Elmhurst & Dempster LLC v. Fifth Third Bank

Filing 15

MEMORANDUM OPINION Signed by the Honorable John F. Grady on September 26, 2013. Mailed notice(cdh, )

13-3125.131-JCD

September 26, 2013

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ELMHURST & DEMPSTER LLC,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
FIFTH THIRD BANK,
Defendant.

No. 13 C 3125

MEMORANDUM OPINION
Before the court is the motion of defendant, Fifth Third Bank,
to

dismiss

the

complaint

pursuant

to

Federal

Rule

of

Civil

Procedure 12(b)(6). For the reasons explained below, the motion is
granted in part and denied in part.
BACKGROUND
This

is

an

action

for

breach

of

contract,

tortious

interference with prospective business expectancy, and fraudulent
misrepresentation that was removed to this court from the Circuit
Court of Cook County on the basis of diversity jurisdiction.

The

action relates to a Ground Lease (the “Lease”) for the property
located at 851 South Elmhurst Road in Des Plaines, Illinois.

The

Lease was entered into on January 16, 2008 by defendant Fifth Third
Bank (“Fifth Third”), as tenant, and non-party VH Illinois Des
Plaines I

LLC

(“VH”),

as

the

original landlord.

Plaintiff,

Elmhurst & Dempster LLC (“Elmhurst”), later assumed all of VH’s

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rights and obligations under the Lease and took over as landlord.
Elmhurst and Fifth Third subsequently entered into two amendments
to the Lease, which ratified the Lease except as expressly amended.
(The amendments are not at issue here.)

Copies of the Lease and

its Amendments are attached to the complaint.
Paragraph 35 of the Lease granted Fifth Third, as Tenant, a
Right of First Refusal (“ROFR”) as follows:
35.
RIGHT OF FIRST REFUSAL.
Tenant shall have the
preemptive right during the [Lease] Term and any
Extension that has been exercised to purchase the
Property (by itself or together with the Adjacent
Property) on the same terms and conditions as those of
any bona fide offer received by and acceptable to
Landlord. Before making any sale or any agreement to
sell, Landlord shall notify Tenant in writing of the
terms and conditions of such offer.
Tenant, within
thirty (30) days after receipt of such notice, may
exercise this preemptive right by written notice to
Landlord. Failure of Tenant to exercise this preemptive
right on one or more occasions shall not affect Tenant’s
right to exercise it on any subsequent occasion. Any
sale or transfer of the Property (by itself or together
with the Adjacent Property) shall be expressly made
subject to all of the terms, covenants and conditions of
this Lease.
(Compl., Ex. A.)
On October 15, 2012, Elmhurst received a letter from KeelerFOG Real Estate (“Keeler-FOG”) that contained a “proposal that
Keeler-FOG Real Estate . . . shall purchase from Owner of Record”
the subject property.

The letter contained “general terms and

conditions,” including a purchase price of $4,867,924.53; the
execution of a purchase and sale agreement within seven days after
the signing of “this Letter of Intent”; the deposit in escrow of

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$100,000 earnest money; various conditions for the benefit of the
buyer to be satisfied within a fourteen-day contingency period; and
a closing no later than December 28, 2012.

(Compl., Ex. D.)

On

October 26, 2012, Elmhurst sent a letter to Fifth Third stating:
“Pursuant to Paragraph 35 of the Ground Lease dated January 16,
2008,

the

Landlord

hereby

provides

notice

that

Landlord

has

received a bona fide offer to purchase the property which is
acceptable to Landlord.

A copy of that offer (from Keeler-FOG

dated October 15, 2012) is enclosed.

Please advise whether or not

Tenant is exercising its preemptive right under the Ground Lease.”
(Compl., Ex. E.)
The same day, a representative of Fifth Third contacted
Elmhurst’s counsel, Todd Van Baren, by e-mail and stated that Fifth
Third was “interested” but “believe[d] the numbers [we]re off in
the offer [Elmhurst] received.”

