surmise from the record, is precisely what defendants
intended.
As for the “pattern” requirement, the evidence also reveals
that Business Analysts systematically made two of these “Council
Calls” on the first day of each survey performed--indeed, it was,
and as far as the record reveals, still is, mandatory to do so “on
every job.”

And the record reflects other practices that, while

perhaps less glaringly deceitful individually than the “Council
Call” example, could, collectively, persuade a jury that IPA’s
method of selling its services is based on “trick, deceit, chicane
or overreaching.”8

Because all of these practices are “part of an

ongoing entity’s regular way of doing business,”

Midwest Grinding

Co., Inc. v. Spitz, 976 F.2d at 1023, the requirement of a
“pattern” of racketeering activity is also satisfied.
I conclude, however, that plaintiffs have not demonstrated
that they are entitled to a jury on their claim that defendants
violated § 1962(d). The whole of their argument is that defendants
“sat at the top of the pyramid” of IPA employees who “perpetrated
the sales scheme which they conceived and controlled.”

8

Pl.’s Opp.

Another example is IPA’s Business Analysts’ standard practice
of generating so-called “problem costs” that purportedly reflect
rising expenses in the client’s business (which, the Analyst
explains, herald the imminent failure of the business), and
attributing these “problem costs” systematically to poor
“management controls.” According to the Miller Affidavit, Business
Analysts were encouraged to “fudge the data” if need be to generate
“problem costs.” See Miller Aff. At ¶ 41 (F).
12

At 6.

But if the record contains evidence of who did what to

“conceive[] and control[]” the alleged scheme, or evidence of any
agreement among the defendants to participate in the scheme,
plaintiffs have not directed me to it, and I need not scour the
record searching for it. Harney v. Speedway SuperAmerica, LLC, 526
F.3d 1099, 1104 (7th Cir. 2008) (“It is not the duty of the court
to scour the record in search of evidence to defeat a motion for
summary

judgment;

rather,

the

nonmoving

party

bears

the

responsibility of identifying the evidence upon which he relies.”).
A

conspiracy

to

violate

RICO

requires

“proof

that

the

defendant, by his words or actions, objectively manifested an
agreement to participate, directly or indirectly, in the affairs of
an enterprise, through the commission of two or more predicate
crimes.” Roger Whitmore’s Auto Services, Inc. v. Lake County, Ill.,
424

F.3d

659,

674-75

alterations omitted).

(7th

Cir.

2005)(citation

textual

Conclusory assertions “that a conspiracy

must be present” are “wholly inadequate.”
in original).

and

Id. at 674 (alteration

Furthermore, the only authority plaintiffs cite to

support their RICO conspiracy claim is a district court decision
dismissing

such

a

claim

because

the

complaint

contained

insufficient information about the putative role of each defendant
in the alleged conspiracy. Damato v. Merril Lynch, Pierce, Fenner,
& Smith, Inc., 878 F. Supp. 1156, 1164 (N.D. Ill. 1995).

13

In short,

plaintiffs

have

not

demonstrated

that

they

could

convince

a

reasonable jury that defendants have violated § 1962(d).

III.
For

the

foregoing

reasons,

I

grant

summary

judgment

in

defendants’ favor on plaintiffs’ claim pursuant to 28 U.S.C.
§ 1962(d) claim and deny summary judgment of their § 1962(c) claim.

ENTER ORDER:

________________________
Elaine E. Bucklo
United States District Judge
Dated: July 11, 2011

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