RNS Servicing, LLC v. Spirit Construction Services, Inc. et al
Filing
51
MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang on 8/6/2018: For the reasons stated in this opinion, Defendant Tak's motion 38 to dismiss is denied. To move forward, Tak's counsel shall review the already-produced dis covery (if they have not already, the parties shall promptly provide a copy of all the prior discovery to Tak by 08/13/2018), and then the parties shall confer to decide what additional discovery is needed to finish fact discovery now that Tak is staying in the case. This should be readily doable by the 09/06/2018 status hearing. The parties shall file a proposed discovery schedule on 08/31/2018. Emailed notice(eec)
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
RNS SERVICING, LLC,
Plaintiff,
v.
SPIRIT CONSTRUCTION
SERVICES, INC., STEVEN VAN DEN
HEUVEL, and SHARAD TAK
Defendants.
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No. 1:17-cv-00108
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
RNS Servicing filed an amended complaint to add claims against Sharad Tak
to its lawsuit against Sprit Construction Services and Steven Van Den Heuvel
(Steve). R. 31, Am. Compl.1 The claims arise out of a failed business relationship
between RNS Servicing’s predecessor-in-interest, IFC Credit Corporation, and
Ronald Van Den Heuvel (Ron), Steve’s brother. Id. ¶¶ 1-2. RNS alleges that in
reliance on assurances made by both Steve and Tak, IFC agreed to settle a lawsuit
against multiple Ron-affiliated companies. Id. ¶¶ 58-61. The Ron affiliates defaulted
on their settlement obligations, and IFC filed for bankruptcy. Id. ¶¶ 63, 67. RNS
bought IFC’s claims against Ron and his associates, and now seeks to collect from the
entities that it holds responsible for inducing IFC to enter the settlement agreement:
1Citation
to the docket is “R.” followed by the entry number and, when necessary, the
relevant page or paragraph number.
Tak, Steve, and Spirit. See id. at ¶¶ 69, 1-3.2 Tak moves to dismiss pursuant to Rules
12(b)(2) and 12(b)(6) of the Federal Rules of Civil Procedure, contending that (1) this
Court cannot exercise personal jurisdiction over him; (2) he is shielded from personal
liability because he was acting in his capacity as an executive of a limited liability
company; and (3) the claims against him are time-barred by the applicable statutes
of limitations. R. 40, Def. Br. at 2. For the reasons that follow, Tak’s motion to dismiss
is denied.
I. Background
For the purposes of a motion to dismiss, the Court accepts the allegations in
the complaint as true. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Because the opinion
denying Spirit and Steve’s motion to dismiss addresses those facts, see R. 29, Order
(August 25, 2017), only the facts relevant to the claims against Tak are detailed.
A. The First Lawsuit between INS and the Ron Companies
IFC Credit Corporation, when it operated (it is now dissolved), provided
equipment lease financing to commercial and industrial entities. Am. Compl. ¶ 20. In
2005, IFC entered into two master lease agreements with multiple tissue-paper
manufacturing companies owned or operated by Ron (the Ron Companies). Id. ¶¶ 2325. Within months, it became evident to IFC and its affiliates that the Ron Companies
2This
Court has subject matter jurisdiction over the case under 28 U.S.C. § 1332,
because the parties are diverse and the amount in controversy exceeds $75,000. Plaintiff RNS
Servicing is an LLC; an LLC takes on the citizenship of its members, and the two individual
members of RNS are citizens of Illinois. Am. Compl. ¶¶ 4-5. On the defense side, Spirit
Construction Services is a citizen of Delaware and Georgia, Steven Van Den Heuvel is a
citizen of Wisconsin, and Sharad Tak is a citizen of Florida. Am. Compl. ¶¶ 6-8; R. 40, Def.
Br. at 2 n.2. RNS seeks to recover upward of $1 million in damages, which is a plausible
calculation of possible damages. Am. Compl. ¶¶ 108, 117.
