Royal Adhesives and Sealants, Inc. et al v. Advanced Manufacturing Technologies, Inc.
Filing
47
MEMORANDUM Opinion and Order: For the foregoing reasons, Defendants' motion to dismiss, R. 23, is granted, and Royal's claims are dismissed without prejudice. Royal has up to and including May 19, 2014, to replead its claims if it can ad dress the deficiencies the Court has identified in this Opinion and Order. If Royal fails to do so, this dismissal will become with prejudice. Defendants' motion to strike 35 , is denied as moot. The 5/9/14 status date is vacated. Civil case terminated. Signed by the Honorable Thomas M. Durkin on 4/17/2014:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ROYAL ADHESIVES AND SEALANTS, LLC,
Plaintiff,
No. 13 C 1695
v.
ADVANCED MANUFACTURING
TECHNOLOGIES, INC., AND JOHN
AFFOURTIT ,
Judge Thomas M. Durkin
Defendants.
MEMORANDUM OPINION AND ORDER
Royal Adhesives and Sealants, LLC (“Royal”), alleges that Advanced
Manufacturing Technologies, Inc. (“AMT”), and AMT’s sole-shareholder, John
Affourtit (AMT and Affourtit collectively, “Defendants”), fraudulently sold Royal a
piece of equipment known as an E-Beam, in violation of the Illinois Consumer
Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. (Count I), and
Illinois common law, including claims of fraud (Count II), promissory estoppel
(Count III), and money had and received (Count IV). See R. 1. Royal also labels its
allegations that Affourtit should be held liable for the actions of AMT as “Count V”
of its complaint. See id. Defendants have moved to dismiss all counts for failure to
state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). R. 23. For the
following reasons, Defendants’ motion is granted.
Background
In October 2012, Royal entered into discussions with Affourtit to purchase an
E-Beam. R. 1 ¶ 6.1 AMT sent Royal a document labeled “quotation,” which offered a
“COMET ADTS 70/180 KV E-Beam Laboratory Test System,” for $165,000, paid in
installments of “25% with Purchase Order, 70% with shipment confirmation, 5%
after start up & acceptance-net 30 days.” R. 1-1. The quotation document also
describes Affourtit as a “salesperson.” Id. Royal alleges that Affourtit was the soleshareholder of AMT, and that he falsely told Royal that he had earned a PhD, was
an expert in E-Beam technology, and was an authorized representative of the
COMET Group. R. 1 ¶¶ 9-10. Based on the quotation document and Affourtit’s
representations, Royal decided to purchase the “COMET ADTS 70/180 KV E-Beam
Laboratory Test System.” Id. ¶ 11.
On November 5, 2012, AMT sent Royal an invoice for a “COMET ADTS
70/180 KV E-Beam Laboratory Test System,” requiring payment of $41,240, i.e., the
first installment of 25% of the $165,000 purchase price. R. 1-2. Royal paid this
amount to AMT on or about November 15, 2012. R. 1 ¶ 14.
On January 21, 2013, AMT sent Royal another invoice requiring payment of
$117,277, i.e., the second installment of 70% of the purchase price plus $1,777.37 in
shipping costs. R. 1-3. Unlike the quotation document and the November 5 invoice,
Royal does not explain what an “E-Beam” is in the complaint or its briefs.
Defendants explain that “[a]n E-beam system is a piece of equipment that uses an
electron beam for such applications as sterilizing food packaging or medical
equipment; or curing ink or adhesives and so forth.” R. 24 at 1 n.1. A detailed
understanding of E-Beam technology and its applications is not necessary to
address this motion.
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the January 21 invoice described the equipment as an “E-Beam 70/180 KV E-Beam
Laboratory Test System,” as opposed to a “COMET ADTS 70/180 KV E-Beam
Laboratory Test System.” Id. Royal paid this amount to AMT on or about January
24, 2013. R. 1 ¶ 17.
Royal alleges that on or about February 14, 2013, Defendants delivered a
piece of equipment that was not a “COMET ADTS 70/180 KV E-Beam Laboratory
Test System.” Id. ¶ 18. The equipment Royal received was not manufactured by the
COMET Group and was “missing critical components making the equipment
useless to Royal.” Id.
Royal notified AMT and Affourtit that the wrong piece of equipment had been
delivered, and requested immediate delivery of the “COMET ADTS 70/180 KV EBeam Laboratory Test System” or refund of Royal’s money. Id. ¶ 20. Defendants did
not comply with Royal’s request. Id. ¶ 21.
