Gavin/Solmonese LLC v. Kunkel

Filing 35

MEMORANDUM Opinion and Order Signed by the Honorable John Robert Blakey on 7/6/2016. Mailed notice(gel, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Gavin/Solmonese LLC.,
Plaintiff,

Case No. 16-cv-1086

v.

Judge John Robert Blakey

Stephen L. Kunkel,
Defendant.

MEMORANDUM OPINION AND ORDER
This case involves a dispute between Plaintiff, Gavin/Solmonese LLC
(“Gavin/Solmonese” or “Plaintiff”) and its former employee, Defendant Stephen L.
Kunkel (“Kunkel” or “Defendant”).

Specifically, Plaintiff brings five causes of

action: (1) breach of fiduciary duty; (2) unjust enrichment; (3) tortious interference
with contract; (4) tortious interference with prospective economic advantage; and (5)
fraud. First Am. Compl. [19]. On March 23, 2016, Defendant filed a motion to
dismiss Plaintiff’s original Complaint. Def.’s Mot. Dismiss for Failure to State a
Claim [16]. On April 21, 2016, Plaintiff filed its First Amended Complaint. First
Am. Compl. [19]. On May 9, 2016, Defendant filed a motion to dismiss Plaintiff’s
First Amended Complaint. Def.’s Mot. Dismiss for Failure to State a Claim [24].
For the reasons explained below, that motion is granted in part and denied in part.
I.

Background
Plaintiff Gavin/Solmonese is a management consulting firm founded in 2012.

First Am. Compl [19] ¶ 7. Plaintiff provides corporate “turnaround solutions and

1

organizational effectiveness strategies” to clients throughout the United States. Id.
¶ 8.

As part of these services, Plaintiff evaluates a client’s current business,

provides an assessment, and formulates a preliminary action plan for implementing
a turnaround strategy.

Id. ¶ 9.

Occasionally, Plaintiff also assists clients in

executing its recommendations, either by providing interim management services or
assisting with the sale of the business. Id. ¶ 10.
In approximately August 2013, Plaintiff hired Defendant as Managing
Director in Chicago, Illinois. Id. ¶ 12. In this role, Defendant was a merely an “atwill” employee, and did not serve as a corporate officer or director. Def.’s Mot.
Dismiss for Failure to State a Claim [24] 9. Nevertheless, from August 2013 until
the date of Defendant’s resignation, Plaintiff paid Defendant an annual salary
ranging from $250,000 to $300,000, plus a discretionary bonus, and also paid for the
cost of Defendant’s health insurance. First Am. Compl. ¶¶ 14-16.
On or about September 27, 2013, Soo Tractor Sweeprake Co. (“Old Soo”), a
steel fabrication company that produces farming equipment, retained Plaintiff to
provide advisory services for its facilities in Sioux City, Iowa.

Id. ¶ 18.

Approximately one month later, on October 21, 2013, Old Soo retained Plaintiff to
implement Plaintiff’s recommendations.

Id. Ex. A at 1.

Old Soo and Plaintiff

memorialized the details of their arrangement in a written Management
Agreement. Id.
Under the Agreement, Plaintiff agreed to provide Old Soo an interim Chief
Executive Officer (“CEO”) to assist with the implementation of Plaintiff’s

2

recommendations. Id. ¶ 21. Plaintiff selected Defendant to serve in this role. Id.
Pursuant to the Agreement, Defendant performed such duties as an independent
contractor, not an employee of Old Soo. Id. ¶ 22. As consideration, Old Soo paid
Plaintiff $180,000 per month through December 31, 2013, and beginning on
January 1, 2014, Old Soo paid Plaintiff an hourly rate totaling approximately
$260,000 per month, plus necessary expenses. Id. ¶ 23. Between October 2013 and
January 2015, Defendant served as interim CEO of Old Soo while Old Soo paid
Plaintiff for his services. Id. ¶ 24.
Plaintiff claims that, in approximately December 2014, Old Soo and Plaintiff
agreed to extend the terms of the Management Agreement through April 2015 (the
“Extension Agreement”). Id. ¶ 26. Plaintiff further claims that, as part of the
Extension Agreement, Old Soo asked Plaintiff to help sell Old Soo to a new owner.
Id. According to Plaintiff, Old Soo agreed that if the sale of Old Soo was completed
by April 30, 2015, Plaintiff would receive a Success Fee in addition to its hourly
compensation.

Id. ¶ 27.

Plaintiff expected this Success Fee to total between

$150,000 and $300,000. Id. ¶ 28. Plaintiff alleges that in approximately January
2015, pursuant to the Extension Agreement, Plaintiff helped secure a buyer for Old
Soo, and that both parties anticipated the sale of Old Soo to be complete by the
April deadline. Id. ¶ 29.
Plaintiff alleges that, while Defendant served as interim CEO of Old Soo,
Defendant engaged in inappropriate activity with multiple male Old Soo employees
without Plaintiff’s knowledge. Specifically, Plaintiff claims that Defendant, among