2
would default on the leases. Id. ¶ 28. To try and avoid default, Ron enlisted the help
of his brother Steve—the President of Spirit Construction—and proposed projects
which the Ron Companies would complete with Spirit in order to generate sufficient
income to pay back IFC. Id. ¶¶ 29-35. But the parties were unable to come to an
agreement before the Ron Companies defaulted. Id. ¶ 36. IFC initiated its first
lawsuit against the Ron Companies in August of 2006. Id. ¶ 37.
B. The Settlement Agreement
In December of 2006, the Ron Companies drafted a settlement agreement. Id.
¶ 49; see also Am. Compl. at Exh. D, Settlement Agmt. The Settlement Agreement
stipulated that the Ron Companies would pay $23.4 million to IFC—$20 million of
that amount immediately and the remaining $3.4 million in ten monthly installments
pursuant to the execution of a new master lease agreement (the Settlement Master
Lease). Id. ¶¶ 49, 51; Settlement Agmt. at 7-8; Am. Compl. at Exh. E, Settlement
Master Lease at Lease Schedule No. 001. Under this plan, IFC would lend the Ron
Companies an additional $440,000, and in exchange the Ron Companies would assign
to IFC their right to roughly $3.9 million in compensation to be earned by providing
subcontracting services for four of Spirit’s engineering, procurement, and
construction contracts (known in the industry as EPC Contracts). Id. ¶¶ 56-57; Am.
Compl. at Exh. G, Master Am. Agmt ¶¶ 2-3; Am. Compl. at Exh. F, Continuing Pledge
Agmt at 1. These EPC Contracts were to be executed with ST Paper I. Id. ¶ 49; Master
Am. Agmt.; Continuing Pledge Agmt. Sharad Tak is the controlling member of ST
Paper I and ST Paper II, LLC, both of which are limited liability companies
3
incorporated in Delaware, with their principal places of business in Wisconsin. Id. ¶
11.
C. The Meeting with Sharad Tak and the Second Lawsuit
Due to the Ron Companies’ previous default, IFC was suspicious of the
proposed Settlement Agreement. Id. ¶ 58. To get some reassurance, in late March or
early April of 2007, IFC executives Marc Langs and Rudolph Trebels met with Ron
and Tak at IFC’s offices in Morton Grove, Illinois. Id. ¶ 60. Tak, a Florida resident,
traveled to Illinois in order to attend the meeting at the IFC offices. Def. Br. at 2; R.
43, Def. Reply at 10-11. At this meeting, IFC made it clear that its acceptance of the
Settlement Agreement was contingent on Tak’s confirmation of the EPC Contracts.
Am. Compl. ¶¶ 103, 112, 121. Tak made several key representations to IFC. Id. ¶ 61.
He represented that (1) his company had entered into the four EPC Contracts with
Spirit referenced in the Settlement Agreement; (2) the Ron Companies would be used
as subcontractors for the projects; (3) he fully intended to complete the four projects;
(4) the EPC Contracts were sufficient to secure financing for the projects
contemplated; and (5) because of confidentiality concerns, he was not able to allow
IFC to review the EPC Contracts. Id.
Shortly after the meeting, on April 13, 2007, the Ron Companies and IFC
entered the Settlement Agreement, resolving all pending claims. Id. ¶¶ 51, 62;
Settlement Agmt. A few days later, around April 16, Tak purchased one of the Ron
Companies’ properties, the Oconto Falls Paper Plant, at a discounted price of $20
million; $17,300,000 of these proceeds went to IFC to pay the Settlement Agreement.
4
Id. ¶ 52. But the Ron Companies quickly defaulted on their agreement, never making
any of the installment payments due under the Settlement Agreement. Id. ¶ 63.
On September 6, 2007, IFC took Ron and the Ron Companies to court again,
this time for breach of the Settlement Agreement. Id. ¶ 64. This time, IFC added
Spirit as a defendant, seeking a preliminary injunction to prevent Spirit from making
any payments to the Ron Companies until IFC had been paid in full. Id. At the time
of the lawsuit, Spirit had not subcontracted with any of the Ron Companies for
services on the EPC Contracts with ST Paper I. Am. Compl. at Exh. H, Summ. J. Op.,
IFC Credit Corp. v. Tissue Prods. Tech. Corp., 2009 WL 901009, at *6 (N.D. Ill. Mar.
