12-2071.141-RSK Mar. 6, 2014

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

SIDNEY FERENC, LEGACY RE, LTD., )

ROCK SOLID GELT LIMITED, and 407 )

DEARBORN, LLC, )

)

Plaintiffs, )

)

 v. ) No. 12 C 2071

) 

KAREN BRENNER, FORTUNA ASSET )

MANAGEMENT, LLC, and MICHAEL )

HORRELL, )

)

Defendants. )

MEMORANDUM OPINION

Before the court is Karen Brenner’s and Fortuna Asset

Management, LLC’s (“FAM”) motion to dismiss Count I of the

plaintiffs’ amended complaint. For the reasons explained below, we

deny the defendants’ motion.

BACKGROUND

We will assume that the reader is familiar with our previous

opinion in this case, which dismissed a majority of the plaintiffs’

claims because they are governed by a binding agreement to

arbitrate. See Ferenc v. Brenner, 927 F.Supp.2d 537, 550 (N.D.

Ill. 2012). We held that only one claim belonged in this court:

407 Dearborn, LLC’s claim against Brenner, FAM, and Horrell for

breach of fiduciary duty. Id. at 546. Nevertheless, we dismissed

that claim because 407 Dearborn had not satisfied Rule 9(b)’s
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heightened pleading requirements. Id. at 547-48. The following

allegations are drawn from 407 Dearborn’s amended complaint.1 

In March 2009, 407 Dearborn acquired property commonly known

as 407 S. Dearborn, Chicago, Illinois (the “Dearborn Property”). 

(Am. Compl. ¶ 7.) At that time, the manager of the 407 Dearborn

was 407 Dearborn Manager, LLC; defendant FAM was the manager of 407

Dearborn Manager; and defendant Brenner was the managing member of

FAM. (Id. at ¶ 9.) The complaint further alleges that defendant

Michael Horrell held himself out as “co-manager” of 407 Dearborn

and exercised “de facto control” over the company. (Id. at ¶ 10.)2

Horrell and Brenner were close business associates and had “various

business interests together.” (Id. at ¶ 13.) 407 Dearborn alleges

that Horrell and Brenner used their control of the company to cause

it to pay improper fees to Horrell and his companies. The amended

complaint attaches a “General Ledger” listing payments by 407

Dearborn to Horrell and his affiliates. (Id. at ¶¶ 11-12; see also

407 Dearborn “General Ledger,” attached as Ex. C to Am. Compl.) 

The “Memo” field of the ledger lists the services that Horrell and

his company purportedly rendered (e.g., “Building Repairs,”

“Building Supplies,” “Cleaning Contract,” “Leasing Commissions,”

1/ 407 Dearborn has repled its claim against the defendants in Count I of

the amended complaint. The other plaintiffs — Sidney Ferenc, Legacy Re, Ltd. and

Rock Solid Gelt Limited — have repled the claims that we dismissed for improper

venue, presumably to preserve their right to appeal. 

2/ The plaintiffs have settled their dispute with Horrell and have

dismissed their claims against him.
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Management Fees”). (Id.) The amended complaint refers generically

to “mark-ups” and “other excessive charges,” (id. at ¶ 14), but it

does not challenge any particular charge on those grounds. The

real thrust of the plaintiff’s claim appears to be the more than

$242,000 in “Management Fees” that FAM and Brenner allegedly caused

the company to pay to Horrell and his affiliates. (See General

Ledger at 3-4 (listing “Management Fees” paid to Aurora Real Estate

and Management, Goriana Alexander, Mozart’s Aria, and Chicago

Historic Realty); see also Am. Compl. ¶ 12 (alleging that these

parties are affiliated with Horrell).) Chicago Historic Realty

added another $19,000 in “management fees” to the invoices that it

submitted to 407 Dearborn for general building maintenance. (See

Chicago Historic Realty Invoices, attached as Group Ex. A to Pl.’s

Reply.)3

 The plaintiff alleges that Horrell, with the defendants’

participation, was billing the company for services that were

already being provided by a third-party property manager (Joseph

Cacciatore). (Id. at ¶ 11.) 

Besides these payments to Horrell and his companies, 407

Dearborn also challenges certain “loan repayments” to the

defendants and their affiliates. (Id. at ¶ 18.) On March 4, 2010,

407 Dearborn paid FAM $950,000, and paid a company called First

Chicago Financial LLC $108,000. (Id.) Four days later, it paid

3/ The invoices do not describe the basis for this fee, which was

consistently 25% of the itemized services. 
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$30,300 to “Managers.” (Id.) And on March 10, 2010, 407 Dearborn

made a $71,969.50 interest payment to FAM. (Id.) 407 Dearborn

alleges “on information and belief” that Brenner and/or Horrell

were the ultimate recipients of these payments. (Id.) The company

“does not have records which demonstrate that [the company]

actually received the proceeds of the purported loans.” (Id.) 

