Ariel Investments, LLC v. Ariel Capital Advisors LLC

Filing 82

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 5/16/2016: For the reasons stated in the accompanying Memorandum Opinion and Order, this Court grants plaintiff Ariel Investments' motion to dismiss [dkt. no. 67] and dismisses counts 4 and 5 of defendant Ariel Advisors' counterclaim for failure to state a claim. (mk)

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

ARIEL INVESTMENTS, LLC,

Plaintiff,
vs.
ARIEL CAPITAL ADVISORS, LLC,
Defendant.

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Case No. 15 C 3717

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Ariel Investments, LLC has moved to dismiss counts 4 and 5 of the counterclaim
of Ariel Capital Advisors for failure to state a claim. For the following reasons, the Court
grants the motion to dismiss.
Background
Ariel Investments, LLC has sued Ariel Capital Advisors, LLC under the Lanham
Act and Illinois law based on Ariel Advisors' use of a similar corporate name, allegedly
in order to trade on Ariel Investments' name. The Court denied Ariel Advisors' motion to
dismiss the complaint for lack of personal jurisdiction and proper venue or to transfer
the case to the Middle District of Florida. Ariel Advisors then answered the complaint
and asserted a multiple-count counterclaim.
Ariel Investments has answered the first three counts of the counterclaim—in
which Ariel Advisors seeks cancellation of Ariel Investment's trademark registration or a
declaratory judgment that the term Ariel cannot properly be trademarked. Ariel

Investments has moved to dismiss counts 4 and 5 of the counterclaim. In count 4, Ariel
Advisors alleges that, "upon information and belief," Ariel Investments committed fraud
on the United States Patent and Trademark Office (USPTO) when it registered Federal
Trademark Registration No. 1,286,420 for use of the name "Ariel." Ans. & Counterclaim
¶ 94. In count 5, Ariel Advisors alleges that Ariel Investments committed abuse of
process when it retained certain experts to engage in "intentional deceit and willful
fabrication" and by making "knowingly false" statements of fact. Id. ¶ 97.
Discussion
When considering a motion to dismiss for failure to state a claim, a court accepts
all well-pleaded allegations in the complaint or counterclaim as true and draws
reasonable inferences from those allegations. See Erickson v. Pardus, 551 U.S. 89, 94
(2007). A plaintiff need only state a claim for relief that is plausible on its face. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). But "[i]n all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be stated with particularity." FED.
R. CIV. P. 9(b); see also Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th
Cir. 2007).
1.

Count 4 – alleged fraud on USPTO
Ariel Advisors alleges that Ariel Investments committed fraud on the USPTO

because it acted with "intent to deceive" the USPTO to obtain Federal Trademark
Registration No. 1,286,420 for the name "Ariel." Ans. & Counterclaim ¶ 95. Ariel
Advisors alleges that Ariel Investments submitted to the USPTO logos, drawings, and
specimens that were not actually representative of use of the name "Ariel'" as a mark.
Id. ¶ 94.
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Ariel Investments argues that Ariel Advisors failed to allege the circumstances of
the fraud with sufficient particularity as required by Rule 9(b). A claim that "sounds in
fraud" or is premised on fraudulent conduct triggers Rule 9(b)'s heightened pleading
standard. Borsellino, 477 F.3d at 507. To satisfy this standard, allegations of fraud
must include the "who, what, when, where and how" of the alleged fraudulent conduct.
See, e.g., DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).
Ariel Advisors has not included in its counterclaim any factual allegations
describing the who, what, when, where or how of the alleged fraud. First, Ariel Advisors
argues—in entirely conclusory fashion—that the "29 allegations" incorporated in its
counterclaim are sufficient to pass muster. This argument fails, for two reasons. First,
nowhere in the cited "29 allegations" does Ariel Advisors describe any particulars about
the alleged fraud on the USPTO. Second, Ariel Advisors seems to confuse the general
requirements for pleading under Rule 8(a)(2) with the heightened requirements that
Rule 9(b) imposes upon allegations of the circumstances constituting fraud. In its barebones response to this aspect of Ariel Investments' motion, Ariel Advisors argues that
its allegations meet the pleading standard under Ashcroft v. Iqbal, 556 U.S. 662 (2009),
and in doing so it cites to a portion of Iqbal that deals with Rule 8(a)(2). See Ariel Resp.
at 7 (citing Iqbal, 556 U.S. at 679).
The Court also notes that the operative allegations of Ariel Advisors' fraud claims
are made "[u]pon information and belief." Ans. & Counterclaim ¶¶ 94-95. As a general
rule, allegations made on information and belief are insufficient under Rule 9(b), "unless
the plaintiff states the grounds for his or her suspicions," Uni*Quality, Inc. v. Infotronx,
Inc., 974 F.2d 918, 924 (7th Cir. 1992), which Ariel Advisors has not done.
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For these reasons, the Court dismisses count 4 of Ariel Advisors' counterclaim.
2.

