A Communication Company, Inc. v. Bonutti et al

Filing 64

MEMORANDUM AND ORDER, The Court GRANTS in part and DENIES in part Defendants motion to dismiss (Doc. 16 ). Signed by Judge J. Phil Gilbert on 7/16/2014. (jdh)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
A COMMUNICATION COMPANY, INC.,
doing business as Acom Healthcare,
Plaintiff,
vs.

Case No. 13-cv-1193-JPG-SCW

PETER M. BONUTTI, BORIS P. BONUTTI,
DEAN A. KREMER and UNITY
ULTRASONIC FIXATION, LLC,
Defendants.

MEMORANDUM AND ORDER
This matter comes before the Court on the motion to dismiss (Doc. 16) of defendants
Peter M. Bonutti (“Peter”), Boris P. Bonutti (“Boris”), Dean A. Kremer (“Kremer”), and Unity
Ultrasonic Fixation, LLC (“Unity”) (collectively “Defendants”). Plaintiff A Communication
Company, Inc. (“Acom”) filed its response (Doc. 26) to which Defendants replied (Doc. 27).
For the following reasons, the Court grants in part and denies in part the motion to dismiss.
1. Background
Taking as true all facts alleged in the complaint, the following are the relevant facts.
Peter invents, develops, patents, and markets medical technologies and devices through several
companies of which he is the majority owner. Peter’s brother, Boris, serves as the Chief
Operating Officer and Kremer serves as the Chief Financial Officer for several of these
companies. In the late 1990’s Peter hired Acom to provide marketing and communication
services for his various companies. Acom’s services included: (1) determining Peter’s medical
technologies and devices most likely to succeed in the healthcare market; (2) identifying and
marketing to companies likely to be interested in Peter’s medical technologies and devices; (3)

facilitating contacts of companies interested in Peter’s medical technologies and devices; and (4)
branding select medical technologies and devices.
After a review of Peter’s various medical technologies and devices, Acom advised Peter
to develop his patent for ultrasonic fixation technology, a method for closing or sealing surgical
sutures. Peter took Acom’s advice and created a new company to develop and market the
ultrasonic fixation technology. The following represents the parties’ agreed upon respective
interests in the new company: 62 percent for Peter; 11.6 percent for Boris; 2 percent for Kremer;
17.4 for Avon Equity Holdings, LLC (“Avon”)1; and 7 percent for Acom. These agreed upon
interests were memorialized in a document entitled “General Terms of Understanding, 10/25/02”
and in a Consultant Agreement between William F. Shea, LLC, and Bonutti Research, Inc.2
Acom proceeded to create the new company’s name, Unity Ultrasonic Fixation, and logo. In
July 2002, the parties created Unity with their agreed upon ownership interests.
From 2002 to 2006, Acom identified and marketed to companies with a potential interest
in the ultrasonic fixation technology. One such company with which Acom negotiated was
Synthes USA (“Synthes”), a company which ultimately consummated a financially significant
transaction with Unity on April 16, 2008. This transaction included an initial payment of $5
million from Synthes to Unity and additional payments for reimbursement of development costs.
Future payments from this transaction may potentially result in tens or hundreds of millions of
dollars when Synthes takes Unity’s product to market. Acom was not compensated for this
transaction.
In 2007, after Synthes expressed its interest in the ultrasonic fixation technology, Boris
terminated the business relationship with Acom. Boris discharged Acom from its work with

1

William Shea owned Avon Equity Holding, LLC. Shea through his company, William F. Shea, LLC, provided
consulting and advisory services to Peter’s companies.
2
Bonutti Research, Inc., is a company of which Peter is a majority owner.

