Delaware Motel Associates, Inc. et al v. Capital Crossing Servicing Company LLC et al

Filing 139

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 9/22/2017: For the reasons stated in the accompanying Memorandum Opinion and Order, the Court grants the motions by various defendants to dismiss plaintiff's amended complaint [dkt. nos. 51, 62, 65, 79]. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DELAWARE MOTEL ASSOCIATES,
INC., INDEPENDENT MANAGEMENT
ASSOCIATES, INC., TURKEY FOOT
LAKE ROAD LAND HOLDINGS, LLC,
C. PATEL CO. LLC, CHAMPAKBHAI N.
PATEL, and JASHVANTI C. PATEL,

)
)
)
)
)
)
)
Plaintiffs,
)
)
v.
)
)
CAPITAL CROSSING SERVICING
)
COMPANY LLC, CAPITAL CROSSING
)
HOLDINGS LLC, ADVANCED APPRAISAL )
GROUP, INC., ADVANCED APPRAISAL
)
CONSULTANTS, INC., ADVANCED
)
APPRAISAL CONSULTANTS, LLC,
)
WILLIAM DADDONO, WOLIN & ROSEN,
)
LTD., SMITHAMUNDSEN LLC, THE STATE )
BANK OF TEXAS, CHANDRAKANT PATEL, )
HIREN PATEL, EDWARD FITZGERALD,
)
PHOENIX NPL, LLC, PHOENIX REO, LLC, )
TARRANT CAPITAL ADVISORS, INC.,
)
TPG GLOBAL, LLC, TPG CAPITAL L.P.,
)
TPG GROUP HOLDINGS (SBS)
)
ADVISORS, INC., TPG SPECIALITY
)
LENDING, INC., TPG OPPORTUNITIES
)
PARTNERS, L.P., NICHOLAS LAZARES,
)
RICHARD WAYNE, DAVID BONDERMAN,
)
and JAMES G. COULTER,
)
)
Defendants.
)

Case No. 17 C 1715

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Plaintiffs Delaware Motel Associates, Inc., Independence Management
Associates, Inc., C. Patel Co. LLC, Turkey Foot Lake Road Land Holdings, LLC,
Champbakbhai Patel, and Jashvanti Patel have sued a number of defendants in
1

connection with an alleged racketeering scheme involving the making of commercial
real estate loans based on false and inflated appraisals. According to plaintiffs, the
National Republic Bank of Chicago (NRB) paid William Daddono and his associates at
Advanced Appraisal Group, Inc., Advanced Appraisal Consultants, Inc., and Advanced
Appraisal Consultants, LLC (collectively, Advanced Appraisal) to provide inflated
appraisals of real estate properties, and NRB used those false appraisals to issue
fraudulent loans with inflated principal amounts. Plaintiffs allege that they were among
the debtors who took out the fraudulent loans.
NRB is no longer an active company and is not a defendant in this case.
Plaintiffs have sued Daddono and the Advanced Appraisal entities, as well as Edward
Fitzgerald, the former director and president of NRB, and Hiren Patel, the bank's former
chief executive officer and chairman of the board. Plaintiffs have also sued Wolin &
Rosen, Ltd. and SmithAmundsen LLC, the law firms whose attorneys allegedly
prepared the fraudulent loans. In addition, plaintiffs have sued the entities and
individuals who allegedly acquired NRB's loans after the bank closed in 2014. Plaintiffs
assert that TPG Capital, L.P. purchased NRB's non-performing loans at a face value of
$600 million and State Bank of Texas (SBT) purchased the bank's performing loans at a
face value of $300 million. According to plaintiffs, TPG Capital and SBT knew that the
loans they acquired were based on false appraisals but continued to enforce the loans.
In addition to suing TPG Capital and SBT, plaintiffs have sued SBT's chief executive
officer, Chandrakant Patel (collectively, the SBT defendants), and certain individuals
and entities allegedly related to TPG Capital, including TPG Global, LLC, TPG Group
Holdings (SDS) Advisors, Inc., TPG Opportunities Partners, TPG Specialty Lending,

