Bobb et al v. Swartz-Retson P.C. et al
Filing
185
MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 9/14/18.Mailed notice(ca, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ROBERT J. BOBB and BOBB AUTO
GROUP,
)
)
)
Plaintiffs,
)
)
v.
)
)
SWARTZ-RETSON P.C., JOHN
)
SCHUTZ, TERRY SCHUTZ, NEW
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HORIZONS WARRANTY CORP.,
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WILLIAM LOGOTHETIS, ART
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GEORGION, SHANDA TAYLOR,
)
KRISTEN QUEEN, SAKELLARIOS
)
PILATOS, JOHN ZEMBILLAS, MARK
)
GATTON, MICHAEL FRESSO, DAVID )
BATUSIC, THOMAS NEWMAN, LARRY )
MILLER, MARK GRUENHAGEN, and
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THOMAS DECANTER,
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)
Defendants.
)
17-cv-7694
Judge John Z. Lee
MEMORANDUM OPINION AND ORDER
Plaintiff Robert J. Bobb (“Bobb”), the sole owner and manager of Plaintiff Bobb
Auto Group (“Bobb Auto”), filed suit against various individuals and entities,
including a group of its former employees, two former consultants, and its former
accounting firm, among others. Plaintiffs allege that Defendants conducted a corrupt
enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1961 et seq., and violated other federal and state statutes, by
scheming to sell Plaintiffs a car dealership and to defraud and steal from Plaintiffs
until the business lost all value. Twelve of the seventeen Defendants move in seven
different motions1 to dismiss the amended complaint pursuant to Federal Rule of
Civil Procedure (“Rule”) 12(b)(6). ECF Nos. 43, 87, 88, 90, 92, 95, 100. For the reasons
given below, the Court grants the Defendants’ motions and dismisses the amended
complaint.
Factual Background2
Plaintiff Robert J. Bobb is the sole member and manager of Plaintiff Bobb Auto
Group, LLC. Am. Compl. at 9, ECF No. 10. At some point prior to November 1, 2012,3
Defendant Art Georgion introduced Bobb to Defendants Terry and John Schutz (“the
Schutzes”). Id. at 2. The Schutzes owned Center Garage, Inc. (“Center Garage”),4 a
Defendants Swartz-Retson & Co., P.C., David Batusic, and Thomas Newman file a
joint motion to dismiss, ECF No. 43, as do John Schutz, Terry Schutz, William Logothetis,
and New Horizons Warranty Corporation, ECF No. 95. Defendants Mark Gruenhagen,
Thomas DeCanter, Kristen Queen, Art Georgian, and Shanda Taylor each individually
submit motions to dismiss (respectively, ECF Nos. 87, 88, 90, 92, 100). Defendants Michael
Fresso and Larry Miller have not filed appearances; Defendants Sakellarios Pilatos, John
Zembillas, and Mark Gatton each answered the amended complaint and did not move to
dismiss. See ECF Nos. 84, 85, 86.
1
The following facts are taken from the amended complaint and are accepted as true
on review of the motions to dismiss. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th
Cir. 2008) (stating that, at the motion-to-dismiss stage, the court “accept[s] as true all wellpleaded facts alleged”).
2
Plaintiffs do not provide dates for many of their factual allegations, but Bobb hired
the Schutzes as consultants on November 1, 2012. See Am. Compl. at 2–3.
3
Although Plaintiffs do not explicitly state it, it may be reasonably inferred from the
allegations in the amended complaint that Center Garage was the company operating the
dealership before the sale. See Am. Compl. at 2 (stating that Bobb purchased the dealership
from the Schutzes “individually and acting as Center Garage, Inc.,”); id. at 3 (explaining that
the Schutzes and other Defendants had earlier induced people to invest in Center Garage,
then defrauded the investors out of $3.5 million); id. (“[W]hen the Schutz[e]s sold Center
Garage to Bobb Auto Group, they deliberately hid the existence of the debt.”).
4
2
Chrysler, Dodge, Jeep and Ram dealership in Cedar Lake, Indiana. Id. Georgion
pitched the sale of the dealership to Bobb, who purchased it from the Schutzes. Id.
As part of the sale, Bobb paid the Schutzes $300,000 for covenants not to
compete, and $200,000 for agreements providing that the Schutzes would remain as
consultants for Bobb Auto. Id. As a consultant, John Schutz advised Bobb to hire
Defendant William Logothetis, a certified public accountant, as Bobb Auto’s Chief
Financial Officer. Id. at 3. Georgion was named General Manager. Id. John Schutz
and Georgion then hired Defendant Shanda Taylor as Office Manager and
Bookkeeper. Id.
This was not the first time the Schutzes, Logothetis, Georgion, and Taylor
collaborated. They had collectively induced others to invest in Center Garage. Id.
By the time Bobb purchased the dealership, Center Garage was in debt, a fact that
the Schutzes hid from him. Id. A month after the sale, Center Garage declared
bankruptcy, resulting in its creditors and investors losing $3.5 million. Id. At some
point,5 the Schutzes “converted” Center Garage’s assets into cash through payments
and distributions to themselves. Id. at 3–4.
According to Plaintiffs, the Schutzes, Logothetis, Georgion, and Taylor were all
part of the “Enterprise,” an entity that sought to steal money from and take control
of Bobb Auto, ultimately buying back the dealership once Bobb Auto’s business was
ruined. Id. at 3, 13. The Enterprise also aimed to devalue the Chrysler brand in the
It is unclear whether the “conversion” of Center Garage’s assets occurred before or
after Center Garage declared bankruptcy. See Am. Compl. at 3–4.
