Walgreen Co. v Peters

Filing 613

ORDER. Walgreen Co.'s motion to dismiss L2 Partners, LLC's counterclaims 456 is granted as to Counts IV and V and denied as to Counts I, II, and III. Noble and Martinez's motion to dismiss L2 Partners, LLC's counterclaims [45 8], Flores and Cardinal's motion to dismiss L2 Partners, LLC's counterclaims 481 , and Swanson and Swanson Development Group LLC's motion to dismiss L2 Partners, LLC's counterclaims 491 are denied as to Counts I, II, and III; b ecause the Court granted Walgreens' motion to dismiss Count V, it did not reach the additional arguments presented by these defendants concerning Counts V. Shtulman and STREAM's motion to dismiss 488 is granted as to Counts I, II, and III . L2 has until March 31, 2025, to file an amended counterclaim consistent with this order. L2 may not add new substantive counterclaims; however, it may amend its existing claims to address any pleading deficiencies identified in this order. The rema ining Counterclaim Defendants have until April 21, 2025, to respond to any amended counterclaims or, if no amendment is filed, answer the existing counterclaims. Signed by the Honorable Jeremy C. Daniel on 3/10/2025. Mailed notice. (vcf, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
WALGREEN CO.,
Plaintiff

No. 21-cv-02522

v.

Judge Jeremy C. Daniel

AARON PETERS et al.,
Defendants
ORDER

Walgreen Co.’s motion to dismiss L2 Partners, LLC’s counterclaims [456] is granted
as to Counts IV and V and denied as to Counts I, II, and III. Noble and Martinez’s
motion to dismiss L2 Partners, LLC’s counterclaims [458], Flores and Cardinal’s
motion to dismiss L2 Partners, LLC’s counterclaims [481], and Swanson and
Swanson Development Group LLC’s motion to dismiss L2 Partners, LLC’s
counterclaims [491] are denied as to Counts I, II, and III; because the Court granted
Walgreens’ motion to dismiss Count V, it did not reach the additional arguments
presented by these defendants concerning Counts V. Shtulman and STREAM’s
motion to dismiss [488] is granted as to Counts I, II, and III. L2 has until March 31,
2025, to file an amended counterclaim consistent with this order. L2 may not add new
substantive counterclaims; however, it may amend its existing claims to address any
pleading deficiencies identified in this order. The remaining Counterclaim
Defendants have until April 21, 2025, to respond to any amended counterclaims or,
if no amendment is filed, answer the existing counterclaims.
STATEMENT
Legal standard. The Court applies the same standard to a Rule 12(b)(6) motion to
dismiss a counterclaim as it does on a motion to dismiss a complaint for failure to
state a claim. See Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250 F.3d 570,
574 (7th Cir. 2001). To survive a Rule 12(b)(6) motion to dismiss, a pleading must
“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A
counterclaim satisfies this standard when its factual allegations “raise a right to
relief above the speculative level.” See Twombly, 550 U.S. at 555–56 (citations
omitted). When deciding a motion to dismiss under Rule 12(b)(6), the court takes all
facts alleged by the pleader as true and draws all reasonable inferences from those
facts in the pleader’s favor, although conclusory allegations that merely recite the