31, 2009). The district court in that case entered a judgment against Ron and a
majority of the Ron Companies. Id. at ¶ 65; see also Summ. J. Op. at 7-8. As for the
claims against Spirit, the district court held that the injuries were too speculative, so
IFC did not have standing to bring its suit. Summ. J. Op. at 17-18.
D. IFC’s Dissolution and the RNS Lawsuit
IFC was ultimately unable to collect on the judgment against the Ron
Companies, and IFC filed for bankruptcy in July 2009. Am. Compl. ¶ 67. In August
2014, Plaintiff RNS Servicing purchased IFC’s rights and legal claims under the
master leases and the Settlement Agreement. Id. ¶ 3. During the investigation of
these claims, in March 2016, Marc Langs (the former CFO of IFC) emailed Tak to ask
what he knew about the EPC Contracts on which the Settlement Agreement hinged.
Id. ¶ 70; Am. Compl. at Exh. L, Email Correspondence. Tak responded: “These were
5
frivolous contracts, Ron tried to raise money for these but was unsuccessful. Nothing
ever happened on these contracts.” Id.
RNS brought this lawsuit against Spirit and Steve in January 2017. RNS
amended its complaint in September 2017 to add claims against Tak. Am. Compl.
RNS makes four claims against Tak: negligent misrepresentation (Count 4);
fraudulent inducement (Count 5); violation of the Illinois Fraud and Deceptive
Business Practices Act (815 ILCS 505/2) (Count 6); and civil conspiracy (Count 7). Id.
¶¶ 99-134. Essentially, RNS alleges that Tak misrepresented the value and existence
of the EPC Contracts to induce IFC to accept the agreement. Id. ¶¶ 100-05, 110-115,
119-122. RNS further contends that Tak conspired with Spirit and Steve to achieve
this goal. Id. ¶¶ 128-132. Tak’s misrepresentations about the EPC contracts
persuaded IFC to settle with the Ron Companies, allowing Tak to purchase the Ron
Companies’ Oconto Falls tissue plant property at a discounted price. Id. ¶ 132. Tak
moves to dismiss the claims against him, arguing that this Court cannot exercise
personal jurisdiction over him; that he is shielded from personal liability under
Illinois’s Limited Liability Company Act or Delaware’s Limited Liability Company
Act; and that the claims are time-barred by the applicable statutes of limitations. Def.
Br. at 2; Def. Reply at 3.
II. Standard of Review
Tak moves to dismiss under Federal Rules of Civil Procedure 12(b)(2) and
12(b)(6). When a defendant challenges personal jurisdiction, the plaintiff bears the
burden of establishing that personal jurisdiction is proper. Purdue Res. Found. v.
6
Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). When the motion is based
on the submission of written materials, the plaintiff need only establish a prima facie
case of personal jurisdiction. GCIU-Employer Ret. Fund v. Goldfarb Corp., 565 F.3d
1018, 1023 (7th Cir. 2009). Absent an evidentiary hearing when fact-finding is needed
over disputed facts, the Court accepts the well-pleaded factual allegations and
uncontroverted statements in the written materials as true and resolves any conflicts
in favor of the plaintiff. Purdue, 338 F.3d at 782-83 & n. 14.
“A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to
state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police
Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[W]hen ruling on a
defendant’s motion to dismiss, a judge must accept as true all of the factual
allegations contained in the complaint.” Erickson, 551 U.S. at 94 (2007). A “complaint
must contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
v. Twombly, 550 U.S. 544, 570 (2007)) (cleaned up).3 These allegations “must be
enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at
555. And the allegations that are entitled to the assumption of truth are those that
are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 679.