2

Inc., TPG Opportunities Partners, L.P., Capital Crossing Servicing Company, LLC,
Capital Crossing Holdings LLC, Phoenix Asset Optimization LLC, Phoenix Asset
Management, LLC, Phoenix, NPL, LLC, Phoenix REO, LLC, Tarrant Capital Advisors,
Inc., David Bonderman, James Coulter, Nicholas Lazares, and Richard Wayne
(collectively, the TPG defendants).
Plaintiffs assert claims against all defendants under the Racketeer Influenced
and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), alleging they conducted an
enterprise that engaged in a pattern of racketeering activity, including acts of mail and
wire fraud, bank fraud, extortion, and money laundering. Plaintiffs also allege that
defendants conspired to engage in racketeering activity, in violation of 18 U.S.C. §
1962(d), and that they used income derived from their racketeering activity to continue
operation of the alleged enterprise, in violation of 18 U.S.C. § 1962(a). In addition to the
federal RICO claims, plaintiffs assert state-law claims against all defendants for violation
of the Illinois Consumer Fraud and Deceptive Practices Act (ICFA), 815 ILCS 505/2,
and for common-law fraud, aiding and abetting fraud, intentional interference with a
contract, aiding and abetting intentional interference with a contract, intentional
interference with prospective economic advantage, unjust enrichment, and quantum
meruit. Wolin & Rosen, the TPG defendants, 1 and the SBT defendants have filed
motions to dismiss 2 for, among other things, failure to state a claim and failure to allege
1

Lazares and Wayne, who plaintiffs allege to be strategic decision-makers and
managers for Capital Crossing Servicing Company LLC, maintain that they have no
affiliation with Capital Crossing and have had no dealings with plaintiffs or any of the
other defendants in the suit. They have filed a separate motion for summary judgment
that is not yet fully briefed.
2

In the remainder of this opinion, "defendants" refers to the defendants whose
motions to dismiss the Court is addressing in this opinion—that is, Wolin & Rosen, the
3

the circumstances of the alleged fraud with the particularity required by Federal Rule of
Civil Procedure 9(b). Bonderman and Coulter, the co-founders of TPG Capital, have
moved to dismiss for lack of personal jurisdiction. For the reasons stated below, the
Court grants defendants' motions.
Background
According to plaintiffs, from 2003 to 2014, NRB encouraged and paid Daddono
and Advanced Appraisal to issue inflated appraisals of commercial real estate
properties, and NRB allegedly used the inflated appraisals to issue loans with inflated
principal amounts and, among other things, sell off foreclosed hotels and motels at
inflated prices. Plaintiffs' complaint does not include a specific example of a property
with an inflated appraised value, but they allege generally that Daddono "would
regularly generate a false appraisal for about twice the actual fair market value, or a
markup of one hundred (100%) percent." Am. Compl. ¶ 33. Plaintiffs explain that
Fitzgerald and Hiren Patel became motivated to institute the fraudulent enterprise after
the issuance of a 2003 consent order following a finding by the United States
Comptroller of the Currency and National Bank Examiner that NRB had an excessively
high outstanding balance of loans to the hotel and motel industry. According to
plaintiffs, the consent order required directors of the bank, including Fitzgerald and
Patel, to make capital injections into the bank if it failed to meet a targeted ratio of loans
to the hotel and motel industries.
From the complaint, it is unclear when the other defendants are alleged to have
become involved in the alleged enterprise. Plaintiffs list Chandrakant Patel and SBT as
TPG defendants, and the SBT defendants. At this time, the Court is not ruling on claims
asserted against Lazares, Wayne, Fitzgerald, Hiren Patel, Daddono, the Advanced
Appraisal entities, or SmithAmundsen.
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"original members of the enterprise" who began participating in 2003, along with
Fitzgerald, Hiren Patel, Daddono, and the Advanced Appraisal defendants. Id. ¶ 6.
Plaintiffs also allege, however, that it was "[f]rom on or about January 2006 through
January 2014" that Fitzgerald and Hiren Patel had communications with officials at SBT
and the TPG entities about the roles that SBT and the TPG defendants would play in
the alleged scheme. Id. ¶ 38 (emphasis added). During that time, according to
plaintiffs, Fitzgerald communicated with SBT and TPG officials "to arrange the
continuation of the fraud scheme and profit-sharing among members," and both
Fitzgerald and Hiren Patel communicated with SBT and TPG Capital "to arrange the
transfer of illegal profits and revenue after [NRB] failed." Id.
NRB failed in October 2014, at which point the Office of the Comptroller of the
Currency appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
Plaintiffs allege that following the bank's failure, the TPG entities purchased and
accepted assignments of the bank's non-performing loans from the FDIC at a face value
of $600 million, and SBT purchased and accepted assignments of the bank's performing
loans from the FDIC at a face value of $300 million. According to plaintiffs, the SBT and
TPG defendants knew as early as 2006 that NRB's loans were fraudulent and based on
false appraisals. Plaintiffs allege that it was part of the enterprise's plan that its
individual members would "facilitate the continuation of the racketeering enterprise by
the purchase and assignment to [SBT] and TPG Capital of the failed bank's loans." Id.
¶ 37. According to plaintiffs, the SBT and TPG defendants "were waiting in the wings
for years to acquire the loans." Id. ¶ 43.
Plaintiffs aver that SBT, the TPG entities, and their top executives and managers

