Angelopoulos v. Keystone Orthopedic Specialists, S.C. et al

Filing 258

MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr. on 5/15/2015. Mailed notice(cdh, )

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

NICHOLAS ANGELOPOULOS,

)
)
Plaintiff,
)
)
v.
)
)
KEYSTONE ORTHOPEDIC SPECIALISTS, S.C., )
WACHN, LCC, MARTIN R. HALL, M.D.,
)
)
Defendants.
)

Case No. 12-cv-05836
Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER
Plaintiff, an anesthesiologist, alleges that Defendant Dr. Martin Hall defrauded him in
connection with two medical businesses, both of which are Defendants in this action: Keystone
Orthopedic Specialists, S.C., and WACHN, LLC, a lessor of medical suites. In addition to
alleging common law fraud (Count II), Plaintiff alleges the fraudulent filing of an information
return in violation of 26 U.S.C. § 7434 (Count I), breach of fiduciary duty (Count III), breach of
contract (Counts V and VI), and unjust enrichment (Count VII). He also brings an action under
805 ILCS § 180/35-65 to determine the fair value of his distributional interest in Defendant
WACHN, LLC (Count IV). Before the Court is Defendants’ motion to dismiss Counts I, II, VI
and VII [233]. For the reasons stated below, the Court denies Defendants’ motion.
I.

Background1
A.

Keystone

In early 2004, Plaintiff joined Keystone, an orthopedic medical practice including four

1

For the purposes of Defendants’ motion to dismiss, the Court assumes as true all well-pleaded
allegations set forth in the complaint. See Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618
(7th Cir. 2007).

physician-shareholders: Plaintiff, Hall, Dr. Daniel Weber, and Dr. Martin Chang.

Plaintiff

alleges that his oral agreement with Keystone paralleled that of every other physicianshareholder. Under these agreements, each physician would pay 25 percent of Keystone’s
expenses. Each physician would receive revenues generated by his individual patient billings, 25
percent of certain other revenues, and a guaranteed fixed monthly draw of $25,000.

If a

physician left Keystone, it would pay the full amount of his contribution toward cash reserves,
revenues generated by his patient care, the value of funds invested in any equipment, and any
other funds that Keystone owed him.
As secretary and president of Keystone, Hall allegedly engaged in self-dealing and
misappropriated corporate funds for his personal benefit. For example, he allegedly caused
Keystone to hire MedStaff—a Hall-affiliated business that provided medical staffing and health
insurance—at premium rates. He also caused Keystone to rent its MRI machine from Vertical
Plus, which Hall owned and managed with his brother-in-law, also at a premium rate. Hall
allegedly accepted these arrangements on Keystone’s behalf without soliciting bids from
competitors, without obtaining the other physicians’ approval, and without disclosing the
conflicts or the full terms of the agreements. According to Plaintiff, Hall also hid invoices and
other billing-related documentation from the other physicians.

Hall additionally charged

Keystone for expenses incurred by his personal corporation—Martin R. Hall M.D., S.C.—
including the salaries and benefits of his wife and brother-in-law. In addition, Hall gave himself
and select employees retirement benefits without offering those same benefits to other physicians
and staff. In early 2006, Hall requested and received $100,000 from the three other physicians,
falsely representing that a “cash reserve” was necessary to avoid certain unidentified bank fees.
He also failed to pay Plaintiff for any of Keystone’s 2004 revenues, aside from Plaintiff’s own

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billings, and withheld $150,000 of Plaintiff’s guaranteed draw that year. To hide this conduct
and underreport income due to Plaintiff, Hall allegedly produced fraudulent profit and loss
(“P&L”) statements at the end of every quarter from 2004 to 2007.

He allegedly hid

documentation of Keystone’s actual expenses and altered Keystone’s accounting records
(“QuickBooks files”) to comport with the fraudulent P&L statements.
In 2007, Chang, Weber and then Plaintiff dissociated from Keystone. In order to reduce
the amount due to each physician upon his departure, Hall retroactively changed the agreed-upon
allocation of income, resulting in a loss to Plaintiff and a significant profit to Hall. Upon,
Plaintiff’s departure, Keystone also failed to give him the value of his interest in Keystone; his
$100,000 contribution toward Keystone’s “cash reserves”; his investment in Keystone’s
equipment; income accrued through the date of his departure; or accounts receivable from his
billings.
B.