Ordinarily, under Federal Rule of Civil Procedure 8(a)(2), a complaint
generally need only include “a short and plain statement of the claim showing that
3This
opinion uses (cleaned up) to indicate that internal quotation marks, alterations,
and citations have been omitted from quotations. See Jack Metzler, Cleaning Up Quotations,
18 Journal of Appellate Practice and Process 143 (2017).
7
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). But claims alleging fraud must
also satisfy the heightened pleading requirement of Federal Rule of Civil Procedure
Rule 9(b), which requires that “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b)
(emphasis added). And Rule 9(b)’s heightened pleading standard applies to fraud
claims brought under the ICFA. Pirelli Armstrong Tire Corp. Retiree Med. Benefits
Trust v. Walgreen Co., 631 F.3d 436, 441 (7th Cir. 2011). Thus, Rule 9(b) requires that
the complaint “state the identity of the person making the misrepresentation, the
time, place, and content of the misrepresentation, and the method by which the
misrepresentation was communicated to the plaintiff” Uni*Quality, Inc. v. Infotronx,
Inc., 974 F.2d 918, 923 (7th Cir. 1992) (cleaned up). Put differently, the complaint
“must describe the who, what, when, where, and how of the fraud.” Pirelli, 631 F.3d
at 441-42 (cleaned up).
III. Analysis
A. Personal Jurisdiction
Tak argues that this Court cannot exercise personal jurisdiction over him. A
federal court sitting in diversity “has personal jurisdiction over a nonresident
defendant only if a court of the state in which it sits would have jurisdiction.” Purdue,
338 F.3d at 779. An Illinois court can exercise personal jurisdiction over a nonresident
to the extent that Illinois’s long-arm statute authorizes jurisdiction, and to the extent
that asserting personal jurisdiction comports with the Fourteenth Amendment's Due
Process Clause. Hyatt Intern. Corp. v. Coco, 302 F.3d 707, 713-714 (7th Cir. 2002).
8
Illinois’s long-arm statute “permits service to the constitutional limits of its power,”
Ariel Invs., LLC v. Ariel Capital Advisors LLC, 881 F.3d 520, 521 (7th Cir. 2018), so
“the state statutory and federal constitutional requirements merge.” uBid v.
GoDaddy Grp., Inc., 623 F.3d 421, 425 (7th Cir. 2010); 735 ILCS 5/2-209(c).
The Due Process Clause requires that a defendant make “certain minimum
contacts with [the forum state] such that the maintenance of the suit does not offend
traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington,
326 U.S. 310, 316 (1945) (cleaned up). Personal jurisdiction can either be general or
specific. uBID, 623 F.3d at 425. General jurisdiction affords jurisdiction over the
defendant even when the lawsuit has no relationship to the defendant’s contacts in
the forum state, but it only applies where a defendant is “essentially at home in the
forum state.” Kipp v. Ski Enter. Corp. of Wisconsin, 783 F.3d 695, 697-98 (7th Cir.
2015) (cleaned up). Neither party contends that this Court has general jurisdiction
over Tak. R. 42, Pl. Resp. Br. at 2; Def. Br. at 3.
Specific jurisdiction is warranted when a defendant has directed his activities
at the forum state, and the cause of action relates to those activities. Burger King
Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985). The Seventh Circuit has held that “the
contacts supporting specific jurisdiction can take many different forms.” uBID, 623
F.3d at 426. What is essential is that the defendant’s contacts be purposefully
directed at the forum state. Id. (citing Burger King, 471 U.S. at 475). The requisite
connection to the forum must arise from the defendant’s conduct such that the
defendant would anticipate being haled into court there; personal jurisdiction cannot
9
be based solely on the defendant’s relationship to the plaintiff or the plaintiff’s
unilateral activities. Walden v. Fiore, 571 U.S. 277, 284-85 (2014); Felland v. Clifton,
682 F.3d 665, 673 (7th Cir. 2012).
In this case, RNS must establish three key elements for specific personal
jurisdiction: “(1) the defendant must have purposefully availed himself of the
privilege of conducting business in the forum state or purposefully directed his
activities at the state; (2) the alleged injury must have arisen from the defendant's
forum-related activities; and (3) the exercise of jurisdiction must comport with
traditional notions of fair play and substantial justice.” Felland, 682 F.3d at 673
(citing Burger King, 471 U.S. at 472; Int'l Shoe, 326 U.S. at 316) (cleaned up). See
also Tamburo v. Dworkin, 601 F.3d 693, 702 (7th Cir. 2010); John Crane, Inc. v. Shein
Law Ctr., Ltd., 891 F.3d 692, 695-696 (7th Cir. 2018).