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Joint Active Systems, Inc. (“JAS”), a company of which Peter was a majority owner, and asked
Acom to turn over the artwork for JAS and Unity. Thereafter, there were no business dealings
between Acom and Peter or any of Peter’s companies.
A document dated January 15, 2008, entitled “Action by a Majority of the Membership
Interest of Unity Ultrasonic Fixation,” acknowledged Acom’s 7 percent interest in Unity and
declared that at the end of 2006 Unity had “permitted” Acom’s interest “to be purchased by and
issued to Dr. Peter Bonutti in exchange for their net book value, which was $1.” The document
further declared that (1) “at the beginning of 2007” Acom no longer had an ownership interest in
Unity, and (2) Peter’s interest in Unity increased from 62 percent to 69 percent. By September
2009, millions of dollars were paid out of Unity, none of which was paid out to Acom or Avon.
Unity’s members failed to inform Acom of the purported termination or any reduction in
Acom’s interest. In fact, Acom did not learn of its termination and Peter’s acquisition of Acom’s
interest until 2013. Defendants furthered their scheme to deprive Acom of its interest by
transferring Synthes’ money out Unity in various ways, including: (1) paying excessive
distributions to or on behalf of Peter and paying nothing to Acom or Avon; (2) paying or
reporting excessive illegitimate expenses; and (3) making or approving excessive payments to
Peter for his preferred equity for loans made by him or on his behalf.
Acom filed the instant seven-count complaint alleging as follows: (1) Count One –
Breach of Fiduciary Duty/Fraud; (2) Count Two – Conversion; (3) Count Three – Aiding and
Abetting; (4) Count Four – Civil Conspiracy; (5) Count Five – Declaratory Judgment – Invalidity
of Purported Operating Agreement; (6) Count Six – Declaratory Judgment – Inspection of Books
and Records; and (7) Count Seven – Action for Accounting. Defendants filed their motion to
dismiss arguing that (1) Counts Five and Six, entitled “declaratory judgment – invalidity of

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purported operating agreement” and “declaratory judgment – inspection of books and records”
do not present judiciable controversies; (2) Count Two fails to state a claim for conversion; (3)
Counts Three and Four, aiding and abetting and conspiracy claims, are duplicative of the breach
of fiduciary duty claim; (4) Count One, the breach of fiduciary duty claim, fails, to the extent it
relies on distributions made more than three years before filing this lawsuit, because of
Delaware’s statute of repose; and (4) Acom is not entitled to relief under the Illinois Business
Corporations Act or the Illinois Limited Liability Company Act. In its response, Acom
withdraws Count Five, Count Six and its request that it have access to all of Defendants’ books,
records and accounts of Unity. Acom objects to the remainder of Defendants’ motion to dismiss.
The Court will address the contested portions of the motion to dismiss in turn.
2. Analysis
When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all
allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to
state a claim, a complaint must contain a “short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This requirement is satisfied if the
complaint (1) describes the claim in sufficient detail to give the defendant fair notice of what the
claim is and the grounds upon which it rests and (2) plausibly suggests that the plaintiff has a
right to relief above a speculative level. Bell Atl., 550 U.S. at 555; see Ashcroft v. Iqbal, 129 S.
Ct. 1937, 1949 (2009); EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 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.” Iqbal, 129
S. Ct. at 1949 (citing Bell Atl., 550 U.S. at 556).

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In Bell Atlantic, the Supreme Court rejected the more expansive interpretation of Rule
8(a)(2) that “a complaint should not be dismissed for failure to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in support of his claim which would
entitle him to relief,” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Bell Atlantic, 550 U.S. at
561–63; Concentra Health Servs., 496 F.3d at 777. Now “it is not enough for a complaint to
avoid foreclosing possible bases for relief; it must actually suggest that the plaintiff has a right to
relief . . . by providing allegations that ‘raise a right to relief above the speculative level.’”
Concentra Health Servs., 496 F.3d at 777 (quoting Bell Atl., 550 U.S. at 555).
Nevertheless, Bell Atlantic did not do away with the liberal federal notice pleading
standard. Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir.
2007). A complaint still need not contain detailed factual allegations, Bell Atl., 550 U.S. at 555,
and it remains true that “[a]ny district judge (for that matter, any defendant) tempted to write
‘this complaint is deficient because it does not contain . . .’ should stop and think: What rule of
law requires a complaint to contain that allegation?” Doe v. Smith, 429 F.3d 706, 708 (7th Cir.
2005) (emphasis in original). Nevertheless, a complaint must contain “more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell
Atl., 550 U.S. at 555. If the factual detail of a complaint is “so sketchy that the complaint does
not provide the type of notice of the claim to which the defendant is entitled under Rule 8,” it is
subject to dismissal. Airborne Beepers, 499 F.3d at 667. With these standards in mind, the
Court will first address Acom’s conversion claim.
a. Count Two – Conversion Claim
In Count Two, Acom alleges a conversion claim against defendants Peter, Boris, and
Kremer (collectively “the Individual Defendants”). Acom alleges the Individual Defendants