WACHN

Around the time that these physicians formed Keystone, they also formed WACHN, LLC
along with Dr. Phillip Narcissi. The name WACHN derives from the first letter of the last names
of each member: Weber, Angelopoulos, Chang, Hall and Narcissi. The five physicians formed
WACHN with the purpose of purchasing and leasing medical suites—one to Keystone and the
remainder to other tenants. Hall allegedly engaged in similar self-dealing in the context of
WACHN.

He also forged Plaintiff’s signature and fabricated an operating agreement so

WACHN could borrow money to purchase property. Each partner made contributions toward
the down payment and personally guaranteed the entire loan. Despite accepting these equity
contributions from each physician and orally agreeing to make them equal shareholders, Hall
allegedly filed papers with the Illinois Secretary of State falsely stating that he and his brother-

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in-law were the only owners. Around October 2007, Plaintiff withdrew from WACHN. Hall
and Narcissi allegedly amended the forged operating agreement to cause Plaintiff to forfeit his
interest in the business. WACHN then declined to purchase Plaintiff’s interest in the business.
C.

Fraudulent IRS 1099-MISC

According to Plaintiff, in order to reduce the two businesses’ financial obligations to
Plaintiff upon dissociation, Hall allegedly fabricated a false set-off. More specifically, he falsely
claimed that Plaintiff owed both businesses money and that these debts offset the businesses’
financial obligations toward him. See [222], TAC at ¶¶ 105-107 (detailing examples of false
debts). Around late 2007 or early 2008, Hall allegedly attempted to pressure Plaintiff into
agreeing that the two businesses owed him nothing based on these fabricated set-offs, but
Plaintiff rejected the proposal.
Plaintiff alleges that in retaliation, Hall reported false information to the IRS to increase
Plaintiff’s tax liability. More specifically, he falsely reported in a 1099-MISC form (submitted
on Keystone’s behalf) that Plaintiff earned $159,577.45 in miscellaneous income in 2007
although he had earned only $38,010.45.2

Hall allegedly inflated Plaintiff’s income by

overstating his revenues, understating his expenses, and fabricating a variety of forgiven loans.
On June 7, 2011, the IRS issued a Notice of Deficiency to Plaintiff, alleging that he had failed to
pay taxes on the $159,577.45 in miscellaneous income. Plaintiff filed a petition in the U.S. Tax
Court, alleging that the miscellaneous income was inflated, and the IRS allegedly agreed.

2

A 1099–MISC is an information return generally reporting a non-employee’s receipt of miscellaneous
income worth $600 or more. Examples include payments of rent, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income—
worth $600.00 or more to non-employees. See 26 U.S.C. § 6041(a).

4

Plaintiff sues to recover accounting and legal fees as well as lost wages due to Hall’s alleged
misrepresentations in the 1099-MISC.
D.

This Action

Plaintiff filed this action on July 24, 2012. Relevant here, Count I alleges that Keystone
and Hall fraudulently filed an information return in violation of 26 U.S.C. § 7434. Count II
alleges common law fraud against all Defendants. Count VI alleges that Keystone breached its
oral agreement with Plaintiff by failing to compensate him or purchase his interest upon
dissociation. And Count VII brings an unjust enrichment claim against Keystone, WAHN, and
Hall. Plaintiff initially brought this action against not only the current Defendants but also
Keystone’s accountants, Ira K. Dubin, Ltd. and Ira K. Dubin. On September 8, 2014, Plaintiff
and the Dubin Defendants filed a stipulation of dismissal [190]. The remaining Defendants
move to dismiss Counts I, II, VI and VII.
II.