1. Conduct “purposefully directed” at the forum state
Tak’s conduct was “purposefully directed” at Illinois. From the Supreme
Court’s decision in Calder v. Jones, the Seventh Circuit has discerned a three-part
test for determining whether conduct was “purposefully directed” at the forum state.
Felland, 682 F.3d at 674-675.4 The defendant must engage in “(1) intentional conduct
(or intentional and allegedly tortious conduct); (2) expressly aimed at the forum state;
4Tak
suggests that Felland v. Clifton has been called into question, citing to a case
from the Northern District of Illinois. Def. Reply at 9. But that district-court decision was
later appealed, and the Seventh Circuit (which affirmed) nowhere noted any doubt about the
legal validity of Felland. Instead, the Seventh Circuit distinguished the facts of Felland from
the case the Court of Appeals was considering. John Crane, 891 F.3d at 696.
10
(3) with the defendant’s knowledge that the effects would be felt—that is, the plaintiff
would be injured—in the forum state.” Id. (cleaned up).
RNS alleges that Tak traveled to the IFC offices in Illinois and made
misrepresentations about having entered into EPC Contracts with Spirit when these
contracts did not actually exist—all with the intention of inducing Illinois-based IFC
into the Settlement Agreement. Am. Compl. ¶¶ 100-05, 110-115, 119-122. In other
words, Tak deliberately traveled to Illinois in order to commit (alleged) torts in
Illinois. What’s more, Tak must have known that IFC would be injured in the forum
state. He traveled to IFC’s office in Illinois, and would have known that Illinois-based
IFC’s injury would be felt in Illinois. Id. The Settlement Agreement, which hinged on
the EPC Contracts, was executed in Illinois and is governed by Illinois law. Id. ¶¶ 6061; Settlement Agmt. ¶ 20. The situation is analogous to that of Felland v. Clifton. In
Felland, the Seventh Circuit held that the defendant’s conduct was “expressly aimed”
at the forum state when the plaintiff alleged that the defendant’s false statements—
in the form of emails, letters, and phone calls—induced him to remain in a
development deal. Felland, 682 F.3d at 676. In this case, there is even more support
for personal jurisdiction, because Tak physically traveled to Illinois and did not just
direct communications into the state. Tak’s alleged misconduct at the meeting in
Illinois establishes personal jurisdiction.5
5Tak
contends that a single meeting is insufficient to establish personal jurisdiction,
but this leaves out the crux of the allegation that Tak intentionally came to Illinois and made
false representations to an Illinois-based company. Def. Br. at 13. There is no bright-line
numerical threshold of contacts necessary for personal jurisdiction; the question is simply
whether the claims arise out of the defendant’s contact with the forum state. Burger King,
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2. Injury “arises out of” the contacts
Second, the conduct arises out of the defendant’s forum-related activities.
“Even where a defendant’s conduct is purposefully directed at the forum state, the
plaintiff must also show that his injury ‘arises out of’ or ‘relates to’ the conduct that
comprises the defendant's contacts.” Felland, 682 F.3d at 676 (citing Tamburo, 601
F.3d at 708 (citing Burger King, 471 U.S. at 472)). Among circuit courts, there is a
split in authority as to whether the defendant’s contacts in the forum state must be
the but-for cause or, instead, the proximate cause of the plaintiff’s injuries—or both.
Id. at 676-677. As in Felland, the issue need not be decided here, because the record
“is sufficient even under the strictest understanding of the ‘arising out of’
requirement.” Id. at 677 (cleaned up). The analysis above makes clear that Tak aimed
the allegedly tortious conduct at Illinois by attending the meeting in Illinois and
making representations to Illinois-based IFC that the EPC Contracts were genuine
and would be completed. IFC alleges that Tak’s representations induced it to enter
the Settlement Agreement. So Tak’s actions are both the proximate and the but-for
cause of IFC’s injuries, and IFC’s claims indisputably arise out of Tak’s contacts with
Illinois.