5

"made a strategic business decision to participate in the false appraisal scheme" for
their own personal profit, to maintain their jobs, and to avoid possible criminal charges.
Id. ¶ 42. According to plaintiffs, the SBT and TPG defendants committed numerous
acts of mail and wire fraud, as well as extortion, when they transmitted collection claims,
demanded payment, or filed lawsuits based on the allegedly fraudulent loans. With
respect to the specific acts that allegedly harmed plaintiffs in this case, plaintiffs allege
that TPG Capital and Capital Crossing filed "fraudulent claims" against Delaware Motel
in Ohio on June 23, 2016, id. ¶ 58; filed "fraudulent collection lawsuits" against
Independence Management in Ohio on June 23, 2016, id. ¶ 59; and filed a motion for
default judgment against Champakbhai Patel in Ohio on March 30, 2017. Plaintiffs do
not specifically allege that defendants filed any claims or lawsuits against C. Patel Co.,
Turkey Foot Lake Road Land Holdings, or Jashvanti Patel. The TPG defendants
explain, however, that Champakbhai Patel and Jashvanti Patel are defendants in the
June 23 lawsuit filed against Delaware Motel in Ohio; both Patels are defendants in the
June 23 lawsuit filed against Independence Management in Ohio; and Turkey Foot Lake
Road Land Holdings are co-defendants with both Patels in another lawsuit filed in Ohio
on June 23, 2016.
With respect to the role of Wolin & Rosen, plaintiffs allege generally that
attorneys at the law firm were among those who knowingly prepared, disseminated, and
enforced NRB's fraudulently inflated loans and modifications. Plaintiffs also allege that
certain unspecified attorneys "conceal[ed] and secret[ed] their knowledge of the false
appraisals and inflated principal amounts." Id. ¶ 84. According to plaintiffs, concealing
the existence of the fraud scheme was an "important part of the enterprise" in general.