3

other things: (1) made inappropriate comments to male Old Soo employees that the
employees needed their “ass[es] spanked to become a man,” id. ¶¶ 36, 85; (2)
spanked male Old Soo employees on the buttocks, both bare-skinned and under
clothes, inside and outside the workplace, id. ¶¶ 37, 41, 43, 85, 88-89, 91, 93; (3)
engaged in nonconsensual sexual contact with one of the male Old Soo employees,
id. ¶ 49; (4) promoted these employees to positions within Old Soo for which they
were otherwise unqualified, id. ¶¶ 33, 38, 43, 83; (5) threatened to discharge one of
the male employees if he failed to keep the spanking incidents a secret, id. ¶ 86; (6)
gave these employees large sums of money to help with financial troubles and debt,
id. ¶¶ 34-35, 42, 90; and (7) told one of the male employees that he could take as
much time off as he needed and that the employee would continue to be paid. Id. ¶
65. Plaintiff argues that Defendant’s actions were taken “for Kunkel’s perverse
personal pleasure.” Pl.’s Resp. to Def.’s Mot. Dismiss for Failure to State a Claim
[27] 9.
Additionally, Plaintiff alleges that, once one of the male Old Soo employees
reported Defendant’s conduct in December 2014, Defendant repeatedly violated
Plaintiff’s instructions not to contact the male employee until Plaintiff completed an
internal investigation. First Am. Compl. [19] ¶¶ 57-59, 63. Plaintiff further claims
that Defendant told the male employee to either not speak with anyone about the
incident or deny that Defendant engaged in inappropriate conduct. Id. ¶¶ 59, 67.
Plaintiff claims that Defendant enticed the male employees’ cooperation by
promising to help the male employees with their debts or provide paid time off of

4

work. Id. ¶ 65, 70, 90. Due to Defendant’s violation of Plaintiff’s instructions,
Plaintiff gave Defendant the option to be terminated or resign. Id. ¶ 74. Defendant
resigned his employment with Plaintiff on January 30, 2015. Id. ¶ 75.
On January 28, 2015, Old Soo notified Plaintiff that it was terminating the
Extension Agreement. Id. ¶ 76. Plaintiff claims that Old Soo’s outside counsel told
Plaintiff that Old Soo terminated the Extension Agreement due to Defendant’s
conduct. Id. ¶ 77. Old Soo ultimately sold its assets to a new owner. 1 Id. ¶ 79.
Due to the termination of the Extension Agreement, however, Plaintiff did not
receive the previously anticipated Success Fee. Id. ¶ 80.
In March and April 2015, the male Old Soo employees reportedly victimized
by Defendant filed lawsuits against Old Soo, Plaintiff, and Defendant with the Iowa
Civil Rights Commission and the Equal Employment Opportunity Commission. Id.
¶¶ 81-82. Plaintiff claims it was forced to retain legal counsel to resolve these
charges, as well as “other potential common law and statutory claims held by the
employees.” Id. ¶ 97.
Plaintiff also alleges additional, unrelated misconduct committed by
Defendant during the course of his employment. First, Plaintiff claims Defendant
diverted potential business opportunities from Plaintiff for Defendant’s personal
gain.

Id. ¶ 99.

Specifically, Plaintiff alleges that, during his employment,

Defendant identified Tamarack Ski Resort (“Tamarack”) as a potential client for
Plaintiff.

Id. ¶ 100.

Plaintiff claims that Defendant ultimately reported the

The pleadings are unclear as to whether the new owner was the same as that previously identified
by Plaintiff. However, this fact is irrelevant for purposes of this motion.
1

5

Tamarack lead to be “dead,” but then proceeded to join Tamarack’s Board of
Directors on his own behalf and perform the same types of services for Tamarack
that Plaintiff performs for its clients. Id. ¶¶ 102, 104. Second, Plaintiff alleges
that, on multiple occasions, Defendant falsified his expense reports by submitting
duplicate reimbursement slips for the same expenses, requesting reimbursement for
non-business expenses, and requesting reimbursement for meals in which
Defendant did not partake. Id. ¶¶ 110-11.
As a result of Defendant’s misconduct, Plaintiff alleges that it suffered lost
fees and commissions from Old Soo (including the anticipated Success Free from the
sale of Old Soo); compensation paid to Defendant when he was acting contrary to
Plaintiff’s interest; attorneys’ fees and costs associated with defending the claims
raised by Old Soo’s male employees; expense reimbursements improperly paid to
Defendant; and other money damages yet to be determined.

Id. ¶ 112.

Additionally, Plaintiff claims that Defendant’s conduct tarnished its business
reputation and caused damage to Plaintiff’s future business prospects. Id. ¶ 113.
Plaintiff claims that, since Defendant’s misconduct came to light, it has not been
able to secure any additional consulting work with any Iowa companies. Id. ¶ 117.
Moreover, Plaintiff alleges that it missed out on referrals by Old Soo’s outside
counsel to two potential customers. Id. ¶¶ 114-16.
In response to Defendant’s actions and their perceived fiscal consequences,
Plaintiff brings the following causes of action:

(1) breach of fiduciary duty; (2)

unjust enrichment; (3) tortious interference with contract; (4) tortious interference

6

with prospective economic advantage; and (5) fraud.

First Am. Compl. [19].

Defendant moves this Court to dismiss each claim pursuant to Federal Rule of Civil
Procedure 12(b)(6). Each claim will be discussed in turn.
II.

Legal Standard
A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the

complaint for failure to state a claim upon which relief may be granted.” Gen. Elec.
Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). To
survive a motion to dismiss, a complaint must contain “sufficient factual matter” to
“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007)). 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.” Id. The plausibility standard “is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id. In making this determination, the Court accepts all wellpleaded allegations in the complaint as true and draws all reasonable inferences in
favor of the plaintiff. Id.
III.

