American Quality Schools Corporation v. The Leona Group et al
Filing
25
OPINION AND ORDER GRANTING 8 MOTION to Dismiss for Failure to State a Claim by Defendant The Leona Group; GRANTING 9 MOTION to Dismiss for Failure to State a Claim by Defendant School Board of the East Chicago Urban Enterprise Academy The; GRANT ING 12 MOTION to Dismiss Counts I, III, and IV of Plaintiff's Complaint Pursuant to Rule 12(b)(6) by Defendant Ben Clement. Plaintiff American Quality Schools Corporation's Complaint is DISMISSED WITHOUT PREJUDICE. Signed by Judge Rudy Lozano on 9/22/17. (cer)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
AMERICAN QUALITY SCHOOLS
CORPORATION,
Plaintiff,
vs.
THE LEONA GROUP, et al.,
Defendants.
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NO. 2:16-CV-479
OPINION AND ORDER
This matter is before the Court on: (1) Motion to Dismiss
Counts II and III of Complaint Pursuant to Rule 12(b)(6), filed
by The Leona Group on December 13, 2016 (DE #8); (2) Defendant
the School Board of the East Chicago Urban Enterprise Academy’s
Motion to Dismiss Plaintiff’s Complaint, filed on December 13,
2016 (DE #9); and (3) Defendant Ben Clement’s Motion to Dismiss
Counts I, III, and IV of Plaintiff’s Complaint Pursuant to Rule
12(b)(6), filed on December 16, 2016 (DE #12).
set forth below, the motions are GRANTED.
For the reasons
The Complaint is
DISMISSED WITHOUT PREJUDICE.
BACKGROUND
American Quality Schools (“AQS”) brought suit against The
Leona Group (“Leona”), the School Board of the East Chicago Urban
Enterprise Academy (“Board”), and Ben Clement (“Clement”) in Lake
County,
Indiana
on
March
30,
2016.
Management Organization (“EMO”).
AQS
is
an
Educational
AQS entered into a contract to
operate the East Chicago Urban Enterprise Academy (“Academy”), a
charter school, from July 1, 2014 to June 30, 2016.
The Academy
received high academic ratings under AQS’s management.
Despite
those ratings, the Board did not renew AQS’s contract to manage
the Academy.
Instead, the Board contracted with Leona to manage
the Academy.
The complaint alleges that this was the result of
Clement and Leona interfering with AQS’s business relationship
with the Board (Counts I and II).
The complaint further alleges
that Clement conspired with both Leona (Count III) and the Board
(Count IV) to interfere with AQS’s business relationship with the
Board.
Lastly, the complaint alleges that the Board breached its
fiduciary duty to AQS (Count V).
Each Defendant has filed a motion to dismiss the complaint.
The motions are fully briefed and ripe for adjudication.
DISCUSSION
Federal Rule of Civil Procedure 12(b)(6) allows a complaint
to be dismissed if it fails to “state a claim upon which relief
can be granted.”
Fed. R. Civ. P. 12(b)(6).
Allegations other
than fraud and mistake are governed by the pleading standard
outlined in Federal Rule of Civil Procedure 8(a), which requires
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a “short and plain statement” that the pleader is entitled to
relief.
Maddox v. Love, 655 F.3d 709, 718 (7th Cir. 2011).
In order to survive a Rule 12(b)(6) motion, the complaint
“must contain sufficient factual matter, accepted as true, to
‘state
a
claim
to
relief
that
is
plausible
on
its
face.’”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)(quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
pleaded
facts
must
be
accepted
as
true,
and
all
All wellreasonable
inferences from those facts must be resolved in the plaintiff’s
favor.
Pugh v. Tribune Co., 521 F.3d 686, 692 (7th Cir. 2008).
However, pleadings consisting of no more than mere conclusions
are not entitled to the assumption of truth.
678-79.
This
includes
legal
conclusions
Iqbal, 556 U.S. at
couched
as
factual
allegations, as well as “[t]hreadbare recitals of the elements of
a cause of action, supported by mere conclusory statements.”