(Compl., Ex. F.)

A few days

later, on October 30, 2012, Mr. Van Baren responded that Elmhurst
had

“confirmed

with

Keeler-FOG

that

[its]

offer

st[ood]

as

presented (subject only to a credit at closing of about $23,000 to
adjust

for

the

rental

differential

[Fifth

Third]

raised).”

(Compl., Ex. F.) Fifth Third replied, “We are going to exercise our
option.” (Compl., Ex. G.)

Another representative of Fifth Third,

Randall L. Morrissey, then sent Elmhurst an e-mail on October 30,
2012, stating: “[T]his e-mail will serve as confirmation that Fifth

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Third Bank is exercising its ROFR right to purchase the property .
. . .”

(Compl., Ex. H.)

During the month of November 2012, Elmhurst and Fifth Third
negotiated a written purchase agreement, the language of which
appeared to be finalized on November 26.

Thereafter, in late

November and early December, Mr. Van Baren sent Fifth Third’s
counsel, C. Todd Burbank,
Fifth

Third

agreement.

would

be

a series of e-mails asking about when

delivering

(Compl., Exs. L-N.)

Elmhurst

a

signed

purchase

On December 5, 2012 Mr. Burbank

stated that the agreement had been “held up” at Fifth Third’s
headquarters, but was “in [the] process of being signed.” (Compl.,
Ex. M.)
On December 14, 2012, after Mr. Van Baren asked again about
the status of the contract signing, Mr. Burbank told him that “it
sounds like [Fifth Third] will not be able to get appropriations
approval for this property in time to close in 2012.” (Compl., Ex.
O.)

Mr. Van Baren responded that Fifth Third was “not really

negotiating some deal in the abstract” and had “exercised a right
of first refusal to take the deal that [Elmhurst] had been offered
by another buyer who was ready to close,” and that a “key part of
that deal (as reflected in the letter of intent and in the fully
negotiated contract) was a closing by 12/28/12.”

He also stated

that Elmhurst “would like to execute the contract as soon as

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possible, with a closing date as soon as is possible.”

(Compl.,

Ex. O.)
Mr. Burbank replied that there was “no way [Fifth Third] could
close this [deal] in 2012” and that “[a]lthough [Fifth Third] may
be interested in buying the property in 2013, if [Elmhurst] has a
potential buyer for the property in 2012, I suppose [Elmhurst]
should pursue that deal if it makes sense for [it].”
O.)

(Compl., Ex.

(Elmhurst alleges that pursuing a sale to Keeler-FOG in 2012

“was not possible” at that point, Compl. ¶ 30.)

Mr. Van Baren told

Mr. Burbank that the “other potential buyer is gone now because of
[Fifth Third’s] exercise of the right of first refusal . . . weeks
ago,” and he inquired whether Fifth Third would be willing to enter
into a contract as soon as it had appropriated the funds, even if
that

meant

closing

in

2013,

and

“realistically” be appropriated.

if

so,

when

(Compl., Ex. P.)

would

funds

It is alleged

that Fifth Third “made representations to Elmhurst that the sale of
the Property

would

close

purchase the property.

in

2013” but nonetheless

(Compl. ¶¶ 33-34.)

to

The property is

currently listed for sale, but has not been sold.
This lawsuit ensued.

failed

(Compl. ¶ 37.)

In Count I, Elmhurst alleges that once

Fifth Third exercised its ROFR, it “was obligated to purchase” the
property from Elmhurst, and because it did not do so, it breached
the terms of the Lease.

Elmhurst alleges that as a result of the

breach, it lost the opportunity to sell the property in 2012 to

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Keeler-FOG at the price offered by Keeler-FOG, “incurred carry
costs

[and]

legal

consequences.”

expenses,”

(Compl.