6

Id. ¶ 34. Plaintiffs assert that members of the enterprise "worked together to conceal"
the fact that many of NRB's hotel and motel loans were based on false appraisals.
Plaintiffs also allege that the SBT and TPG defendants agreed to keep track of extra
costs that could not "be carried on the books," such as extra compensation paid to
Daddono for false appraisals and to the attorneys for preparation of fraudulent loan
documents. Id. ¶ 75.
After plaintiffs filed this suit in Illinois state court, defendants removed the case to
this Court under 28 U.S.C. § 1441(a).
Discussion
When ruling on a motion to dismiss, a court accepts the truth of the complaint's
factual allegations and draws all permissible inferences in the plaintiffs' favor. Sabrina
Roppo v. Travelers Commercial Ins. Co., __ F.3d __, 2017 WL 3695205, at *14 (7th Cir.
Aug. 28, 2017). To survive a motion to dismiss for failure to state a claim, "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) (internal quotation
marks omitted). Federal Rule of Civil Procedure 9(b) holds parties to a higher pleading
standard when alleging fraud. Where a claim is based on allegations of fraud or
mistake, "a party must state with particularity the circumstances constituting fraud or
mistake." Fed. R. Civ. P. 9(b). In other words, to state a claim based on allegations of
fraud, a complaint "must provide the who, what, when, where, and how," of the
fraudulent conduct. Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir.
2007) (internal quotation marks omitted).

7

A.

RICO claims
To state a RICO claim under section 1962(c), a plaintiff must allege the following

elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering
activity. Goren v. New Vision Int'l, Inc., 156 F.3d 721, 727 (7th Cir. 1998). A boilerplate
recitation of the elements is not enough; a RICO plaintiff "must allege sufficient facts to
support each element." Id. The SBT and TPG defendants contend that plaintiffs have
failed to allege any of the necessary elements; Wolin & Rosen primarily emphasize
plaintiffs' purported failure to allege that the law firm conducted the enterprise's affairs or
engaged in racketeering activity. There may well be multiple bases for dismissing
plaintiffs' RICO claims, but because failure to allege any of the above elements would
require dismissal, the Court need not address every element.
1.

Enterprise

To satisfy the RICO enterprise element, a plaintiff must allege, at a minimum, "a
group of persons acting together for a common purpose or course of conduct." Rao v.
BP Prod. N. Am., Inc., 589 F.3d 389, 400 (7th Cir. 2009). Apart from a general
assertion that defendants "worked together to conceal" the fraud, Am. Compl. ¶ 34,
plaintiffs' complaint does not include any allegations that defendants worked together to
advance a common goal, let alone any facts to support such allegations. In their
response to defendants' motions, plaintiffs contend that defendants shared the common
illegal goal of subverting and manipulating the FDIC bid process to ensure that the TPG
and SBT defendants took control of the purportedly fraudulent loans. The complaint,
however, contains no such allegation. Plaintiffs' new contentions about manipulation of
the bid process do not fix their pleading defect. But even if the Court were to consider

8

plaintiffs' new allegations, the complaint does not describe how defendants "acted
together" to manipulate the bid process to advance that alleged common purpose.
Even, for example, if the Court understood plaintiffs to be alleging that the TPG and
SBT defendants knew about NRB's fraudulent scheme and knowingly concealed the
scheme from the FDIC in order to acquire the loans, those allegations would tend to
show only that the TPG and SBT defendants engaged in illegal activity to benefit
themselves. Plaintiffs still would not have alleged actions "undertaken on behalf of the
enterprise as opposed to on behalf of [defendants] in their individual capacities, to
advance their individual self-interests." United Food & Commercial Workers Unions &
Employers Midwest Health Benefits Fund v. Walgreen Co., 719 F.3d 849, 854 (7th Cir.
2013) (emphasis in original).
Though it might appear that NRB and Wolin & Rosen were part of an enterprise
because they are alleged to have "acted together" to create fraudulent loan documents,
plaintiffs have not alleged that Wolin & Rosen shared a common purpose with NRB or
its executives. And even if Wolin & Rosen attorneys knew of NRB's fraudulent scheme
and therefore knowingly participated in a fraudulent enterprise, plaintiffs have not
alleged that Wolin & Rosen "operated or managed" the enterprise as required to satisfy
RICO's "conduct" element. See Goren, 156 F.3d at 728 ("[S]imply performing services
for an enterprise, even with knowledge of the enterprise's illicit nature, is not enough to
subject an individual to RICO liability under § 1962(c); instead, the individual must have
participated in the operation and management of the enterprise itself."); see also Nesbitt
v. Regas, No. 13 C 8245, 2015 WL 1331291, at *10 (N.D. Ill. Mar. 20, 2015) (dismissing
RICO claim against law firm who allegedly prepared fraudulent loan transaction

9

documents where "any law firm . . . could have performed [that] legal work . . .
particularly given the fact that it was not essential . . . that the law firm defendants knew
of the insider loan scheme").
2.