Count 5 – alleged abuse of process
Ariel Advisors alleges in count 5 of its counterclaim that Ariel Investments

committed the tort of abuse of process because it "misused the legal process as an
inappropriate act" and "engage[d] in intentional deceit and willful fabrication" by hiring
certain experts and by making "knowingly false statements." Ans. & Counterclaim ¶ 98.
Ariel Investments contends that the facts that Ariel Advisors alleges do not give rise to a
claim of abuse of process.
Abuse of process under Illinois law—which the parties appear to agree applies
here—has two elements: (1) the existence of an ulterior purpose or motive for the use
of regular court process and (2) an act in the use of process not proper in the regular
prosecution of a suit. McGrew v. Heinold Commodities, Inc., 147 Ill. App. 3d 104, 111,
497 N.E.2d 424, 430 (1986). Abuse of process requires the misuse of process of the
court; it cannot be premised simply upon improper pleadings filed by litigants. SlepTone Ent'mt Corp. v. Coyne, No. 13 C 2298, 2015 WL 127836, at *7 (N.D. Ill. 2015);
Doyle v. Shlensky, 120 Ill. App. 3d 807, 816, 458 N.E.2d 1120, 1128 (1983); Holiday
Magic, Inc. v. Scott, 4 Ill. App. 3d 962, 968, 282 N.E.2d 452, 456 (1972) ("[p]leading
must be distinguished from process . . . process is issued by the court, under its official
seal."). For example, an Illinois court found a proper basis for a claim of abuse of
process where defendants continually used process issued by the court—a writ of
capias ad respondendum—for the purpose of forcing the plaintiff to borrow money and
pledge personal credit to pay corporate debts, even though defendants knew the
plaintiff had no funds to pay debts and was facing hardship in securing money for debt
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payments. See Kumar v. Bornstein, 354 Ill. App. 3d 159, 168, 820 N.E.2d 1167, 1175
(2004) (discussing Shatz v. Paul, 7 Ill. App. 2d 223, 129 N.E.2d 348 (1955)). Similarly,
an Illinois court found a proper basis for a claim of abuse of process where a defendant
used a writ of ne exeat to have the plaintiff arrested in order to extract money from codefendants, forcing the co-defendants into a position favorable to the defendant who
sought the writ. See Kumar, 354 Ill. App. 3d at 169, 820 N.E.2d at 1176 (discussing
Exec. Commercial Servs., Ltd. v. Daskalakis, 74 Ill. App. 3d 760, 393 N.E.2d 1365
(1979)). In both situations, parties misused process issued by the court to gain an
advantage unrelated to the purpose of the particular type of court process. Because the
deceit and fabrication Ariel Advisors alleges in count 5 of its counterclaim is contained in
Ariel Investments' own pleadings, Ariel Advisors has no viable claim for abuse of
process.
Ariel Advisors' claim would still be deficient even if litigant pleadings did
constitute process for purposes of the tort of abuse of process, because Ariel Advisors
has not alleged an improper act of the type required. To constitute "abuse" of process,
there must be some act not proper in the regular course of proceedings, or a "misuse or
perversion" of that process. Holiday Magic, Inc., 4 Ill. App. 3d at 967, 969, 282 N.E.2d
at 456-57. Ariel Advisors alleges that Ariel Investments committed an improper act
when it retained John Shoenfelt, a private investigator, to "engage in intentional deceit
and willful fabrication." Ans. & Counterclaim at 13. Ariel Advisors does not allege,
however, what part of Shoenfelt's declaration contains deceitful or fabricated
statements. Instead, Ariel Advisors cites generally to Shoenfelt's declaration after
alleging that Ariel Investments "knowingly retained experts . . . to engage in intentional
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deceit and willful fabrication," and it fails to elaborate further. Id.
Second, Ariel Advisors alleges that Ariel Investments "knowingly and
purposefully deceived" the court by making false statements in its court filings. Id. The
purported false statements are, first, the statement that Christopher Bray, Ariel Advisors'
founder, "read an interview with Ariel Investments' founder, John Rogers," and second,
the statement that Bray "regularly reads a trade publication called Investment Capital."
Def.'s Resp. to Pl.'s Mot. to Dismiss at 5. Ariel Investments concedes that these
statements contained errors. Specifically, it concedes that Bray did not "read" an
interview with Rogers but rather watched the interview on television. Ariel Investments
also concedes that Bray did not regularly read a periodical titled "Investment Capital"
but instead read a periodical titled "Investment Advisor." Ariel Investments maintains
that although these statements were mistakes, they do not constitute intentional or
material errors. The Court agrees that these are immaterial errors that cannot
appropriately be characterized as a misuse or perversion of court process.
In sum, Ariel Advisors has not alleged facts that make plausible either element of
the tort of abuse of process. The Court therefore dismisses Count 5 of Ariel Advisors'
counterclaim.
Conclusion
For the reasons stated above, this Court grants plaintiff Ariel Investments' motion
to dismiss [dkt. no. 67] and dismisses counts 4 and 5 of defendant Ariel Advisors'
counterclaim for failure to state a claim.
Date: May 16, 2016
________________________________
MATTHEW F. KENNELLY
United States District Judge
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