Id.
at 678 (citing Twombly, 550 U.S. at 555).
Intentional Interference with a Business Relationship
The complaint alleges that the Board’s contract with AQS was
not
renewed
business
According
because
Clement
and
Leona
with
the
Board
Clement
was
hired
relationship
to
AQS,
educational consultant in late 2015.
interfered
(Counts
by
the
with
I
AQS’s
and
Board
II).
as
an
Previously, Clement served
on the board of a different charter school, the Thea Bowman
3
Leadership Academy (“TBLA”).
In that role, Clement was part of a
decision to sever TBLA’s relationship with AQS in favor of its
competitor, Leona. Defendants argue that this claim must fail
because there was no business relationship to interfere with and,
even if there were, the complaint does not allege the illegal
conduct required for the claim to succeed.
The elements of intentional interference with a business
relationship under Indiana law include: (1) the existence of a
valid business relationship; (2) The defendant’s knowledge of the
existence of the relationship; (3) intentional interference with
the
relationship;
(4)
the
absence
of
damages resulting from the interference.
v.
Getche,
701
N.E.2d
871,
876
justification;
and
(5)
Harvest Life Ins. Co.
(Ind.
Ct.
App.
1998).
Additionally, a plaintiff need not show the existence of a valid
contract where the defendant illegally achieved its end.
Id. See
also Johnson v. Hickman, 507 N.E.2d 1014, 1019 (Ind. Ct. App.
1987).
The contract entered into by the Board and AQS expired on
June 30, 2016.
at 11-35).
contract.
It did not contain a renewal provision.
(DE #8-1
AQS has not alleged that the Board breached the
Leona and Clement urge this Court to find that the
business relationship between AQS and the Board expired with the
contract, and there was therefore no business relationship that
they could have interfered with.
4
See Computers Unlimited, Inc.
v. Midwest Data Systems, Inc., 657 N.E.2d 165, 168 (Ind. Ct. App.
1995)(finding, under the facts of that case, that no business
relationship existed after termination of the contract).
The complaint does not allege facts from which it can be
inferred that a business relationship existed between AQS and the
Board outside of the relationship established by the contract.
Nonetheless,
business
in
its
response
relationship
brief,
between
the
AQS
suggests
and
Board
that
was
AQS
extensive than the single contract at issue here.
more
AQS alleges
the relationship began eleven years prior to this contract.
#19 at 8).
the
(DE
That fact, however, is not in the complaint, and will
not be considered by this Court.1
Even if, as AQS alleges, its business relationship with the
Board
extends
conduct.
beyond
the
contract,
it
must
allege
illegal
AQS’s complaint alleges that Clement was not impartial
and favored a transfer to Leona.
He further alleges that the
Board,
process,
as
part
of
the
proposal
sought
proprietary
information that was not relevant to the proposal process but
would have been relevant to a management transition.
page
6).
This
amounts
to
an
1
allegation
that
AQS
(DE #8-2
behaved
“If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings
are presented to and not excluded by the court, the motion must be treated as
one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d). See Tradewinds
Glob. Logistics, LLC v. Garrett's Transp., LLC, No. 1:15-CV-00608-RLY-DKL,
2015 WL 8362401, at *2 (S.D. Ind. Dec. 8, 2015). This Court, in its
discretion, is excluding all materials outside of the pleadings.
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unethically, not illegally.
See Biggs v. Marsh, 446 N.E.2d 977,
983-84 (Ind. Ct. App. 1983).
In
response
to
the
instant
motions,
AQS
claims
that
a
violation of the Indiana Unfair Trade Secrets Act (“IUTSA”), I.C.
§ 24-2-3-2 et seq., provides the illegal act.
The complaint,
however, does not allege a violation of this provision.
AQS, without any citation to legal authority, also suggests
that there is an implied duty to act in good faith.