Racketeering activity

Plaintiffs have also failed to adequately allege that defendants engaged in
racketeering activity. The RICO statute lists the criminal acts that can serve as
predicates for a RICO claim. See 18 U.S.C. § 1961(1). Plaintiffs assert that defendants
have committed RICO predicate acts of mail and wire fraud, bank fraud, extortion, and
money laundering. But plaintiffs have not alleged their fraud claims with the particularity
required by Rule 9(b), and the extortion and money laundering claims fail for other
reasons.
a.

Mail and wire fraud

To meet the heightened pleading standard of Rule 9(b), "a RICO plaintiff [alleging
predicate acts of fraud] must, at a minimum, describe the predicate acts of fraud with
some specificity and state the time, place, and content of the alleged communications
perpetrating the fraud." Goren, 156 F.3d at 726 (internal quotation marks and
emendations omitted). The allegations of fraud in plaintiffs' complaint do not meet this
requirement. Plaintiffs allege generally that the SBT and TPG defendants continued to
issue and enforce commercial real estate loans that were fraudulent because they were
based on Daddono's and Advanced Appraisal's inflated appraisals. Yet, in their
complaint, plaintiffs do not identify a single fraudulent loan, let alone the fraudulent
aspects of the loan transactions or when they took place. Nor do plaintiffs allege the
content of any false appraisal on which a fraudulent loan was allegedly based—that is,

10

plaintiffs do not identify an appraised value of a particular property that is higher than its
purported market value. And although plaintiffs do allege specific communications from
the SBT defendants and TPG defendants in the form of "fraudulent claims" and
"fraudulent collection lawsuits," plaintiffs do not describe the content of any of those
communications. In any event, even if plaintiffs did provide more detail about those
filings, "[a] number of courts have considered whether serving litigation documents by
mail can constitute mail fraud, and all have rejected that possibility." United States v.
Pendergraft, 297 F.3d 1198, 1208 (11th Cir. 2002) (collecting cases).
With respect to Wolin & Rosen, plaintiffs allege only that unspecified "attorneys,"
"including attorneys at Wolin & Rosen," among other law firms, knowingly prepared,
disseminated, and enforced "fraudulently inflated loans and modifications," Am. Compl.
¶ 15, and "concealed and secreted" their knowledge of the false appraisals, id. ¶ 84.
Plaintiffs do not specify the date on which any of the loan documents were prepared or
which law firms prepared which loan documents; nor do they allege that Wolin & Rosen
prepared any of the loan documents that allegedly resulted in any of the individual
plaintiffs' injuries. The allegations lack the specificity Rule 9(b) requires.
Plaintiffs argue that they should be held to a less stringent pleading standard
because of the duration and complexity of the alleged scheme. They also assert that
"defendants have concealed the appraisals and prevented discovery of details
surrounding the RICO claims." Pls.' Resp. to TPG Defs.' Mot. to Dismiss at 3; Pls.'
Resp. to SBT's Mot. to Dismiss at 3. Plaintiffs are correct that the degree of specificity
required by Rule 9(b) "may vary on the facts of a given case," and that a flexible
application of the rule may be appropriate in cases of "information asymmetries." Pirelli