elements of a claim are not entitled to this presumption of truth. Katz-Crank v.
Haskett, 843 F.3d 641, 646 (7th Cir. 2016).
Civil RICO. L2 Partners, LLC filed counterclaims under 18 U.S.C. § 1962(c) and
1962(d) against Walgreen Co., Christopher Noble, Haidee Martinez, Steven M.
Swanson II, Swanson Development Group LLC, Yvette Flores, Cardinal Green
Investments LLC, Jordan Shtulman, and STREAM Capital Partners, LLC
(collectively, the “Counterclaim Defendants”). According to L2, the Counterclaim
Defendants formed an enterprise that unlawfully manipulated the market for
Walgreens-leased properties through Walgreens’ Shared Savings Program. L2
alleges four types of predicate acts: commercial bribery in violation 720 ILCS 5/29A1; honest services fraud in violation of 18 U.S.C. § 1346; mail fraud in violation of 18
U.S.C. § 1341; and wire fraud in violation of 18 U.S.C. § 1343.
Generally, L2 alleges that: Walgreens, Noble and Martinez misled existing landlords
of Walgreens-leased stores to believe that stores were not performing well, which
caused landlords to sell properties for less than market value; Swanson, Swanson
Development, Flores, and Cardinal arranged to purchase properties from misled
landlords for less than market value; after purchase, Walgreens, Noble, and
Martinez, along with Swanson, Swanson Development, Flores, and Cardinal
increased the value of the lease, which increased the value of properties before selling
them at a profit; Swanson, Swanson Development, Flores, and Cardinal “kicked back”
a significant portion of the profit to Walgreens, with Noble and Martinez receiving
bonuses tied to the revenue generated by the scheme; and Shtulman and STREAM
brokered many of these transactions. Each Counterclaim Defendant has moved to
dismiss L2’s Civil RICO claims.
Standing. “RICO provides a private cause of action for ‘[a]ny person injured in his
business or property by reason of a violation of section 1962 of this chapter.’” Hemi
Grp., LLC v. City of New York, N.Y., 559 U.S. 1, 6 (2010) (quoting 18 U.S.C. § 1964(c)).
Here, L2 alleges harm in two forms: “lost profit on [L2’s] sale of Walgreens properties
to entities owned or controlled by . . . Walgreens, Swanson, Swanson Development,
Flores, or Cardinal; [and] lost opportunities to purchase Walgreens-leased properties
at fair market value.” (R. 440 at 119.)
As to the former, L2 alleges that it “has been directly deprived of the fair market
value of one or more of its Walgreens-leased properties, where L2 Partners was
owning and/or managing the property and Walgreens sent a ‘poor performance’ letter,
forcing the owner to sell the property . . . below fair market value in reliance on
Walgreen’s representations that the store was not performing up to par, could not
afford its current rent, and was potentially at risk of being shuttered.” (R. 440 at 118.)
According to L2, one such instance involved a property in El Paso, Texas. (Id.)
Reading paragraphs 68 through 76 of L2’s counterclaim in conjunction with
paragraph 137, L2 alleges that it either owned or managed the El Paso property until
a poor performance letter caused the owner to sell for less than market value. (See id.
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at 103-5 and 118.) This allegation is sufficient to establish standing as the poor
performance letter allegedly misled the owner of the El Paso store, which caused L2
to lose whatever interest it had in the ownership or management of the store.
The same is not true for L2’s alleged “lost opportunities” harm. “To state a claim
under civil RICO, the plaintiff is required to show that a RICO predicate offense ‘not
only was a ‘but for’ cause of his injury, but was the proximate cause as well.’” Hemi
Grp., 559 U.S. at 9. There has to be “some direct relation between the injury asserted
and the injurious conduct alleged,” and that link cannot be “too remote,” “purely
contingent,” or “indirect.” Id. As a threshold matter, this alleged harm is inherently
speculative as it depends on several variables, e.g. whether a store would have been
listed for sale, whether it would have been in a market L2 was interested in, whether
the price would have been one L2 would have been willing to pay, whether L2 would
have had the necessary funding to purchase the property, etc., which render any
alleged harm uncertain. Further, given all these unknown variables, this alleged
harm is too far removed from the alleged predicate offenses. See, e.g., id. at 10
(“Because the City’s theory of causation requires us to move well beyond the first step,
that theory cannot meet RICO’s direct relationship requirement.”).
Predicate acts. The counterclaim includes four types of predicate acts. Under 720
ILCS 5/29A-1, “[a] person commits commercial bribery when he confers, or offers or
agrees to confer, any benefit upon any employee, agent or fiduciary without the
consent of the latter’s employer or principal, with intent to influence his conduct in
relation to his employer’s or principal’s affairs.” L2’s allegations fail to state a
violation of this statute. The counterclaim alleges that Walgreens accepted a bribe
from Swanson, Flores, and their respective organizations without the consent of
Walgreens’ board of directors. (R. 440 at 112-113.) But L2 does nothing to show that
Walgreens is “an employee, agent, or fiduciary” of Walgreen’s board of directors. In
other words, it has failed to allege an element of the offense.
In its brief, L2 takes a broad view of its commercial bribery allegations. (See, e.g., R.
493 at 13 “Instead, the Counterclaim alleges multiple forms of bribery used to get
everyone to buy in to the Enterprise.”). But nowhere does the counterclaim
sufficiently allege a violation of the statute. Swanson is the managing partner of
