Patel et al v. Fendler et al

Filing 43

ORDER: For the reasons stated in the attached memorandum and order, Defendants' motions to dismiss (Docs. 13 & 16) are GRANTED IN PART and DENIED IN PART--the Patels' complaint is DISMISSED, but the dismissal is without prejudice. U.S. Ban k's request for a more definite statement (Doc. 13) is DENIED without prejudice. The Patels' motion to file their First Amended Complaint (Doc. 23) is DENIED on futility grounds. If the Patels wish to proceed with this case, they must file their Second Amended Complaint on or before February 25, 2016. See attached memorandum and order for details. Signed by Chief Judge Michael J. Reagan on 1/28/2016. (wtw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
SHANKAR B. PATEL,
DIDI PATEL, and
MANISH PATEL,
Plaintiffs,
vs.
TODD J. FENDLER,
PATTY STUDER,
SUSAN FENDLER,
NORTHERN ILLINOIS
INSURANCE AGENCY,
NORTHERN ILLINOIS INSURANCE,
NORTHERN UNDERWRITING
MANAGES, INC.,
NORTHERN UNDERWRITING
MANAGERS,
NIL INS. AGENCY,
NUM INC., and
U.S. BANK,
Defendants.

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Case No. 15-cv-0366-MJR-SCW

MEMORANDUM AND ORDER
REAGAN, Chief District Judge:
Shankar, Didi, and Manesh Patel obtained insurance for their Economy Inn and
Super 8 motel businesses from some or all of the non-bank defendants in this case prior
to 2013, but decided not to renew those insurance policies in 2014 and 2015, instead
obtaining coverage from other carriers. Some or all of the insuring defendants did not
take the rejection well; they allegedly forged the Patels’ signatures on automated bank
debit forms, submitted those counterfeit forms to U.S. Bank, and then requested
automatic withdrawals for insurance premium payments covering 2014 and 2015 from
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the Patels’ bank. The Patels purportedly asked for their money back from the insuring
defendants and from U.S. Bank but were rebuffed, so they filed suit in federal court on
April 2, 2015, alleging that all involved—including U.S. Bank—violated the Racketeer
Influenced and Corrupt Organizations Act. The bank and the insuring defendants have
since moved to dismiss, and rather than respond to those motions directly the Patels
have moved to amend their complaint, claiming that the proposed amendments cure all
of the problems identified in the Defendants’ two motions. The Defendants’ motions to
dismiss and the Patels’ motion to amend are now before the Court for review.
The Court will take up the Defendants’ motions to dismiss first, which identify a
number of problems with the Patels’ initial complaint.

The first is the notice

requirement—all complaints must include enough factual detail to put each defendant
on notice of his actions, so that he can investigate the allegations and respond. Equal
Emp’t Opportunity Comm’n v. Concentra Health Servs., Inc., 496 F.3d 773, 781 (7th Cir.
2007). That requirement is easily satisfied when a plaintiff sues one defendant, but
things get more complicated when a plaintiff sues several defendants and refers to them
in the collective “Defendants” sense throughout the complaint.

That grouping,

especially when used to describe discrete conduct, commingles the defendants together
in a way that precludes each party from discerning who allegedly did what. Bank of
Am. v. Knight, 725 F.3d 815, 818 (7th Cir. 2013).