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Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 442,
446 (7th Cir. 2011). But if plaintiffs do not allege "'the specific date, place, or time of the
fraudulent acts,' they still must 'use some alternative means of injecting precision and
some measure of substantiation into their allegations of fraud.'" Id. (quoting 2 James
Wm. Moore, Moore's Federal Practice § 9.03[1][b], at 9–18 (3d ed.2010)). Plaintiffs
describe the alleged scheme only in general terms throughout the complaint and do not
point to any alternative means they claim to have used to add precision or
substantiation to their allegations.
With respect to plaintiffs' assertion that they have been unable to discover details
of the scheme because defendants have concealed important information, including the
content of the alleged appraisals, plaintiffs appear to acknowledge that their allegations
are based on "information and belief." See also, e.g., Pls.' Resp. to Wolin & Rosen's
Mot. to Dismiss at 6 ("All we know at this juncture, without any discovery, is that the
discount [the SBT and TPG defendants received on the loans they purchased] was
probably so steep that State Bank of Texas and TPG could be considered as having
received one of the "fruits" of the illegal scheme simply by purchasing the accounts from
the FDIC."). Plaintiffs alleging fraud "on information and belief" do "not have unlimited
leeway to do so." Pirelli, 631 F.3d at 442. Rather, those plaintiffs must provide "some
firsthand information to provide grounds to corroborate [their] suspicions," id.; in other
words they must, as a minimum, explain the basis for their belief. Plaintiffs offer no
such information in this case. They do allude to "details of [an] investigation by the
FDIC, Federal Reserve and U.S. Treasury Department" that "emerged in October
2016." Am. Compl. ¶ 16. But they do not explain what details emerged from that

12

investigation or how they came to suspect, for example, that the SBT and TPG
defendants were aware of the alleged NRB scheme. As the TPG defendants point out,
plaintiffs have not offered a plausible explanation for why NRB or its executives would
have informed complete strangers (the SBT and TPG defendants) about their allegedly
fraudulent scheme before the bank failed or why the SBT and TPG defendants would
be interested in purchasing loans that they knew to be tainted by fraud. See Escamilla
v. City of Chicago, 575 F. App'x 688, 689 (7th Cir. 2014) ("To state a claim for relief—
even under the liberal system of notice pleading . . . a complaint must contain enough
details about the subject-matter of the case to present a story that holds together.")
(internal citations and quotation marks omitted).
Plaintiffs attempt to remedy the defects in their complaint by quoting the more
detailed allegations they included in their original state-court complaint. They contend
that Fleischmann Distilling Corp. v Distillers Co., 395 F. Supp. 221 (S.D.N.Y. 1975),
supports the proposition that a court should consider a plaintiff's "prior allegations" even
when they have not been expressly incorporated into the complaint that is subject to a
motion to dismiss. The court in Fleischmann, however, stated only that a court could
consider allegations made earlier in the same complaint when assessing the viability of
a particular count of a complaint, even if the plaintiffs did not expressly incorporate
those allegations in the section of the complaint addressing that count. Id. at 228. The
Court will consider only the amended complaint that has been filed in this case. There is
good reason for this. Wolin & Rosen, for example, contend that plaintiffs eliminated
allegations from their prior complaint regarding the timing of the loans at issue in order
to avoid dismissal under the applicable statute of repose. It would be unfair to allow

13

plaintiffs evade a statute-of-repose dismissal by removing dates from their complaint
while allowing them to use those same alleged dates to satisfy their Rule 9(b)
obligations.
Even if the Court were to consider the more detailed allegations from the original
complaint, plaintiffs would not satisfy the requirements of Rule 9(b). Although those
allegations reference specific properties and specific loan documents executed on
specific dates, the allegations do not describe the content of any of the allegedly false
appraisals or identify any of the defendants whose motions are at issue here.
b.

Bank fraud

Plaintiffs' bank fraud claims are also subject to Rule 9(b) and fail for the same
reason as their mail and wire fraud claims. In addition, the Court notes that plaintiffs
have failed to identify any victim of the bank fraud that is a "financial institution" within
the meaning of 18 U.S.C. § 1344. In their responses to defendants' motions, plaintiffs
curiously assert that NRB was the financial institution defrauded by defendants. This
assertion is not supported by the allegations in the complaint. It is also arguably
inconsistent with plaintiffs' contention that defendants were part of the same criminal
enterprise as NRB (or at least the apparent inconsistency has not been explained).
c.

