Suburban Buick, Inc. v. Gargo et al

Filing 245

MEMORANDUM Opinion and Order Signed by the Honorable Robert W. Gettleman on 5/9/2011:(lp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SUBURBAN BUICK, INC.,
Plaintiff,
v.
JERRY D. GARGO, GAIL A. GARGO,
NICHOLAS G. GARGO, DANIEL J. GARGO
CHARLES N. OWEN, individually and
as President of CHUCK OWEN AUTO BODY,
INC., DAVID C. MORMAN, individually and as
President of DAVE’S AUTO BODY, GREG S.
MELVIN, KATHERINE POLLACK,
ROSEMARY YOUNG, GARGO CUSTOM
HOMES, and GO SERVICE,
Defendants.

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No. 08 CV 370
Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER
Plaintiff Suburban Buick, Inc. filed a six-count corrected second amended verified
complaint against ten defendants,1 alleging violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. § 1964, based on wire fraud (Count I), mail fraud (Count
II), and money laundering (Count III), and seeking injunctive relief (Count IV). Plaintiff also
alleges state law claims for conversion (Count V) and civil conspiracy (Count VI). Plaintiff
previously filed a first amended verified complaint, which this court dismissed pursuant to Fed.
R. Civ. P. 9(b) and 12(b)(6). Suburban Buick v. Gargo, No. 08-CV-00370, 2009 WL 1543709
(N.D. Ill. May 29, 2009). Defendants Jerry Gargo, Gail Gargo, Nicholas Gargo, and Daniel

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Jerry D. Gargo; his wife, Gail A. Gargo; their sons, Nicholas G. and Daniel J. Gargo;
Charles N. Owen; Owen’s company, Chuck Owen Auto Body, Inc. (“COAB”); David C.
Mormon; Mormon’s company, Dave’s Auto Body; Greg S. Melvin; Katherine Pollack;
Rosemary Young; and two companies started by Jerry Gargo, Gargo Custom Homes and GO
Service.

Gargo; Charles N. Owen and Chuck Owen Auto Body; and Greg S. Melvin have filed the instant
motions to dismiss the complaint pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6). For the
following reasons, the court grants defendants’ motions to dismiss.
BACKGROUND
The following facts come from the complaint, and for purposes of evaluating defendants’
motions to dismiss, the court takes them as true. Defendants engaged in an association-in-fact
enterprise through which they conspired to defraud Suburban Buick, a General Motors car
dealership in Wheaton, Illinois, of money and the honest value of its employees’ services. Jerry
Gargo, a manager and officer at Suburban Buick, was the central figure in the conspiracy. He
hired his sons, Nicholas and Daniel Gargo, to work at Suburban Buick; Daniel Gargo served as a
manager. Charles Owen was Suburban Buick’s auto body shop manager, and when Suburban
Buick dissolved its body shop, Owen became the owner and principal operator of Chuck Owen
Auto Body, Inc. David Mormon, formerly a Suburban Buick employee, owns and operates
Dave’s Auto Body. Greg Melvin served as the Parts Department Manager of Suburban Buick.
Katherine Pollack was Suburban Buick’s Treasurer and Chief Financial Officer, and Rosemary
Young was the Accounts Payable and Payroll Manager. Gargo Custom Homes is an entity
through which the owners, Jerry Gargo and his wife, Gail Gargo, invested funds they
fraudulently obtained from Suburban Buick. Jerry Gargo organized GO Service to facilitate the
conspiracy.
Defendants conspired to engage in a pattern of racketeering activity by operating three
kinds of scams: (1) an auto repair and auto body repair scam (“repair scam”); (2) an auto parts
scam (“parts scam”); and (3) an unauthorized pay and salary scam.