Legal Standard
The purpose of a Rule 12(b)(6) motion to dismiss is not to decide the merits of the case; a

Rule 12(b)(6) motion tests the sufficiency of the complaint. Gibson v. City of Chi., 910 F.2d
1510, 1520 (7th Cir. 1990). As previously noted, reviewing a motion to dismiss under Rule
12(b)(6), the Court takes as true all factual allegations in Plaintiff’s complaint and draws all
reasonable inferences in his favor. Killingsworth, 507 F.3d at 618. To survive a Rule 12(b)(6)
motion to dismiss, the claim first must comply with Rule 8(a) by providing “a short and plain
statement of the claim showing that the pleader is entitled to relief” (Fed. R. Civ. P. 8(a)(2)),
such that the defendant is given “fair notice of what the * * * claim is and the grounds upon
which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson,
355 U.S. 41, 47 (1957)). Second, the factual allegations in the claim must be sufficient to raise

5

the possibility of relief above the “speculative level,” assuming that all of the allegations in the
complaint are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007)
(quoting Twombly, 550 U.S. at 555). “A pleading that offers ‘labels and conclusions’ or a
‘formulaic recitation of the elements of a cause of action will not do.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). However, “[s]pecific facts are not
necessary; the statement need only give the defendant fair notice of what the . . . claim is and the
grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly, 550
U.S. at 555) (ellipsis in original). The Court reads the complaint and assesses its plausibility as a
whole. See Atkins v. City of Chi., 631 F.3d 823, 832 (7th Cir. 2011); cf. Scott v. City of Chi., 195
F.3d 950, 952 (7th Cir. 1999) (“Whether a complaint provides notice, however, is determined by
looking at the complaint as a whole.”).
III.

Analysis
A.

Count I

Defendants move to dismiss Count I—which alleges that Keystone and Hall fraudulently
filed a 1099-MISC in violation of 26 U.S.C. § 7434—against Hall. Section 7434 provides that
“[i]f any person willfully files a fraudulent information return with respect to payments
purported to be made to any other person, such other person may bring a civil action for damages
against the person so filing such return.” 26 U.S.C. § 7434(a). Defendants submit that “any
person * * * so filing” means a person required to file the return. According to Defendants, the
“person” required to file the 1099-MISC here was Keystone, not Hall. They argue that Hall,
who was merely involved in preparing the return, is an improper Defendant.3

3

Plaintiff unpersuasively asks the Court to disregard this argument as untimely because it was absent in
Defendants’ answer to the SAC. By filing an amended complaint, a plaintiff “wipes away prior
pleadings,” including previous answers. Chasensky v. Walker, 740 F.3d 1088, 1094 (7th Cir. 2014)
(citation and internal quotation marks omitted). The absence of certain arguments in Defendants’ answer

6

Defendants cite Vandenheede v. Vecchio, 2013 U.S. Dist. LEXIS 25845 (E.D. Mich.
2013), in support of their proposed statutory interpretation. In Vandenheede, the plaintiff alleged
that the co-trustees of a trust and an accounting firm filed a fraudulent 1099-MISC under § 7434
on the trust’s behalf. The question before the court was whether “any person” included the cotrustees and accounting firm who prepared the return and caused it to be filed. Vandenheede
interpreted “any person” to mean a person required to file a return, not a preparer. Id. at *3.
Notably, however, Vandenheede’s interpretation of § 7434 relied on a regulation interpreting a
different statute, 26 U.S.C. § 6721. See U.S. Treasury Reg. 26 C.F.R. § 301.6721–1(g)(6)
(interpreting 26 U.S.C. § 6721). Section 6721 penalizes “any person” who files a late return, a
return lacking the required information, or a return including inaccurate information. 26 U.S.C.
§ 6721(a). The regulation identifies the relevant filer as “a person that is required to file an
information return.” 26 C.F.R. § 301.6721-1 (emphasis added). In the absence of a regulation
interpreting § 7434, Vandenheede adopted the regulation’s definition of the relevant filer for two
reasons.