5
3
area. Id. While Georgion functioned as the Enterprise’s ringleader, every Defendant
was a member of this entity.6 Id. at 12–13. Plaintiffs allege that the Enterprise
conducted four types of schemes: the “New Horizons Scheme,” the “Floorplan
Scheme,” the “Conversion Scheme,” and the “Accounting Scheme.” Id. at 3.
I.
The New Horizons Scheme
According to Plaintiffs, it is standard practice for a car dealership to operate
its own warranty company. Id. at 4–5. The dealership would then sell its customers
warranties provided by that company, pay approximately 20% of the warranty
premiums to a secondary insurer, and keep the remainder. Id. at 4. As a consultant,
John Schutz neither advised Bobb to operate his own warranty company, nor
informed Bobb that, prior to selling the dealership to Bobb, the Schutzes and
Logothetis owned a private warranty company, Defendant New Horizons Warranty
Company (“New Horizons”), which served as the warranty provider to Center Garage.
Id. at 4, 5.
Plaintiffs ascribe many generalized schemes to the “Enterprise,” but in most cases the
actions comprising the schemes were clearly taken by specific individuals. See, e.g., Am.
Compl. at 5 (describing the Enterprise as “schem[ing] to sell New Horizons warranties to
Bobb Auto customers,” but attributing each individual action that was part of the scheme to
Georgion, the Schutzes, or Logothetis). Most of Plaintiffs’ allegations regarding the
Enterprise are conclusory rather than factual and therefore are not included in this fact
section. See Doyle v. Camelot Care Ctrs., Inc., 305 F.3d 603, 614 (7th Cir. 2002) (Courts must
accept as true all well-pleaded facts but “need not accept as true conclusory statements of
law or unsupported conclusions of fact.” (internal quotation marks and citation omitted)).
6
4
Starting in late 2014, approximately two years after Bobb Auto purchased the
dealership, Bobb Auto7 gave New Horizons the exclusive right to sell warranties for
its cars. Id. at 5. The process had several steps. First, on September 22, 2014, the
two companies signed a “Dealer Agreement,” with Terry Schutz and Logothetis
signing on behalf of New Horizons, and Georgion signing for Bobb Auto. Id. at 5, 16,
17. Taylor served as a witness attesting to the signatures on the agreement. Id. at
5.
The agreement provided that, in exchange for a $130,000 loan, 95% of the
warranties sold by Bobb Auto were to be New Horizons warranties. Id. at 17. On
October 24, 2014, Logothetis (as New Horizons President) and Terry Schutz (as New
Horizons Secretary) signed a memorandum of agreement,8 documenting that Bobb
Auto Group had executed a warranty dealer agreement, promissory note, and
contract for extended warranty with New Horizons. Id. at 16, 17.
On November 3, 2014, without Bobb’s knowledge, New Horizons loaned Bobb
Auto $130,000, pursuant to a promissory note signed by Georgion on Bobb Auto’s
behalf. Id. at 5, 16. From November 2014 through March 2016, Bobb Auto paid New
Horizons $7,337.10 every month for principal and interest on the note, adding up to
It is unclear whether Bobb was aware of the warranty agreement, but Plaintiffs allege
that he never knew that New Horizons was owned by Logothetis and the Schutzes or that
New Horizons loaned Bobb Auto $130,000. Am. Compl. at 5.
7
It is unclear if the memorandum of agreement was signed by anyone on behalf of Bobb
Auto. See Am. Compl. at 16, 17.
8
5
$111,750. Id. at 15–17. During that same period of time, New Horizons received
$588,797.07 in revenue from Bobb Auto for 447 warranties. Id. at 16.
II.
The Floor Plan Scheme
Meanwhile, Logothetis and Georgion were engaging in a scheme in which they
“orchestrated” overpayments to customers for used car trade-ins. Id. at 6, 14. The
overpayments, for 61 cars, resulted in a loss to Bobb of approximately $259,467. Id.
at 14; see id., Ex. A, Water vs. Avg MMR Avg Blk Bk NADA Avg Trade-Bobb Auto
Group-2016-03-09-1004.xls (calculating the total difference between prices paid per
trade-in from the National Automobile Dealership Association (NADA) 9 trade-in
average for each of those cars, for a sum of $259,467). The overpayments helped
Logothetis and Georgion more easily sell cars and created the impression of
profitability.10 Id.
The cars for which Bobb Auto overpaid were later sold privately or at an
auction for a loss. Id. It is unclear who received the proceeds from the sales of the
used cars. Plaintiffs allege broadly that the proceeds from the private sales of the
used cars went to the Enterprise, see Am. Compl. at 6, but they imply elsewhere that
Although Plaintiffs do not provide the full name for the acronym “NADA,” the Court
takes judicial notice that NADA stands for National Automobile Dealership Association. See
Fed. R. Civ. P. 201; About Us, NADA Guides, available at www.nadaguides.com/ CompanyOverview (last accessed 8/20/2018).