¶

49.)

and

“suffered

Elmhurst

adverse

seeks

tax

compensatory

damages, attorneys’ fees, and costs in Count I.
In Count II, Elmhurst alleges that it had reasonably expected
to consummate a sale of the property to Keeler-FOG, that Fifth
Third “exercised the ROFR under the Ground Lease to prevent KeelerFOG’s offer to purchase the Property from maturing into an actual
sale of the Property” and that Fifth Third “knew that by exercising
its ROFR, Keeler-FOG would not purchase the Property.”
52, 54, 61.)

(Compl. ¶¶

Elmhurst states that it “was injured by Fifth Third’s

actions in an amount in excess of $50,000” by virtue of losing the
opportunity

to

sell

to

Keeler-FOG

in

2012,

and

it

seeks

compensatory damages and costs in Count II.
Elmhurst alleges in Count III that after receiving the notice
of Keeler-FOG’s proposal, Fifth Third “made a number of false
statements of fact to Elmhurst” regarding its intent to purchase
the property, with the “knowledge or belief that they were false.”
(Compl. ¶¶ 64-65.)

It is further alleged that Fifth Third made

these statements “to guide Elmhurst’s business decisions during the
sale of the Property and to induce Elmhurst not to move forward
with the sale of the Property to Keeler-FOG” and that Elmhurst
justifiably relied on the statements to its detriment.

(Compl. ¶¶

- 7 -

66-69.)

Elmhurst seeks compensatory and punitive damages in Count

III.
Fifth Third moves to dismiss the complaint for failure to
state a claim.
DISCUSSION
Under federal notice-pleading standards, a complaint need not
contain “detailed factual allegations,” but it must have more than
mere “labels and conclusions.”
U.S. 544, 555 (2007).

Bell Atl. Corp. v. Twombly, 550

The complaint must contain sufficient facts

to raise a plaintiff’s right to relief above a “speculative” level,
id. at 555, and the claim must be “plausible on its face,” id. 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.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
A.

Count I (Breach of the Lease)
Elmhurst’s contractual claim is that “Fifth Third exercised

its ‘right to purchase’ the property and breached the Lease by not
doing so.”

(Pl.’s Opp’n at 8.)

Fifth Third first contends that

Count I should be dismissed because the Keeler-FOG proposal was not
a “bona fide offer,” as required by paragraph 35 of the Lease, and
accordingly did not provide the basis for an enforceable exercise
of the ROFR.

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In opposition, Elmhurst argues that “it is irrelevant that the
terms of the Keeler proposal were contingent and may have changed
had Keeler and Elmhurst continued forward to close the sale of the
property” because “[b]y exercising its rights under the ROFR, Fifth
Third converted those contingent terms into definite terms of a
binding agreement and agreed to ‘purchase’ the property on the
terms included in Keeler’s proposal.”

(Pl.’s Opp’n at 6-7.)

Elmhurst cites Illinois case law standing for the proposition that
a right of first refusal is enforceable by a tenant against a
landlord where the terms of a third party’s offer are sufficiently
definite and are met by the tenant.1

Elmhurst also asserts that we

should reject Fifth Third’s “bald assertion” that the Keeler-FOG
proposal was not a bona fide offer, reasoning that “Fifth Third’s
exercise of the ROFR, in and of itself, concedes that the offer was
bona fide.”

(Pl.’s Opp’n at 7.)

It begs the question to assume that Fifth Third did, in fact,
exercise its ROFR under the terms of the Lease.

The Lease gives

Fifth Third the right to purchase the property on the same terms
and conditions as those of any “bona fide offer received by and
acceptable to” Elmhurst. Illinois law distinguishes between offers
and letters of intent.

An “offer” “must be so definite as to its

material terms or require such definite terms in the acceptance

1/
Kellner v. Bartman, 620 N.E.2d 607 (Ill. App. Ct. 1993); Vincent v.
Doebert, 539 N.E.2d 856 (Ill. App. Ct. 1989). The parties agree that Illinois
law controls.