Extortion

Plaintiffs contend that defendants committed predicate acts of extortion by filing
fraudulent "claims" and "collection lawsuits." Although the Seventh Circuit has not
addressed the issue, it is well established in other circuits that filing a lawsuit or
threatening to file a lawsuit does not constitute criminal extortion. See Deck v.
Engineered Laminates, 349 F.3d 1253, 1258 (10th Cir. 2003) ("[W]e join a multitude of

14

other courts in holding that meritless litigation is not extortion under [18 U.S. C.] §
1951."); see also Vemco, Inc. v. Camardella, 23 F.3d 129, 134 (6th Cir. 1994) ("A threat
of litigation if a party fails to fulfill even a fraudulent contract . . . does not
constitute extortion."). Plaintiffs contend that defendants went beyond filing fraudulent
lawsuits and actually fabricated evidence. They do not, however, point to any support
for this assertion in their complaint.
d.

Money laundering

The federal money laundering statute prohibits "knowingly engag[ing] or
attempt[ing] to engage in a monetary transaction in criminally derived property of a
value greater than $10,000." 18 U.S.C. § 1957(a). As discussed above, plaintiffs have
failed to adequately allege that defendants engaged in criminal activity. They have
therefore also failed to allege that defendants knowingly engaged in a monetary
transaction in "criminally derived property." Thus plaintiffs' references to predicate acts
involving money laundering fail as well.
3.

RICO conspiracy and receipt of income

In addition to the RICO claims plaintiffs have asserted under section 1962(c),
plaintiffs allege that defendants conspired to conduct a RICO enterprise in violation of
section 1962(d) and received and invested income derived from a pattern of
racketeering activity in violation of section 1962(a). "A § 1962(a) violation . . . requires
the receipt of income from a pattern of racketeering activity, and the use of that income
in the operation of an enterprise." Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d
771, 778 (7th Cir. 1994) (internal quotation marks omitted). Because, as discussed
above, plaintiffs have failed to allege a pattern of racketeering activity or the operation of

15

an enterprise, they have failed to state a claim under section 1962(a). Similarly, failure
to establish a violation of section 1962(c) means plaintiffs' claims for conspiracy to
violate section 1962(c) "based on the same facts" also fail. See Stachon v. United
Consumers Club, Inc., 229 F.3d 673, 677 (7th Cir. 2000).
B.

ICFA, fraud, and aiding and abetting fraud
Like plaintiffs' RICO fraud claims, their claims for violation of the ICFA, common-

law fraud, and common-law aiding and abetting fraud all rely on allegations of fraud and
are subject to Rule 9(b). Plaintiffs' failure to allege fraud with particularity thus requires
dismissal of these state-law fraud claims as well.
C.

Tortious interference claims
The torts of intentional interference with a contract and intentional interference

with prospective economic advantage require allegations that a defendant took
intentional action to interfere with a relationship or potential relationship the plaintiff had
with a third party. To state a cause of action for tortious interference with a contract, a
plaintiff must allege: "(1) the existence of a valid and enforceable contract between the
plaintiff and a third party, (2) that defendant was aware of the contract, (3) that
defendant intentionally and unjustifiedly induced a breach of the contract, (4) that the
wrongful conduct of defendant caused a subsequent breach of the contract by the third
party, and (5) that plaintiff was damaged as a result." Poulos v. Lutheran Soc. Servs. of
Illinois, Inc., 312 Ill. App. 3d 731, 742, 728 N.E.2d 547, 557 (2000). Plaintiffs do not
allege the existence of a contract between themselves and any specific third party or a
breach of a contract by a third party, let alone a breach intentionally induced by
defendants. Plaintiffs respond that defendants interfered with the contracts of the Patel