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Repair Scam
Defendants Jerry Gargo and Owen falsified work orders to defraud Suburban Buick of
funds. To accomplish this scheme, they created work orders that requested unnecessary repairs
for actual GM vehicles that were under warranty. Jerry Gargo, along with his sons, used vehicle
identification numbers from cars they found in the lot of Gjovik Buick (a nearby Buick
dealership) and from cars that were in their shop. To keep Suburban Buick customers satisfied
when their cars were not promptly returned, Jerry Gargo gave them free loaner or rental cars.
Suburban Buick paid for these loaner and rental cars.
Jerry Gargo and Owen outsourced this false “repair work” to Owen’s company, Chuck
Owen Auto Body. Owen provided Suburban Buick with invoices on his company’s letterhead,
and Suburban Buick paid Owen accordingly. Because the vehicles were under warranty,
General Motors reimbursed Suburban Buick for its payments to Owen. Owen sent
approximately half of his proceeds to GO Service, a company Jerry Gargo owned. Jerry Gargo
and Owen had monthly meetings in furtherance of the scheme, and Jerry Gargo controlled the
billing and money. As a result of the repair scam, Suburban Buick lost time, resources, and,
because Jerry Gargo overpaid the service technicians “to keep [them] quiet about what he was
doing,” money. Suburban Buick also lost many of its customers when the scheme was
uncovered and stopped.
Parts Scam
Jerry Gargo and Melvin sold auto parts to Owen at half of Suburban Buick’s cost. They
operated the scheme through the following series of exchanges: First, Owen called Jerry Gargo
with a request for a specific auto part. Jerry Gargo redirected the call to Melvin (Suburban

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Buick’s parts department manager), who then ordered the part using Suburban Buick’s funds.
As soon as Melvin received the part, he removed it from Suburban Buick’s inventory and
manipulated inventory records to conceal the theft. Jerry Gargo and Melvin then sold the part to
Owen and split the proceeds. Owen, knowing the part had been stolen, sold it to a customer at
full retail price.
Further, Melvin and Jerry Gargo sold David Mormon, a former Suburban Buick
mechanic, transmissions for less than Suburban Buick’s typical retail price. General Motors
reimbursed Suburban Buick for the costs of these transmissions in reliance on Jerry Gargo’s
representations that the transmissions were for vehicles under warranty.
Unauthorized Pay and Salary Scam
Jerry Gargo (as general manager), Pollack (as office manager and treasurer), and Young
(as Pollack’s assistant) used their authority and positions to provide unauthorized pay increases
and other compensation to themselves, the Gargo sons, and Melvin, without approval of
Suburban Buick’s board of directors. Jerry Gargo, Pollack, and Young had the authority to act
as signatories on Suburban Buick’s checks, and all three were signatories on direct deposit
payroll checks. On at least ten occasions specified in the complaint, defendants gave and/or
received unauthorized compensation from fall 2003 through summer 2004. Jerry Gargo also
hired his sons without Suburban Buick’s authorization, for the purpose of having them facilitate
the repair scheme and to help him retrieve vehicle identification numbers from Gjovik Buick’s
used car lot. Additionally, because their compensation was partially based on a percentage of
monthly sales, warranty repairs and parts, and the customer service index (which was inflated
because customers were improperly receiving free repairs and loaner cars), the repair scam

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caused Suburban Buick to overpay Jerry Gargo, Melvin, Pollack, and Young and other
employees.
DISCUSSION
I.

Legal Standards
When considering a motion to dismiss for failure to state a claim upon which relief can

be granted, the court considers all well-pleaded allegations in the complaint as true and draws all
inferences in the light most favorable to the plaintiff. Andonissamy v. Hewlett-Packard Co., 547
F.3d 841, 847 (7th Cir. 2008). This motion tests the sufficiency of the complaint, not its merits.
Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). The complaint must describe
the claim in sufficient detail to give a defendant fair notice of what the claim is and the grounds
on which it rests. The complaint must also give enough details about the subject matter of the
case to present a story that holds together. The court then asks “itself could these things have
happened, not did they happen.” Swanson v. Citibank N.A., 614 F.3d 400, 404 (7th Cir. 2010);
see Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).
Further, Counts I, II, III, V, and VI are subject to Fed. R. Civ. P 9(b)’s heightened
pleading requirement: “[i]n all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity.” As used in Rule 9(b), “circumstances”
means the “who, what, where, when, and how” of the alleged fraud. Uni*quality, Inc. v.
Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992) (“the plaintiff [must] state the identity of the
person who made the representation, the time, place and content of the misrepresentation, and
the method by which the misrepresentation was communicated to the plaintiff”) (internal
quotation omitted).

