Westmore Equities, LLC v. City of Mounds et al

Filing 70

MEMORANDUM AND ORDER. Signed by Judge J. Phil Gilbert on 2/2/2016. (jdh)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
WESTMORE EQUITIES, LLC,
Plaintiff,
vs.
CITY OF MOUNDS, an Illinois
Municipal Corporation,
Defendant/Third-Party Plaintiff,
WAYMON A. BUTLER, JR. and,
ROBIN L. BARKSDALE,
Defendants,
vs.
DEVELOPMENT & MUNICIPAL
INITIATIVES, LLC,
KEITH J. MORAN,
ERIC K. WHITE, and
DEBORAH PROSSER-WHITE,
Third-Party Defendants.

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Case No. 15-cv-00109-JPG-DGW

MEMORANDUM AND ORDER
This matter comes before the Court on Third-party Defendant Keith Moran’s Motion
(Doc. 41) to Dismiss Counts I and III of the Third Part Complaint as to Third-party Defendant
Keith Moran. Third-party Plaintiff City of Mounds filed a response (Doc. 54) in opposition and
Third-party Defendant Moran filed a reply (Doc. 59).

Pursuant to Local Rule 7.1(c)(2), reply

briefs are not favored except in exceptional circumstances. Third-party Defendant Keith Moran

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stated exceptional circumstances in his brief and the Court will consider the reply.
Prior to considering the motion to dismiss, there is a pending third-party Plaintiff City of
Mounds’ Motion (Doc. 45) for Default Judgment that the Court will address. Third-party
defendant Moran filed a response (Doc. 47).
1. Third-party Plaintiff City of Mounds’ Motion for Default Judgment.
The Clerk of the Court entered a default order (Doc. 50) against third-party defendants
Development & Municipal Initiatives, LLC (“DMI”), Deborah Prosser-White, and Eric K. White
on June 19, 2015, for failure to plead or otherwise defend in this case. Local Rule 55.1(a) states
that the serving party shall give notice of the entry of the default to the defaulting party by
regular mail sent to the last known address of the defaulted party and shall certify to the Court
that notice has been sent.
Third-party Plaintiff has not certified to the Court that notice of the entry of the default
was sent to each defaulting defendant. As such, third-party Plaintiff City of Mounds’ Motion for
Default Judgment (Doc. 45) is DENIED without prejudice for failure to comply with Local Rule
55.1. Third-party Plaintiff may, if appropriate, file an amended motion for default judgment that
complies with Local Rule 55.1.
2. Motion to Dismiss Counts I & III of the Third-Party Complaint.
a. Background.
On April 21, 2010, Plaintiff Westmore Equities, LLC (“Westmore”) entered into a
Redevelopment Agreement with Defendant City of Mounds for the development of certain
property located in Mounds, Illinois. Westmore was reimbursed for funds expended in 2013, but
when it requested reimbursement in 2014, Westmore was notified that the contract was void
because it was never approved by the Mounds’ City Council. According to the City of Mounds,

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it entered into the agreement with Westmore based on the advice and guidance of DMI and its
members, Keith Moran, Eric White and Deborah Prosser-White.
Westmore filed suit seeking a declaration pursuant to 28 U.S.C. § 2201 that the contract
is valid and binding, or in the alternative, relief from Waymon Butler, Jr., the City of Mounds’
mayor, and Robin Barksdale, the city’s clerk, for breach of warranty of authority. (Doc. 1). The
Court notes that defendants Butler and Barksdale have been dismissed pursuant to the Illinois
Local Governmental and Governmental Employees Tort Immunity Act (“Tort Immunity
Act”)(745 ILSC 10/1-101, et. seq.)(Doc. 60).
Defendant City of Mounds filed a third-party Complaint (Doc. 22) against the third-party
defendants claiming that they violated the Tax Increment Allocation Redevelopment Act (“TIF
Act”, 65 ILCS 5/11-74.4-1, et seq.); the Uniform Fraudulent Transfer Act (“UFTA”, 740 ILCS
160/1, et. seq.); and for Contribution. Third-party defendant Keith Moran1 (“Moran”) now
moves for dismissal of Counts I and III of the third-party complaint pursuant to Federal Rules of
Civil Procedure 14(a)(2)(A) and 12(b)(6).
b. Standards.
(1) Rule 12(b)(6).
Federal Rule of Civil Procedure 14(a)(2)(A) provides that a third-party defendant must
assert any defense against the third-party claim under Rule 12. As such, this motion is properly
brought under Rule 12(b)(6).
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
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The Court will only address third-party defendant Moran for the remainder of its analysis. The Court will also not
address Count II, violation of Uniform Fraudulent Transfer Act (“UFTA”, 740 ILCS 160/1, et. seq.), as it is not
directed to Moran.
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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, 556
U.S. 662, 678 (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, 556
U.S. at 678 (citing Bell Atl., 550 U.S. at 556).
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).

