First Security Bank v. Campbell et al
MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 1/19/2017: For the reasons stated in the accompanying Memorandum Opinion and Order, the Court grants defendants' motion to dismiss [dkt. no. 34] in part and denies it in part. The Court dismisses Count 1 as to defendant Kim Webster-Campbell and dismisses Counts 3 and 5 as to both defendants. The dismissals of Counts 1 (as to Kim Webster-Campbell) and 3 are with leave to amend. The Court also strikes First Security's request for attorney's fees. The Court otherwise denies the motion to dismiss. The case is set for a status hearing on January 25, 2017 at 9:00 a.m. for the purpose of setting a discovery and pretrial schedule. (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
FIRST SECURITY BANK,
CRAIG LYLE CAMPBELL and KIM A.
Case No. 16 C 5258
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
First Security Bank filed suit against Craig Campbell and Kim Webster-Campbell
to recover collateral allegedly assigned to the bank to secure a loan. First Security
alleges that the Campbells tortiously interfered with one of the bank's contracts relating
to the loan (count 1); aided and abetted fraud (count 2); committed civil conspiracy
(count 3); and were unjustly enriched (count 4). First Security also alleges that it is
entitled to an accounting to determine the value of the fraud and unjust enrichment
(count 5). The Campbells have moved to dismiss all of First Security's claims. For the
reasons stated below, the Court dismisses the tortious interference claim with regard to
Kim Webster-Campbell and dismisses the claims for aiding and abetting fraud and
accounting with regard to both Campbells but otherwise denies the motion to dismiss.
Craig Campbell and Kim Webster-Campbell live in Lake Forest, Illinois. Some
time prior to 2008, they formed multiple business entities. The Campbells first
established Opar, LLC. Craig and Kim each had a 50% ownership interest in Opar, but
Craig acted as the sole manager. The Campbells also established Campbell Capital
Management LLC (CCM) and Campbell Capital Advisors, LLC (CCA). Both are
member-managed LLCs. Opar is the sole member of both CCM and CCA. The
Campbells also established Campbell Income Fund L.P. (CIF), a limited partnership.
From 2008 through early 2011, the Campbells owned 100% of the limited partnership
interest in CIF. Since 2012, their ownership has been reduced to 77%. CCM is the sole
general partner of CIF. As of the date First Security filed this complaint, CCA was no
longer an active entity.
First Security is a state bank organized and chartered under the laws of
Arkansas. In February 2008, it loaned the Campbells $1.5 million. The Campbells
executed a promissory note and signed a loan agreement with First Security, both of
which provided for joint and several liability. The loan agreement provided that certain
of the Campbells' assets would serve as collateral for the loan. Specifically, the
agreement provided as collateral "account no. 1 established at and held by the
Campbell Income Fund, L.P." including the "INCAPS FUNDING II" securities held in that
account. Second Am. Compl., Ex. E at 2. (The Court will refer to this account as the
Account.) The Account was located at First Tennessee Bank and was described more
particularly in the parties' separate assignment agreement. The assignment agreement
stated that the Campbells:
assign[ ], transfer[ ] and set[ ] over to First Security Bank . . . the following
investment account: (i) Craig L. Campbell and Kim A. Webster-Campbell,
account no. 1 established at and held by the Campbell Income Fund,
L.P. . . . in which account is held among other securities and monies, the
following securities and accounts: (i) INCAPS Funding II, CUSIP No.
45325VAE4 . . ., owned by Craig L. Campbell and Kim A. Webster2
Id., Ex. F at 1. The assignment agreement gave First Security the sole right to obtain
possession of the Account and its contents and to withdraw or convey any of the
property in the Account. The Campbells also executed an acknowledgement
agreement on behalf of CIF, CCM, and Opar. This agreement states that CIF
acknowledged the assignment of the Account as collateral and agreed to be bound by
the terms and conditions of the assignment agreement. Id. at 6.
First Security alleges that through these agreements, the Campbells continuously
represented that they owned the Account and its assets as individuals, that CIF was
only holding the Account, and that CIF did not have an ownership interest the Account.
First Security alleges that the securities held in the Account (the InCapS securities) had
a face value of $1 million.