A. Legal Standard

The purpose of a 12(b)(6) motion to dismiss is to test the

sufficiency of the complaint, not to resolve the case on the

merits. 5B Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 1356, at 354 (3d ed. 2004). To survive

such a motion, “a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on

its face.’ 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.” 

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570, 556 (2007)). When evaluating

a motion to dismiss a complaint, the court must accept as true all

factual allegations in the complaint. Iqbal, 129 S. Ct. at 1949. 

However, we need not accept as true its legal conclusions;

“[t]hreadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.” Id.

(citing Twombly, 550 U.S. at 555).
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We previously held that the plaintiff’s breach of fiduciary

duty claim was governed by Rule 9(b), although we considered it a

“close question.” Ferenc, 927 F.Supp.2d at 547. 407 Dearborn has

not asked us to revisit that question, instead arguing that its

amended complaint satisfies Rule 9(b)’s heightened pleading

requirements. See DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th

Cir. 1990) (To satisfy Rule 9(b), the plaintiff must allege “the

who, what, when, where, and how [of the alleged fraud]: the first

paragraph of any newspaper story.”; see also Pirelli Armstrong Tire

Corp. Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436,

442 (7th Cir.2011) (noting that “the requisite information—what

gets included in that first paragraph—may vary on the facts of a

given case”). 

DISCUSSION

A. Whether 407 Dearborn Has Satisfied Rule 9(b)

The defendants argue that 407 Dearborn’s amended complaint is

defective because it asserts a “claim” without articulating a

particular legal theory. (See Am. Compl. at 1 (“407 Dearborn

Claims Against Brenner, FAM, and Horrell”).) The Federal Rules of

Civil Procedure do not require plaintiffs to plead legal theories

in their complaint. See Currie v. Chhabra, 728 F.3d 626, 629 (7th

Cir. 2013) (“[W]e remind parties again that there is no duty to

plead legal theories.”). They merely require the plaintiff to give

the defendant notice of his claim. Id. The defendants affect
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ignorance about the nature of the duty that they allegedly owed 407

Dearborn, and how they were supposed to have breached it. (See

Defs.’ Mot. at 4-5.) But the plaintiff has clearly spelled out the 

nature of its claim in the amended complaint. FAM controlled 407

Dearborn Manager, and Brenner controlled FAM. The plaintiff

alleges that, in that circumstance, the defendants had a duty to

act in the company’s best interests. They breached that duty by

authorizing the company to pay excessive and duplicative

“management fees” to Horrell and his affiliates. 407 Dearborn

suggests several legal theories that would permit it to recover

damages against the defendants for this conduct. (See Pl.’s Resp.

at 2-6 (breach of the defendants’ fiduciary duty to plaintiff;

knowing participation in Horrell’s breach of fiduciary duty; unjust

enrichment).) The defendants argue that the plaintiff’s claim is

a nonstarter because it has not alleged that the defendants made

any misrepresentations or material omissions. (See Def.’s Mot. at

6.) We previously held that the plaintiff’s claim “sound[ed] in

fraud,” see Ferenc, 927 F.Supp.2d at 547, but that does not mean

that it must prove the elements of fraud to prevail on a claim for

breach of fiduciary duty. Even if the defendants made no effort to

conceal what they were doing, that would not entitle them to act

contrary to the company’s best interests. 

The dates and the amounts of the management-fee payments are

listed in Exhibit C to the amended complaint, and in the invoices
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attached to the plaintiff’s response brief.4 We conclude that this

is sufficient to satisfy Rule 9(b)’s particularity requirement. 

B. Whether the LLC Agreement Forecloses the Plaintiff’s Claims

The defendants also argue that the challenged transactions

were authorized by 407 Dearborn’s operating agreement and therefore

cannot support a claim for (or premised on) breach of fiduciary

duty. See 805 ILCS 180/15-5 (an operating agreement may not

“eliminate or reduce a member’s fiduciary duties,” but it may

“identify specific types or categories of activities that do not

violate these duties, if not manifestly unreasonable”); see also

Sirazi v. Panda Exp., Inc., No. 08 C 2345, 2011 WL 6182424, *19

(N.D. Ill. Dec. 13, 2011) (relying on an analogous provision in the

Uniform Limited Partnership Act in granting the defendant summary

judgment on the plaintiff’s claim for breach of fiduciary duty). 

Before reaching that argument, we must address two threshold

issues. First, we reject the plaintiff’s borderline frivolous

argument that we may not consider the operating agreement when

ruling on the defendants’ motion to dismiss. (See Pl.’s Resp. at

6.) The plaintiff has attached the operating agreement to its

amended complaint and bases its claim, at least in part, on the

4/ Although the invoices were not attached to the amended complaint, 407

Dearborn refers to them at paragraph 14. (See Am. Compl. ¶ 14 (“Many of the

invoices submitted by Horrell’s affiliates include an additional mark-up for

‘management fees’ on top of the other ‘management fees’ paid directly to

Horrell.”).) 
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terms of that agreement. (See Limited Liability Agreement for 407

Dearborn LLC (“LLC Agreement”), attached as Ex. 1 to Am. Compl.;

see also Am. Compl. ¶ 18 (“[N]either Brenner, FAM and/or Horrell,

including their affiliated entities, were authorized under the

operating agreement to make loans to 407 Dearborn, and even if the

loans were permitted, the payment of interest on such loans was not

authorized.”) (emphasis added).) Accordingly, the defendants may

rely on LLC Agreement’s terms to support their motion to dismiss. 