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that the promises and performances to be rendered by each party are
reasonably certain.”

Kipnis v. Mandel Metals, Inc., 741 N.E.2d

1033, 1037 (Ill. App. Ct. 2000).

Letters of intent are not

necessarily enforceable unless the parties intend for them to be
contractually binding.

Quake Constr., Inc. v. American Airlines,

Inc., 565 N.E.2d 990, 993-94 (Ill. 1990).

In Kipnis, the court

concluded that a letter that stated that “the provisions contained
herein are not binding on the parties unless specifically so
stated, except to the extent that they reflect the intent of the
parties to

enter

into further

negotiations

and

to

develop

a

definitive written agreement” was a non-binding letter of intent,
not a bona fide offer.

741 N.E.2d at 1037-38.

The complaint alleges that Elmhurst received a “bona fide
offer” from Keeler-FOG, Compl. ¶ 43, but the Keeler-FOG letter
contradicts this allegation.

“When an exhibit incontrovertibly

contradicts

in

the

allegations

the

complaint,

the

exhibit

ordinarily controls, even when considering a motion to dismiss.”
Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013).

The letter,

attached as an exhibit to the complaint, states:
This Letter of Intent is a non-binding agreement between
the parties and is a guide to the preparation of a
mutually satisfactory Agreement. Within three (3) days
of execution of this letter, Purchaser’s counsel shall
prepare a draft Agreement and the parties shall work
diligently towards the execution of the Agreement.
(Compl., Ex. D, at 3.)

By referring to its proposal as a “non-

binding” “letter of intent” and a “guide to the preparation of a

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mutually

satisfactory

agreement,”

Keeler-FOG

unambiguously

expressed an intent not to be bound by the terms of the proposal.
The letter did not invite acceptance that would bind the parties to
a purchase agreement, so it did not constitute a bona fide offer.
The decisions Elmhurst cites are inapposite because they
involved offers, with sufficiently definite terms.

Moreover, in

those cases, the ROFR was enforced against the landlord, not the
tenant. Elmhurst’s claim for breach of contract is curious because
it is claiming a breach of the Lease, which did not itself create
any obligation of Fifth Third to purchase the property.

Elmhurst

maintains that “[i]f Fifth Third could have backed out of the deal
for any reason simply because one of the terms of the offer stated
that the offer was contingent, then the ROFR would have been
meaningless and would have offered no safeguard to Elmhurst that it
would be assured of closing the transaction at the terms received
in the offer even after Fifth Third’s exercise of its ROFR.”
(Pl.’s

Opp’n

at

8.)

This

contention

is

flawed

because

presupposes that Keeler-FOG made an enforceable offer.

it

It also

misapprehends the purpose of the ROFR, which was to benefit Fifth
Third, not Elmhurst.

Elmhurst alleges that Fifth Third breached

the Lease, not any other agreement between the parties.

But the

ROFR as set forth in the Lease was never triggered, because the
Keeler-FOG proposal, by its express terms, was not an offer.

And

even if it had been, it does not seem to us that any ensuing

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exercise of the ROFR could result in a subsequent breach of
contract claim by Elmhurst that would arise out of the Lease.
Accordingly, Count I will be dismissed, and we need not discuss
Fifth Third’s alternative arguments for dismissing this claim. The
dismissal

will

be

with

prejudice

because

we

do

not

see

a

possibility of successful amendment.
B.

Count II (Tortious Interference With a Business Expectancy)
In Count II, Elmhurst alleges that Fifth Third exercised its

ROFR “to tie up or prevent the Property from being sold until it
could decide whether it would go forward with the purchase.”
(Compl. ¶ 57.)