In June 2010, First Security brought suit against the Campbells in Arkansas state
court alleging they had defaulted under the loan agreement. In September 2010, First
Security obtained a default judgment against the Campbells for $1,142,992.67. The
judgment also required the Campbells to surrender the Account property or any
proceeds of the property to First Security. Despite this, the Campbells never
surrendered any property. In November 2010, the Campbells filed for bankruptcy in
Illinois. In June 2013, the trustee moved to abandon the Campbells' 77% limited
partnership interest in CIF. The bankruptcy judge granted this motion and, in
September 2013, authorized the trustee to abandon the bankruptcy estate's interest in
the InCapS securities. The bankruptcy judge also discharged the Campbells' personal
liability on the loan agreement but did not adjudicate First Security's interest in the
collateral. First Security alleges that, at the time of these orders, the InCapS securities
had a market value of approximately $600,000. First Security further alleges that the
Account itself contained approximately $91,560.09 in accrued dividends from the
First Security alleges that, following these events, Craig made several
misrepresentations to First Security, in which he indicated that he intended to turn over
the assets in the Account to the bank. Instead, First Security alleges, the Campbells
used their control over Opar and CCM to cause CIF to transfer the InCapS securities
out of the Account and into a new account in CIF's name at Stifel, Nicolaus & Co., even
though CIF did not own the securities. The Campbells then allegedly caused Stifel to
sell the securities as soon as they were in the Stifel account. This sale resulted in
$601,353.43 in cash proceeds. The Campbells then directed the transfer of $600,000
into another CIF account at Bridgeview Bank. In November 2013, Craig allegedly told
Bridgeview Bank to transfer $500,000 to Buoyant Concepts, Inc. in exchange for
2,500,000 shares of Buoyant common stock. Buoyant issued the stock in CIF's name.
The Campbells then transferred $200,000 from the Account (that is, the First
Tennessee account) and the Bridgeview Bank account to other bank accounts
belonging to CIF, CCM, and the Campbells individually. First Security alleges that the
Campbells used this money to cover personal living expenses. Throughout this time,
First Security alleges that it was unaware of the Campbells' conduct regarding the
InCapS securities and proceeds. First Security alleges that it learned of this conduct
through the Bankruptcy Rule 2004 examination in the Campbells' bankruptcy estate,
which took place in 2014.
First Security filed the present suit in an attempt to recover the value of the
collateral pledged under the loan agreement. In count 1, First Security alleges that the
Campbells tortiously interfered with the acknowledgement agreement between CIF and
First Security by using their control of Opar and CCM to cause CIF to transfer the
collateral assets. In count 2, First Security alleges that the Campbells aided and
abetted a fraudulent scheme to mislead the bank about the collateral assets and to
divert the assets for the Campbells' personal benefit. In count 3, First Security alleges
that the Campbells and their companies engaged in civil conspiracy to defraud the
bank. In count 4, First Security alleges that the Campbells were unjustly enriched by
the scheme to divert assets away from the bank. Finally, in count 5, First Security
alleges that it is entitled to an accounting to determine the amount of money that was
When reviewing a motion to dismiss, the Court accepts all allegations in plaintiff's
complaint as true and draws all permissible inferences in plaintiff's favor. Healy v.
Metro. Pier and Exposition Auth., 804 F.3d 836, 838 (7th Cir. 2015). Though detailed
factual allegations are unnecessary, the complaint must contain enough facts to state a
claim to relief that is plausible on its face. Pierce v. Zoetis, Inc., 818 F.3d 274, 277 (7th
Cir. 2016). A plaintiff's complaint must provide "allegations that raise a right to relief
above the speculative level." Redd v. Nolan, 663 F.3d 287, 291 (7th Cir. 2011).
Tortious interference claim
In count 1, First Security alleges that both Craig and Kim tortiously interfered with
contracts to which the bank is a party. To state a claim for tortious interference, a
plaintiff must allege (1) the existence of a valid contract between plaintiff and another;
(2) defendant's awareness of this contract; (3) defendant's intentional and unjustified
inducement of a breach; (4) a breach by the other contracting party; and (5) damages.
Koehler v. Packer Grp., Inc., 2016 IL App (1st) 142767, ¶ 42, 53 N.E.3d 218, 236–37.
The Campbells first argue that First Security has alleged that they tortiously
interfered with the loan agreement they signed as individuals and, because an individual
cannot tortiously interfere with his own contract, this claim must be dismissed. Defs.'
Mem. in Supp. of Mot. to Dismiss at 7. It is true "that a party cannot tortiously interfere
with his or her own contract." Koehler, 2016 IL App (1st) 142767 at ¶ 43, 53 N.E.3d at
237. But First Security has not alleged that the Campbells tortiously interfered with the
loan agreement. Rather, it alleges that the Campbells interfered with the
acknowledgement agreement between CIF and First Security. Second Am. Compl. ¶¶
93, 95. The Campbells as individuals were not parties to the acknowledgement
agreement and therefore can be liable for tortious interference.