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In a case with multiple defendants, “the complaint should inform each defendant of the
nature of his alleged participation in the fraud.” Vicom, Inc. v. Harbridge Merchant Servs., 20
F.3d 771, 778 (7th Cir. 1994) (citation omitted); see Zic v. Italian Gov’t Travel Office, 149 F.
Supp. 2d 473, 477 (N.D. Ill. 2001) (“The particularity requirement of Rule 9(b) means that a
plaintiff may not ‘lump’ multiple defendants together in a fraud claim; he must identify the
nature of defendant’s participation in the alleged fraud.”); Balabanos v. North Am. Inv. Group,
Ltd., 708 F.Supp. 1488, 1493 (N.D. Ill. 1988) (in multiple-defendant cases, “the complaint
should inform each defendant of the specific fraudulent acts that constitute the basis of the action
against the particular defendant”).
II.

Analysis

A.

Counts I, II, and III: RICO
Counts I and II allege that defendants Jerry Gargo, Gail Gargo, Charles Owen, Chuck

Owen Auto Body, David Morman, Dave’s Auto Body, Katherine Pollack, Rosemary Young,
Gargo Custom Homes, and Go Service committed predicate acts of wire fraud (Count I) and mail
fraud (Count II) in violation of 18 U.S.C. § 1962. Count III alleges that defendants Jerry Gargo,
Gail Gargo, Charles Owen, Chuck Owen Auto Body, David Morman, Dave’s Auto Body, Gargo
Custom Homes, and Go Service committed predicate acts of money laundering in violation of
RICO. The relevant RICO violations are: 1) § 1962(a), which makes unlawful “the use or
investment of any income derived directly or indirectly from a pattern of racketeering activity”;
2) § 1962(c), which makes it unlawful for “any person employed by or associated with [an]
enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise’s

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affairs through a pattern of racketeering activity”; and 3) § 1962(d), which makes it unlawful for
any person to conspire to violation any of the provisions of § 1962(a), (b), or (c).
The court’s previous opinion identified a number of deficiencies in Counts I, II, and III of
plaintiff’s first amended complaint, which plaintiff attempts to correct by clarifying that it is
alleging an association-in-fact enterprise, adding a variety of factual allegations, specifying
which allegations apply to which defendants in Counts I and II (but not the other counts), and
attaching to the second amended complaint five new exhibits: a Wheaton Police Report, a
supplement to that report, a letter from a private investigator, an auditor report, and a letter from
Greg Urban to Kim Bushy.
These exhibits supply at least some of the factual detail that was absent in the first
amended complaint—for example, the police report lists vehicle identification numbers, check
numbers, dollar amounts, and relevant dates—but they also provide a massive amount of
information that is irrelevant, redundant, or, in places, contradictory. RICO is a complex
statute, but that does not excuse plaintiff from complying with Rule 8(a). See Vicom, Inc. v.
Harbridge Merchant Servs., Inc., 20 F.3d 771, 776 (7th Cir. 1994). Moreover, the complaint’s
problem is more serious than a simple lack of brevity. It fails to specify which portions of the
exhibits it intends to incorporate, and its loose citation style2 leaves unclear which parts of the
voluminous exhibits plaintiff intends to adopt as its allegations. Thus, the court cannot
determine what facts are being alleged and, equally important, defendants do not have fair notice

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For example: “This practice is set forth in the Wheaton Police Report attached hereto
as Exh. B.”; “All of this is set forth in Exh. B.”; “These details are set forth in the Wheaton
Police Department Supplementary Report attached hereto as Exh.s [sic] A and B.”; “This is set
forth in the Special Operations Investigation Report attached hereto as Exh. C.”; “See all of this
detailed in the report Greg Urban attached hereto as Exh. E.”
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of the claims against them. See 5 C. Wright & A. Miller, Federal Practice and Procedure § 1281,
at 365 (1969), quoted in Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir. 1988) (“Unnecessary
prolixity in a pleading places an unjustified burden on the court and the party who must respond
to it because they are forced to select the relevant material from a mass of verbiage.”).
These concerns are particularly troubling because of the inconsistencies between the
second amended complaint and its exhibits. For one example: the Wheaton Police Department
Supplementary Report attached as Exhibit B includes a statement—apparently paraphrased from
a statement Jerry Gargo made to the investigating police officer—that “[Jerry] Gargo and Owen
were the only people involved in the warranty fraud [i.e., the repair scam] and thought nobody
else knew about it.” The second amended complaint, however, contains allegations regarding
who knew about the repair scam that conflicts with this statement. It alleges that Nicholas and
Daniel Gargo knowingly participated in that scam by helping to obtain vehicle identification
numbers from the Gjovic Buick lot. It also alleges that Suburban Buick’s service technicians
knew about the scheme: “to keep the service technicians quiet about what he was doing, [Jerry
Gargo] overpaid them for labor and repairs done and for overtime not needed.”
Faced with this discrepancy, defendants would be forced to decide which controls: the
exhibit or the complaint. The Seventh Circuit has instructed that when a complaint attaches as
an exhibit letters written by a defendant, “[r]ather than accepting every word in [them] as true, it
is necessary to consider why a plaintiff attached the documents, who authored the documents,
and the reliability of the documents.” N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend,
163 F.3d 449, 455 (7th Cir. 1998). Applying this analysis, it is difficult to determine why
plaintiff attached the document, other than sheer sloppiness. The complaint states that “[t]his