Analysis
a. Count I: Breach of Fiduciary Duty
In Count I, Plaintiff alleges that Defendant breached his fiduciary duties to

act “with the utomost candor, care, loyalty, full disclosure, and good faith” towards
Plaintiff by: (1) “engaging in inappropriate and improper conduct” towards Old Soo’s

7

employees; (2) “attempting to hide this conduct from Old Soo and Gavin/Solmonese”;
and (3) “usurping actual and/or potential corporate opportunities rightfully
belonging to Gavin/Solmonese, without Gavin/Solmonese’s knowledge or consent.”
First Am. Compl. [19] ¶¶ 123, 127.
Under Illinois law, to state a claim for breach of fiduciary duty, Plaintiff must
allege that: (1) a fiduciary duty existed; (2) the duty was breached; and (3) the
breach of the duty proximately caused damages. Chicago Title Ins. Co. v. Sinikovic,
125 F. Supp. 3d 769, 777 (N.D. Ill. 2015) (citing Gross v. Town of Cicero, Ill., 619
F.3d 697, 709 (7th Cir. 2010)).
Citing Instant Technology, LLC v. Defazio, 40 F.Supp.3d 989, 1017 (N.D. Ill.
2014), aff'd, 793 F.3d 748 (7th Cir. 2015), Defendant argues that, as an at-will
employee who was neither a corporate officer nor director, Defendant did not owe
any fiduciary duty to Plaintiff. Def.’s Mot. Dismiss for Failure to State a Claim [24]
9. The Court finds this argument unpersuasive. First, Defendant misinterprets the
Defazio opinion. Defazio merely found that, as “a general rule, in Illinois, only a
corporate officer can be held liable for soliciting employees for a new venture.”
Defazio, 40 F.Supp.3d at 1017 (emphasis added). Allegations of this specific type of
misconduct are absent here. Contrary to Defendant’s revisions, Defazaio is silent on
the issue of fiduciary duties of non-officers generally. Other courts, however, have
long held that employees “who are not officers or directors are also bound by
fiduciary obligations.” LCOR Inc. v. Murray, No. 97 C 1302, 1997 WL 136278, at *7
(N.D. Ill. Mar. 20, 1997); Laba v. Chicago Transit Auth., No. 14 C 4091, 2016 WL

8

147656, at *6 (N.D. Ill. Jan. 13, 2016) (“Illinois law recognizes that employees, as
well as officers and directors, owe a duty of loyalty to their employer”) (internal
citations and quotations omitted). These fiduciary obligations include an undivided
duty of fidelity and loyalty, which includes acting solely in the interest of the
employer. RKI, Inc. v. Grimes, 177 F. Supp. 2d 859, 877 (N.D. Ill. 2001).
The Court finds equally unconvincing Defendant’s argument that, at best,
Defendant owed a fiduciary duty to Old Soo, not Plaintiff. Def.’s Reply to Mot.
Dismiss for Failure to State a Claim [28] 3.

For one, Plaintiff alleges that,

throughout the relationship between Plaintiff and Old Soo, Defendant performed
his duties as an independent contractor, not an employee of Old Soo. First Am.
Compl. ¶ 22. During that same time period, Defendant received compensation (in
the form of salary, discretionary bonuses, and healthcare) from Plaintiff, not Old
Soo. Id. ¶¶ 14-16.
Defendant further claims that, even assuming the bare existence of a
fiduciary duty, Defendant “could not have violated any such purported duty by
engaging in the alleged misconduct at Old Soo Tractor.” Def.’s Mot. Dismiss for
Failure to State a Claim [24] 9. Specifically, Defendant asserts that conduct that
“merely involves substandard job performance or bad behavior” does not “give rise
to a breach of the duty of loyalty.” Id. Once again, the Court finds this argument
unavailing. Admittedly, the “scope of the duty of loyalty may vary depending on
whether a corporate officer or an employee is involved,” and courts have generally
recognized that “self-dealing scenarios,” rather than instances of “negligent or

9

substandard job performance,” normally form the basis for viable breach of fiduciary
duty claims. Beltran v. Brentwood N. Healthcare Ctr., LLC, 426 F. Supp. 2d 827,
831 (N.D. Ill. 2006).

Nevertheless, Defendant’s attempt to classify his alleged

actions at Old Soo solely as the latter type of misconduct is unconvincing.
Courts applying Illinois law have construed “self-dealing scenarios” to include
employees “improperly competing with their employer, soliciting the employer’s
customers, enticing co-workers away from the employer, diverting business
opportunities” or “otherwise misappropriating the employer’s property or funds.”
Additionally, this District has stated that an employee’s fiduciary duties “are not
limited to usurpation of the employer’s interest, but extend to a myriad of
infidelities and betrayals.” Robinson v. SABIS Educ. Sys., Inc., No. 98 C 4251, 2000
WL 343251, at *2 (N.D. Ill. Mar. 31, 2000)
In Robinson, SABIS hired Robinson as the Personnel Specialist at a school
operated by SABIS. Id at *1. In that role, Robinson’s duties included “overseeing
SABIS’s payroll and timekeeping operations, maintaining personnel records,
managing the school’s janitors, supervising the safety and security operations, and
overseeing operation and maintenance of the school’s facilities.” Id. at *3. During
her tenure, Robinson “hired a number of her friends and acquaintances to work for
the school.”

Id. at *1.