First, both statutes used similar language penalizing conduct committed by “any

person,” and, second, both statutes addressed the filing of inaccurate 1099–MISCs.
The Court respectfully disagrees with Vandenheede’s interpretation. In construing this
statute, the Court “begins where all such inquiries must begin: with the language of the statute

to the SAC therefore does not result in waiver or untimeliness. Id. Plaintiff similarly argues that
Defendants’ argument is untimely because it was absent in their motion to dismiss the same count in the
FAC. Although it would have been more efficient for Defendants to have raised this argument
previously, Rule 12 does not require Defendants to “consolidate all failure-to-state-a-claim arguments in a
single dismissal motion.” Ennenga v. Starns, 677 F.3d 766, 773 (7th Cir. 2012) (holding that Fed. R. Civ.
P. 12(g)(2)’s consolidation requirement does not apply to arguments for failure to state a claim and
explaining that Rule 12(h)(2) permits a party to raise a 12(b)(6) claim as late as trial). Lastly, Defendants
suggest that the Court may wish to construe their motion under Federal Rule of Civil Procedure 12(c). A
Rule 12(c) motion is only appropriate “[a]fter the pleadings are closed.” Fed. R. Civ. P. 12. Defendants
have yet to answer all counts. See [232], Answer to TAC. Accordingly, the pleadings are not closed, and
the Court construes this motion as a motion to dismiss.

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itself. In this case it is also where the inquiry should end, for where, as here, the statute’s
language is plain, the sole function of the courts is to enforce it according to its terms.” United
States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241 (1989) (citations and internal quotation
marks omitted). The plain meaning of “any person” is any person; “any person” includes not
only an entity required to file a return but also a manager like Hall, who allegedly reported the
false information in the return and caused it to be filed. The district court in Pitcher v. Waldman,
2014 WL 1302551, at *5-*8 (S.D. Ohio Mar. 28, 2014), did not parse out the statutory language,
but its decision to impose liability under Section 7434(a) on both an accounting firm and one of
its principals in circumstances much like those present here—an acrimonious breakup of a
professional services enterprise—at least implicitly reads the scope of the statute in the same
fashion as does this Court.
Although the Court need not examine the legislative history of a statute whose text is
unambiguous, see Ron Pair Enterprises, 489 U.S. at 241, it notes that the legislative history is
consistent with the Court’s interpretation.

The Joint Committee Print and House Report

accompanying the statute both state:
Prior Law
Federal law provided no private cause of action to a taxpayer who is injured
because a fraudulent information return has been filed with the IRS asserting that
payments have been made to the taxpayer.
Reasons for Change
Some taxpayers may suffer significant personal loss and inconvenience as the
result of the IRS receiving fraudulent information returns, which have been filed
by persons intent on either defrauding the IRS or harassing taxpayers.
STAFF

OF THE

JOINT COMM.

ON

TAXATION, 104th CONG., PART THREE: TAXPAYER BILL

OF

RIGHTS 2 (Joint Comm. Print 1996), 1996 WL 34405419, at *12; H.R. REP. No. 104-506, at 35
(1996). Key here is the language indicating that § 7434 addresses the “significant personal loss

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and inconvenience” caused by “persons intent on either defrauding the IRS or harassing
taxpayers.” Id. A principal required to file a return and an agent who prepares the return and
causes it to be filed are equally capable of causing “significant personal loss and inconvenience.”
Id. They are also equally capable of intending to “defraud[] the IRS or harass[] taxpayers.” Id.
Hall’s conduct, as alleged, fits well within the type of conduct that the legislative history
addressed.

As Keystone’s president and secretary, he allegedly used his control over its

finances, its recordkeeping, and its tax filings to report false information about Angelopoulos in
Keystone’s returns. As a person allegedly “intent on either defrauding the IRS or harassing
taxpayers” through Keystone’s returns, Halls appears to be precisely the type of person whose
conduct the legislative history addressed. Id.
Defendants’ reading of the statute would be incongruous with the legislative intent in two
ways. First, it would fail to deter an agent working alongside or on behalf of a principal who
(perhaps unbeknownst to the principal) willfully prepares a fraudulent tax return and causes it to
be filed. The agent could reap the benefits of the fraud while shifting the costs onto the
principal. Second, where an entity and one of its shareholders together cause the willful filing of
a fraudulent return that harms another shareholder, the statute would undercompensate the
victim-shareholder. A judgment against the entity (and only the entity) would ratably reduce the
profits of each shareholder, including the shareholder-victim, such that the shareholder-victim
would effectively have to compensate himself. Meanwhile, the fraudulent shareholder-preparer
would pay a fraction of the total judgment in the form of reduced profits. This outcome of
underdetering the fraudulent shareholder and undercompensating the victim-shareholder is at
odds with the legislative intent. The Court therefore rejects Defendants’ argument that Hall is an
improper Defendant.