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practice [the repair scam] is set forth in the Wheaton Police Report attached hereto as Exh. B.,”
implying that the exhibit is to be considered to the extent that it describes the repair scam. This
exhibit certainly describes that scam. Nonetheless, because the exhibit also undermines
plaintiff’s allegations that other individuals knew about the repair scam, it is unlikely that
plaintiff meant to incorporate the entire exhibit into its allegations. Such uncertainties render the
second amended complaint impossible to decipher.
Taken as a whole, the 48–page complaint and the 75 pages of exhibits thus contain an
excess of, at best, superfluous detail that clearly violates Rule 8(a)’s “short and plain statement”
requirement. And while plaintiff has failed to comply with Rule 8(a), neither has it complied
with Rule 9(b)’s requirement that fraud allegations be pleaded with specificity. Plaintiff’s RICO
allegations are based on §§ 1962(a), (c), and (d), all of which require an “enterprise,” but
plaintiff has not remedied the previous complaint’s failure to allege a RICO enterprise.
Although the second amended complaint alleges that defendants were engaged in an
“association-in-fact” enterprise, merely invoking that term is not enough. An association-in-fact
enterprise is “a group of persons associated together for a common purpose of engaging in a
course of conduct,” United States v. Turkette, 452 U.S. 576, 583 (1981), and it has “at least
three structural features: a purpose, relationships among those associated with the enterprise, and
longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Boyle v.
United States, 129 S.Ct. 2237, 2244 (2009). Plaintiff has not alleged that defendants had a
common purpose. Although an association-in-fact enterprise may sometimes be inferred from
evidence of a pattern of racketeering activity, Turkette, 452 U.S. at 583, that is not the case
when, as here, all that is alleged is that “several individuals, independently and without

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coordination, engaged in a pattern of crimes listed as RICO predicates.” Boyle, 129 S. Ct. at
2245 n.4. As the Supreme Court has explained, “[p]roof of these patterns would not be enough
to show that the individuals were members of an enterprise.” Id. The complaint alleges that
some defendants worked in concert—for example, the monthly meetings alleged between Owen
and Jerry Gargo—but it does not allege that all defendants were members of one enterprise with
one common purpose. It therefore fails to state a RICO claim.
Accordingly, Counts I, II, and III are dismissed.
B.

Count IV: Injunctive Relief
Count IV, requesting injunctive relief under 18 U.S.C. § 1964, is unchanged from the

first amended complaint. In dismissing the first amended complaint, the court held that Count
IV was “an improper means of seeking injunctive relief.” Suburban Buick, 2009 WL 1543709,
at *5. The court suggested that plaintiff include an injunction in its prayer for relief rather than
as a separate count. Id. Plaintiff ignored this advice, and moreover appears not to understand
the relationship between claims for substantive and injunctive relief.3 For the reasons explained
in the court’s previous opinion, Count IV is dismissed (again).
C.