Over time, Robinson “placed friends and acquaintances

whom she had hired as janitors and security guards on the payroll as ‘permanent
substitute teachers,’” which resulted in higher pay than those individuals “were
entitled to receive.” Id. Additionally, Robinson “paid employees in non-teaching

10

positions for work that she knew was never performed and caused one employee to
be paid for a period when that employee was not even present at the school.” Id.
Finally, “Robinson permitted employees to claim an improper number of exemptions
for income tax withholding purposes.” Id. SABIS filed a breach of fiduciary claim
against Robinson. Id. Later, Robinson moved dismiss, arguing that SABIS had
“failed to allege the requisite elements of a breach of fiduciary duty claim.” Id.
Denying Robinson’s motion, the court found that an agent “owes its principal a
fiduciary duty to treat the principal with the utmost candor, care, loyalty and good
faith, and may not act adversely to the employer’s interests.”

Id. at *2 (citing

Burdett v. Miller, 957 F.2d 1375, 1381 (7th Cir. 1992); Dames & Moore, 21
F.Supp.2d 817, 823 (N.D.Ill. 1998)). In the court’s words:
SABIS has alleged that Robinson breached her duties by engaging in a
sort of ghost-pay-rolling scheme and income-tax-exemption scheme . . .
It alleges that she breached her fiduciary duties by paying people for
work that they did not do, knowingly misclassifying the job titles of
certain individuals causing SABIS to pay artificially high salaries, and
for allowing employees to take more tax exemptions that they were
legally entitled to take. These actions are decidedly not in SABIS’s
interest and consequently constitute a breach of fiduciary duty. SABIS
has thus stated a claim upon which relief can be granted.
Id. at *3.
Here, the misconduct allegedly committed by Defendant at Old Soo is akin to
that set forth in Robinson.

Like Robinson’s scope of employment, Defendant’s

duties as interim CEO included day-to-day “operational and and/or financial
management” of Old Soo, “the hiring and discharge of employees,” and “other duties
as are usually and customarily performed by a Chief Executive Officer.” First Am.
Compl. [19] Ex. A ¶¶ I.A.1, 5, 8. Just as SABIS alleged that Robinson “knowingly
11

misclassif[ied] the job titles of certain individuals causing SABIS to pay artificially
high salaries,” Robinson, 2000 WL 343251 at *1, Plaintiff alleges that Defendant
promoted employees to positions within Old Soo for which they were otherwise
unqualified.

First Am. Compl. ¶¶ 33, 38, 43, 83. Furthermore, just as SABIS

alleged that Robinson “caused one employee to be paid for a period when that
employee was not even present at the school,” Robinson, 2000 WL 343251 at *1,
Plaintiff claims that Defendant told one of his male victims that he “could take as
much time off as he needed and that [the employee] would continue to be paid.”
First Am. Compl. [19] ¶ 65. In short, accepting all well-pleaded allegations in the
complaint as true, Defendant’s alleged conduct at Old Soo, as in Robinson, is
“decidedly not in [Plaintiff’s] interest and consequently constitute[s] a breach of
fiduciary duty.” Robinson, 2000 WL 343251 at *1.
Regardless, Plaintiff’s breach of fiduciary duty allegations are not merely
confined to misconduct related to Old Soo’s employees. Plaintiff also claims that, by
performing services for Tamarack, Defendant usurped “actual and/or potential
corporate

opportunities

rightfully

belonging

to

Gavin/Solmonese,

without

Gavin/Solmonese’s knowledge or consent.” First Am. Compl. [19] ¶ 127. These
actions allege the very solicitation of the employer’s customers, and diversion of
business opportunities traditionally considered to constitute fiduciary breaches. See
Beltran, 426 F. Supp. 2d at 831. For these reasons, Count I sufficiently states “a

12

claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. Defendant’s
motion as to Count I is denied. 2
b. Count II: Unjust Enrichment
In Count II, Plaintiff alleges that Defendant’s “unfair competition with
Gavin/Solmonese through his usurpation of corporate opportunities” from Tamarack
“conferred a benefit on Kunkel,” First Am. Compl. [19] ¶ 139, and that, as a result,
“Gavin/Solmonese is entitled to disgorgement of any and all profits, earnings, and
compensation attributable to Kunkel’s wrongful actions.” Id. ¶ 140. To state a
cause of action based on a theory of unjust enrichment, Plaintiff must allege that:
(1) Defendant has unjustly retained a benefit to Plaintiff's detriment; and (2) that
Defendant's retention of the benefit violates the fundamental principles of justice,
equity, and good conscience. Cleary v. Philip Morris Inc., 656 F.3d 511, 516 (7th
Cir. 2011) (citations omitted).
Defendant argues that Plaintiff fails to plead Count II with sufficient
particularity because it neglects to identify “what the purported business was for
which Tamarack hired Kunkel.” Def.’s Mot. Dismiss for Failure to State a Claim
[24] 17. However, Plaintiff specifically alleges that Defendant “performed services
for and on behalf of Tamarack that were the very same types of services
In their pleadings, the parties expend undue focus on Defendant’s claim that Count I (as well as
Counts III and IV) constitutes “an attempt at an end run around the prohibition against an employer
seeking contribution or indemnification from its employee in EEOC cases.” Def.’s Obj. to Pl.’s SurReply [33] 1. Although Plaintiff’s discussion of damages does reference, in part, “attorneys’ fees and
costs associated with defending and resolving the claims” by Old Soo and its male employees, it also
references a myriad of other, independent damages, including lost fees and commissions from Old
Soo, compensation paid to Defendant when he was acting contrary to Plaintiff’s interest, and damage
to Plaintiff’s future business prospects. Id. ¶¶ 112-13. Therefore, while Defendant’s argument may
become relevant in a future discussion of proper damages, it is minimally probative at this stage of
the proceedings and certainly not dispositive of Defendant’s motion under Rule 12(b)(6).
2

13

Gavin/Solmonese performs for its customers and clients.” First Amend. Compl. ¶
104.