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converted Acom’s 7% ownership interest in Unity and share of member distributions.
Defendants argue that the property at issue is not subject to conversion under the law and
Acom’s conversion claim must be dismissed. In response, Acom argues that the ownership
interest is connected to the contract, a tangible document, and thus the conversion claim is
appropriate.
Under Illinois law, a plaintiff must allege the following to state a claim for conversion:
“(1) a right to the property; (2) an absolute and unconditional right to the immediate possession
of the property; (3) a demand for possession; and (4) that the defendant wrongfully and without
authorization assumed control, dominion, or ownership over the property.” Van Diest Supply
Co. v. Shelby Cnty. State Bank, 425 F.3d 437, 439 (7th Cir. 2005) (citing Cirrincione v. Johnson,
703 N.E.2d 67, 70 (Ill. 1998)). “Illinois courts do not recognize an action for conversion of
intangible rights.” American Nat. Ins. Co. v. Citibank, N.A., 543 F.3d 907, 910 (7th Cir. 2008)
(citing Janes v. First Fed. Sav. & Loan Ass’n, 397 N.E. 2d 255, 260 (Ill. App. Ct. 1973)).
However, intangible property rights may be the subject of a conversion claim when they are
connected “to a tangible document, such as ‘promissory notes, bonds, bills of exchange, share
certificates, and warehouse receipts.’” Joe Hand Promotions, Inc. v. Lynch, 822 F. Supp. 2d
803, 808 (N.D. Ill. 2011) (quoting The Film & Tape Works, Inc. v. Junetwenty Films, Inc., 856
N.E.2d 612, 624 (Ill. App. Ct. 2006)). As an Illinois appellate court explained “[t]hese
documents all share in common the fact that they are tangible documents containing intangible
rights which are easily convertible into tangible assets, not dissimilar to currency.” Film & Tape
Works, 856 N.E.2d at 624.
The Northern District of Illinois examined the tangible requirement in Joe Hand
Promotions, Inc. v. Lynch. The plaintiff alleged the defendant had broadcast a boxing match

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without authorization and thus converted the plaintiff’s exclusive right to broadcast the boxing
match. 822 F. Supp. 2d at 808. The court concluded that plaintiff could not maintain its
conversion claim, noting that plaintiff “cannot directly convert its exclusive right to cash, as with
a promissory note or bond.” Id.
Here, Acom has failed to properly allege a conversion claim under Illinois law. While
an ownership interest or share of distributions in a limited liability corporation is undoubtedly
valuable personal property, it is not tangible personal property. Unlike promissory notes or share
certificates, an ownership interest or share in membership distributions is not intangible property
that can be directly converted into cash. Rather, Acom’s interest is similar to the exclusive right
to broadcast a boxing match examined in Joe Hand. Acom’s alleged interest is undoubtedly
valuable; however, it cannot be directly converted into cash. As such, pursuant to Illinois law,
Acom cannot maintain a claim for the conversion of its ownership interest in Unity, and the
Court dismisses Acom’s conversion claim.
b. Counts Three and Four – Aiding and Abetting and Conspiracy Claims
In Counts Three and Four, Acom alleges that each of the Individual Defendants aided and
abetted in the breaches of fiduciary duty of the other Individual Defendants and conspired to
convert Acom’s property. Defendants argue these claims are duplicative of Acom’s breach of
fiduciary duty claim and must be dismissed. In response, Acom argues that the aiding and
abetting and conspiracy claims are based on facts different than the breach of fiduciary duty
claim and should not be dismissed.
The Court has already determined that Acom has failed to plead a conversion claim. For
the same reasons, Acom has necessarily failed to plead a conspiracy to commit conversion claim.
Accordingly, the Court dismisses the civil conspiracy claim contained in Count Four.