3. Fair play and substantial justice
Finally, exercising jurisdiction does not offend “traditional notions of fair play
and substantial justice.” See Tamburo, 601 F.3d at 702 (citing Burger King, 471 U.S.
at 472; Int’l Shoe, 326 U.S. at 316). To assess this concern, the Court evaluates “the
471 U.S. at 475 n.18 (“So long as it creates a substantial connection with the forum, even a
single act can support jurisdiction.”) (cleaned up).
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burden on the defendant, the forum State’s interest in adjudicating the dispute, the
plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial
system's interest in obtaining the most efficient resolution of controversies, and the
shared interest of the several States in furthering fundamental substantive social
policies.” Felland, 682 F.3d at 677 (quoting Burger King, 471 U.S. at 477). Illinois has
a strong interest in providing a forum for residents injured in Illinois by out-of-state
actors. Tamburo, 601 F.3d at 709. What’s more, Tak does not contend that defending
a lawsuit in Illinois is an undue burden, instead arguing only that he has made
insufficient contacts with the state. Def. Br. at 9-14; Def. Reply at 9-13. Because Tak
established the requisite contacts when he purposely directed tortious conduct at
Illinois, he should have expected to defend that conduct in Illinois. Linkepic, Inc. v.
Vyasil, LLC, 146 F.Supp.3d 943, 954 (N.D. Ill. 2015) (cleaned up). It is not surprising
that defending a lawsuit out-of-state creates a burden for defendants, and absent a
“compelling case that the presence of some other considerations would render
jurisdiction unreasonable,” the Court concludes that it is proper to exercise specific
jurisdiction over Tak. See Burger King, 471 U.S. at 477.6
6RNS
argues that if jurisdiction was not established by Tak’s conduct in Illinois,
jurisdiction would be proper under the “conspiracy” theory of personal jurisdiction. Pl. Resp.
at 2. Because jurisdiction is established by Tak’s contacts with Illinois, there is no need to
decide this issue. It is worth noting that there is debate over whether Illinois law truly
recognizes a conspiracy theory of jurisdiction. Smith v. Jefferson Cty. Bd. of Educ., 378 F.
App’x 582, 585-86 (7th Cir. 2010) (holding that the conspiracy theory of jurisdiction certainly
could not be valid absent some purposeful direction at a forum state by a defendant, and
noting that “the theory may not be valid in Illinois.”).
13
B. Tak’s Personal Liability
Moving on from personal jurisdiction, Tak next contends that RNS fails to
adequately state a claim because he is shielded from personal liability by Illinois’s
Limited Liability Company Act, or alternatively, under Delaware’s Limited Liability
Company Act. Def. Br. at 4-5; Def. Reply at 3; 805 ILCS 180/10-10; Del. Code Ann.
tit. 6, § 18-303. He argues that he was not acting in an individual capacity when
representing ST Paper I, and that because RNS has alleged insufficient facts to pierce
the corporate veil, he cannot be held liable. Def. Br. at 4-5; Def. Reply at 3.7
As a starting point, Delaware law governs the question of Tak’s personal
liability for actions taken in his role as controlling member of ST Paper I. “A federal
court sitting in diversity applies the choice-of-law rules of the forum state to
determine which state’s substantive law applies.” Atlantic Casualty Ins. Co. v.
Garcia, 878 F.3d 566, 569 (7th Cir. 2017) (cleaned up); Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496 (1941). Under the Illinois Limited Liability Company Act,
“[t]he laws of the State or other jurisdiction under which a foreign limited liability
company is organized govern its organization and internal affairs and the liability of
its managers, members, and their transferees.” 805 ILCS 180/45-1. Tak’s company,
7Specifically,
Tak argues that under Illinois law, LLC members and managers have
no individual liability to nonmembers absent a provision in the articles of organization,
unless the manager is acting in his individual capacity. Def. Br. at 5-6 (“[T]the allegations of
the First Amended Complaint demonstrate that Tak was not acting in any individual
capacity when the alleged misrepresentations were made; thus, section 10-10 of the LLC Act
precludes personal liability”). In the alternative, he argues that even if Delaware’s law were
to apply, “Plaintiff’s Amended Complaint fails to allege that ST Paper’s articles of
organization contain provisions subjecting Tak to personal liability.” Def. Reply at 3.