16

Family Trust. In their complaint, however, plaintiffs allege only that TPG Capital and
Capital Crossing filed a motion for default judgment against the Patel Family Trust.
They do not allege that the Patel Family Trust had a valid contract with any of the
plaintiffs, that the trust breached such a contract, or that any of the defendants knew
about the contract and intentionally induced the Patel Family Trust to breach it.
Plaintiffs have failed to state a claim for tortious interference with a contract.
Intentional interference with prospective economic advantage is a similar tort that
covers instances of interference that take place before a plaintiff has entered into a
contractual relationship with a third party. A plaintiff claiming intentional interference
with prospective economic advantage must allege that "(1) he had a reasonable
expectancy of a valid business relationship; (2) the defendant knew about the
expectancy; (3) the defendant intentionally interfered with the expectancy and
prevented it from ripening into a valid business relationship; and (4) the intentional
interference injured the plaintiff." Boffa Surgical Grp. LLC v. Managed Healthcare
Assocs. Ltd., 2015 IL App (1st) 142984, ¶ 28, 47 N.E.3d 569, 577. Plaintiffs do not
allege that any defendant knew about any plaintiff's reasonable expectancy of a valid
business relationship or that any defendant intentionally interfered with such an
expectancy. Though defendants point to this pleading deficiency in their motions to
dismiss, plaintiffs fail to offer any response. Thus plaintiffs have also failed to state a
claim for tortious interference with prospective economic advantage.
D.

Unjust enrichment and quantum meruit
Plaintiffs' claims for unjust enrichment and quantum meruit are based on their

allegations of fraud. Indeed, in response to defendants' argument that the unjust

17

enrichment and quantum meruit claims must be dismissed because the parties'
relationship is governed by an express contract, plaintiffs respond that defendants' fraud
will "vitiate" those contracts. Because the claims depend on allegations of fraud, they
must be dismissed for failure to comply with Rule 9(b). In addition, plaintiffs fail to
allege that any of the plaintiffs "conferred a benefit upon [any of ] the defendant[s] which
the defendant[s] ha[ve] unjustly retained," City of Elgin v. Arch Ins. Co., 2015 IL App
(2d) 150013, ¶ 28, 53 N.E.3d 31, 42, as they must to state a claim for unjust
enrichment. Similarly, plaintiffs fail to allege that any of them "performed a service to
benefit [one of] the defendant[s]," Bernstein & Grazian, P.C. v. Grazian & Volpe, P.C.,
402 Ill. App. 3d 961, 979, 931 N.E.2d 810, 826 (2010), as is necessary to state a claim
for quantum meruit.
E.

Personal jurisdiction over Bonderman and Coulter
The TPG defendants contend that the Court lacks personal jurisdiction over

Bonderman and Coulter because plaintiffs have not alleged that either defendant
committed any tortious conduct within Illinois or aimed at Illinois. Plaintiffs make two
responses. First, they assert, without any additional explanation, that "Bonderman and
Coulter had sufficient minimum contacts with the forum state." Pls.' Resp. to TPG Defs.'
Mot. to Dismiss at 20. This conclusory assertion is plainly inadequate to support
jurisdiction. See In re Testosterone Replacement Therapy Prod. Liab. Litig.
Coordinated Pretrial Proceedings, 136 F. Supp. 3d 968, 973 (N.D. Ill. 2015) (Kennelly,
J.) (plaintiffs cannot rely on conclusory allegations to establish prima facie case of
jurisdiction). Second, plaintiffs argue that the Court has jurisdiction over Bonderman
and Coulter under RICO's nationwide-service-of-process provision. See 18 U.S.C. §

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1965(b) (authorizing nationwide service of process in RICO cases where "it is shown
that the ends of justice require that other parties residing in any other district be brought
before the court"). The Court has determined above, however, that plaintiffs have failed
to state viable RICO claims. Thus section 1965(b) does not support personal
jurisdiction over Bonderman and Coulter. See In re Honey Transshipping Litig., 87 F.
Supp. 3d 855, 871 (N.D. Ill. 2015) (finding "no authority for the proposition that a plaintiff
may serve a non-resident defendant pursuant to Section 1965(b), when the underlying
RICO claims are invalid").
Conclusion
For the reasons stated above, the Court grants the motions by various
defendants to dismiss plaintiff's amended complaint [dkt. nos. 51, 62, 65, 79].

Date: September 22, 2017

________________________________
MATTHEW F. KENNELLY
United States District Judge

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