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Next, the Court will address Acom’s aiding and abetting claim in Count Three. There is
no separate tort of aiding and abetting. E. Trading Co. v. Refco, 229 F.3d 617, 623 (7th Cir.
2000). Rather, one who aids and abets in a tort is guilty of the tort itself. See id. In the fraud
context, the Seventh Circuit explained
[t]here is nothing to be gained by multiplying the number of torts, and specifically
by allowing a tort of aiding and abetting a fraud to emerge by mitosis from the
tort of fraud, since it is apparent that one who aids and abets a fraud, in the sense
of assisting the fraud and wanting it to succeed, is himself guilty of fraud,
McClellan v. Cantrell, 217 F.3d 890, 894-95 (7th Cir. 2000); Cenco, Inc. v.
Seidman & Seidman, 686 F.2d 449, 452-53 (7th Cir. 1982), in just the same way
that the criminal law treats an aider and abettor as a principal. Law should be
kept as simple as possible. One who aids and abets a fraud is guilty of the tort of
fraud (sometimes called deceit); nothing is added by saying that he is guilty of the
tort of aiding and abetting as well or instead.
E. Trading Co., 229 F.3d at 623-24.
Here, the aiding and abetting claim is not duplicative of the breach of fiduciary duty
claim in the event that one member owed a fiduciary duty and another did not owe a fiduciary
duty. If the jury were determine that one of the Individual Defendants did not owe a fiduciary
duty, the jury could potentially impose liability under an aiding and abetting theory. As such, the
Court will not dismiss Count Three; however, it does note that aiding and abetting is not a
separate tort and will only be applicable if one of the Individual Defendants is not a fiduciary.
Accordingly, the Court denies Defendants’ motion to dismiss Count Three and grants
Defendants’ motion to dismiss Count Four.
c. Time-Barred Distributions
Next, Defendants argue that Acom’s breach of fiduciary duty claim must be dismissed to
the extent it seeks time-barred distributions. Specifically, Defendants argue that, because this
case was filed in Illinois, Illinois choice-of-law principles apply. See CDX Liquidating Trust v.
Venrock Assoc., 640 F.3d 209, 212 (7th Cir. 2011). Illinois employs the
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“internal affairs” doctrine – “a conflict of laws principle which recognizes that
only one State should have the authority to regulate a corporation’s internal affairs
– matters peculiar to the relationships among or between the corporation and its
current officers, directors, and shareholders – because otherwise a corporation
could be faced with conflicting demands.”
Id. (quoting Edgar v. MITE Corp., 457 U.S. 624, 645 (1982)). As such, Illinois choice-of-law
principles “make[] the law applicable to a suit against a director for breach of fiduciary duty that
of the state of incorporation.” CDX Liquidating Trust, 640 F.3d at 212. Therefore, Defendants
reason that Delaware law applies in the instant case.
Defendants cite to the following Delaware law:
a member who receives a distribution from a limited liability company shall have
no liability under this chapter or other applicable law for the amount of the
distribution after the expiration of 3 years from the date of the distribution unless
an action to recover the distribution from such member is commenced prior to the
expiration of the said 3-year period and an adjudication of liability against such
member is made in the said action.
Del. Cod. Ann. tit. 6, § 18-607(c). Based on this statute, Defendants argue Acom’s breach of
fiduciary duty claim is barred to the extent its claims are based on distributions paid out more
than three years prior to the filing of the instant case. Acom, however, argues that this statute
only applies to actions between a limited liability company and its member to recover a
distribution.
When interpreting a state’s statute, a federal court must employ that state’s statutory
construction principles. See Brownsburg Area Patrons Affecting Change v. Baldwin, 137 F.3d
503, 507 (7th Cir. 1998). The primary rule of statutory construction requires the court to
ascertain and effectuate the legislature’s intent. In re Adoption of Swanson, 623 A.2d 1095, 1096
(Del. 1993). Where a statute “is unambiguous and there is no reasonable doubt as to the