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Also, “[i]t is, of course, well established that, as a general matter, a district court
exercising jurisdiction because the parties are of diverse citizenship must apply state substantive
law and federal procedural law.” Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin.
Servs., Inc., 536 F.3d 663, 670 (7th Cir. 2008) (citing Erie R.R. v. Tompkins, 304 U.S. 64
(1938)). Therefore, Illinois substantive law applies in this matter.
(2) Tax Increment Allocation Redevelopment Act (“TIF Act”).
The TIF Act § 11-74.4-3(q)(1) provides in relevant part:
After consultation with the municipality, each tax increment consultant
or advisor to a municipality that plans to designate or has designated a
redevelopment project area shall inform the municipality in writing of any
contracts that the consultant or advisor has entered into with entities or
individuals that have received, or are receiving, payments financed by tax
increment revenues produced by the redevelopment project area with
respect to which the consultant or advisor has performed, or will be
performing, service for the municipality. 65 ILCS 5/11-74.3.
c. Analysis.
Count I of the third-party complaint alleges that Moran violated the TIF Act § 11-74.43(q)(1) by failing to notify the City of Mounds that he had, “an ongoing commercial relationship
with PLAINTIFF, WESTMORE EQUITIES, LLC, in conjunction with the formation of Tax
Increment Financing Districts in the State of Illinois and construction of facilities therein.” (Doc.
22, pg. 3).
The City of Mounds alleges that it entered into an agreement with DMI for technical
services relative to a Tax Increment Financing Redevelopment Project (“TIF Agreement”) on
October 17, 2009. Based on DMI’s advice and guidance, the City of Mounds then entered into
an agreement with Westmore on April 21, 2010- unaware that DMI and its members had an
“ongoing commercial relationship” with Westmore.

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DMI was created on or about June 16, 2006, with Moran listed on its Articles of
Organization as member. On March 8, 2010, the Articles of Organization were amended to
include Deborah Prosser-White and deleted Moran as a member of DMI. On December 6th,
2010, the City of Mounds again contracted with DMI for services related to an Illinois Business
District (“Business District Agreement”). However, four days later on December 10th, 2010,
DMI was dissolved and the dissolution was not disclosed to the City of Mounds.
Count I of the third-party complaint alleges a violation of the TIF Act for its failure to
disclosure its relationship with Westmore. There is no indication of the extent of the relationship
between Westmore and Moran other than it was an “ongoing commercial relationship.”
Moran argues that a violation of the TIF Act § 11-74.4-3(q)(1) requires that there was a
“contract” between DMI or its members and Westmore. He further states that the Act requires
that Westmore was an entity that “received, or are receiving payment financed by tax increment
revenues” in connection with a redevelopment project area to which the consultant or advisor has
performed, or will be performing, service for the municipality.
The Court agrees. Although the City of Mounds correctly argues that it does not need to
allege all facts necessary to a claim, it must however, allege enough facts to plausibly suggest
that it has a right to relief above a speculative level. A “previous commercial relationships” is
not a violation of the TIF Act § 11-74.4-3(q)(1). The City of Mounds does not need to allege the
specific facts of the contract (i.e. type of contract, date, provisions), but there must be some
indication within the pleadings that a “contractual relationship” existed between DMI or its
members and Westmore. Further, the pleadings should indicate that Westmore was an entity that
“received, or are receiving payment financed by tax increment revenues,” but again, there is no
requirement to state specific facts with regard to the amount of the payments, dates, etc.