Swanson Development. It is hard to imagine how any payment from Walgreens to
Swanson occurred without the consent of Swanson’s employer or principal. The same
is true for Flores, who was the principal of Cardinal. The counterclaim alleges that
Noble and Martinez worked for Walgreens. It also alleges that Walgreens was in on
the scheme, which means that Noble and Martinez acted with Walgreens’ consent.
As such, L2’s commercial bribery allegations fail.
The counterclaim also alleges honest services fraud based on the alleged bribery or
kickback scheme. Given the preceding paragraphs, the Court will focus on the alleged
kickback scheme. The allegations describe the SSP and how the profits from the SSP
flowed to the Counterclaim Defendants. According to the counterclaim, Swanson and
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Flores returned, i.e. kicked back, a portion of proceeds from flipped properties to
Walgreens. L2 further alleges that the increased rents, which inflated the values of
the flipped properties, were to the detriment of Walgreens’ board of directors and
shareholders. At this stage in the case, the Court must make all reasonable inferences
in L2’s favor. One could reasonably infer that, through the SSP, the Counterclaim
Defendants locked Walgreens into long-term, unfavorable leases to increase short
term profits to the detriment of shareholders. Given this inference, L2 has alleged a
kickback scheme that supports an honest services fraud allegation. In other words,
L2 has alleged honest services fraud as a predicate act.
The same is true for mail and wire fraud. A key part of L2’s allegations concern
misrepresentations about store performance. According to the counterclaim, these
misrepresentations set in motion a series of events that led to landlords selling
properties below market value. L2 has alleged mail and wire fraud as predicate acts.
Counterclaim Defendants Noble and Martinez argue that the counterclaim does not
allege that they themselves committed any predicate acts. This argument fails to
appreciate that mail fraud and wire fraud are schemes that do not require
participants to personally send or cause to be sent the mailing or wire at issue. See,
e.g., United States v. Giovenco, 773 F.3d 866, 869 (7th Cir. 2014) (“a mail fraud
conviction does not require proof that a defendant personally mailed the letters at
issue”); see also United States v. Chanu, 40 F.4th 528, 539 (7th Cir. 2022) (“To convict
on wire fraud, the government must prove three elements: ‘(1) the defendant
participated in a scheme to defraud; (2) the defendant intended to defraud; and (3) a
use of an interstate wire in furtherance of the fraudulent scheme.’”). The counterclaim
sufficiently alleges that Noble and Martinez were part of the SSP, which the
counterclaim alleges was the scheme to defraud. This overcomes Noble and
Martinez’s argument.
Counterclaim Defendants Flores and Cardinal, as well as Swanson and Swanson
Development Group LLC, make similar arguments. But, like mail and wire fraud,
honest services fraud “includes a scheme or artifice to deprive another of the
intangible right of honest services.” By alleging that these Counterclaim Defendants
were participants in the scheme to deprive Walgreens’ Board of Directors and
shareholders of honest services, which allegedly involved kickbacks on multiple
properties, L2 has alleged that Flores, Cardinal, Swanson, and Swanson
Development each committed at least two predicate acts.
Counterclaim Defendants Shtulman and STREAM are in a different position. L2
alleges that Shtulman and STREAM were preferred brokers who took a commission
on sales of properties purchased below market value and then sold at a higher price
based on increased rent terms. (R. 440 at 90.) The counterclaim notes that STREAM
“employs the family member of at least one former Walgreens’ employee” and
“Shtulman and STREAM are likewise part of and benefit from the Enterprise.” (Id.
at 96.) Nowhere does the counterclaim explain the significance of the former or
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provide more than a conclusory assertion on the latter. Nowhere does the
counterclaim allege that Shtulman or STREAM knew about the SSP or the inflated
prices. Absent allegations that Shtulman or STREAM knew about the fraud, the
counterclaim fails to allege an essential element—that Shtulman or STREAM
intended to defraud. Therefore, Counts I and II are dismissed as to Shtulman or
STREAM.
Pattern. L2 has alleged a pattern of racketeering activity. The counterclaim alleges
a series of predicate acts spanning a substantial period of time. Specifically, the
counterclaim alleges that the SSP started in or around 2019 and continued through
at least December 2021. The counterclaim further alleges that throughout that period
the Counterclaim Defendants misled landlords to purchase Walgreens-leased stores
at below market value, inflated the value of those stores through revised leases, and
then sold those properties, which generated kickbacks for the Counterclaim
Defendants.
For the foregoing reasons, the Court finds that L2 has stated a Civil RICO claim for
lost profits tied to properties owned or operated by L2 against all Counterclaim
Defendants other than Shtulman and STREAM.
RICO conspiracy. The Counterclaim Defendants’ motion to dismiss the RICO
conspiracy counterclaim is denied. As discussed above, L2 has sufficiently alleged a
pattern of racketeering activity. Further, it is not hard to infer that the Counterclaim
Defendants’ alleged participation in the enterprise and various predicate acts evinces
their agreement to participate in the unlawful endeavor.
Tortious interference. The motions to dismiss the tortious interference counter claim
filed by Walgreens, Noble, Martinez, Swanson, Swanson Development, Flores, and