Plaintiff further describes that Gavin/Solmonese provides corporate

“turnaround solutions and organizational effectiveness strategies” to clients
throughout the United States, including evaluation, assessment, and plan
formulation. Id. ¶¶ 8-10. Plaintiff also claims that occasionally, Plaintiff assists
clients in executing its recommendations, either by providing interim management
services or assisting with the sale of a business.

Id. ¶ 10.

Combined, these

descriptions provide Defendant adequate notice of the activities for which Tamarack
allegedly hired Defendant.
Defendant also claims that Count II fails to identify what benefit, if any,
Kunkel received. Def.’s Mot. Dismiss for Failure to State a Claim [24] 17. However,
Plaintiff alleges that Defendant improperly received a “business opportunity” on
Tamarack’s Board of Directors that included “current or future benefits.”

First

Amend. Compl. ¶ 109. Plaintiff also references disgorgement of “any and all profits,
earnings, and compensation.” Id. ¶ 140. Federal Rule of Civil Procedure 8(a)(2)
“requires only a short and plain statement of the claim showing that the pleader is
entitled to relief.” Twombly, 550 U.S. at 555. A complaint “does not need detailed
factual allegations,” but only those necessary “to raise a right to relief above the
speculative level” and “give the defendant fair notice” of what the claim is, “and the
grounds upon which it rests.” Id. at 555-56. A suit “should not be dismissed if it is
possible to hypothesize facts, consistent with the complaint, that would make out a
claim.” Via v. LaGrand, No. 03 C 3278, 2004 WL 2554447, at *6 (N.D. Ill. Nov. 10,

14

2004). Here, Plaintiff alleges that during his employment, Defendant identified
Tamarack as a potential client for Plaintiff. First Am. Compl. ¶ 100. Plaintiff
claims that, despite this potential, Defendant falsely reported the Tamarack lead to
be “dead,” surreptitiously joined Tamarack’s Board of Directors, performed services,
and benefitted on his own behalf. Id. ¶¶ 102, 104. Accepting, as we must, all wellpleaded allegations as true and drawing all reasonable inferences in favor of
Plaintiff, this claim provides fair notice to Defendant.

Therefore, Defendant’s

motion as to Count II is denied.
c. Count III: Tortious Interference with Contract
In Count III, Plaintiff alleges that, despite possessing “actual and/or
constructive knowledge” of the Management Agreement between Plaintiff and Old
Soo, Plaintiff “intentionally interfered” with the Agreement by “engaging in
inappropriate conduct with Old Soo employees that Kunkel knew or should have
known would cause Old Soo to terminate its agreement with Gavin/Solmonese.”
First Am. Compl. [19] ¶¶ 147-49.
Under Illinois law, the elements of tortious interference with contract are:
(1) the existence of a valid and enforceable contract between the plaintiff and
another; (2) the defendant’s awareness of this contractual relation; (3) the
defendant’s intentional and unjustified inducement of a breach of the contract; (4) a
subsequent breach by the other, caused by defendant's wrongful conduct; and (5)
damages. Voelker v. Porsche Cars N. Am., Inc., 353 F.3d 516, 527-28 (7th Cir. 2003)

15

(quoting HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 545 N.E.2d
672, 676 (Ill. 1989)).
Defendant claims that Plaintiff fails to allege that Defendant “purposefully”
caused a breach of contract by Old Soo. Def.’s Mot. Dismiss for Failure to State a
Claim [24] 12. Specifically, Defendant argues that, according to the Complaint,
Defendant’s stated purpose “was not to interfere with a business contract or
potential business relationship, but rather was personal to the alleged relationships
with the two men.” Id. at 10. The Court agrees. Liability “for interference with
contracts and prospective contractual relations developed in the field of intentional
torts.”

Restatement (Second) of Torts § 766C (Am. Law Inst. 1979) (emphasis

added).

Therefore, inherent “in the rule of liability for procuring a breach of

contract is the requirement of an intention to effect such result on the part of the
defendant.” 26 A.L.R.2d 1227 (1952) (emphasis added). To date, “there has been no
general recognition of any liability for a negligent interference,” whether it is
interference “with a third person’s performance of his contract with the plaintiff,”
“with the plaintiff’s performance of his own contract,” or “with the plaintiff’s
acquisition of prospective contractual relations.” Restatement (Second) of Torts §
766C (Am. Law Inst. 1979) (emphasis added).
This general tenet of tort law holds true in Illinois.

In Great Central

Insurance Company v. Insurance Services Office, Inc., Great Central specialized in
writing liability insurance for supermarkets.

74 F.3d 778, 780 (7th Cir. 1996).

Insurance Services Office (“ISO”), a service provider to the liability insurance

16

industry, calculated insurance rates necessary to cover the risk of various insured
activities.

Id.