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The City of Mound’s claim2 that it has sufficiently plead a breach of contract claim with
regard to DMI or its members does not stand with regard to Count I. Count I describes a claim
for a violation of the TIF and neither party cites to – and this Court cannot locate – a cause of
action with regard to the TIF Act other than a breach of contract and/or fraud. A violation of the
Act does not appear actionable unless it results in fraud and/or a breach of an agreement. Count
I only alleges a violation of the Act without sufficient elements to bring Count I within the scope
of a fraud or a breach of contract claim.
It also fails with regard to Count III.

Although the City of Mounds’ response states it

has plead all six requirements of a breach of contract claim, the court cannot locate a requirement
within the Agreement for Technical Services (“ATS”) dated October 17, 2009, that required
DMI to have knowledge that “the Redevelopment Agreement required the approval of the City
Council.” (Doc. 22, pg 13). In fact, it appears from the ATS that DMI was required to present
its plan to the City Council and that the City Council would direct DMI’s actions after the
presentation. There also appears to be some responsibility with regard to the City Council and
the City of Mounds has not plead that it completed all required conditions – it has only plead that
it executed a contract with Westmore on the advice and direction of DMI.
If the Court cannot determine what portion of the ATS that the third-party defendants are
alleged to have breach, then the pleadings are insufficient to describes a breach of contract claim
in sufficient detail to give the defendant fair notice of the claim. Further, attempting to bring the
claim within a breach of contract in respond to a motion to dismiss is not the proper means to
correct a pleading.

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City of Mounds’ response has section titled “Breach of Contract” but there is no indication whether it is arguing
that it has alleged breach of contract with regard to a specific count. As such, the Court will address the claim with
regard to both Counts I & III.
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3. Third-party Defendant Moran’s Motion to Strike.
Finally, third-party defendant Moran has a pending Motion (Doc. 44) to Strike
Immaterial Matter from General Allegations of Counts I & III of the third-party complaint as to
third-party defendant Moran pursuant to Federal Rules of Civil Procedures 12(f).
Under Federal Rule of Civil Procedure 12(f), a party may motion to strike, “from a
pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter”
before responding to the pleading. Motions to strike, however, are generally disfavored because
they are often employed for the sole purpose of causing delay. See Heller Fin., Inc. v. Midwhey
Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989). For this reason, a party must show prejudice
to succeed on a motion to strike. See Talbot v. Robert Matthews Distrib. Co., 961 F.2d 654, 664
(7th Cir. 1992).
The Court should not strike matter from a pleading “unless the challenged allegations
have no possible relation or logical connection to the subject matter of the controversy and may
cause some form of significant prejudice to one or more of the parties to the action.” 5C Charles
A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382 (3d ed.); accord
Anderson, 169 F. Supp. 2d at 867-68. The burden on a motion to strike is upon the moving
party. See Vakharia v. Little Co. of Mary Hosp. & Health Care Ctrs., 2 F. Supp. 2d 1028 (N.D.
Ill. 1998).
Moran moves to strike any and all allegations that are not connected or related to the
dispute between the City of Mounds and Westmore regarding the “Redevelopment Agreement”
dated April 21, 2010.

(Doc. 44, pg 2).