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meanings of the words used, the court’s role is limited to an application of the literal meaning of
those words.” Id. at 1096-97.
It is instructive to look at the specific words employed by the legislature in Delaware’s
statute. Subsection (c) specifically references “an action to recover the distribution” against a
member. Black’s Law Dictionary defines the word “recover” in the following ways: (1) “[t]o get
back or regain in full or in equivalence”; (2) “[t]o obtain by a judgment or other legal process”;
(3) “[t]o obtain (a judgment) in one’s favor”; or (4) “[t]o obtain damages or other relief; to
succeed in a lawsuit or other legal proceeding.” Black’s Law Dictionary 1302 (8th ed. 2004).
Definition one refers to recovering a specific item. Definitions two through four refer to a legal
recovery, such as obtaining a judgment or damages. Here, the first definition is applicable
because the statute refers to recovering a specific item – the distributions to the member in
violation of the statute. Only the limited liability could “get back or regain in full” the
distribution. The member never had the distribution and thus could not make a claim to “get
back or regain in full” the distribution. As such, the accepted meaning of the word “recover” in
section 18-607(c) indicates this section applies to causes of action between a limited liability
company and a member.
When the Court reads subsection (c) in context and views it in its place in the statutory
scheme, the Court is further convinced that Delaware’s legislature intended subsection (c) to
modify the liability set forth in subsection (a) and (b) of Section 18-607. Under statutory
construction principles, “words of a statute must be read in their context and with a view to their
place in the overall statutory scheme.” Nat’l Ass’n of Home Builders v. Defenders of Wildlife,
551 U.S. 644, 666 (2007). Section 18-607 contains three subsections and sets forth limitations
on distributions from a limited liability company to a member. Subsection (a) explains that a

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limited liability company cannot make a distribution when “at the time of distribution . . . all
liabilities of the limited liability company . . . exceed the fair value of the assets of the limited
liability company . . . .” Del. Cod. Ann. tit. 6, § 18-607(a). Section (b) explains that any
member who receives a distribution knowing that the distribution was in violation of subsection
(a) shall be liable to the limited liability company for the amount of the distribution. Del. Cod.
Ann. tit. 6, § 18-607(b). Section (b) further explains that where the member does not know the
distribution was made in violation of subsection (a) the member is not liable for the amount of
the distribution. Id. Subsection (c) sets forth the statute of repose stating that “a member who
receives a distribution from a limited liability company shall have no liability under this chapter
or other applicable law for the amount of the distribution after the expiration of 3 years from the
date of the distribution . . . .” Del. Cod. Ann. tit. 6, § 18-607(c).
Considering the context and topics addressed in subsections (a) and (b), section 18-607 as
a whole is meant to address distributions made from a limited liability company to a member
while the limited liability company is insolvent. It was not intended to address all possible
causes of action against a member of the limited liability company. Thus, based on subsection
(c)’s preceding subsections, the context makes it clear that subsection (c) limits the liability
between the member and the limited liability company seeking to recover a distribution made in
violation of subsection (a). Finally, Defendants have cited to no authority supporting their
expansive reading of section 18-607(c). Accordingly, if the Court were to find Delaware law
was applicable law in this case, section 18-607(c) would not bar Acom’s breach of fiduciary duty
claim.
Illinois’ law similarly places limits on distributions where the distribution would make
the limited liability company insolvent. 805 ILCS 180/25-30. Illinois law, like the preceding

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Delaware law, creates liability to the limited liability company where the member “knew a
distribution was made in violation of Section 25-30.” 805 ILCS 180/25-35(a). That Section’s
statute of repose states that “[a] proceeding under this Section is barred unless it is commenced
within 2 years after the distribution.” 805 ILCS 180/25-35(d). Thus, this statute of repose
clearly applies only to actions brought “under this Section” and does not apply to common law
actions. As such, because neither the cited Illinois nor Delaware statute bars Acom’s breach of
fiduciary duty claim, the Court need not undertake a conflict of law analysis. For the foregoing
reasons, the Court denies Defendants’ motion to dismiss to the extent it seeks to dismiss Acom’s
breach of fiduciary duty claim.
3. Conclusion
In conclusion, the Court GRANTS in part and DENIES in part Defendants’ motion to
dismiss (Doc. 16). Specifically, the Court


GRANTS the motion to dismiss to the extent it dismisses the (1) conversion
claim pleaded in Count Two, (2) civil conspiracy claim pleaded in Count Four,
(3) declaratory judgment claims in Counts Five and Six, and (4) Acom’s request
for access to Defendants’ books, records and accounts of Unity; and



DENIES the motion to dismiss to the extent it declines to dismiss the (1) aiding
and abetting claim pleaded in Count Three, and (2) breach of fiduciary duty claim
pleaded in Count One.

IT IS SO ORDERED.
DATED: July 16, 2014
s/ J. Phil Gilbert
J. PHIL GILBERT
DISTRICT JUDGE
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