Legal Standard
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels
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and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.’”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
Analysis
I.
Count V – Affourtit’s Liability
Royal alleges that Affourtit is personally liable for the four substantive
counts of its complaint, and Royal reiterates this allegation in “Count V” in which it
asks the Court to “pierc[e] the corporate veil.” See R. 1. Defendants argue that the
complaint “fails completely in making any substantive factual allegations against
John Affourtit in his individual capacity,” R. 24 at 4, and that Royal “pleads only . . .
conclusory statements in support of its piercing the corporate veil count.” Id. at 6.
Under Illinois law, “a corporation as a legal entity exists separately from its
shareholders, directors, and officers, who are not ordinarily liable for the
corporation’s liabilities.” Forsythe v. Clark USA, Inc., 836 N.E.2d 850, 854 (Ill. App.
Ct. 1st Dist. 2005), aff’d 864 N.E.2d 227 (Ill. 2007). However, a party may “pierce
the corporate veil” and assert a claim against an individual “when an ‘individual or
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entity uses a corporation merely as an instrumentality to conduct that person’s or
entity’s business.’” Laborers’ Pension Fund v. Lay–Corn, Inc., 580 F.3d 602, 610 (7th
Cir. 2009) (quoting Fontana v. TLD Builders, Inc., 840 N.E.2d 767, 775 (Ill. 2005)).
Thus, in an action to pierce a corporate veil under Illinois law, a plaintiff must
allege that “(1) there [is a] unity of interest and ownership [such] that the separate
personalities of the corporation and the individual no longer exist; and (2) . . .
adherence to the fiction of separate corporate existence would sanction a fraud or
promote injustice.” Wachovia Sec., LLC v. Banco Panamericano, Inc., 674 F.3d 743,
751-52 (7th Cir. 2012) (internal quotation marks omitted).
Royal makes the following allegations relevant to Affourtit’s liability: (1) “the
accounts of AMT and Affourtit are commingled to the extent that there is no legal
separation between the two,” R. 1 ¶ 46; (2) “AMT was undercapitalized to the extent
that it was not a viable legal entity separate from that of its shareholder, Affourtit,
id. ¶ 47; and (3) “AMT is the alter ego of Affourtit and any liability of AMT is also
attributable to Affourtit,” id. ¶ 48. The only actual fact that Royal alleges in support
of its theory of Affourtit’s liability is that Affourtit was AMT’s sole shareholder.
That fact alone, however, is an insufficient basis to state a claim based on piercing
the corporate veil. See Judson Atkinson Candies, Inc. v. Latini-Hohberger
Dhimantec, 529 F.3d 371, 381 (7th Cir. 2008) (“[T]he fact that a corporation has
only one single shareholder is not proof that the corporation is the ‘alter ego’ of that
shareholder.”) (internal quotation marks omitted); Melko v. Dionisio, 580 N.E.2d
586, 595 (Ill. App. Ct. 2d Dist. 1991) (“[T]he mere allegation that [defendant] was a
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dominant or sole shareholder is insufficient to enable a court to disregard the
separate corporate existence.”).
The remaining portions of Royal’s complaint relevant to Affourtit’s liability
consist of bare-bones, conclusory allegations that AMT was undercapitalized and
that the accounts of Affourtit and AMT were commingled. Allegations so devoid of
factual content do not “‘allow[] the court to draw the reasonable inference that
[Affourtit] is liable for the misconduct alleged.’” Mann, 707 F.3d at 877 (quoting
Iqbal, 556 U.S. at 678). Royal must explain the factual basis supporting its claim to
relief, and may not simply conclude that it is so entitled, as it does in its current
complaint. Because Royal has failed to plausibly allege that Affourtit is liable here,
Royal’s allegations against Affourtit are dismissed.