Count V: Conversion
Count V, a state law claim for conversion, alleges a general debt, which—as the court

previously explained—is insufficient to state a claim for conversion. See Shapo v.
O’Shaughnessy, 246 F. Supp. 2d 935, 968 (N.D. Ill. 2002). Plaintiff continues to allege

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Count IV does not specify whether plaintiff is seeking pre- or post-judgment
injunctive relief. As the court explained in its March 27, 2008, order denying plaintiff’s motion
for a preliminary injunction (Dkt. 76), pre-judgment injunctive relief is inappropriate. Further,
as the court explained in its May 29, 2009 opinion, post-judgment injunctive relief is premature,
as defendants’ liability has not yet been determined. Suburban Buick, 2009 WL 1543709, at *5.
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conversion based on funds that are “not identifiable or segregated” into separate accounts. Id.
Although funds need not necessarily be kept in a segregated account to constitute a specific
chattel subject to a conversion claim, see Roderick Dev. Investment Co. v. Community Bank of
Edgewater, 668 N.E.2d 1129, 1136 (Ill. App. Ct. 1996), they must then be otherwise “capable of
being described, identified, or segregated in a specific manner.” Indep. Trust Corp. v. Fidelity
Nat’l Title Ins. Co. of New York, No. 03 C 5749, 2007 WL 1017858, at *24 (N.D. Ill. March 30,
2007). Plaintiff has not done so. Further, the conversion claim continues to fail to differentiate
among defendants. Rather, it alleges that “the defendants and each of them, engaged in
unauthorized and wrongful assumption and control, dominion and ownership over plaintiff’s
personality [sic].” This is insufficient to identify which funds which defendants allegedly
converted. Thus, plaintiff has not stated a cognizable conversion claim for the funds.
Count V also includes allegations regarding a shotgun “that Gabor Bushy [plaintiff’s
principal] wanted one of his friends to have.” Plaintiff alleges that the shotgun “was stolen from
[Gabor Bushy’s] office . . . and has not been returned,” that Kim Bushy (Gabor’s widow) has
demanded its return, and, in the Wheaton Police Report attached as an exhibit (along with some
irrelevant details about the gun), that the shotgun was missing from Gabor’s office. Nowhere
does the complaint allege that plaintiff (as opposed to Gabor) owned, had a right to, or had a
right to immediate possession of the gun. See Fonda v. Gen. Casualty Co. of Ill., 665 N.E.2d
439, 442 (Ill. App. Ct. 1996) (reciting these as elements of conversion under Illinois law). The
complaint also fails to allege that any specific defendant assumed control, dominion, or
ownership of the shotgun. See id. Instead, the complaint states only that plaintiff “believes that
Pollack knows the whereabouts of the shot gun and had something to do with its theft”—not that

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Pollack or any other defendant controlled, owned, or otherwise possessed or exercised dominion
over the shotgun. Further, the police report states that “Kim . . . suspects ex-employees Ray and
Roy Trost,” thus contradicting the allegation that Pollack “had something to do with its theft.”
These allegations do not suffice to state a claim for conversion.
Finally, plaintiff alleges conversion as to artwork credentials. The complaint alleges only
that “defendants Gargo and Pollack stole the authenticating credentials to valuable art works
hanging in the dealership,” thus depriving the works of “their value which is believed to be in
excess of $250,000,” and that a demand for their return was made. The complaint fails to allege
that plaintiff has a right to the credentials and a right to immediate possession of the credentials.
Thus, because none of these allegations amount to a conversion claim, Count V is dismissed.
D.

Count VI: Civil Conspiracy
Count VI, which alleges that “[t]here was an agreement between the defendants for the

purposes of accomplishing the unlawful acts alleged above by unlawful means,” lacks the
requisite specificity under Rule 9(b) as to which defendant participated in which scheme.
Plaintiff responds that the rest of the complaint—which Count VI incorporates—provides a great
deal of specificity, and lists which defendants are alleged to have performed which acts.
Although that may be true, the rest of the complaint is inadequate for the reasons discussed
above. Plaintiff therefore cannot rely on those allegations to plead its civil conspiracy claim.
Defendants’ motions to dismiss Count VI is granted.
CONCLUSION
For the foregoing reasons, the court grants defendants’ motions to dismiss. Counts I, II,
III, and VI of the corrected second amended verified complaint are dismissed without prejudice.

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Plaintiff is given leave to file a third amended complaint on or before May 26, 2011.4 Counts IV
and V are dismissed with prejudice. Defendants are ordered to answer or otherwise plead by
June 23, 2011. The status report previously set for May 5, 2011, is continued to June 30, 2011,
at 9:00 a.m.

ENTER:

May 9, 2011

__________________________________________
Robert W. Gettleman
United States District Judge

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This will be plaintiff’s fourth complaint. If it fails to plead a sustainable third amended
complaint, there will not be a fifth.
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