(DE #19 at
9). In certain contexts, for example, employment contracts and
insurance contracts, there is such a duty.
See Perron on behalf
of Jackson v. J.P. Morgan Chase Bank N.A., 845 F.3d 852, 856 (7th
Cir. 2017).
This obligation arises when one party is a fiduciary
or superior, or when a special relationship exists.
facts
presented
in
the
complaint
establish
that
Id.
such
No
a
relationship exists here, for reasons explained more fully below.
Because the complaint does not contain facts supporting AQS’s
claim that its business relationship with the Board extended
beyond
the
two-year
contract,
and
does
not
allege
facts
supporting AQS’s assertion that Leona and Clements engaged in
illegal
conduct,
Counts
I
and
dismissed.
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II
of
the
complaint
must
be
Conspiracy
The complaint alleges that Clement conspired with both Leona
(Count III) and the Board (Count IV) to interfere with AQS’s
business relationship with the Board.
Defendants argue that,
because the intentional interference with a business relationship
claims fail, the conspiracy claims also fail.
In Indiana, there is no independent cause of action for
conspiracy.
Fifth
Third
It is a derivative claim.
Bank,
2015,
No.
See Anton Realty, LLC v.
1:15-CV-00199-RLY-TAB,
2015
WL
8675188 (S.D. Ind. Dec. 11, 2015)(dismissing a civil conspiracy
claim where the underlying claim of tortious interference with a
contractual relationship failed).
See also Miller v. Central
Ind. Cmty. Found., Inc., 11 N.E.3d 944, 962-63 (Ind. Ct. App.
2014).
AQS
does
conspiracy.
without
not
address
the
derivative
nature
of
civil
Instead, AQS argues that the giving of trade secrets
consent
conspiracy claim.
is
illegal
and
provides
the
basis
for
the
As this Court has pointed out already, the
complaint does not allege a trade secrets claim.
Any viable
conspiracy claim is dependent upon the intentional interference
with a business relationship claim.
do the conspiracy claims.
Since those claims fail, so
Counts III and IV must be dismissed.
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Breach of Fiduciary Duty
Count V of the complaint alleges that the Board breached its
fiduciary duty to AQS.
The Board asserts that it did not owe AQS
a fiduciary duty.
The Academy is an Indiana not-for-profit corporation.
Under
Indiana law, the directors of not-for-profits must act in good
faith, and in the best interests of the corporation.
17-13-1.
I.C. § 23-
While the Board did owe a duty to the Academy, AQS is a
separate entity from the Academy.
In Geiger & Peters, Inc. v. Berghoff, 854 N.E.2d 842, 850
(Ind. Ct. App. 2006) an insolvent corporation failed to pay a
creditor.
The creditor sued for breach of fiduciary duty.
The
Indiana Court of Appeals found that “[t]he duty of the directors
[and officers] is to the corporation and its stockholders, not to
the creditors.”
Id.
(quoting
Nappanee Canning Co. v. Reid,
Murdock & Co., 64 N.E. 870, 872 (1902)).
While this situation is
a little different - the corporation at issue is a not-for-profit
- the same holds true: the Board’s duty runs to the Academy, not
AQS.
The complaint suggests that the fiduciary duty arises from
the fact that the Board performs a governmental function and
utilizes tax dollars.
AQS provides no support for this theory in
response to the instant motion.
Instead, AQS again relies on
IUTSA.
no
AQS,
however,
cites
to
8
provision
of
IUTSA
that
establishes a fiduciary relationship between AQS and the Board.
Accordingly, Count V fails and must also be dismissed.
CONCLUSION
For
the
aforementioned
reasons,
dismiss (DE ## 8, 9, 12) are GRANTED.
the
instant
has
some
hesitation,
the
to
The Defendants have asked
that AQS’s complaint be dismissed with prejudice.
Court
motions
dismissal
will
While this
be
WITHOUT
PREJUDICE.
DATED: September 22, 2017
/s/ RUDY LOZANO, Judge
United States District Court
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