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Defendants move to dismiss Count I against all three Defendants on an additional ground.
Citing the ancient common law rule that the release of one joint tortfeasor is the release all jointtortfeasors, they argue that Plaintiff’s settlement with the Dubin Defendants released all of the
Defendants. In response, Plaintiff argues that the common law rule is inapplicable because his
settlement agreement expressly preserved a right of action as to the remaining Defendants.
“Issues regarding the formation, construction, and enforceability of a settlement agreement are
governed by local contract law[.]” Pohl v. United Airlines, Inc., 213 F.3d 336, 338 (7th Cir.
2000); accord Carr v. Runyan, 89 F.3d 327, 331 (7th Cir. 1996); Lynch, Inc. v. SamataMason
Inc., 279 F.3d 487, 490 (7th Cir. 2002). In interpreting settlement agreements, Illinois courts
distinguish between a release and a covenant not to sue. Pate v. City of Sesser, 393 N.E.2d 1146,
1149 (Ill. App. Ct. 1979). “A release extinguishes a cause of action whereas a covenant not to
sue affects only the right to bring suit and not the cause of action itself.” Id. at 236-37; accord
Solaia Tech. LLC v. ArvinMeritor, Inc., 2006 WL 695699, at *12 (N.D. Ill. Mar. 16, 2006).
Thus, “an unqualified release of one joint tortfeasor operates to discharge all joint tortfeasors,
while a covenant not to sue has no such effect.” Pate, 393 N.E.2d at 1149. “When called upon
to determine whether a given document is to be construed as a release or a covenant not to sue,
courts in Illinois have held the intention of the parties to be controlling.” Id. at 1149-50.
Accordingly, an agreement that unambiguously preserves a right of action as to certain
defendants is a covenant not to sue, not a release. Id. at 1150 (citing Parmelee v. Lawrence, 44
Ill. 405, 413 (1867)); see also Cherney v. Soldinger, 702 N.E.2d 231, 234 (Ill. App. Ct. 1998).
The settlement agreement here expressly preserves a right of action against the remaining
Defendants. The intent of the parties is therefore clear, and the agreement does not discharge the
remaining Defendants from the suit.

10

After seeing the settlement agreement attached to Plaintiff’s response motion, Defendants
changed their argument. Their reply brief now asks the Court to disregard the agreement’s
language preserving a right of action against them entirely. In support of this argument, they cite
Federal Rule of Civil Procedure 37(c)(1), which provides that “[i]f a party fails to provide
information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use
that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the
failure was substantially justified or is harmless.” See Fed. R. Civ. P. 37(c)(1). Prior to filing
their motion to dismiss, Defendants submitted an interrogatory asking Plaintiff to provide “the
exact language of the release.” [252] at 4. In their answer, Plaintiff provided them an excerpt
releasing the Dubin Defendants; he did not include the language expressly preserving a right of
action against the remaining Defendants. See [252] at 4. Plaintiff then waited until Defendants
had filed their motion to dismiss to provide this language to Plaintiff and the Court. Defendants
now ask the Court to punish Plaintiff by disregarding this language entirely.
Plaintiff’s tactic has caused all parties and the Court to waste time and resources. That
said, the Court need not decide the issue. Even if the Court disregarded the language in the
agreement, it would not change the outcome. The language in the stipulation of dismissal [190]
and the Court’s subsequent dismissal order [191] unambiguously indicate that all parties and the
Court understood that Plaintiff would proceed with the litigation against the remaining
Defendants. The stipulation of dismissal provided that “Plaintiff’s cause against the Defendants,
Ira K. Dubin Ltd. d/b/a Green Dubin & Co., and Ira K. Dubin, shall be dismissed with prejudice,
all matters between them having been compromised or settled as to the Defendants, Ira K. Dubin
Ltd. d/b/a Green Dubin & Co., and Ira K. Dubin, which were alleged or could have been
alleged[.]” [190] (emphasis added). And the Court’s dismissal order explicitly stated that

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“Plaintiff’s cause shall continue as to the Defendants, Keystone Orthopedic Specialists, S.C.,
Martin R. Hall, and WACHN, LLC.” [191]. The Court therefore finds that Plaintiff’s settlement
with the Dubin Defendants does not preclude its continued litigation against the remaining
Defendants. Accordingly, the Court denies Defendants’ motion to dismiss Count I against Hall.
B.