See, e.g., 188 LLC v. Trinity Industries, Inc., 300 F.3d 730, 735

(7th Cir. 2002). Second, the parties appear to agree that terms

applicable to the company’s “Manager” — 407 Dearborn Manager — also

apply to the defendants. (See Pl.’s Resp. at 6-9; Defs.’ Reply at

5-7.) We see no reason at this point to rule otherwise.

The defendants rely on §§ 5.1, 5.4, 5.5, and 5.6 of the LLC

Agreement to support their argument that they were permitted to

engage in the transactions alleged in the complaint. We will

address the defendants’ arguments with respect to each provision in

turn. As the defendants point out, § 5.1 vests the Manager with

substantial discretion to manage the company’s affairs:

5.1 Management by the Manager. The business, property and

affairs of the Company shall be managed by the Manager,

and the Manager shall direct, manage and control the

business of the Company. Except for situations in which

the approval of the Members is expressly required by

nonwaivable provisions of the Act, the Manager shall have

full and complete authority, power and discretion to

manage and control the business, affairs and properties

of the Company, to make all decisions regarding those

matters and to perform any and all other acts or
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activities customary or incident to the management of the

Company's interests.

(LLC Agmt. § 5.1.) The fact that the Manager has broad discretion

under § 5.1 to manage the company does not foreclose the

plaintiff’s claim that the defendants exercised that discretion

improperly. The defendants also argue that the LLC Agreement

authorized the March 8, 2010 payment to “Managers:”

5.4 Compensation and Reimbursement of Manager. The

Company will pay on the date hereof through December 31,

2009 and on the first day of each calendar year hereafter

an amount equal to the Management Fee for such calendar

year. The Manager shall be entitled to reimbursement of

ordinary and necessary business expenses incurred in

connection with its duties to the Company.

(Id. at § 5.4.) It is not clear whether the $30,300 payment really

was for “Management Fees” as the LLC Agreement defines that term. 

(Cf. Am. Compl. ¶ 18 (“[T]he following amounts were paid to the

following persons or entities, which were characterized in 407

Dearborn’s general ledger as loan repayments: . . . $30,300 was

paid to ‘Managers’ on March 8, 2010).) And even if the LLC

Agreement authorized that particular payment, it is only one of

numerous payments for “management fees” that the plaintiff is

challenging. (See Am. Compl. ¶ 12.) The defendants also contend

that the plaintiff’s claim is barred by the LLC Agreement’s limits

on Manager liability:

5.5 Liability of the Manager. The Manager shall not have

liability to the Company or to any Member for any loss

suffered by the Company, provided that such action or

inaction does not constitute gross negligence or any of

the following:
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(a) A willful failure to deal fairly with the Company or

the Members in connection with a matter in which a

Manager has a material conflict of interest.

(b) A violation of criminal law, unless the Manager had

reasonable cause to believe that his conduct was lawful,

or no reasonable cause to believe that it was unlawful;

or

(c) A transaction from which a Manager derived an

improper pecuniary profit.

(LLC Agmt. § 5.5.) Assuming that this provision applies to the

defendants, the amended complaint clearly alleges a willful failure

to deal fairly with the company. Brenner and FAM allegedly caused

the company to pay excessive and unnecessary management fees to

Brenner’s close business partner. Finally, the defendants argue

that the transactions with Horrell and his companies were permitted

affiliate transactions: 

5.6 Transactions with Manager and Affiliates. The Company

may enter into agreements with a or [sic] any Affiliate

thereof for the provision of property, goods or services

to the Company, Provided that the price and terms for

such property, goods, or services are no less favorable

to the company than the price and terms for property,

goods, or services reasonably available from unrelated

Persons for comparable property, good or services in the

same geographic area.

(Id. at § 5.6.) Whether 407 Dearborn received services from

Horrell and his companies on terms comparable to what it would have

received from an unrelated company is a fact question that will

have to await further development in discovery.
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CONCLUSION

The defendants’ motion to dismiss Count I of the plaintiffs’

amended complaint [47] is denied. The defendants shall answer the

amended complaint by March 28, 2014. The parties shall serve their

Rule 26(a) disclosures by April 11, 2014. A status hearing is set

for April 23, 2014 at 11:00 a.m. to schedule further discovery. 

DATE: March 6, 2014

ENTER: ___________________________________________

John F. Grady, United States District Judge