In the early 1980s, ISO simplified the rate structure of its

Comprehensive General Liability policy. Id. at 781. As part of the simplification,
ISO combined what had been two separate rate classifications, one for grocery
stores and one for supermarkets, into a single classification. Id. ISO filed its new
rates with the various state commissions, which went into effect by the middle of
1986. Id. Shortly thereafter, Great Central realized that ISO’s new method yielded
much lower rates (and thus profits) than under the old system. Id. Great Central
protested to ISO, which agreed and began to rescind the new rates. Id. at 781-82.
However, it was not until 1994 that the new rates were withdrawn in every state in
which they had been filed. Id. at 782. In the interim, Great Central filed its own
higher rates.

Id.

Its competitors, less specialized in the field of supermarket

liability, did not. Id. As a result, Great Central lost business. Id.
Great Central sued ISO, in part under a theory of intentional inference with
contract. Id. at 784. Specifically, Great Central argued that, “by its mistake and its
heel dragging ISO disrupted Great Central’s contractual relations with its
supermarket customers.”

Id.

The district court granted summary judgment in

favor of the ISO. Id. at 778. Affirming the ruling, the Seventh Circuit assumed
that both “the acknowledged original mistake in combining the grocery store and
supermarket rate classifications” and “the slow pace at which ISO corrected the
mistake” were negligent. Id. at 782. Nevertheless, the court reiterated that “the
tort of interfering with contract is an intentional tort.” Id. at 784 (citing W. Page

17

Keeton et al., Prosser and Keeton on the Law of Torts § 129 (5th ed. 1984))
(emphasis added). Because ISO “had no intention of causing Great Central to lose
any of its customers,” tortious interference did not apply. Id. (emphasis added).
While the court acknowledged that ISO “acted negligently, and as a remote
consequence [Great Central] lost some of [its] own customers,” it expressly declined
to expand “the tort of interference with contract to include negligent interference.”
Id. at 784, 786. According to the court, it “would be reckless to predict that the
Supreme Court of Illinois, were it to hear such a case, would recognize (more
realistically, would create) such a tort.” Id. at 786.
Here, Plaintiff asks this Court to recognize the very tort rejected in Great
Central Insurance.

In Count III, Plaintiff alleges that Defendant “intentionally

interfered” with the Management Agreement between Plaintiff and Old Soo by
“engaging in inappropriate conduct with Old Soo employees that Kunkel knew or
should have known would cause Old Soo to terminate its agreement with
Gavin/Solmonese.”

First Am. Compl. [19] ¶¶ 147-49 (emphasis added).

language sounds in negligence, not intent.

Such

Even though Defendant’s acts were

themselves intentional, Plaintiff fails to allege any facts indicating that the objective
or purpose of Defendant’s acts with Old Soo employees was to cause Old Soo to
terminate its agreement with Plaintiff. To the contrary, Plaintiff acknowledges that
Defendant’s actions were “taken only for [Defendant’s] perverse personal pleasure.”
Pl.’s Resp. to Def.’s Mot. Dismiss for Failure to State a Claim [27] 9. Furthermore,
Plaintiff admits that Defendant took multiple affirmative steps to hide his conduct

18

from Old Soo and Plaintiff—the very parties that Plaintiff claims Defendant
intended to influence. Id. These contradictions prevent this Court from drawing a
“reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft, 556 U.S. at 678. While Defendant’s conduct may be, as Plaintiff’s argue,
“wrongful,” “abusive,” or “unlawful,” Pl.’s Resp. to Def.’s Mot. Dismiss for Failure to
State Claim [27] 9-10, it is not purposeful, as least as it relates to any interference
with Plaintiff’s contract with Old Soo. Therefore, Defendant’s motion as to Count
III is granted. 3
d. County IV: Tortious Interference with Prospective Economic
Advantage
In Count IV, Plaintiff alleges that it possessed “a reasonable expectancy of
continuing its relationship with Old Soo” and receiving “its hourly fees for all
services performed” and “the agreed-upon Success Fee” upon “closing of the sale of
Old Soo.”

First Am. Compl. [19] ¶¶ 155-56.

Additionally, Plaintiff claims it

possessed a reasonable expectancy of entering into future business relationships
with other clients based on referrals from Old Soo. Id. ¶ 157. Plaintiff alleges that,
“despite having knowledge of Gavin/Solmonese’s continued expectancies, Kunkel
purposefully and without justification interfered with Gavin/Solmonese’s reasonable
expectancies” by “engaging in inappropriate conduct with Old Soo employees that
In its motion, Defendant raises several other challenges to Count III: (1) Old Soo “never breached,
and is not even alleged to have breached,” the Management Agreement with Plaintiff; (2) “there is no
allegation in the First Amendment Complaint, nor any fact suggesting, that Kunkel was aware of
the Purported Extension Agreement”; and (3) as the interim CEO of Old Soo, Defendant “was
effectively a party to the Management Agreement,” and a “claim of tortious interference does not lie
where a party interferes with his own contract.” Def.’s Mot. Dismiss for Failure to State a Claim [24]
12, 13, 13 n. 3. Given its ruling regarding the lack of any alleged intent, this Court need not address
these supplemental arguments.
3

19

Kunkel knew or should have known would cause Old Soo to terminate
Gavin/Solmonese’s services, would deprive Gavin/Solmonese of a valuable referral
source and would interfere with Gavin/Solmonese’s future business opportunities.”
Id. ¶ 163.
As with Count III, Defendant asserts that Plaintiff’s allegations fail to
support a claim that Defendant’s alleged conduct “was designed to induce a breach,
or to deprive Gavin/Solmonese of future business.” Def.’s Mot. Dismiss for Failure
to State a Claim [24] 14. For the reasons discussed above, this Court agrees. Under
Illinois law, to succeed in an action for tortious interference with prospective
economic advantage, Plaintiff must prove: (1) Plaintiff’s reasonable expectation of a
future business relationship; (2) Defendant’s knowledge of that expectation; (3)
purposeful

interference

by

Defendant

that

prevents

Plaintiff's

legitimate

expectations from ripening; and (4) damages. Ali v. Shaw, 481 F.3d 942, 944 (7th
Cir. 2007).