14
ST Paper I, is a Delaware limited liability company, Am. Compl. ¶ 11, so Delaware
law applies.
Although it is true that members of a limited liability company are generally
not liable for the debts, obligations, and liabilities of the company, liability can attach
when the members themselves participate in or authorize a tort. Spanish Tiles, Ltd.
v. Hensey, 2009 WL 86609, at *2 (Del. Super. Ct. Jan. 7, 2009) (“The personal
participation doctrine attaches liability to corporate officers for torts which they
commit, participate in, or inspire, even though they are performed in the name of the
corporation. ... Individual liability attaches only where an officer directed, ordered,
ratified, approved, or consented to the tortious act in question.”) (cleaned up). The
personal participation doctrine applies to both corporations and limited liability
companies. Id.
In the case at hand, each of RNS’s claims against Tak sound in tort. Am.
Compl. ¶¶ 99-134. More importantly, RNS alleges that it was Tak himself who
committed each of the torts, conduct which easily meets the threshold required by the
personal participation doctrine. See Washington House Condo. Ass’n of Unit Owners
v. Daystar Sills, Inc., 2017 WL 3412079, at *14 (Del. Super. Ct. Aug. 8, 2017). Because
RNS alleges that Tak himself committed the tortious actions, Tak can be held
individually liable and there is no statutory protection.
C. Statute of Limitations
Finally, Tak contends that RNS’s claim is time-barred by the applicable
statutes of limitations. But dismissing claims as time-barred at the pleading stage is
15
“irregular.” Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., Inc., 782 F.3d
922, 928 (7th Cir. 2015). The statute of limitations is an affirmative defense for which
the defendant bears the burden of proof, and “these defenses typically turn on facts
not before the court at that stage in the proceedings.”Id. (quoting Brownmark Films,
LLC v. Comedy Partners, 682 F.3d 687, 690 (7th Cir. 2012)); United States v. N. Trust
Co., 372 F.3d 886, 888 (7th Cir. 2004) (citing Fed. R. Civ. P. 8(c)). But where a plaintiff
has “pleaded itself out of court by alleging things that, if true, devastate its claim,” N.
Trust, 372 F.3d at 888, dismissal is appropriate under a Rule 12(c) judgment on the
pleadings. Richards v. Mitcheff, 696 F.3d 635, 637-38 (7th Cir. 2012).
In Illinois, claims for negligent misrepresentation, fraudulent inducement, and
civil conspiracy are subject to a five-year statute of limitations. McMahan v. Deutsche
Bank AG, 938 F.Supp.2d 795, 802 (N.D. Ill. Apr. 5, 2013); 735 ILCS 5/13-205. Claims
for a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act
are subject to a three-year statute of limitations. 815 ILCS 505/10a(e). Tak argues
that the claims are clearly untimely even under the discovery rule, and that equitable
tolling is not warranted. Def. Reply at 1-2.