Counts II, VI, and VII

Defendants move to dismiss Counts II’s claim of fraud, Count VI’s claim of breach of
contract, and Count VII’s claim of unjust enrichment, arguing that all three claims are timebarred because they do not relate back to the original complaint or the FAC. Defendants made
this same argument in its response [125] to Plaintiff’s motion for leave to file the SAC. The
Court rejected it in its April 17, 2014 Order [140], deciding that these claims related back to the
original complaint because they arose out of the same conduct. [140] at 3. The TAC generally
removed rather than added content from the SAC, so the Court’s finding that the SAC related
back to the original complaint applies equally to the TAC. Defendants offer no compelling
reason why it should not; they generally contend that they are entitled to argue that claims in the
TAC are time-barred because the TAC “substantially changed the prior counts and allegations,”
but they fail to explain why any particular changes in the TAC should alter the Court’s previous
analysis. [245] at 2. Under the law of the case doctrine, “a court ordinarily will not reconsider
its own decision made at an earlier stage of the trial or on a prior appeal, absent clear and
convincing reasons to reexamine the prior ruling.” Gertz v. Robert Welch, Inc., 680 F.2d 527,
532 (7th Cir. 1982): accord United States v. Harris, 531 F.3d 507, 513 (7th Cir. 2008).
Defendants offer no clear and convincing reason to reexamine the Court’s finding of relationback. Accordingly, that ruling stands with respect to the SAC and TAC, and Defendants’ motion
to dismiss these counts as time-barred is denied. Defendants’ argument that Count II fails to

12

satisfy Rule 9(b)’s heightened pleading standard fails for the same reason. See [140] at 4
(finding that Plaintiff’s factual allegations supporting its claim of fraud satisfied Rule 9(b)).
Defendants also move to dismiss Count VII’s claim of unjust enrichment on three
additional grounds. First, they argue that unjust enrichment is not an independent cause of
action. “Illinois law is arguably somewhat confused on whether a claim of unjust enrichment
requires an underlying tort or breach of contract or whether, instead, there can be a free-standing
claim based on the proposition that it would be unjust for the defendant to retain a benefit that it
obtained at the plaintiff’s expense.” Stevens v. Interactive Fin. Advisors, Inc., 2015 WL 791384,
at *16 (N.D. Ill. Feb. 24, 2015). As the Seventh Circuit noted in Cleary v. Philip Morris Inc.,
656 F.3d 511, 516 (7th Cir. 2011), the Illinois Supreme Court appears to recognize unjust
enrichment as an independent cause of action. See Raintree Homes, Inc. v. Vill. of Long Grove,
807 N.E.2d 439, 445 (Ill. 2004) (“Here, plaintiffs have no substantive claim grounded in tort,
contract, or statute; therefore the only substantive basis for the claim is restitution to prevent
unjust enrichment.”); Indep. Voters v. Ill. Commerce Comm’n, 510 N.E.2d 850, 852–58 (Ill.
1987) (approving refunds for excessive utility charges where plaintiffs brought a claim for
restitution untied to another cause of action); HPI Health Care Servs., Inc. v. Mt. Vernon Hosp.,
Inc., 545 N.E.2d 672, 679 (Ill. 1989) (articulating the elements of unjust enrichment without
reference to a separate underlying claim in tort, contract, or statute); Peddinghaus v.
Peddinghaus, 692 N.E.2d 1221, 1225 (Ill. App. Ct. 1998) (ruling that Illinois recognizes an
independent cause of action for unjust enrichment based on HPI Health Care Services)). Yet
“there is a recent Illinois appellate court that suggests the opposite, namely, that an unjust
enrichment claim cannot stand untethered from an underlying claim.” Cleary, 656 F.3d at 516.
As the Illinois Appellate Court recently stated,