Like tortious interference with contract, this cause of action “is a

‘purposely’ caused tort, and therefore, a plaintiff must set forth facts which suggest
that defendant acted with the purpose of injuring plaintiff's expectancies.” J. Eck &
Sons, Inc. v. Reuben H. Donnelley Corp., 572 N.E.2d 1090, 1093 (Ill. 1991)
(emphasis added).

Because Plaintiff’s language in Count IV (“by engaging in

inappropriate conduct with Old Soo employees that Kunkel knew or should have
known . . . would deprive Gavin/Solmonese of a valuable referral source and would
interfere with Gavin/Solmonese’s future business opportunities”) closely mirrors

20

that in Count III, the former suffers from the same flaw as the latter. Therefore,
Defendant’s motion as to Count IV is granted. 4
e. Count V: Fraud
In Count V, Plaintiff alleges that Defendant “engaged in a scheme to defraud
Gavin/Solmonese for Kunkel’s own personal gain.”

First Am. Compl. ¶ 173.

Specifically, Plaintiff claims that Defendant “falsely stated that he was entitled to
reimbursement from Gavin/Solmonese with the intent to fraudulently induce
Gavin/Solmonese into paying Kunkel for business expenses that were improperly
charged multiple times or fabricated, and Kunkel’s statements did in fact
fraudulently induce Gavin/Solmonese into paying Kunkel for these improperly
charged business expenses.” Id. ¶ 175.
Defendant argues that Plaintiff’s claim is “prima facie defective” because it
fails to meet the heightened pleading standards of Federal Rule of Civil Procedure
9(b). Rule 9(b) requires that, in “alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).
Rule 9(b) requires Plaintiff “to state ‘the identity of the person who made the
misrepresentation, the time, place and content of the misrepresentation, and the
method by which the misrepresentation was communicated to the plaintiff.’”
Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994)
(quoting Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992)).

Given this ruling, the Court need not address Defendant’s alternative argument that “Plaintiff has
not, and cannot allege any reasonable expectation of future business.” Def. Mot. Dismiss for Failure
to State a Claim [24] 14.
4

21

This means “the who, what, when, where, and how: the first paragraph of any
newspaper story.” DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).
Rule 9(b) “effectively carves out an exception to the otherwise generally
liberal pleading requirements under the Federal Rules.” Graue Mill Dev. Corp. v.
Colonial Bank & Trust Co. of Chicago, 927 F.2d 988, 992 (7th Cir. 1991). The
particularity requirement “is designed to discourage a ‘sue first, ask questions later’
philosophy.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen
Co., 631 F.3d 436, 441 (7th Cir. 2011) (quoting Berman v. Richford Indus., Inc., 78
Civ. 54, 1978 WL 1104, at *5 (S.D.N.Y. July 28, 1978)). Particularity “compels the
plaintiff to provide enough detail to enable the defendant to riposte swiftly and
effectively if the claim is groundless. It also forces the plaintiff to conduct a careful
pretrial investigation and thus operates as a screen against spurious fraud claims.”
Fid. Nat. Title Ins. Co. of New York v. Intercounty Nat. Title Ins. Co., 412 F.3d 745,
749 (7th Cir. 2005).
The Seventh Circuit interprets Rule 9(b) with flexibility. Goldberg v. Rush
Univ. Med. Ctr., 929 F. Supp. 2d 807, 818 (N.D. Ill. 2013). The precise level of
particularity required depends upon the facts of the case. Camasta v. Jos. A. Bank
Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014). This flexibility notwithstanding,
mere conclusory allegations “do not satisfy the requirements of Rule 9(b) and
subject the pleader to dismissal.” Veal v. First Am. Sav. Bank, 914 F.2d 909, 913
(7th Cir. 1990). At the same time, the requirements of Rule 9(b) “are not absolute
or unbounded; defendants need not be given a ‘pretrial memorandum containing all

22

the evidentiary support for plaintiff's case.’” Koulouris v. Estate of Chalmers, 790 F.
Supp. 1372, 1374 (N.D. Ill. 1992) (quoting Uniroyal Goodrich Tire Co. v. Mut.
Trading Corp., 749 F. Supp. 869, 872 (N.D. Ill. 1990)). Rule 9(b) mandates “only
that the plaintiff identify the alleged misrepresentations, not actually prove that
the statement was false.” Adams v. Pull'r Holding Co., LLC., No. 09C7170, 2010
WL 1611078, at *1 (N.D. Ill. Apr. 20, 2010).
Here, Plaintiff’s fraud allegations fail to satisfy the Rule 9(b) standard.
Removing purely legal or conclusory statements, the circumstances detailing
Plaintiff’s fraud allegations are confined to four paragraphs of Plaintiff’s 183
paragraph First Amended Complaint:
Gavin/Solmonese’s employees are required to submit documentation of
business expenses through Gavin/Solmonese’s time and expense
reporting program in order to receive reimbursement of these business
expenses. Employees are also required to indicate the particular client
to which each business expense relates.
First Am. Compl. [19] ¶ 174.
Kunkel . . . falsified his expense reports, by, among other things,
submitting duplicate slips for the same expenses, causing him to
receive multiple reimbursements for the same expense.
Id. ¶ 110.
Upon information and belief, Kunkel also submitted false
reimbursement requests, by, among other things, requesting
reimbursement for non-business expenses and for meals in cities on a
date that Kunkel could not have been in the stated city.
Id. ¶ 111.
Kunkel . . . intentionally concealed his fraudulent scheme by billing
these expenses to different expense codes so that the entries would not

