Iqbal v. Patel et al

Filing 62

OPINION AND ORDER: For the reasons set forth in the Opinion & Order, defendants Warren Johnson and S-Mart Petroleum Inc.'s Motion for Summary Judgment 23 , renewed by 53 , is DENIED and defendant Tejashkumar M. Patel's Motion for Summary Judgment 55 is DENIED. Signed by Senior Judge James T Moody on 7/10/2017. (jss)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
MIR S. IQBAL,
Plaintiff,
v.
TEJASHKUMAR M. PATEL,
WARREN JOHNSON, S-MART
PETROLEUM, INC.,
Defendants.
WARREN JOHNSON, S-MART
PETROLEUM, INC.,
Counter Claimants,
v.
MIR S. IQBAL,
Counter Defendant

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No. 2:12 CV 56

OPINION AND ORDER
This matter is before the court on defendants Warren Johnson and S-Mart
Petroleum Inc.’s motion for summary judgment (DE # 23, renewed by DE # 53) and
defendant Tejashkumar M. Patel’s motion for summary judgment (DE # 55).
I.

BACKGROUND
Plaintiff Mir Iqbal (“Iqbal”) was a partner in S-M-1 Acquisition Corp (“S-M-1").1

1

The following facts, which will be construed in the light most favorable to Iqbal,
are taken from Warren Johnson and S-Mart Petroleum Inc.’s statement of undisputed
facts (DE # 23 at 3) (which Iqbal has incorporated into his own response brief (DE # 36
at 2)), Iqbal’s affidavit (DE # 35-1), and the factual allegations in Iqbal’s verified

(DE # 23 at 3.) In March of 2007, Iqbal was approached by defendant Warren Johnson
(“Johnson”), the president of S-Mart Petroleum (“S-Mart”), and Johnson’s real estate
broker, S.P. Singh (“Singh”), who recommended that Iqbal purchase a gas station in
Lafayette, Indiana (“the gas station”). (DE # 1 at 3.) Through his company, S-M-1, Iqbal
purchased the gas station. (Id.) S-M-1 then entered into a Motor Fuel Sales Agreement
with S-Mart. (Id.) In the agreement, S-M-1 agreed to purchase at least 120,000 gallons of
motor fuel per month from S-Mart from April 1, 2007, until March 31, 2013. (DE # 23 at
3.) Iqbal and Ali Ahmed (“Ahmed”)2 signed a personal guaranty in connection with the
Motor Fuel Sales Agreement. (Id. at 4.)
Iqbal, who lived in Illinois at the time that he purchased the gas station, had no
intention of running the gas station himself. (DE # 1 at 3.) Around the time that Iqbal
purchased the gas station, Johnson and Singh introduced Iqbal to Tejashkumar Patel.
(Id.) After being introduced, Iqbal and Patel entered into an agreement whereby Patel
would have complete operational and financial control over the gas station. (Id.) After
Patel began running the gas station and the gas station had received gas from S-Mart, SM-1 failed to pay for the gas as set out in the Motor Fuel Sales Agreement. (DE # 23 at
4.) Johnson allowed Patel to skip gas payments for five consecutive weeks, but Iqbal
had no knowledge of this practice until after the five-week period was over. (DE # 1 at

complaint (DE # 1). See Ford v. Wilson, 90 F.3d 245, 246-47 (facts in verified complaints
declared true under the penalty for perjury treated the same as facts in an affidavit).
2

Ahmed was also a partner in S-M-1. (DE # 23-2 at 1.)
2

4.) At that point, Patel left his position at the gas station, and Johnson stopped
delivering the gas. (Id.)
By October 1, 2008, the unpaid amount owed on the gas totaled $67,829.58.
(DE # 23 at 4.) S-Mart eventually filed suit against S-M-1, Iqbal, and Ahmed in Indiana
state court to recover the money it was owed under the Motor Fuels Sales Agreement.
(Id.) On April 14, 2009, the Tippecanoe Superior Court, located in Indiana, entered
summary judgment in favor of S-Mart. (Id.; see also DE # 23-5.) On October 1, 2009, SMart entered into a settlement agreement with Iqbal, S-M-1, and Ahmed to settle the
judgment from the Tippecanoe Superior Court. (DE # 23 at 4; see also DE # 23-1 at
18–19.) Pursuant to the settlement agreement, Iqbal, M&U, LLC,3 and SGTC II, Inc.4
executed a promissory note payable to S-Mart in the amount of $75,000.00. (DE # 23-4 at
5; DE # 23-1 at 18–19.) Additionally, SGTC, II, Inc. entered into a new Motor Fuel Sales
Agreement with S-Mart. (DE # 23 at 5; DE # 23-1 at 18-19.)
On August 25, 2009, M&U, LLC purchased the gas station and real estate that SM-1 had owned.5 (DE # 23 at 6.) M&U, LLC executed a mortgage in favor of S-Mart on
October 1, 2009. (Id.) The mortgage granted S-Mart a first mortgage lien on the gas
station located at the Lafayette property M&U, LLC had purchased. (Id.; DE # 23-2 at

3

Iqbal is the sole member and sole manager of M&U, LLC. (DE # 23 at 6.)