The third-party complaint contains allegations with

regard to an “Agreement for Services – Business District” that Moran claims are immaterial and
irrelevant to the Redevelopment Agreement. He further states that the allegations pertaining to

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the amount paid by the City of Mounds pursuant to the Business District Agreement is irrelevant.
The paragraphs Moran requests stricken reference the Business Agreement of December
6, 2010, between the City of Mounds and DMI for technical services and assistance with regard
to the formation of a business district within the corporate limits of the City of Mounds. There
does not appear to be a connection between this agreement and the contract between the City of
Mounds and Westmore.
The Court can determine a clear connection with regard to the TIF Agreement of October
17, 2009, between the City of Mounds and DMI, as that contract forms the basis of the
allegations that DMI was hired to advise the City of Mounds and upon that advice, the City of
Mounds entered into the contract with Westmore. However, the Business District Agreement
appears to be a totally separate and unrelated agreement. There are no allegations within the
third-party complaint that the that the Business Agreement was a result of the contract between
the City of Mounds and Westmore or was related in any way with that contract.
As far as prejudicial, the Business District allegations indicate fraud and improper
business practices. Those facts are immaterial and irrelevant to the case at bar unless those
allegations occurred before, during, or affected the City of Mounds and Westmore contract. The
City of Mounds appears to have several claims with regard to DMI and the Business Agreement,
but those claims should be brought in a separate suit as they do not arise from of the agreement
between the City of Mounds and Westmore – which is the basis of the case at bar.
The Court would also like to note that the City of Mounds argues that Moran’s Motion to
Strike is untimely under Federal Rule of Civil Procedure 12(f)(2) which states that a motion to
strike can be made either before the responding to the pleadings, or if a response is not allowed,
within 21 days after being served with the pleadings. Since Moran filed a Motion to Dismiss

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(Doc. 41) prior to filing his Motion to Strike, the City of Mounds argues that Moran “has closed
the window of opportunity provided him in Rule 12(f)(2).” Moran argues that whether a motion
to dismiss is a responsive pleading with regard to a third-party complaint “appears to be one of
first impression that should be presented clearly to the Court for its decision.”
The Court directs both parties to Federal Rule of Civil Procedure 12(a)(4)(A) that
provides that serving a motion under Rule 12 alters the periods for filing a responsive pleading.
It further provides that if the court denies the motion, the responsive pleading must be served
within 14 days after notice of the court’s action. Moran’s Motion to Dismiss was filed pursuant
to Federal Rule of Civil Procedure 12(b)(6) and therefore, his responsive pleading must be
served within 14 days after this Court’s ruling on that motion. As the Court is ruling on Moran’s
Motion to Dismiss in this order, Moran has 14 days after this Order, if required, to file a
responsive pleading. Until that time, a motion to strike is not time barred. Parties are also
directed to Federal Rule of Civil Procedure 7 which defines pleadings, motions, and other
papers.
4. Conclusion.
The City of Mounds may have a cause of action against Moran under fraud and/or for
breach of contract, but those claims are not properly plead in the Third Party Complaint. Based
on the above, the Court finds as follows:
a.

Third-party Plaintiff, City of Mounds’ Motion for Default Judgment (Doc. 45) is
DENIED without prejudice for failure to comply with Local Rule 55.1.

b. Third-party defendant Keith Moran’s Motion (Doc. 41) to Dismiss Counts I and III of
the Third-Party Complaint as to the third-party defendant Keith Moran is
GRANTED.

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c. Counts I & III of the Third-Party Complaint (Doc. 22) are DIMISSED without
prejudice with regard to third-party defendant Keith Moran.
d. Third-party Defendant Keith Moran’s Motion (Doc. 44) to Strike Immaterial Matter
is DENIED as moot based on c, above.
e. Third-party Plaintiff, City of Mounds, is GRANTED 30 days from the date of this
order to file, if appropriate, an amended third-party complaint. The Court advises the
City of Mounds to take the discussion of the Motion to Strike into consideration
should it decides to file an amended third-party complaint.
If the third-party complaint is not amended within the time allowed, the Court will
dismiss third-party Defendant Moran without further action needed.
IT IS SO ORDERED.
DATED: 2/2/2016
s/J. Phil Gilbert
J. PHIL GILBERT
DISTRICT JUDGE

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