9
Plaintiffs state that “[b]y overpaying for used cars bought on trade-in, Logothetis and
Georgion were able [to] sell other new or used inventory . . . creat[ing] a fiction or
profitability.” Am. Compl. at 6. Although Plaintiffs do not further explain, the Court
presumes that the overpayments for trade-ins operated as an incentive for customers, who
then effectively paid less for the car they purchased from Bobb.
10
6
Bobb Auto received funds from at least some private sales. See id. at 20–21 (stating
that a trade-in for which Bobb Auto paid $5,600 was later “sold at auction for a loss
to Bobb Auto of $2,250”).11 At least some of the used cars were sold by Defendant
Thomas DeCanter, whom Georgion hired as a Bobb Auto employee in or around
December 2012.
Id. at 21.
DeCanter sold Bobb’s used cars “off the books” to
Defendant Michael Fresso, a wholesaler in Steeger, Illinois, who was doing business
as Town and Country Motors. Id. The cars were sold for cash, with no receipt or
transfer of title, and DeCanter never delivered the cash to Bobb.12 Id.
In addition to Bobb Auto overpaying for trade-ins and possibly losing the value
of the trade-ins altogether, Logothetis and Georgion’s actions also caused Ally
Financial, Bobb Auto’s floor plan lender, to increase Bobb Auto’s interest rates. Id.
at 6. Ally Financial was extending credit to Bobb Auto through short-term loans, in
which car inventory (known as the “floor plan”) acts as collateral for the loan. Id.
From what the Court can discern, the used cars that Logothetis and Georgion were
re-selling off the books were no longer available as collateral for the floor plan lender,
but Logothetis, Georgion, and Taylor would send in floor plans that did not reflect
that fact. See id. at 6, 18, 48. Nor did the floor plans reflect that Georgion was issuing
new “demo” vehicles to unauthorized people, such as wholesalers; instead, the demo
vehicles continued to be marked as new, unused cars. Id. at 15. Ally Financial
This means that Bobb Auto received the proceeds from at least this sale because if
not, it would have lost $5,600 upon the car’s sale at auction.
11
12
The only other mention of DeCanter in the amended complaint is an allegation that
he gave away, for free, a new Grand Cherokee that belonged to Bobb. Am. Compl. at 21–22.
7
discovered the inaccuracies in the floor plans as part of an audit and raised Bobb
Auto’s interest rate accordingly. Id. at 6. This scheme ultimately caused Bobb Auto
to incur $800,000 worth of additional liability to Ally Financial. Id. at 20.
III.
The Conversion Scheme
From shortly after Bobb Auto’s purchase of the dealership until March 2016,
multiple people received unauthorized payments or benefits from Bobb Auto.
Georgion issued many of these payments. For example, Georgion issued and signed
two checks from Bobb Auto to Center Garage: for $37,403.00 on November 7, 2012,
and for $10,500 on November 13, 2012.13 Id. at 14. Both of those checks, which
Plaintiffs describe as “fraudulent,” were received and deposited by John Schutz. Id.
at 15.
Many of the other “fraudulent” checks that Georgion issued were for his own
benefit. On July 11, 2013, Georgion issued a check from Bobb Auto to “cash” for
$115,357.00.
Id. at 14, 30.
The check was deposited into the bank account of
Defendant Larry Miller, a friend of Georgion; Miller then returned a portion of the
money back to Georgion. Id. at 30–31. The two claimed that the transaction was
made for the benefit of another Chrysler dealership in order to make the payment
appear normal. Id. at 31.
Plaintiffs state that that this check was issued and signed on November 13, 2017.
Because Plaintiffs indicate that Georgion was no longer employed by Bobb Auto in 2017, the
Court concludes that “2017” is a typo for “2012,” the same year as the previous check issued.
See Am. Compl. at 15.
13
8
Furthermore, from November 2013 through March 2016, Georgion used Bobb
Auto checking accounts to pay for $23,088 worth of personal expenses, including bills
for cell phone service, cable, and utilities. Id. at 15, see also id., Ex. B., Art Georgion
Bills Paid Through Harris Bank at 1, ECF No. 10-2. And from February 2014 to
March 2016, Georgion used Bobb Auto Group credit cards for personal expenses
totaling $131,222.49. Id. at 7, 15. Taylor signed off on these transactions and
manipulated the bookkeeping records to hide them. Id. at 7.
Sometime around January 2015, Georgion named Bobb Auto as the guarantor
on the purchase contract for a $700,000 house. Id. at 14. He also used Bobb Auto
funds to pay for $50,000 of the house’s down payment, id. at 6, 18, and for $80,208 in
mortgage payments over eighteen months, id. at 14, 18. Taylor authorized these
transactions. Id. at 18.
On February 29, 2016, the day before his last day at Bobb Auto, Georgion
purchased a 2013 Chrysler 300c for $107 and wrote himself a check for $186,450. Id.
at 15.
Meanwhile, Art Georgion’s girlfriend, Defendant Kristen Queen, also received
numerous items of value from Bobb Auto. She accepted two checks from Bobb Auto,
for $500 and $1,120, on September 18, 2013, and January 22, 2015. Id. at 20. On
February 3, 2014, she exchanged her 2004 Buick LeSabre for a 2005 Mustang. The
Mustang had been purchased by the dealership a month earlier for $8,800; Bobb Auto
later sold the Buick LeSabre at auction for $3,350. Id. at 20–21. Two months later,
on April 18, 2014, Bobb Auto paid for a flight to Dallas for Queen. Id. And in June
2014, Queen received a $20,000 credit for a purported trade-in of a 2012 Chrysler
9
Sebring that she had never owned and that had in fact been purchased by Bobb Auto
three days earlier in an unrelated transaction. Id. at 21.