4

Iqbal is the president and majority shareholder of SGTC II, Inc. (DE # 24 at 2-3.)

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This purchase was made through a sheriff’s sale. (DE # 23 at 6.) Neither party
addresses this issue, but it appears that the gas station and property were foreclosed on
by the Bank of Indiana prior to the sheriff’s sale. (DE # 23-1 at 34–35.)
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37–49.) S-Mart later filed suit against Iqbal, M&U, LLC, and SGTC II, Inc. in Tippecanoe
Superior Court to enforce the settlement agreement, collect on the promissory note,
foreclose the mortgage, and collect damages for breach of the second Motor Fuel Sales
Agreement. (DE # 23 at 7; DE # 23-6 at 1.) On June 28, 2010, the Tippecanoe Superior
Court entered summary judgment in favor of S-Mart and against Iqbal, M&U, LLC, and
SGTC II, Inc. (DE # 23 at 7.) That summary judgment order included an order of
foreclosure on the gas station. (DE # 23-8 at 4.) On October 6, 2010, M&U, LLC filed for
bankruptcy. (Id. at 8.) On December 1, 2011, the bankruptcy court approved an
agreement between M&U, LLC and S-Mart to lift the automatic bankruptcy stay on the
gas station. (Id.; see also DE # 23-11.) On March 7, 2012, a sheriff’s sale was held and the
gas station was sold to Big Boom, Inc. (DE # 23 at 9.)
In January 2012, Iqbal learned from Singh that defendants Patel and Johnson
were doing business together at several other gas stations throughout Indiana.
(DE # 35-1.) Up until that point, Iqbal was unaware of this relationship between
Johnson and Patel. (Id.) Iqbal learned from Singh that Johnson and Patel had been
working together with the goal of running Iqbal’s gas station into the ground, so
Johnson could foreclose on the property. (Id.)
After learning this information, Iqbal filed the present suit, alleging Civil RICO
violations, fraud, and unjust enrichment. (DE # 1.) In response, defendants Johnson and
S-Mart filed a counterclaim and moved for summary judgment on all of Iqbal’s claims.
(DE ## 8, 23.) Rather than ruling on the defendants’ motion, the court dismissed Iqbal’s

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claims and the counterclaim for lack of subject matter jurisdiction, pursuant to the
Rooker-Feldman doctrine. (DE ## 39, 42, 43.) However, the Seventh Circuit ruled that the
Rooker-Feldman doctrine did not bar Iqbal’s suit and reversed this court’s judgment.
(DE # 50-1 at 5.)
After the reversal, defendants Johnson and S-Mart renewed their motion for
summary judgment on May 16, 2015. (DE # 53.) Defendant Patel filed his own motion
for summary judgment on May 26, 2015, in which he joins Johnson and S-Mart’s
motion. (DE # 55.) Therefore, the arguments made in Johnson and S-Mart’s motion
serve as the collective arguments of Johnson, S-Mart, and Patel (collectively,
“defendants”). The motions have been fully briefed and are ripe for ruling.
II.

ANALYSIS
Defendants argue that Iqbal’s claims for relief are barred by the doctrine of res

judicata. (DE # 24 at 8.) S-Mart previously filed two suits against Iqbal in Tippecanoe
Superior Court in Indiana, both of which resulted in final judgments. Defendants
contend that Iqbal’s current suit is an impermissible attempt to relitigate issues that
could have been raised in those earlier actions. (Id.)
To determine whether res judicata applies, federal courts apply the preclusion law
of the state that rendered the judgment. Hicks v. Midwest Transit, Inc., 479 F.3d 468, 471
(7th Cir. 2007). Here, the court will apply Indiana law. Specifically, defendants ask the
court to apply Indiana’s compulsory counterclaim rule: Indiana Trial Rule 13(A). (DE
## 24 at 9; 53 at 2; 56 at 2.) Trial Rule 13(A) states:

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A pleading shall state as a counterclaim any claim which at
the time of serving the pleading the pleader has against any
opposing party, if it arises out of the transaction or
occurrence that is the subject-matter of the opposing party’s
claim and does not require for its adjudication the presence
of third parties of whom the court cannot acquire
jurisdiction.

