Mac Naughton v. Harmelech et al

Filing 28

MEMORANDUM OPINION Signed by the Honorable Samuel Der-Yeghiayan on 8/30/2017: Denying Defendants' motion to dismiss 26 . Mailed notice (mw,)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
W JAMES MAC NAUGHTON,

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Plaintiff,
v.
ISHAIHU HARMELECH, et al.,
Defendants.

No. 17 C 227

MEMORANDUM OPINION
SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Defendants’ motion to dismiss. For the
reasons stated below, the motion to dismiss is denied.

BACKGROUND
In 1998, Defendant Ishaihu Harmelech (Mr. Harmelech) allegedly acquired a
property (Property) in Palm Harbor, Florida. Over the course of several years the
Property was allegedly then transferred to various entities such as Sam Ventures, Inc.
(SVI), SEM Jewelry, Inc. (SEM), and Defendant JCLH, LLC (JCLH). Mr.
Harmelech allegedly has faced significant civil litigation, has filed for bankruptcy on
multiple occasions, and has been incarcerated for concealing assets , false oath and
bribery, and harassment of a witness. Plaintiff contends that subsequent to his

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release, Mr. Harmelech was again indicted, this time for fraud. In 2016, the Property
was allegedly transferred to Defendant Judith Harmelech (Ms. Harmelech). Plaintiff
James Mac Naughton is allegedly a judgment creditor pursuant to a right to satisfy
and collect a judgment in Russian Media Group, LLC v. Cable America, Inc. et al
(06 C 3568). Plaintiff includes in his complaint actual fraud and legal fraud claims
brought under the Illinois Uniform Fraudulent Transfer Act (IUFTA), 740 ILCS
160/1 et seq. (Counts I and II), fraudulent trust claims (Count III), conspiracy claims
(Count IV), and an aiding and abetting claim brought against Ms. Harmelech (Count
V). Defendants now move to dismiss all claims.

LEGAL STANDARD
In ruling on a motion to dismiss brought pursuant Federal Rule of Civil
Procedure 12(b)(6) (Rule 12(b)(6)), the court must draw all reasonable inferences
that favor the plaintiff, construe the allegations of the complaint in the light most
favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in
the complaint. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 622 (7th
Cir. 2012); Thompson v. Ill. Dep’t of Prof’l Regulation, 300 F.3d 750, 753 (7th Cir.
2002). A plaintiff is required to include allegations in the complaint that “plausibly
suggest that the plaintiff has a right to relief, raising that possibility above a
‘speculative level’” and “if they do not, the plaintiff pleads itself out of court.”
E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir.
2007)(quoting in part Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007));
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see also Morgan Stanley Dean Witter, Inc., 673 F.3d at 622 (stating that “[t]o survive
a motion to dismiss, the complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face,” and that “[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”)(quoting Ashcroft v. Iqbal, 556 U.S. 662 (2009))(internal quotations
omitted).

DISCUSSION

I. Attorney Conflict
Defendants argue that the instant action should be dismissed because Plaintiff,
who is an attorney, has a conflict and cannot represent himself in this case.
Defendants contend that in two prior cases in federal court the judge in those cases
found that Plaintiff was disqualified from representing Casco Bay Holdings, LLC
(CBH), and Russian Media Group, LLC (RMG) because of Plaintiff’s prior
representation of Mr. Harmelech. Defendants argue that Plaintiff should be barred
from representing CBH and that CBH should be barred from enforcing a judgment in
this case. (Mot. 4). However, as Plaintiff correctly points out, neither CBH nor
RMG is a party in this case. Nor has there been any showing by Defendants that
there is any substantial connection between this case and those prior two cases. If
Defendants believe that there is a conflict in this case, Defendants must specifically
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identify the basis for the alleged conflict and Defendants have failed to do so at this
juncture. Plaintiff also correctly points out that the proper motion for such a request
would be a motion to disqualify rather than a motion to dismiss.

II. Reverse-Piercing
Defendants argue that Plaintiff cannot pierce the corporate veil of JCLH
because Plaintiff is attempting to hold a company liable for the conduct of an
individual. Defendants argue that the theory of piercing the corporate veil only
applies when a plaintiff seeks to hold an individual liable for the conduct of a
corporation. When federal jurisdiction is premised on diversity subject matter
jurisdiction, a court must “look to the substantive law of the state in which the
district court sits, . . . including choice of law rules.” Wachovia Sec., LLC v. Banco
Panamericano, Inc., 674 F.3d 743, 751 (7th Cir. 2012). Under Illinois law, “the law
of the state of incorporation” is followed “for veil piercing claims.” Id.
In the instant action, Plaintiff has asserted, and Defendants have not disputed,
that JCLH is a Florida limited liability company. The court thus must look to Florida
state law regarding piercing the corporate veil. Florida law does recognize a reversepiercing of the corporate veil theory. Braswell v. Ryan Investments, Ltd., 989 So. 2d
38, 40 (Fla. Dist. Ct. App. 2008). Plaintiff is therefore not foreclosed from pursuing
such a theory in this case.

III. Statute of Limitations
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Defendants also argue that the IUFTA claims are untimely. There is a oneyear statute of limitations for IUFTA actual fraud claims, and a four-year-statute of
limitations for other IUFTA claims. 740 ILCS 160/10. Defendants argue that
Plaintiff is basing his claims on transfers that occurred in 1990, which is beyond the
limitation periods. Plaintiff indicates, however, that his claims are premised on a
transfer from JCLH to Ms. Harmelech in November 2016. Thus, the filing of the
complaint in January 2017, was well within both the one-year and four-year
limitation periods. Defendants have not shown that the IUFTA claims are untimely.
The court also notes that based on the 2016 transfer, the derivative conspiracy and
aiding and abetting claims are timely.

IV. Resulting Trust Claim
Defendants argue that Plaintiff fails to allege sufficient allegations in Count III
to state a cause of action for a constructive trust. Plaintiff, indicates, however, that
he is seeking to enforce a resulting trust. Such a claim is cognizable under Illinois
law, Dore v. Quezada, 77 N.E.3d 764, 769 (Ill. App. Ct. 2017), and Plaintiff has
alleged sufficient facts to state such a claim. Although Defendants challenge
whether there was a resulting trust, Defendants are delving into the merits of the
claim, which is premature at this juncture. Based on the above, Defendants’ motion
to dismiss is denied.

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CONCLUSION
Based on the foregoing analysis, Defendants’ motion to dismiss is denied.

___________________________________
Samuel Der-Yeghiayan
United States District Court Judge
Dated: August 30, 2017

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