1. The Discovery Rule
The discovery rule of Illinois provides that “when a party knows or reasonably
should know both that an injury has occurred and that it was wrongfully caused, the
statute begins to run and the party is under an obligation to inquire further to
determine whether an actionable wrong was committed.” Knox College v. Celotex
Corp., 430 N.E.2d 976, 980-81 (Ill. 1981) (cleaned up). Tak argues that IFC knew or
16
reasonably should have known about its potential claims against him in September
2007, when it filed its first lawsuit against the Ron Defendants and Spirit
Construction. Def. Br. at 7. In the alternative, Tak argues that the claims accrued in
2008. Def. Reply at 6. Tak points out that when IFC moved for summary judgment in
2008, it also filed a motion to strike Spirit’s denials of IFC’s assertions “that Spirit
Construction never reasonably expected to engage [the Ron Companies] as
subcontractors in connection with any of the four (4) EPC Contracts,” and “that Spirit
Construction’s representations to IFC in the ‘Acknowledgement of Assignment’ dated
March 28, 2007 were not true.” IFC Credit Corp. v. Tissue Prods. Tech. Corp. et al.,
No. 07 C 4351, ECF No. 82, Mot. Strike ¶ 2(c). Tak argues that this suspicion of Spirit
was sufficient to put IFC on notice to investigate any alleged misconduct by him, and
that under either date the claims are time-barred. Def. Br. at 6-9; Def. Reply at 6-7.
RNS responds that neither it nor IFC suspected that the EPC Contracts or
Tak’s representations were fraudulent until receiving Tak’s email in 2016. Pl. Resp.
at 8. RNS points out that IFC’s motion to strike was denied and the court ultimately
dismissed IFC’s claims against Spirit, and argues that because the district court
found that IFC’s claims against Spirit could not move forward, the statute of
limitations could not have begun to run at that time. Pl. Resp. at 10; Summ. J. Op. at
17-18. RNS also argues that a default on the part of the Ron Defendants does not
translate to IFC knowing that Tak had caused them injury. Pl. Resp. at 10.
In the end, the resolution of these arguments must wait for another day. It is
not evident from the face of the complaint that the statute of limitations has run, so
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dismissal is inappropriate at this stage. Sidney, 782 F.3d at 928 (“As long as there is
a conceivable set of facts, consistent with the complaint, that would defeat a statuteof-limitations defense, questions of timeliness are left for summary judgment (or
ultimately trial), at which point the district court may determine compliance with the
statute of limitations based on a more complete factual record.”). IFC’s motion to
strike challenged Spirit’s commitment to engaging the Ron Companies in the
completion of the EPC Contracts, but it did not question the existence of the EPC
Contracts with ST Paper I and Tak. IFC Credit Corp., No. 07 C 4351, Mot. Strike
¶ 2(c). Although IFC was clearly suspicious of Spirit, there is nothing in the pleadings
definitively establishing that IFC knew or had reason to know that it had been legally
injured by Tak at that time. Whether the claims accrued against Tak at that time is
debatable, and must be decided at a later stage of the litigation. Knox, 430 N.E.2d at
980-81. Tak will have the chance to engage in discovery to find out whether IFC had
notice or reason to know of the claim’s accrual against him. After discovery, Tak may
raise the statute of limitations defense again. Further, Tak may ask the Court to
entertain an early motion for summary judgment on the statute of limitations issue,
but he must show good cause to do so.
2. Equitable tolling
Based on the need for discovery on the statute of limitations defense, there is
no need to address RNS’s argument that equitable tolling would be warranted if the
claims against Tak accrued in 2007 or 2008. Pl. Response at 11. But the Court notes
its skepticism that the 2009 trial-court decision holding that the suit against Spirit
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was premature is, by itself, automatic and indisputable grounds for equitable tolling.
IFC could have appealed that decision, and apparently did not. The fact that IFC did
not take that step might very well undermine the diligence requirement for equitable
tolling. See Holland v. Florida, 560 U.S. 631, 653 (2010) (“The diligence required for
equitable tolling purposes is reasonable diligence”) (cleaned up). In any event, a
decision on this issue can only be addressed later too.
IV. Conclusion
For the reasons stated in this opinion, Tak’s motion to dismiss is denied. When
Tak was added to the suit, the original parties only had two more fact-discovery
depositions to take. R. 36. Tak’s counsel shall review the already-produced discovery
(if they have not already, the parties shall promptly provide a copy of all the prior
discovery to Tak by August 13, 2018), and then the parties shall confer to decide what
additional discovery is needed to finish fact discovery now that Tak is staying in the
case. This should be readily doable by the September 6, 2018 status hearing. The
parties shall file a proposed discovery schedule on August 31, 2018.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: August 6, 2018
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