The Campbells also argue, in effect, that First Security has alleged contradictory
theories, which should defeat its claim for tortious interference. First Security appears
to assert that the Campbells should be subject to personal liability for the conduct of
their companies through a theory of piercing the corporate veil, as well as personal
liability for their conduct as individuals. Second Am. Compl. ¶¶ 27–33. The Campbells
argue that, if First Security is successful on its veil-piercing theory, they and their
companies would be regarded as a single entity. Defs.' Mem. in Supp. of Mot. to
Dismiss at 10–11. As such, First Security argues, the Campbells effectively would be
parties to the acknowledgement agreement and therefore could not tortiously interfere
with their own contract. Id. But in federal court, a party may plead claims in the
alternative, either in a single count or in separate counts, and may also plead
inconsistent claims. Fed. R. Civ. P. 8(d)(2), (3). First Security is therefore not required
to choose one and only one theory of the case at this stage in the proceedings. To put
it another way, First Security has not bound itself to its veil-piercing theory, and thus it
has not painted itself into a corner on its tortious interference claim as the Campbells
contend. In short, the fact that First Security has alleged liability under a theory of
piercing the corporate veil does not defeat its tortious interference claim.
The Campbells also argue that they cannot be liable for their conduct because
they were acting through Opar and CCM as managers and members of those entities
and therefore are immune from personal liability under 805 ILCS 180/10-10(a). Defs.'
Mem. in Supp. of Mot. to Dismiss at 7-8. That statute, however, provides only that a
member or manager of an LLC is not personally liable for obligations of the company
"solely by reason of being or acting as a member or manager." 805 ILCS 180/10-10(a)
(emphasis added). First Security does not allege that the Campbells are liable for
tortious interference merely because they owned Opar or because they acted as
members or managers. Instead, First Security alleges that the Campbells, through their
personal conduct, manipulated the entities under their control to enrich themselves as
individuals. See Second Am. Compl. ¶¶ 60–87. The statute does not prevent them
from being held liable for their conduct as individuals to enrich themselves at First
First Security, however, has adequately alleged only that Craig tortiously
interfered with the acknowledgement agreement. Specifically, First Security alleges that
Craig manipulated Opar, CCM, and CIF, but it has failed to allege that Kim did anything
of the kind. In particular, it has not described any involvement by Kim in the alleged
contractual interference, nor has it alleged how, if at all, she participated in the decision
to sell the InCapS securities and transfer the proceeds to different accounts. The fact
that Kim may have benefitted from the transfer of the proceeds, as First Security
alleges, is insufficient without more to render her liable for tortious interference.
Aiding and abetting
First Security alleges that the Campbells aided and abetted the fraud committed
by CIF when it transferred and sold First Security's collateral. Second Am. Compl. ¶¶
100–14. To state a claim for aiding and abetting, a plaintiff must allege that (1) the party
whom defendant aids performs a wrongful act which causes an injury; (2) defendant is
aware of his role at the time that he provides assistance; and (3) defendant knowingly
and substantially assisted the violation. Thornwood, Inc. v. Jenner & Block, 344 Ill. App.
3d 15, 27–28, 799 N.E.2d 756, 767 (2003). Plaintiffs alleging fraud "must state with
particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b); see
also Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007)
(describing this standard as a "heightened pleading requirement").
First Security has failed to meet this heightened pleading standard. First Security
alleges that "Craig made continuous material misrepresentations to [First Security]
regarding his intention to honor [First Security's] security interest." Second Am. Compl.
¶ 102. First Security also refers repeatedly to "[t]he Campbells' misrepresentations." Id.
¶ 107. But it has not alleged the content of these misrepresentations or when or to
whom they were made. Without such details, First Security has failed to state its aiding
and abetting claim with the requisite particularity.
In count 3, First Security alleges that Craig and Kim conspired with Opar, CCM,
and CIF to defraud First Security of its collateral. To state a claim for civil conspiracy, a
plaintiff must allege "(1) a combination of two or more persons, (2) for the purpose of
accomplishing by some concerted action either an unlawful purpose or a lawful purpose
by unlawful means, (3) in the furtherance of which one of the conspirators committed an
overt tortious or unlawful act." Redelmann v. Claire Sprayway, Inc., 375 Ill. App. 3d
912, 923, 874 N.E.2d 230, 241 (2007). The Campbells again argue for dismissal on the
ground that First Security has alleged that the Court should pierce the corporate veil.
The Campbells argue that if this theory succeeds, they and the companies would be
considered a single entity, and there can be no conspiracy involving a single entity. As
discussed above, Rule 8(d entitles First Security to plead claims and theories in the
alternative. Thus First Security's alternative veil-piercing allegations do not defeat its
claim of civil conspiracy.
The Campbells' only other argument is that First Security failed to allege any
tortious conduct by Kim individually. Defs.' Mem. in Supp. of Mot. to Dismiss at 13.