Defendants assert that Iqbal’s current claims involve the same transactions or
occurrences that were the subject of the state court actions, and therefore, to preserve
his claims for RICO, fraud, and unjust enrichment, Iqbal should have stated them as
counterclaims in the state court actions. (DE # 24 at 9.) Since he did not, defendants
argue his current claims are precluded. (Id.)
In its order reversing this court, the Seventh Circuit cited to multiple decisions of
the Court of Appeals of Indiana which held that fraud causing nonpayment is a
compulsory counterclaim in a debt-collection suit. Iqbal v. Patel, 780 F.3d 728, 730–31
(7th Cir. 2015). The Seventh Circuit then asked this court “to decide whether the
Supreme Court of Indiana is likely to agree with these decisions.” Id. at 731. Ultimately,
the court need not decide this question because Iqbal concedes that “a fraud
counterclaim is compulsory.”6 (DE # 58 at 4.)

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Although “fraud” is just one of Iqbal’s claims, all three claims are based on the
same underlying allegations of fraud. (See DE ## 1 at 5–8.) Thus, defendants argue that
Iqbal’s failure to bring a fraud counterclaim means that res judicata should apply to all
of his claims equally. (DE # 24 at 15); see Henry v. Farmer City State Bank, 808 F.2d 1228,
1236 (7th Cir. 1986) (“[P]laintffs’ RICO claims are barred by the doctrine of res judicata
because they failed to raise their fraud claims as a defense in the state court . . . .”). Iqbal
does not contest this in his response (see DE # 36); rather than assert res judicata should
not apply to two of his claims, he argues it applies to none, due to a lack of knowledge.
6

Nevertheless, Iqbal contests the application of res judicata and Indiana Trial Rule
13(A) on the grounds that he did not discover the existence of any of his current claims
until after the state court litigation had terminated. (DE # 58 at 4.) A plaintiff’s lack of
knowledge of his or her claims does prevent the application of Trial Rule 13(A), to the
extent the ignorance prevents those claims from accruing. Pursuant to Trial Rule 13(A),
“claims that had not accrued at the time of the original lawsuit cannot be considered
compulsory counterclaims.” Red Barn Motors, Inc. v. Nextgear Capital, Inc., Case No. 1:14cv-01589-TWP-DKL, 2017 WL 1133707, at *8 (S.D. Ind. Mar. 27, 2017). Under Indiana
law, “the cause of action of a tort claim accrues . . . when the plaintiff knew, or in the
exercise of ordinary diligence, could have discovered that an injury had been sustained
as a result of the tortious act of another.” Wehling v. Citizens Nat’l Bank, 586 N.E.2d 840,
843 (Ind. 1992). Accordingly, Indiana’s accrual rule has two components: “the discovery
of the injury, as well as its cause.” Horn v. A.O. Smith Corp., 50 F.3d 1365, 1369 (7th Cir.
1995).
While Iqbal was aware of at least some portion of his injury (the loss of his
money and his gas station) at the time of the state court actions, none of the parties
claim that Iqbal was actually aware of the alleged cause of his injury (Patel and
Johnson’s alleged fraud) before January 2012. Yet, defendants assert that Iqbal could
have been aware, had he exercised ordinary diligence. (DE # 38 at 6–9.) Iqbal disagrees.
(DE # 58 at 6.)

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This “ordinary diligence” aspect of Indiana's discovery rule requires the court to
“consider whether a reasonable person in the position of [the plaintiff], possessing the
information [he] did when [he] did, could have discovered through the exercise of
ordinary diligence” that Patel’s and Johnson’s actions were the cause of his injury. Horn,
50 F.3d at 1370. “Despite the fact-specific nature of this inquiry, the point at which a
cause of action accrues may be determined as a matter of law if the relevant facts are
undisputed and they lead to but one conclusion. . . . If the accrual determination turns
on the resolution of factual questions, however, summary judgment is inappropriate.”
Id.
In the case at hand, the record does not lead the court to but one conclusion on
the issue accrual. Iqbal asserts that he learned of the fraud in January 2012, but presents
no facts explaining whether or not a reasonable person could have discovered this
earlier through the exercise of ordinary diligence. Similarly defendants present no facts
on point other than the conjecture that Iqbal could have discovered these facts earlier by
compelling Singh’s testimony on the matter before the conclusion of the state actions.
(DE # 38 at 8–9.) However, this suggestion alone is not enough to convince the court
that a reasonable person possessing the knowledge Iqbal did at the time would have
compelled Singh to provide testimony about the relationship between Johnson and
Patel. The court finds that an issue of material fact exists regarding diligence and the
accrual of the claims.