Other individuals also received unauthorized payments.
Defendant
Sakellarios Pilatos was employed at Bobb Auto from some point before February 4,
2014 through March 2016. See id. at 28–29. Pilatos received the following fictitious
pay advances, none of which had withholdings: February 4, 2014, for $500; May 30,
2014, for $2,300; September 8, 2014, for $350 14 ; September 15, 2014, for $350;
September 22, 2014, for $350. Id. at 28–29. Pilatos’s company also received an
additional $400 per week, without withholdings, from April 7, 2014 through his
termination, documented as a training expense. Id. Similarly, from October 2014 to
some point before March 2016, Defendant Michael Gatton, a friend of Georgion,
received and deposited checks from Bobb Auto that did not have any withholdings.15
Id. at 30.
Finally, Logothetis, Georgion, and Taylor all sought to receive dealer cash
incentives by falsely reporting to Chrysler that, from October 19, 2015, through
December 17, 2015, nine new cars had been sold for $200,000.16 Id. at 19.
The September 8, 2014, check for $350 was endorsed and deposited by Defendant John
Zembillas. Am. Compl. at 29.
14
On September 1, 2015, Pilatos, Gatton, and Defendant John Zembillas each received
an “employment agreement” from Georgion, which purported to bind Bobb Auto to employing
them and limited its ability to terminate them for cause. Am. Compl. at 29–30.
15
Plaintiffs do not indicate if the dealer cash incentives were received or who received
them. See Am. Compl. at 19.
16
10
III.
The Accounting Scheme and Legal Defense
At some time in 2014, Logothetis engaged Defendant David Batusic, partner
at the accounting firm of Defendant Swartz-Retson Co. P.C. (“Swartz-Retson”), to
prepare Bobb Auto’s tax returns. Id. at 15, 27. Batusic prepared and transmitted
Bobb Auto’s 2014 tax returns, which had numerous material inconsistencies,
particularly as to retained earnings. Id. at 23–24, 27. In 2015, Defendant Thomas
Newman, an associate at Swartz-Retson, prepared Bobb Auto’s 2015 tax returns,
which also had numerous material inconsistencies.
Id. at 24–27.
According to
Plaintiffs, both Batusic and Newman also formulated “fake financial statements” to
“disguise[ ] . . . problematic transactions. Id. at 15; see also id. at 27, 28.
Starting in December 2013, the Enterprise retained Defendant Mark
Gruenhagen, an attorney, to represent Bobb Auto in various lawsuits filed by its
customers. Id. at 22. Bobb was unaware of the lawsuits or that Gruenhagen had
been retained. Id. Gruenhagen was paid with a free car from Bobb Auto’s inventory,
as well as free mechanical services. Id. At some point after January 1, 2016, Bobb
confronted Gruenhagen and asked to see a retainer agreement.
Id. at 23.
Gruenhagen provided a compensation agreement dated January 1, 2016, signed by
Gruenhagen and by Georgion on behalf of Bobb Auto, in front of a notary public.17 Id.
Bobb only learned of the lawsuits after Logothetis and Georgion were no longer
Plaintiffs allege that Gruenhagen was out of town when the retainer was purportedly
signed. Am. Compl. at 23.
17
11
working for the dealership; the attorney’s fees and settlements cost Bobb Auto almost
$70,000. Id.
Logothetis and Georgion stopped working for Bobb Auto in March 2016.18 Id.
at 20. According to Plaintiffs, all Defendants’ involvement in the Enterprise ended
March 2016, except for Taylor, who continued to give Logothetis and Georgion access
to the dealership’s internal computer server and financial records until June 20, 2016.
Id. at 18.
Legal Standard
To survive a motion to dismiss under Rule 12(b)(6), a complaint must “state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Additionally,
when considering motions to dismiss, the Court accepts “all well-pleaded factual
allegations as true and view[s] them in the light most favorable to the plaintiff.”
Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013) At the same time,
“allegations in the form of legal conclusions are insufficient to survive a Rule 12(b)(6)
motion.” McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012)
(citing Iqbal, 556 U.S. at 678). As such, “[t]hreadbare recitals of the elements of the
At various points in the amended complaint, Plaintiffs indicate that Georgion
resigned, Am. Compl. at 15, or that both Georgion and Logothetis were fired, id. at 20, 23.
18
12
cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556
U.S. at 678.
Analysis
Plaintiffs allege violations of all four RICO subsections and of two Indiana
provisions. In Count I, Plaintiffs allege that all Defendants19 violated § 1962(c), Am.
Compl. at 12; in Count II, Plaintiffs allege that the Schutzes, Logothetis, and New
Horizons violated § 1962(a), id. at 32–33; in Count III, Plaintiffs allege that the
Schutzes, Logothetis, and New Horizons violated §§ 1962(b) and (d), id. at 36–37; and
in Count IV, Plaintiffs allege that the Schutzes, Logothetis, New Horizons, Georgion,
Taylor, DeCanter, Batusic, and Swartz-Retson violated § 1962(d), id. at 40. Finally,
in Count VI, 20 Plaintiffs allege that John Schutz, Logothetis, Georgion, Queen,
Taylor, DeCanter, Pilatos, and Miller committed acts of theft, conversion, and
receiving stolen property, in violation of Indiana Code §§ 35-43-4-2 and 35-43-4-2.5.