Cardinal are denied. “To state a claim under Illinois law for intentional interference
with prospective economic advantage ‘a plaintiff must allege (1) a reasonable
expectancy of entering into a valid business relationship, (2) the defendant’s
knowledge of the expectancy, (3) an intentional and unjustified interference by the
defendant that induced or caused a breach or termination of the expectancy, and (4)
damage to the plaintiff resulting from the defendant’s interference.’” Foster v.
Principal Life Ins. Co., 806 F.3d 967, 971 (7th Cir. 2015). Here, L2 alleges that it had
relationships with several landlords of Walgreens-leased stores, that it expected to
enter real estate transactions based on those relationships, that most of the
Counterclaim Defendants knew about those relationships, and that these
Counterclaim Defendants interfered with those relationships and expected
transactions to L2’s detriment.
As with L2’s fraud allegations with respect to Shtulman and STREAM, however, L2’s
tortious interference claim as to these defendants also fall short. Nothing in the
counterclaim suggests an intentional and unjustified interference by Shtulman or
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STREAM. These defendants earned commissions on property transactions.
Therefore, Count III is dismissed as to Shtulman and STREAM.
Illinois Consumer Fraud Act. The Counterclaim Defendants’ motion to dismiss the
Illinois Consumer Fraud Act counterclaim is granted. “[A] plaintiff may pursue a
private cause of action under the Consumer Fraud Act if the circumstances that
relate to the disputed transaction occur primarily and substantially in Illinois.” Avery
v. State Farm Mut. Auto. Ins. Co., 216 Ill. 2d 100, 187, 835 N.E.2d 801, 853–54 (2005).
L2 argues that the “SSP scheme was organized, conducted, and executed from Illinois
and directed, at least in part, to market participants in Illinois.” This is one factor
relevant to whether L2 may pursue its ICFA counterclaim. See id. (“We agree with
the appellate court that the place where a company policy is created or where a form
document is drafted may be a relevant factor to consider in determining the location
of a consumer transaction.”). But it is not enough on its own. Id. at 189 (“The appellate
court’s conclusion that a scheme to defraud was “disseminated” from [Illinois] is
insufficient.”). Here, many of the properties at issue were outside Illinois, and the
individuals allegedly deceived by the Poor Performance Letters were outside Illinois.
Further, L2 has not alleged a nexus between the Counterclaim Defendants alleged
conduct and Illinois consumers. “[A] business plaintiff under the ICFA must show a
‘nexus between the complained of conduct and consumer protection concerns.” Cmty.
Bank of Trenton v. Schnuck Markets, Inc., 887 F.3d 803, 823 (7th Cir. 2018); see also
Sabrina Roppo v. Travelers Com. Ins. Co., 869 F.3d 568, 595 (7th Cir. 2017)(“the state
courts have held [the IFCA] applies to consumer transactions or those having a
consumer nexus”). While L2 argues that landlords of Walgreens-leased properties
were harmed by the Counterclaim Defendants, (R. 493 at 36), nothing in the
counterclaim points to consumer protection concerns within the meaning of the IFCA.
Therefore, L2 has failed to state a claim under the ICFA.
Illinois Uniform Deceptive Trade Practices Act. L2 alleges that the Counterclaim
Defendants caused a likelihood of confusion as to the source, sponsorship, approval,
or certification of goods or services under 815 ILCS 510/2(2), caused a likelihood of
confusion or of misunderstanding as to affiliation, connection, or association with or
certification by another under 815 ILCS 510/2(3), and disparaged the goods, services,
or business of another by false or misleading representations of fact under 815 ILCS
510/2(8). The parties agree that, like the ICFA, the disputed transaction in a claim
under the IUDTPA must occur primarily and substantially in Illinois. The
transactions that give rise to L2’s IUDTPA claim are the same as those that give rise
to L2’s ICFA claim. As a result, L2’s IUDTPA must meet the same fate. L2 cannot
pursue its IUDTPA because the disputed transactions did not primarily and
substantially occur in Illinois.
Statute of limitations. Counterclaim Defendants Noble, Martinez, Flores, and
Cardinal argued that L2’s RICO counterclaims are time-barred. “[B]ecause
affirmative defenses frequently ‘turn on facts not before the court at [the pleading]
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stage,’ dismissal is appropriate only when the factual allegations in the complaint
unambiguously establish all the elements of the defense.” Hyson USA, Inc. v. Hyson
2U, Ltd., 821 F.3d 935, 939 (7th Cir. 2016) (citations omitted). According to Noble and
Martinez, L2 alleged that it learned of the SSP in 2019. (R. 459 at 5-6.) But, as L2
argues, the allegations do not show that L2 learned about all aspects of the SSP.
While paragraphs 64 and 65 of the counterclaim indicate that Walgreens told L2
something about the “kickback scheme at the heart of the flipped sale,” there is no
indication in the counterclaim that L2 knew about the poor performance letters that
allegedly drove the scheme. Further, Noble and Martinez fail to address when L2
learned of its injury. “A plaintiff does not need to know that his injury is actionable
to trigger the statute of limitations—the focus is on the discovery of the harm itself,
not the discovery of the elements that make up a claim.” Cancer Found., Inc. v.
Cerberus Cap. Mgmt., LP, 559 F.3d 671, 674–75 (7th Cir. 2009). For these reasons,
the motions to dismiss the RICO claims as time-barred are denied.

Date: March 10, 2025

JEREMY C. DANIEL
United States District Judge

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