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[u]njust enrichment is not a separate cause of action that, standing alone, will
justify an action for recovery. Rather, it is a condition that may be brought about
by unlawful or improper conduct as defined by law, such as fraud, duress, or
undue influence, and may be redressed by a cause of action based upon that
improper conduct. When an underlying claim of fraud, duress or undue influence
is deficient, a claim for unjust enrichment should also be dismissed.
Martis v. Grinnell Mut. Reinsurance Co., 905 N.E.2d 920, 928 (Ill. App. Ct. 2009).
Without definitively resolving the issue, the Seventh Circuit attempted to reconcile this
uncertainty in Illinois law by explaining that a claim of unjust enrichment arises when a
defendant unjustly retains a benefit to the plaintiff’s detriment. The retention of the benefit is
often unjust because of some improper conduct that simultaneously gives rise to a claim in tort,
contract, or statute. Because the unjust enrichment claim and the related claim arise from the
same improper conduct, they frequently rise or fall together. See Cleary, 656 F.3d at 517 (citing
Ass’n Benefit Servs. v. Caremark Rx, Inc., 493 F.3d 841, 855 (7th Cir. 2007); see also Stevens v.
Interactive Fin. Advisors, Inc., 2015 WL 791384, at *16.
To the extent that there is any conflict in Illinois law, “[t]he Illinois Supreme Court’s
pronouncements, of course, trump those of lower Illinois courts.” Stevens, 2015 WL 791384,
at *16. In any event, all of this is to give the parties guidance as the litigation proceeds. For
now, any apparent conflict between Illinois Supreme Court and Illinois Appellate Court case law
does not change the outcome.

Plaintiff does not bring a free-standing claim of unjust

enrichment; he also states a claim for fraud and breach of contract. Accordingly, Defendants’
motion to dismiss is denied on this ground.
Defendants also argue that Plaintiff may not allege unjust enrichment on the theory of
breach of an implied-in-law contract with Keystone while alleging breach of an express contract
with Keystone in Count VI. Indeed, a claim of unjust enrichment based on an implied-in-law

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contract “is inapplicable where an express contract, oral or written, governs the parties’
relationship.” Gagnon, 983 N.E.2d at 1052. As the Illinois Appellate Court has explained,
[t]he theory of unjust enrichment is an equitable remedy based upon a contract
implied in law. Because it is an equitable remedy, unjust enrichment is only
available when there is no adequate remedy at law. In other words, [w]here there
is a specific contract that governs the relationship of the parties, the doctrine of
unjust enrichment has no application.
Guinn v. Hoskins Chevrolet, 836 N.E.2d 681, 704 (2005) (citations and internal quotation marks
omitted). This inconsistency is not a problem at the pleadings stage. The Federal Rules of Civil
Procedure permit a plaintiff to plead inconsistent claims in the alternative. See Fed. R. Civ. P.
8(d)(2). Accordingly, Plaintiff may allege breach of the Keystone contract while alternatively
alleging unjust enrichment.4 Id. Moreover, as explained above, unjust enrichment may be
predicated not only on breach of an implied-in-law contract but also on other improper conduct,
which Plaintiff has alleged. See Peddinghaus v. Peddinghaus, 692 N.E.2d 1221, 1225 (Ill. App.
Ct. 1998). Lastly, Defendants argue that Plaintiff fails to state a claim of unjust enrichment
because his allegations are mere boilerplate devoid of factual support. Suffice it to say, a cursory
review of Plaintiff’s detailed TAC indicates otherwise.
IV.

Conclusion
For the reasons stated above, the Court denies Defendants’ motion to dismiss [233].

Dated: May 15, 2015

____________________________________
Robert M. Dow, Jr.
United States District Judge

4

Less clear is whether Plaintiff states a claim of unjust enrichment based on WACHN’s failure to
purchase his interest when he dissociated from it. Plaintiff already alleges that WACHN had a duty to
buy him out either under contract law (Count V) or Illinois corporate law (Count IV). Based on these
alternative theories and the applicability of Illinois corporate law in particular, an unjust enrichment claim
based on a failure to purchase his interest may not be viable. The parties may wish to address this issue at
a future stage in the litigation.

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