A RICO claim “is a unique cause of action that is concerned with eradicating
organized, long-term, habitual criminal activity.” Gamboa v. Velez, 457 F.3d 703, 705
(7th Cir. 2006). Although RICO “provides a private civil action to recover treble
damages for violations of RICO’s substantive provisions, the statute was never
intended to allow plaintiffs to turn garden-variety state law fraud claims into federal
RICO actions.” Jennings v. Auto Meter Prods., Inc., 495 F.3d 466, 472 (7th Cir. 2007)
Plaintiffs do not bring any claims against Defendant Michael Fresso. Accordingly, the
Court sua sponte dismisses him from the case.
19
Plaintiffs have since withdrawn Count V. See Pls.’ Resp. Opp’n Swartz-Retson Mot.
Dismiss at 16, ECF No. 74.
20
13
(citing Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992))
(internal citations omitted); see also 18 U.S.C. § 1964.
Defendants argue that Plaintiffs fail to state a RICO claim under any of the
RICO § 1962 subsections because, among other things, they do not sufficiently allege
the existence of an enterprise. See, e.g., Taylor’s Mem. Supp. at 4–9, ECF No. 102;
Logothetis, New Horizons, and Schutzes’ (“Schutz Defs.’”) Mem. Supp. at 12–13, ECF
No. 96. Although there are significant substantive differences among the four RICO
provisions, the existence of an “enterprise” is fundamental to each provision. See 18
U.S.C. §§ 1962(a)–(d). The Court therefore first addresses whether Plaintiffs have
properly alleged the existence of an enterprise before turning to the additional
requirements specific to each provision.
I.
RICO Claims
A.
Existence of an Enterprise
Under RICO, an “enterprise” is defined broadly to include “any individual,
partnership, corporation, association, or other legal entity, and any union or group of
individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). An
association-in-fact—the type of enterprise that Plaintiffs allege here, see Am. Compl.
at 12–13—“does not require any structural features beyond ‘a purpose, relationships
among those associated with the enterprise, and longevity sufficient to permit these
associates to pursue the enterprise’s purposes.’” Bible v. United Student Aid Funds,
Inc., 799 F.3d 633, 655 (7th Cir. 2015) (citing Boyle v. United States, 556 U.S. 938,
946 (2009)).
14
Defendants contend that Plaintiffs have not sufficiently alleged an enterprise.
According to Defendants, Plaintiffs fail to tie Defendants together into a single entity
formed for a common purpose, instead alleging that Defendants engaged in a series
of acts for their own individual benefits, rather than for that of the whole. See
Decanter’s Mot. Dismiss at 2–3, ECF No. 88; Queen’s Mot. Dismiss at 2–4, ECF No.
90; Schutz Defs.’ Mem. Supp. at 12–13, Taylor’s Mem. Supp. at 4–9. Defendants
contend that, at most, Plaintiffs have alleged “individually opportunistic” theft and
embezzlement. Georgion’s Mot. Dismiss at 7, ECF No. 92; Taylor’s Mem. Supp. at 8–
9.
In response, Plaintiffs point to allegations in the amended complaint that
Defendants shared the common purpose of stealing money from Plaintiffs and of
driving down the value of Bobb Auto so that the dealership could be bought at a
discount. See, e.g., Pls.’ Resp. Opp’n Decanter’s Mot. Dismiss at 3, ECF No. 134; Pls.’
Resp. Opp’n Queen’s Mot. Dismiss at 4–6, ECF No. 136. Plaintiffs also allege that
Defendants sought to devalue the Chrysler brand in the local market. Am. Compl. at
3, 13.
But while Plaintiffs allege that Defendants shared a common purpose of
stealing money from Plaintiffs, nowhere do Plaintiffs allege that the money stolen
went to some sort of common, enterprise-owned pot. Instead, the money stolen
appeared to be solely for each individual’s benefit. See, e.g., Am. Compl. at 21–22
(DeCanter sold Bobb Auto’s cars off-the-books and never paid Bobb); id. at 21 (Queen
received $20,000 in credit from Bobb Auto for “trading in” a car that Bobb Auto
already owned); id. at 28 (Pilatos received a series of fictitious pay advances). Such
15
a purpose is shared in the sense that each Defendant shared the same goal of
individually benefiting, but it does not qualify as a common purpose sufficient to lend
structure to an association-in-fact enterprise. See Bible, 799 F.3d at 655; Guaranteed
Rate, Inc. v. Barr, 912 F. Supp. 2d 671, 687 (N.D. Ill. 2012) (holding that the plaintiff
had failed to establish a RICO enterprise because it “does not present a single factual
claim asserting the RICO Defendants had any interest in the outcome of the alleged
scheme beyond their own individual interests,” and noting that “there is no
indication . . . that the RICO Defendants shared in the profits of the alleged
enterprise as opposed to merely taking their own respective profits from their
respective actions related to the scheme”).
Plaintiffs also allege that Defendants shared the common purpose of driving
down the value of Bobb Auto so that the dealership could be “bought back” at a
discount, and devaluing the Chrysler brand in the local market. Am. Compl. at 3, 13.
Plaintiffs do not, however, plead any factual allegations to support either of these
conclusory statements. For example, as Georgion points out, the only people who
could “buy back” Bobb Auto are the Schutzes, who sold the dealership to Plaintiffs.