The Patels repeatedly took the

collective “Defendants” shortcut here: they say, for instance, that “Defendants” forged
the Patels’ signatures; that “Defendants” engaged in a double broker arrangement; and
that “Defendants” have been on a “rampage” of stealing funds. Notice pleading and
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vague allegations of collective conduct don’t go hand-in-hand; these types of lumped
allegations are inadequate under Federal Rule of Civil Procedure 8.
There are other problems with the Patels’ complaint, these more specific to their
racketeering claim. The Patels primarily seek relief under the section of the racketeering
statute which makes it unlawful “for any person employed by or associated with any
enterprise engaged in, or the activities of which affect, interstate or foreign commerce,
to conduct or participate, directly or indirectly, in the conduct of such enterprise’s
affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). That section is a
bit difficult to parse—it’s no wonder the Seventh Circuit calls the statute the
“nightmare” of the federal judge, Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d
771, 785 (7th Cir. 1994)—but the gist is that the statute allows for suits against parties
who form an enterprise and use it to commit certain acts, or who commandeer an
organization and use it in the same fashion. Emery v Am. Gen. Fin., Inc., 134 F.3d 1321,
1323-24 (7th Cir. 1998); McCullough v. Suter, 757 F.2d 142, 143-44 (7th Cir. 1985).
The Court says “certain acts” because the civil racketeering statute is designed to
penalize activity which bears a resemblance to pattern organized crime, so it applies
only to those persons who form or penetrate entities and use the entity to engage in at
least two instances of the types of crimes typically thought of in mob movies (bribery,
counterfeiting, extortion, mail fraud, and so on). 18 U.S.C. § 1961(1) & (5); Fujisawa
Pharmaceutical Co., Ltd. v. Kapoor, 115 F.3d 1332, 1338 (7th Cir. 1997). The Patels
allege that the defendants formed a group to engage in wire and mail fraud, and given
that these allegations concern fraud, the requirements of Federal Rule of Civil
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Procedure 9 apply. Slaney v. The Int’l Amateur Athletic Fed’n, 244 F.3d 580, 597 (7th
Cir. 2001). Rule 9 requires a plaintiff to plead the circumstances constituting fraud with
particularity, lest a claimant sling damaging accusations of fraud without a developed
basis for the claim, doing “serious damage to the goodwill” of a party in the process.
Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992).
Particularity doesn’t require full-blown fact pleading, but it does require a claimant to
state the “who, what, when, where, and how” of the fraud. Knight, 725 F.3d at 818.
U.S. Bank and the insurers maintain that the Patels did not allege fraud with
particularity here, and some of their critiques are well taken. The complaint includes
some of the particulars—it enumerates the dates of the bad checks and sometimes
suggests which defendant engaged in which conduct—but it backtracks on that show of
particularity by routinely lumping all of the defendants together into a stewpot and
making allegations of specific conduct directed at them all. In other words, it gives
particularity with one hand and takes it with the other, leaving each defendant to guess
his role. Rule 9 requires precomplaint investigations to ensure that fraud allegations are
“responsible and supported, rather than defamatory and extortionate,” Ackerman v.
Northwestern Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999), and lumping
defendants together when making conduct-related allegations doesn’t suggest the kind
of careful investigation and pleading contemplated by the rule, Goren v. New Vision
Int’l, Inc., 156 F.3d 721, 730 (7th Cir. 1998). The Patels should have done more to lay
out how each defendant was involved in the fraud; their failure runs afoul of Rule 9.

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There are two other racketeering-related problems with the Patels’ complaint,
both linked to the enterprise aspect of a racketeering claim. The racketeering statute
does not extend to conspiracies alone, but only to persons who use or create an
enterprise to conduct certain predicate acts. Bachman v. Bear, Stears & Co., Inc., 178
F.3d 930, 931-32 (7th Cir. 1999).

The statute, then, includes two enterprise-related

requirements: there must be an organization, which can include a “union or group of
individuals associated in fact although not a legal entity,” 18 U.S.C. § 1961(4), and each
defendant must have “participated in the operation or management” of that
organization, such that he played a role “in directing the [organization’s] affairs,” Reves
v. Ernst & Young, 507 U.S. 170, 185 (1993). The Patels allege that the insurers and the
bank were a group associated in fact, but the complaint says little about the hallmarks
of that enterprise: it says next to nothing about the group’s purpose, the relationships
among the members of the group, the group’s longevity, or how each defendant
participated in the group’s management. Boyle v. United States, 556 U.S. 938, 945-47
(2009). That’s a glaring omission given that the group here purportedly consists of a
swath of insurers and a multi-billion dollar bank; it’s not at all evident how a bank like
that would join or manage a racketeering group to falsify debits that add up to a
minuscule percentage of the bank’s assets. All racketeering complaints, especially the
ones that allege an enterprise that’s partly fanciful, need to have some detail pled about
the enterprise to push the existence of the enterprise from a possibility to a probability.
E.g., Rao v. BP Prods. N. Am., Inc., 589 F.3d 389, 399-400 (7th Cir. 2009); Stachon v.