23

appear next to each other when Gavin/Solmonese was reviewing the
monthly expense reports.
Id. ¶ 179.
On these facts, Plaintiff fails to adequately assert the time and place of
Defendant’s fraudulent activity.

Indeed, Plaintiff fails to allege any specific

timeframe for Defendant’s alleged fraud; Plaintiff merely alleges the approximate
begin and end dates of Defendant’s overall employment, rather than dates drawn
from the allegedly fraudulent expense reports submitted by Defendant over the
relevant 17-month period.
A central purpose of Rule 9(b) is “to ensure that the party accused of fraud, a
matter implying some degree of moral turpitude and often involving a wide variety
of potential conduct, is given adequate notice.” Lachmund v. ADM Inv'r Servs., Inc.,
191 F.3d 777, 783 (7th Cir. 1999). Defendant has received no such notice here. For
example, Plaintiff alleges that Defendant submitted “duplicate slips for the same
expenses.” First Am. Compl. ¶ 170. What slips? Plaintiff further alleges that
Defendant requested reimbursement “for non-business expenses.” Id. ¶ 111. What
expenses? Plaintiff claims that Defendant submitted reimbursement “for meals in
cities on a date that Kunkel could not have been in the stated city.” Id. Which
cities? What dates? Even though the law does not require evidentiary detail at this
stage, it does require more specifics than can be found in the allegations here.
Finally, one of the paragraphs detailing the circumstances of Plaintiff’s
allegations is pled “on information and belief.” See id. Allegations based merely
upon “information and belief” “won't do in a fraud case—for ‘on information and
24

belief’ can mean as little as “rumor has it that . . . .’” U.S. ex rel. Bogina v. Medline
Indus., Inc., 809 F.3d 365, 370 (7th Cir. 2016). In sum, Plaintiff’s “faint sketch of
fraud is insufficient.” Siegel v. Shell Oil Co., 480 F. Supp. 2d 1034, 1043 (N.D. Ill.
2007). Rule 9(b) demands more. Therefore, Defendant’s motion as to Count V is
granted.
f. Plaintiff’s Request to Amend
In its response to Defendant’s motion, Plaintiff states that, “should the Court
“find dismissal of any of Plaintiff’s claims to be warranted, Plaintiff respectfully
requests the opportunity to cure any defects by amending its complaint.” Pl.’s Resp.
to Def.’s Mot. Dismiss for Failure to State a Claim [27] 15 n. 1. The decision to
grant or deny a motion to file an amended pleading “is a matter purely within the
sound discretion of the district court.” Soltys v. Costello, 520 F.3d 737, 743 (7th Cir.
2008). Federal Rule of Civil Procedure 15(a) provides that if a party is not entitled
to amend a pleading as a matter of course, it may amend “with the opposing party’s
written consent or the court’s leave.” The court “should freely give leave when
justice so requires.” Fed.R.Civ.P. 15(a)(2).

Although the rule reflects a “liberal

attitude towards the amendment of pleadings, courts in their sound discretion may
deny a proposed amendment if the moving party has unduly delayed in filing the
motion, if the opposing party would suffer undue prejudice, or if the pleading is
futile.” Campania Mgmt. Co. v. Rooks, Pitts & Poust, 290 F.3d 843, 848-49 (7th Cir.
2002).

25

On the record currently before this Court, it would be futile for Plaintiff to
attempt to amend Counts III and IV. Futility is measured in part “by the capacity
of the amendment to survive a motion to dismiss.” Duthie v. Matria Healthcare,
Inc., 254 F.R.D. 90, 94 (N.D. Ill. 2008). Plaintiff’s acknowledgment that Defendant’s
actions were taken for Defendant’s personal pleasure, combined with its failure to
allege, in either its original or amended complaint, facts to show that Defendant
purposely intended to harm Plaintiff’s contractual rights or business expectancies,
indicates that no amendment will overcome the legal deficiencies in Counts III and
IV. Therefore, Plaintiff’s motion to amend its complaint as it relates to Counts III
and IV is denied.
Plaintiff is, however, granted leave to amend Count V to meet the standards
of Rule 9(b). Plaintiff has not unduly delayed in filing its request to amend. This
case is still in its earliest stages, and the Court possesses no evidence that
Defendant would suffer undue prejudice.

Finally, given Plaintiff’s presumed

possession of the allegedly fraudulent expense reports submitted by Defendant,
amendment of Count V is likely to cure its current defects.

26

IV.

Conclusion
For the reasons discussed above, Defendant’s Motion to Dismiss for Failure to

State a Claim [24] is granted as to Counts III, IV, and V, and denied as to Counts I
and II. Plaintiff is granted leave to amend Count V to meet the standards of Rule
9(b).
IT IS SO ORDERED
Dated: July 6, 2016

Entered:

___________________________________
John Robert Blakey
United States District Judge

27