Georgion’s Mot. Dismiss at 5. But Plaintiffs do not point to any buy-back mechanism
in the sale contract, nor do they plead any facts indicating any interest, by the
Schutzes or any other Defendants, in purchasing the dealership. The complaint is
also devoid of allegations indicating any means for Defendants to collectively
purchase the dealership, or any way that Defendants would benefit (collectively or
not) from devaluing the Chrysler brand. Given the total absence of supporting factual
allegations, it is implausible that Defendants collectively sought to drive down the
16
value of Bobb Auto or the Chrysler brand through individual actions of theft or fraud.
See Twombly, 550 U.S. at 570; Iqbal, 556 U.S. at 678.
Because Plaintiffs have not plausibly pleaded that Defendants shared a
common purpose, as necessary for a RICO enterprise, they have failed to state a RICO
claim under §§ 1962(a)–(d).
B.
Additional Requirements under RICO §§ 1962(a)–(d)
Defendants further contend that Plaintiffs have failed to establish other
elements of each of the RICO subsections under which Plaintiffs brings claims.
Although the lack of an enterprise is fatal to all of Plaintiffs’ RICO claims, the Court
will briefly address some of Defendants’ other arguments as to Plaintiffs’ claims
under §§ 1962(a)–(d).
1.
Injury Under § 1962(c) (Count I)
In Count I, Plaintiffs allege that all Defendants violated § 1962(c) by
conducting or participating in the conduct of the enterprise. To establish a RICO
claim under § 1962(c), a plaintiff must plead that a defendant: (1) conducted or
participated in the conduct of (2) an enterprise (3) through a pattern of racketeering
activity. United States v. Shamah, 624 F.3d 449, 453–54 (7th Cir. 2010). In order for
a plaintiff to have standing to bring a civil claim for violation of § 1962(c), the
defendant’s violation of the provision must have been a but-for cause of an injury to
the plaintiff’s business or property. 18 U.S.C. § 1964(c); RWB Servs., LLC v. Hartford
Comp. Grp., Inc., 539 F.3d 681, 687 (7th Cir. 2008). A RICO plaintiff must plead the
requisite injury for a court to have subject-matter jurisdiction over the claim. RWB
17
Servs., 539 F.3d at 686 (citing Gagan v. Am. Cablevision, 77 F.3d 951, 958 (7th Cir.
1996)).
Several
of
the
Defendants—Swartz-Retson,
Batusic,
Newman,
and
Gruenhagen—contend that Plaintiffs lack standing to bring a § 1964(c) claim against
them, because Plaintiffs have not pleaded that these Defendants’ actions were the
but-for cause of Plaintiffs’ injuries. Swartz-Retson, Batusic, and Newman’s (“SwartzRetson Defs.’”) Mem. Supp. at 11–12, ECF No. 46; Gruenhagen’s Mot. Dismiss at 11–
12, ECF No. 87. The Court agrees.
Plaintiffs’ allegations as to Gruenhagen are limited to claims that he was hired
by the Enterprise to defend Bobb Auto against customer lawsuits and that he received
a free car in exchange for his services. Am. Compl. at 22. While Plaintiffs incurred
costs in the form of attorney’s fees and settlements associated with the lawsuits,
Plaintiffs’ allegations do not plausibly suggest that Gruenhagen’s defense of Bobb
Auto was the but-for cause of those costs or any other injuries that Plaintiffs suffered.
See id. Plaintiffs do not, for example, plead that Gruenhagen engaged in deficient
representation of Bobb Auto or that his representation somehow increased Plaintiffs’
liability in the actions it was facing.
Nevertheless, Plaintiffs argue that they were injured because Gruenhagen’s
receipt of a free car in exchange for his services meant (1) that the car could not be
sold for a profit to Plaintiffs; and (2) that the existence of the lawsuits could continue
to be hidden from Plaintiffs, because Gruenhagen was not paid through the standard
means of company check. Pls.’ Resp. Opp’n Gruenhagen’s Mot. Dismiss at 8–9, ECF
No. 135.
18
Even setting aside whether Gruenhagen’s receipt of a car as payment could
possibly qualify as a violation of § 1962(c), it is unclear how Plaintiffs’ ignorance of
customer lawsuits or payment of Gruenhagen with a car rather than in monetary
form harmed Plaintiffs. Plaintiffs have therefore failed to allege a “direct relation
between the injury asserted and the injurious conduct alleged” as required. See
Holmes v. Sec. Inv’r Protection Corp., 503 U.S. 258, 268 (1992).
Plaintiffs similarly lack standing as to their claims against Swartz-Retson,
Batusic, and Newman. Plaintiffs’ sole allegations as to these Defendants are that
Batusic and Newman, Swartz-Retson employees, prepared and transmitted
materially deficient tax returns for Bobb Auto in 2014 and 2015, and formulated “fake
financial statements” to “disguise[ ] . . . problematic transactions.” Am. Compl. at 15,
23–28. But even if the tax returns were materially deficient and preparing and
submitting them somehow qualified as participating in the conduct of an enterprise,
Plaintiffs’ only explanation of how the Defendants’ actions are connected to Plaintiffs’
injury is that, by submitting deficient tax returns, Defendants “concealed the missing
funds, which resulted in Plaintiffs having to contribute funds to keep the entity
solvent and running.” Pls.’ Resp. Opp’n Swartz-Retson Defs.’ Mot. Dismiss at 6, ECF
No. 74. Plaintiffs have not explained, however, how inaccurate tax returns—as
opposed to, say, the many thefts that Plaintiffs allege other Defendants committed—
directly resulted in Plaintiffs being forced to inject funds into the dealership.