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United Consumers Club, Inc., 229 F.3d 673, 676 (7th Cir. 2000). The Patels haven’t said
enough about the enterprise here, and that omission dooms their § 1962(c) claim. 1
Given all of the Rule 8 and Rule 9 defects, the complaint must be dismissed. To
salvage their suit and keep the case going, the Patels have submitted a motion to amend
and a proposed amended complaint, arguing that the proposed complaint fixes the
problems with the initial one. While motions to amend are typically freely granted,
they need not be granted where the motion would be futile, as it would be if the
proposed amended complaint wouldn’t withstand a motion to dismiss.

McCoy v.

Iberdrola Renewables, Inc., 760 F.3d 674, 685-86 (7th Cir. 2014). That’s the case here:
the amended complaint includes only a handful of additional words, it doesn’t clear the
enterprise-related hurdles discussed above, and it continues to lump all of the
defendants together in a fashion that makes it difficult for each one to respond. Because
the defects identified by the defendants in their motions and in this order persist in the
amended complaint, the Patels’ motion to amend must be denied.
The question remains whether the Patels should be given another chance to fix
the Rule 8 and Rule 9 problems with their complaint, or if the case should be dismissed
with prejudice. The defendants ask for a dismissal with prejudice, but they don’t argue,
in any developed way at least, that no set of facts could put forth a viable racketeering
claim here. Because amendment should be freely given, the Court will give the Patels
another opportunity to amend their complaint. While the Court is giving the Patels

Because the Patels make no mention of any agreement to conspire, the Patels’
conspiracy claim under § 1962(d) must also be dismissed. Goren, 156 F.3d at 732.

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another chance to amend, counsel for the Patels is cautioned that, if the defendants
move to dismiss again, he should engage with the arguments made in the motions to
dismiss, rather than file a summary motion to amend. If counsel doesn’t respond to
future motions and the arguments made within them, Local Rule 7.1—and its statement
that the failure to respond to a motion can admit the motion’s merits—will apply.
One closing note is in order concerning a request made by U.S. Bank in its
motion to dismiss. U.S. Bank asks the Court to order the Patels to file a more definite
statement pursuant to Federal Rule of Civil Procedure 12(e), fleshing out the factual
particulars of the Patels’ claim against the bank. The bank’s motion is a bit unclear as to
whether it wants this relief if the Court dismisses the complaint without prejudice, but
to be complete, the Court will address the request. Given that the Patels will need to
file an amended complaint consistent with this order to proceed with their case, the
motion for a more definite statement is premature. If the Patels’ amended complaint
does not include enough facts to put the bank on notice of the Patels’ claim against it,
the bank can again move to dismiss or seek a more definite statement at that time.
To sum up, Defendants’ motions to dismiss (Docs. 13 & 16) are GRANTED IN
PART and DENIED IN PART—the Patels’ complaint is DISMISSED, but the dismissal
is without prejudice. U.S. Bank’s request for a more definite statement (Doc. 13) is
DENIED without prejudice. The Patels’ motion to file their First Amended Complaint
(Doc. 23) is DENIED on futility grounds. If the Patels wish to proceed with this case,
they must file their Second Amended Complaint on or before February 25, 2016.

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IT IS SO ORDERED.
DATED: January 28, 2016
/s/ Michael J. Reagan
Chief Judge Michael J. Reagan
United States District Court

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