The elements of the tort of interference with

prospective business expectancy include (1) plaintiff’s reasonable
expectation of entering into a valid business relationship; (2)
defendant’s knowledge of plaintiff’s expectancy; (3) purposeful or
intentional interference by defendant that prevents plaintiff’s
legitimate

expectancy

from

ripening

into

a

valid

business

relationship; and (4) damages to plaintiff resulting from such
interference.

Miller v. Lockport Realty Group, Inc., 878 N.E.2d

171, 176 (Ill. App. Ct. 2007).
Fifth Third argues that Elmhurst fails to sufficiently allege
that

Fifth

Third’s

actions

were

“unjustified

(Def.’s Mem. in Supp. of Mot. at 9-10.)

or

malicious.”

Elmhurst correctly

responds that under Illinois law, a plaintiff must plead and prove
that the defendant’s conduct was unjustified or malicious only when

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“the existence of a privilege in favor of the defendant is apparent
on the face of a claim for tortious interference with prospective
business advantage.”

Miller, 878 N.E.2d at 177; see also HPI

Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672,
677 (Ill. 1989).

“[A]n individual has a general duty not to

interfere with the business affairs of another, but he may be
privileged to interfere, depending on his purpose and methods, when
the interference takes a socially sanctioned form, such as lawful
competition.”
As

Miller, 878 N.E.2d at 176.

discussed

above,

since

the

exhibits

attached

to

the

complaint make clear that Fifth Third was not exercising its ROFR
under the Lease, we will construe the allegations in Count II as
simply being directed to Fifth Third’s alleged conduct when it was
negotiating with Elmhurst. With regard to that alleged conduct, we
cannot say that the existence of a privilege in favor of Fifth
Third is apparent. In its opening memorandum, Fifth Third does not
argue that its actions were privileged; it does not even mention
the concept of privilege.

It does present a privilege argument in

its reply brief, but we will not consider it.

Arguments raised for

the first time in a reply brief are waived.

See Mendez v. Perla

Dental, 646 F.3d 420, 423-24 (7th Cir. 2011).
Fifth Third also contends that Elmhurst’s allegation that
Fifth Third acted in order to “tie up or prevent the property from
being sold until it could decide whether it would go forward with

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the purchase” “makes no sense” because Elmhurst already had a
thirty-day window to exercise its ROFR pursuant to the Lease.
(Def.’s Mem. in Supp. of Mot. at 10.)

We are unpersuaded; Fifth

Third’s stalling conduct is alleged to have occurred after the
thirty-day period expired.
Fifth Third’s motion will be denied as to Count II.
C.

Count III (Fraudulent Misrepresentation)
The elements of common-law fraud are (1) a false statement of

material fact; (2) the speaker’s knowledge or belief that the
statement was false; (3) the speaker’s intent that the statement
induce the

recipient

to

act;

(4)

the

recipient’s

belief

and

reliance on the statement and right to do so; and (5) damages
resulting from the reliance.

All Am. Roofing, Inc. v. Zurich Am.

Ins. Co., 934 N.E.2d 679, 690 (Ill. App. Ct. 2010).
Elmhurst

alleges

that

Fifth

Third

“made

a

In Count III,

number

of

false

statements of fact to Elmhurst,” which “included”:
a. [Vice President] Randall L. Morris[s]ey’s statement in
an email to counsel for Elmhurst on October 30, 2012:
“[T]his email will serve as confirmation that Fifth Third
Bank is exercising its ROFR right to purchase the
[Property].”;
b. Todd C. Burbank’s statement in an email to counsel
for Elmhurst on November 28, 2012: [“]I expect [Fifth
Third will forward a signed contract to Elmhurst] late
this week or early next week.”;
c. Todd C. Burbank’s statement in an email to counsel
for Elmhurst on December 5, 2012: “I’m told the [purchase
agreement] was held up at headquarters, but is now in the
process of being signed.”’

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d. That Fifth Third had given funding authority to close
the sale of the Property in 2012;
e. That Fifth Third would purchase the Property in 2013.
(Compl. ¶ 64.)