In its brief in opposition to the motion, Royal makes additional factual
allegations based on documents attached to the brief. The Court does not consider
those allegations and documents on this Rule 12(b)(6) motion because they are
“outside the pleadings” and are not “documents to which the Complaint had
referred.” See Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009). Yet, these
allegations are the type that could make Royal’s claims against Affourtit plausible
and “allow the Court to draw the reasonable inference that Affourtit is liable for the
misconduct alleged.” Mann, 707 F.3d at 877. Royal cites withdrawals shown on
AMT’s bank statements that appear to be personal in nature (i.e., Starbucks, CVS,
the Apple Store, a barber shop, Home Depot, a personal home mortgage lender), as
well as large payments to Affourtit, and argues that AMT and Affourtit’s funds
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were commingled. See R. 27 at 6-7; R. 27-3. These are the type of factual allegations
that can sufficiently support a claim for individual liability based on piercing the
corporate veil. See Auto. Fin. Corp. v. Joliet Motors, Inc., 761 F. Supp. 2d 789, 79394 (N.D. Ill. 2011); Beacon Textile Unit-2 v. JK Group, Ltd., 2010 WL 4338477, at
*7, (N.D. Ill. Oct. 25, 2010); Dimmitt & Owens Fin., Inc. v. Superior Sports Prods.,
Inc., 196 F. Supp. 2d 731, 741 (N.D. Ill. Apr. 23, 2002).2 Thus, the Court grants
Royal leave to replead its claims against Affourtit.
II.
Count I: Illinois Consumer Fraud and Deceptive Business Practices
Act
Illinois Consumer Fraud and Deceptive Business Practices Act (the
“Consumer Fraud Act”), 815 ILCS 505/1, et seq., “‘protect[s] consumers, borrowers,
and business persons against fraud, unfair methods of competition, and other unfair
and deceptive business practices.’” Siegel v. Shell Oil Co., 612 F.3d 932, 934 (7th
Cir. 2010) (quoting Robinson v. Toyota Motor Credit Corp., 775 N.E.2d 951, 960 (Ill.
2002)). The statute, however, is “‘not intended to apply to every contract dispute or
to supplement every breach of contract claim with a redundant remedy.’”
Greenberger v. GEICO Gen. Ins. Co., 631 F.3d 392, 399 (7th Cir. 2011) (quoting
In its brief on this motion, Royal also alleges that AMT was dissolved for failure to
file certain corporate documents, see R. 27 at 5-6, and that AMT was
undercapitalized because Affourtit admitted that AMT is out of business and has no
assets. R. 27 at 7-8. Royal cites no evidence that AMT failed to file certain corporate
documents or that AMT was dissolved on this basis. In support of its allegation that
AMT was undercapitalized, Royal cites a document handwritten by Affourtit in
which he writes, “AMT closed accounts, closed company – no cash no assets.” R. 27-4
at 2. This document does not appear to support Royal’s allegation because
Affourtit’s statement appears to refer to AMT’s current status not its capitalization
while it was still in business. See id. In any event, the Court does not need to
address these allegations in detail as they are also “outside the pleadings,” Hecker,
556 F.3d at 582, and are not necessary to the Court’s ruling on this motion.
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Zankle v. Queen Anne Landscaping, 724 N.E.2d 988, 992-93 (Ill. 2000)). “A breach of
contractual promise, without more, is not actionable under the Consumer Fraud
Act.” Avery v. State Farm Mut. Auto. Ins. Co., 835 N.E.2d 801, 844 (Ill. 2005).
AMT contends that this dispute lies in contract rather than tort, as Royal
alleges, and that Royal’s claim under the Illinois Consumer Fraud Act must be
dismissed for that reason. See R. 24 at 10-11; R. 37 at 9. Royal does not directly
respond to this contention. Royal’s lack of a substantive response is likely because
Royal’s allegations clearly show that its claim is for breach of contract. Royal alleges
that AMT offered Royal an E-Beam manufactured by COMET for $165,000, see R. 11, and that Royal accepted that offer by paying AMT 95% of that price to secure
delivery as required by AMT’s invoices. See R. 1-2; R. 1-3; R. 1 ¶¶ 14, 17. “In Illinois,
an offer, an acceptance and consideration are the basic ingredients of a contract,”
see Melena v. Anheuser-Busch, Inc., 847 N.E.2d 99, 109 (Ill. 2006), and that is what
we have here. Because a contract exists between Royal and AMT, Royal cannot
state a claim under the Illinois Consumer Fraud Act, and Count I is dismissed. The
Court, however, does grant Royal leave to replead a breach of contract claim.3
III.
Count II: Common Law Fraud
Just as with the Illinois Consumer Fraud Act, under Illinois law, a breach of
a contractual promise, i.e., a false promise of future conduct, “without more” does
not constitute fraud. See Shaw v. Hyatt Int’l Corp., 461 F.3d 899, 901 (7th Cir.