Plaintiffs therefore lack standing to bring a § 1962(c) claim against Swartz-Retson,
Batusic, and Newman.
19
2.
Injury Under § 1962(a) (Count II)
In Count II, Plaintiffs allege that the Schutzes, Logothetis, and New Horizons
violated § 1962(a). To bring a claim under § 1962(a), a plaintiff must plead that a
defendant: “(1) received income from a pattern of racketeering activity; (2) used or
invested that income in the operation of an enterprise; and (3) caused the injury
complained of by the use or investment of racketeering income in an enterprise.” Rao
v. BP Prods. N. Am., Inc., 589 F.3d 389, 398–99 (7th Cir. 2009) (citing Vicom, Inc., v.
Harbridge Merch. Servs., Inc., 20 F.3d 771, 778 n.6 (7th Cir.1994)). Plaintiffs alleging
violations of § 1962(a) must plead the requisite injury for a court to have subjectmatter jurisdiction over the claim. RWB Servs., 539 F.3d at 686 (citing Gagan, 77
F.3d at 958); 18 U.S.C. § 1964(c).
Plaintiffs allege that the Schutzes, Logothetis, and New Horizons used and
invested income that was derived from racketeering activity in an enterprise, in
violation of § 1962(a), when they received payments from Bobb Auto for warranties
and invested the funds they received. Am. Compl. at 34–35. But while Plaintiffs
allege generally that Defendants were enriched by such investments, they make no
allegation that the use and investment of such funds injured Plaintiffs. See Am.
Compl. at 34–35.
Instead, any alleged investment appears to occur after any
purported injury to Plaintiffs is complete. Plaintiffs therefore lack standing to bring
their claims under § 1962(a).
See RWB Servs., 539 F.3d at 686; In re Honey
Transshipping Litig., 87 F. Supp. 3d 855, 866 (N.D. Ill. 2015) (dismissing a § 1962(a)
claim in part because the plaintiffs failed to allege that they suffered an injury caused
by the use or investment of racketeering income).
20
3.
Acquiring or Maintaining Interest in an Enterprise Under
§ 1962(b) (Count III)
In Count III, Plaintiffs allege that the Schutzes, Logothetis, and New Horizons
violated § 1962(b). To plead a § 1962(b) violation, the plaintiff must allege that: (1)
the “defendants acquired or maintained an interest in an enterprise through a
pattern of racketeering activity; and (2) the plaintiff suffered an injury through the
defendants’ acquisition or maintenance of the enterprise that is separate from the
injuries that resulted from the predicate acts.” Xinos v. Kappos, 270 F. Supp. 2d 1027,
1032 (N.D. Ill. 2003) (internal citations omitted).
According to Plaintiffs, the Schutzes, Logothetis, and New Horizons acquired
and maintained an interest in the Enterprise through “fraud and as fiduciaries, with
the purpose of reacquiring the dealership,” and “deposited $130,000 of their money
into the [E]nterprise, under the guise of a loan, to acquire and maintain control over
the warranty sales,” leaving Bobb indebted $130,000 to the Defendants and out
almost $600,000 worth of revenue through warranty sales. Am. Compl. at 38–39.
But Plaintiffs fail to allege that the Schutzes, Logothetis, and New Horizons’ acquired
or maintained an interest in an enterprise, as opposed to an interest in Bobb Auto.
As Defendants point out, see Schutz Defs.’ Mem. Supp. at 13–14, Plaintiffs’
allegations support that, at most, the Schutzes, Logothetis, and New Horizons
acquired and maintained an interest in Bobb Auto through the $130,000 loan. But
according to the amended complaint, the Enterprise consists of all Defendants and
has a goal of taking over Bobb Auto.
Whether these Defendants acquired and
21
maintained an interest in Bobb Auto, then, is irrelevant to Plaintiffs’ claim under
§ 1962(b).
4.
Conspiracy (Count IV)
In Count IV, Plaintiffs allege that the Schutzes, Logothetis, New Horizons,
Georgion, Taylor, DeCanter, Batusic, and Swartz-Retson (“Count IV Defendants”)
violated § 1962(d), id. at 40.
Specifically, Plaintiffs allege that the Schutzes,
Logothetis, Georgion, and Taylor, “conspired to contractually obligate [Plaintiffs] into
accepting the $130,000.00 loan as a pretext for siphoning interest from Bobb Auto
and also to profit and have exclusive control over the lucrative warranty sales,” Am.
Compl. at 42; and that all Count IV Defendants “conspired to deprive [Plaintiffs] of
income and assets through siphoning the warranty sales, manipulating inventory to
maintain access to credit, theft, and falsifying financial statements and tax returns,”
id. at 42–43.
To plead a claim for a violation of § 1962(d), “a plaintiff must allege that (1) the
defendant agreed to maintain an interest in or control of an enterprise or to
participate in the affairs of an enterprise through a pattern of racketeering activity,
and (2) the defendant further agreed that someone would commit at least two
predicate acts to accomplish those goals.” DeGuelle v. Camilli, 664 F.3d 192, 204 (7th
Cir. 2011) (quoting Slaney v. Int’l Amateur Athletic Fed’n, 244 F.3d 580, 600 (7th Cir.