It is alleged that “Fifth Third made these

statements to Elmhurst with knowledge or belief that they were
false.”

(Compl. ¶ 65.)

Fifth Third asserts that alleged misrepresentations (d) and
(e) fail to comply with Federal Rule of Civil Procedure 9(b), which
requires plaintiffs to allege the circumstances of fraud with
particularity.

“This means the who, what, when, where, and how:

the first paragraph of any newspaper story.”
Young, 901 F.2d 624, 627 (7th Cir. 1990).

DiLeo v. Ernst &
We agree.

Because

Elmhurst has failed to provide these particulars, statements (d)
and (e) cannot serve as a basis for its fraud claim.
As for alleged misrepresentations (a), (b), and (c), we agree
with Fifth Third that Elmhurst has failed to sufficiently allege
that the party making the statements knew that they were false when
made.

The complaint simply alleges that “Fifth Third” made these

statements with the knowledge that they were false, not that
Messrs. Morrissey and Burbank did so.

Elmhurst argues that its

allegations are sufficient because it “has alleged that these
employees and representatives knew that no appropriations had been
approved for the transaction when they made the statements,” citing
paragraph 65 of the complaint.

(Pl.’s Opp’n at 15.)

But that is

not what Elmhurst has alleged; it has alleged nothing about the

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knowledge or beliefs of Messrs. Morrissey or Burbank, and it also
has

not

alleged

that

either

individual

did

not

expect

any

appropriation to be made for the purchase. Moreover, we agree with
Fifth Third that Mr. Morrissey’s statement is not an actionable
statement of fact, but rather language intended to exercise a
contractual right.
There is another problem with Count III.

Elmhurst concedes

that its claim essentially relies on false statements of intent
regarding future conduct.

(Pl.’s Opp’n at 13.)

This is known as

promissory fraud, which is generally not actionable in Illinois
except where the statements are part of a scheme to defraud.

See

HPI Health Care, 545 N.E.2d at 682 (“[M]isrepresentations of
intention to perform future conduct, even if made without a present
intention to perform, do not generally constitute fraud.”); Ass’n
Benefit Servs., Inc. v. Caremark Rx, Inc., 493 F.3d 841, 853 (7th
Cir. 2007) (“Illinois law does not allow . . . plaintiffs to
proceed on a fraud claim when the evidence of intent to defraud
consists of nothing more than unfulfilled promises and allegations
made in hindsight.”).

Our Court of Appeals has summarized the

exception as follows: “[P]romissory fraud is actionable only if it
either is particularly egregious or, what may amount to the same
thing,

it

is

embedded

in

a

larger

pattern

of

deceptions

or

enticements that reasonably induces reliance and against which the
law ought to provide a remedy.”

Desnick v. Am. Broad. Cos., 44

- 16 -

F.3d 1345, 1354 (7th Cir. 1995).

Elmhurst’s allegations do not

sufficiently allege that Fifth Third made a promise to purchase
property without the intent to do so, but even if they did, such a
promise cannot be considered “particularly egregious,” and Elmhurst
has failed to allege a larger pattern of deception with the
particularity required by Rule 9(b).
Count III will be dismissed without prejudice.2
CONCLUSION
For the foregoing reasons, the motion of defendant, Fifth
Third Bank, to dismiss the complaint [7] is granted in part and
denied in part.

The motion is granted as to Count I, which is

dismissed with prejudice, and as to Count III, which is dismissed
without prejudice.

It is denied as to Count II.

The stay of discovery entered on August 14, 2013 is lifted,
and the parties are directed to proceed with discovery.
A status hearing is set for October 23, 2013 at 11:00 a.m.
DATE:

September 26, 2013

ENTER:

_______________________________________________
John F. Grady, United States District Judge

2/
Elmhurst may seek leave to file an amended Count III at such time as
it believes it has a fraud claim that is plausible in light of the analysis in
this opinion.