8

In Horn, the diligence of the plaintiffs was relevant for determining a statute of
limitations issue rather than a preclusion issue, but the Seventh Circuit has used similar
logic to deny summary judgment in a case involving preclusion. See Himel v. Cont’l Ill.
Nat’l Bank and Trust Co. of Chicago, 596 F.2d 205, 210 (7th Cir. 1979). In Himel, the
Seventh Circuit reversed a district court’s grant of summary judgment on the basis of
res judicata where a material fact question had been raised “respecting the knowledge
and diligence of plaintiffs regarding the alleged facts on which the present claims rest.”
Id. As the court discussed above, a similar question of fact exists as to Iqbal’s knowledge
and diligence regarding the alleged fraud of Johnson and Patel. Therefore, summary
judgment is not appropriate under the theory of res judicata.
The Seventh Circuit also asked this court to decide whether res judicata can apply
to defendants Patel and Johnson, who were not parties to the prior state court actions.
Iqbal, 780 F.3d at 730–31. Under Indiana law, compulsory counterclaims are not limited
to individuals named in the original complaint. Ratcliff v. Citizens Bank of W. Ind., 768
N.E.2d 964, 969 (Ind. Ct. App. 2002). Instead, “a party is required to file a compulsory
counterclaim that arises from the same transaction or occurrence against third parties
over whom the court can acquire jurisdiction.” Id. Iqbal does not argue that the state court
could not have acquired jurisdiction over Patel and Johnson or that the alleged tortious
actions of Patel and Johnson did not arise from the same transactions or occurrences as
the state court actions. (See DE ## 36, 58.) Accordingly, the court finds that, under
Indiana law, Patel and Johnson would receive the benefits of the compulsory-

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counterclaim requirement and res judicata to the same extent it would apply had they
been parties to the state court actions.7
In addition to their res judicata argument, defendants contend that summary
judgment should be granted in their favor under the doctrine of accord and satisfaction.
(DE # 24 at 16.) According to defendants, Iqbal entered into an accord with S-Mart—the
Settlement Agreement—which was satisfied through performance. (Id.) Defendants
contend that Iqbal’s claims in the present case are barred by this settlement. (Id.)
It is true that under the settlement agreement, Iqbal was barred from bringing a
Trial Rule 60(B) motion in state court. (DE # 23-1 at 18–19.) However, the settlement
agreement does not, on its face, bar any and all future claims. (See id.) Although some
types of claims may be barred by the doctrine of accord and satisfaction, defendants
provide no legal support for their argument that through the accord and satisfaction of
the settlement agreement, Iqbal forfeited his rights to bring RICO, fraud, or unjust
enrichment claims. (See DE # 24 at 16–18.) Therefore, summary judgment is not
appropriate under the doctrine of accord and satisfaction.8

7

Although neither party provides a decision from the Supreme Court of Indiana
which is on point, this court finds it likely that the Supreme Court of Indiana would
agree with the decision of the Court of Appeals of Indiana in Ratcliff.
8

Additionally, the court notes that Iqbal’s complaint alleges that defendants
engaged in a “fraudulent scheme” (DE # 1 at 2) and that the doctrine of accord and
satisfaction might not apply in cases where one of the parties engaged in fraud. 1 James
Buchwalter, Corpus Juris Secundum § 10 (April 2017 Update) (“An accord and
satisfaction is ineffective and voidable if induced by fraud . . . .”). If the settlement
agreement was induced by fraud, it would be voidable. 3155 Dev. Way, LLC v. APM
Rental Props., LLC, 52 N.E.3d 854, 858 (Ind. Ct. App. 2016) (“It is the law in [Indiana] that
10

Since neither res judicata nor accord and satisfaction can support summary
judgment, the court will deny both motions.
III.

CONCLUSION
For the foregoing reasons, defendants Warren Johnson and S-Mart Petroleum

Inc.’s motion for summary judgment (DE # 23, renewed by DE # 53) is DENIED and
defendant Tejashkumar M. Patel’s motion for summary judgment (DE # 55) is
DENIED.
SO ORDERED.
Date: July 10, 2017
s/James T. Moody
JUDGE JAMES T. MOODY
UNITED STATES DISTRICT COURT

contracts induced by fraud . . . are voidable only and may be avoided by the maker.”).
However, because the court has already found summary judgment is not appropriate
based on accord and satisfaction, it need not decide whether Iqbal’s allegations of fraud
would block the application of the doctrine in this case.
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