That Royal has not alleged a breach of contract claim is of no moment. See Shaw v.
Hyatt Int’l Corp., 461 F.3d 899 (7th Cir. 2006) (affirming the district court’s finding
that the plaintiff’s claim was one for breach of contract and dismissing plaintiff’s
claim under the Illinois Consumer Fraud Act despite the plaintiff’s failure to allege
a breach of contract claim).
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2006); Firstar Bank, N.A. v. Faul, 2001 WL 1636430, at *4 (N.D. Ill. Dec. 20, 2001).
The Court has already found that Royal’s allegations amount to a claim for breach
of contract. Thus, Royal fails to state a claim for fraud and Count II is dismissed.
In addition to AMT’s failure to deliver the E-Beam Royal bargained for, Royal
alleges that AMT “knowingly made false statements of material fact . . . about the
availability, payment terms, and delivery of the [E-Beam].” R. 1 ¶ 32. In other
words, Royal alleges that AMT never had any intention to deliver a new E-Beam
manufactured by COMET. Royal does not allege any facts to support this allegation,
let alone facts sufficient to satisfy the heightened pleading standard of Federal Rule
of Civil Procedure 9(b) that is applicable to fraud claims. Nevertheless, even if Royal
had sufficiently alleged AMT’s intent to deliver the wrong E-Beam, Royal and AMT
are bound by the terms of their agreement. It is a claim for breach of that
agreement, and not for fraud, that Royal appears to have.
In support of its fraud claim, Royal also alleges that Affourtit misrepresented
that he had earned a PhD, was an authorized representative of the COMET Group,
and was an expert in E-Beam technology. In light of the Court’s holding that a
contract existed between Royal and AMT, these allegations can only be relevant to a
claim for fraudulent inducement. In the event that Royal chooses to replead and
include a claim for fraudulent inducement, the Court notes that Affourtit’s
misrepresentations as Royal has alleged them are not sufficiently material to
support a claim for fraudulent inducement. Royal was purchasing an E-Beam, not
Affourtit’s expertise. Although Royal alleges that it relied on Affourtit’s
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misrepresentations, Royal does not explain why Affourtit’s misrepresentations were
necessary for Royal to feel comfortable purchasing the E-Beam from AMT. The real
gravamen here is that AMT promised Royal a new E-Beam manufactured by
COMET, and it delivered something else. Royal does not allege that only an expert
could know whether an E-Beam was new and manufactured by COMET. Without
such
additional
factual
allegations,
Royal’s
allegations
of
Affourtit’s
misrepresentations cannot state a claim for fraudulent inducement.
Count III and IV: Promissory Estoppel and Money Had and Received
Under Illinois law, a “plaintiff may not pursue a quasi-contractual claim
where there is an enforceable, express contract between the parties.” Cromeens,
Holloman, Sibert, Inc v. AB Volvo, 349 F.3d 376, 397 (7th Cir. 2003). Thus, neither
the quasi-contractual claims for promissory estoppel, see Wagner Excello Foods, Inc.
v. Fearn Int’l, Inc., 601 N.E.2d 956, 964 (Ill. 1992), or money had, see In re Factor
VIII or IX Concentrate Blood Prods. Litig., 2002 WL 1553318, at *1 (N.D. Ill. July
11, 2002), are available if a contract exists between the parties. Since the Court
holds that a contract exists between Royal and AMT, Royal’s claims for promissory
estoppel and money had, Claims III and IV, are dismissed.
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Conclusion
For the foregoing reasons, Defendants’ motion to dismiss, R. 23, is granted,
and Royal’s claims are dismissed without prejudice. Royal has up to and including
May 19, 2014, to replead its claims if it can address the deficiencies the Court has
identified in this Opinion and Order. If Royal fails to do so, this dismissal will
become with prejudice.4
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: April 17, 2014
Defendants have also moved to strike a letter Royal attached to its brief from a
person opining as to the value of the equipment that AMT delivered to Royal. R. 35.
Royal argues that it only included this letter with its brief because AMT included an
affidavit from Affourtit describing the functionality and value of the equipment at
issue. R. 24-1. Neither of these submissions is necessary for the Court to render its
decision, thus, Defendants’ motion to strike, R. 35, is denied as moot.
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