Civil conspiracy, however, requires only that one of the conspirators committed an overt
tortious or unlawful act. Redelmann, 375 Ill. App. 3d at 923, 874 N.E.2d at 241. And
First Security has adequately alleged that Craig wrongfully deprived the bank of the
collateral to which it was entitled. Therefore the Campbells are not entitled to dismissal
of the civil conspiracy claim.
First Security also alleges that the Campbells were unjustly enriched by their
conduct. Specifically, First Security contends that the Campbells deposited some of the
proceeds from their scheme into their personal checking account and used this money
to pay for personal expenses. Second Am. Compl. ¶¶ 135–36. These allegations are
sufficient to state a claim for unjust enrichment.
A claim of unjust enrichment requires that the defendant retained a benefit to the
plaintiff's detriment and that the defendant's retention of that benefit violates
fundamental principles of justice and equity. Nat'l Union Fire Ins. Co. v. DiMucci, 2015
IL App (1st) ¶ 67, 34 N.E.3d 1023, 1043. First Security has adequately alleged that the
Campbells retained proceeds from collateral rightfully owed to First Security and that
they had no rights in the collateral. Second Am. Compl. ¶¶ 127, 130, 135–36.
The Campbells argue that the majority of the proceeds from the sale of the
collateral was used by CIF to buy stock issued in its own name and therefore that the
Campbells individually did not receive a benefit. Defs.' Mem. in Supp. of Mot. to
Dismiss at 13. First Security alleges, however, that the Campbells distributed $200,000
to various business and personal accounts and used these accounts to pay personal
expenses. Second Am. Compl. ¶¶ 84–85, 135–36. First Security has therefore
adequately alleged that the Campbells personally retained a benefit.
The Campbells further argue that First Security has again failed to allege
individual conduct by Kim that would justify imposing liability. But First Security is only
required to allege that Kim retained a benefit to the bank's detriment. First Security has
met this standard by alleging that Kim used the proceeds to pay her personal expenses.
The Campbells also argue that First Security fails to identify what conduct by Craig is at
issue under this claim. Defs.' Mem. in Supp. of Mot. to Dismiss at 14. But again, First
Security has adequately alleged that Craig retained a benefit to the bank's detriment by
manipulating CIF into selling the InCapS securities and distributing the proceeds to
himself and to Kim.
In count 5, First Security alleges that it is entitled to an accounting to determine
how much money was lost due to the alleged scheme. Second Am. Compl. ¶¶ 140–50.
The Campbells argue primarily that an accounting is a remedy and not an independent
cause of action. Defs.' Mem. in Supp. of Mot. to Dismiss at 14. First Security does not
object to the dismissal of this claim, noting that it also requested an accounting in its
prayer for relief. Pl.'s Resp. at 11. The Court therefore dismisses count 5 as a standalone claim.
The Campbells have moved to strike First Security's request for attorney's fees
and costs. See Second Am. Compl. ¶ 150(J). Under Illinois law, the prevailing party
bears its own costs of litigation unless otherwise specified by statute or contract.
Steiner Elec. Co. v. Maniscalco, 2016 IL App (1st) 132023, ¶ 75, 51 N.E.3d 45, 63.
First Security has not pointed to any statute or contractual provision that would
authorize fee-shifting in this case. The Court therefore grants the Campbells' motion to
strike the request for attorney's fees.
The Campbells have also moved to strike First Security's request for punitive
damages against the Campbells for their willful conduct in misappropriating the bank's
collateral. To recover punitive damages, a plaintiff must establish "gross fraud or other
extraordinary or exceptional circumstances clearly showing malice or willfulness."
Anthony v. Sec. Pac. Fin. Servs., Inc. 75 F.3d 311, 316 (7th Cir. 1996) (internal
quotation marks omitted) (applying Illinois law). Claims for tortious interference can
present the gross fraud or exceptional circumstances required to support a claim for
punitive damages. See Sirazi v. Gen. Mediterranean Holding, SA, 826 F.3d 920, 924
(7th Cir. 2016). Because First Security has adequately alleged a claim against Craig for
tortious interference—and has alleged that this interference occurred through fraud—it
is entitled to request punitive damages.
For the foregoing reasons, the Court grants defendants' motion to dismiss [dkt.
no. 34] in part and denies it in part. The Court dismisses Count 1 as to defendant Kim
Webster-Campbell and dismisses Counts 3 and 5 as to both defendants. The
dismissals of Counts 1 (as to Kim Webster-Campbell) and 3 are with leave to amend.
The Court also strikes First Security's request for attorney's fees. The Court otherwise
denies the motion to dismiss. The case is set for a status hearing on January 25, 2017
at 9:00 a.m. for the purpose of setting a discovery and pretrial schedule.
MATTHEW F. KENNELLY
United States District Judge
Date: January 19, 2017
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