2001)). “[T]he touchstone of liability under § 1962(d) is an agreement to participate
in an endeavor which, if completed, would constitute a violation of the substantive
statute.” Id. (citing Goren v. New Vision Int’l, Inc., 156 F.3d 721, 732 (7th Cir. 1998)).
22
Plaintiffs’ failure to plead an enterprise is fatal to this claim. See Stachon v.
United Consumers Club, Inc., No. 98 C 7020, 1999 WL 971284, at *5 (N.D. Ill. Oct.
21, 1999), aff’d, 229 F.3d 673 (7th Cir. 2000) (“Because Plaintiffs establish no
enterprise, they cannot demonstrate either element of a RICO conspiracy.”);
Bachman v. Bear, Stearns & Co., 178 F.3d 930, 931 (7th Cir. 1999), holding modified
on unrelated grounds by Brouwer v. Raffensperger, Hughes & Co., 199 F.3d 961 (7th
Cir. 2000) (affirming dismissal of §§ 1962(c) and (d) claims because plaintiffs did not
adequately plead an enterprise).
What is more, even setting aside the existence of an enterprise, Plaintiffs do
not plead factual allegations suggesting an agreement among the Count IV
Defendants to conduct, invest in, or acquire or maintain interest in an enterprise
through a pattern of racketeering activity. Plaintiffs allege that the Schutzes,
Logothetis, Georgion, and Taylor, “conspired to contractually obligate [Plaintiffs] into
accepting the $130,000.00 loan as a pretext for siphoning interest from Bobb Auto
and also to profit and have exclusive control over the lucrative warranty sales.” Am.
Compl. at 42. But even if those Defendants indeed conspired to contractually obligate
Plaintiffs in that way, it is unclear how conspiring to do so would violate RICO. And,
even assuming, arguendo, that signing a contract on behalf of Bobb Auto to exchange
a $130,000 loan for the near-exclusive right to sell warranties at Bobb Auto were a
predicate act under RICO, Plaintiffs allege an agreement to commit only one
predicate act, which is insufficient under § 1962(d). See DeGuelle, 664 F.3d at 204.
As for Plaintiffs’ second allegation under § 1962(d), that all Count IV
Defendants “conspired to deprive [Plaintiffs] of income and assets through siphoning
23
the warranty sales, manipulating inventory to maintain access to credit, theft, and
falsifying financial statements and tax returns,” Am. Compl. at 42–43, Plaintiffs have
failed to plead factual allegations suggesting such an agreement by Defendants.
Instead, as discussed, Plaintiffs’ allegations suggest a series of acts that individually
benefited each Defendant, not an agreement to collectively do so. Plaintiffs therefore
have not pleaded the requisite agreement to state a claim under § 1962(d). See
DeGuelle, 664 F.3d at 204.
In sum, Plaintiffs have failed to state a claim under §§ 1962(a)–(d) (Counts I–
IV) because they have not plausibly pleaded an enterprise. They also lack standing
to bring claims under § 1962(c) (Count I) as to Swartz-Retson, Batusic, Newman, and
Gruenhagen, as well as all asserted claims under § 1962(a) (Count II), as Plaintiffs
have not pleaded that Defendants’ acts were a but-for cause of Plaintiffs’ injuries.
Finally, Plaintiffs have further failed to state a claim under §§ 1962(b) and (d)
(Counts III and IV) because they have not pleaded that Defendants acquired and
maintained an interest in an enterprise (Count III) or agreed to conduct, invest in, or
acquire or maintain interest in an enterprise through a pattern of racketeering
activity (Count IV). The Court accordingly grants Defendants’ motions to dismiss
Counts I–IV.
II.
Remaining State Law Claims
In Count VI, Plaintiffs allege that John Schutz, Logothetis, Georgion, Queen,
Taylor, DeCanter, Pilatos, and Miller committed acts of theft, conversion, and
receiving stolen property, in violation of Indiana Code §§ 35-43-4-2 and 35-43-4-2.5.
The Court has dismissed all federal causes of action, however, and there is no
24
diversity jurisdiction, contrary to Plaintiffs’ assertion, see Am. Compl. at 8, as the
parties on both sides are Illinois and Indiana citizens, see id. at 8–9. The Court
therefore dismisses the claims in Count VI without prejudice. See 28 U.S.C.
§ 1367(c)(3). To preserve judicial resources, the Court will only consider the statelaw claims in the event that Plaintiffs replead the state-law claims in conjunction
with a properly pleaded federal claim.
Conclusion
For the reasons stated herein, Defendants’ motions to dismiss [43] [87] [88] [90]
[92] [95] [100] are granted. Plaintiffs’ amended complaint is dismissed. If Plaintiffs
wish to file a second amended complaint that is consistent with this Memorandum
Opinion and Order and compliant with their obligations under Fed. R. Civ. P. 11, they
must do so by October 12, 2018. Failure to do so will result in a dismissal of Counts
I through IV with prejudice, as well as dismissal of Count VI without prejudice.
Finally, Defendant Michael Fresso is dismissed as a defendant in the case.
IT IS SO ORDERED.
ENTERED 9/14/18
__________________________________
John Z. Lee
United States District Judge
25
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