IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

BOARD OF TRUSTEES OF THE

AUTOMOBILE MECHANICS’ LOCAL

NO. 701 UNION AND INDUSTRY

PENSION FUND,

Plaintiff,

v.

JOHN MORONI, an individual,

d/b/a WESTGATE AUTO SALES,

INC., d/b/a WEST GATE AUTO

SALES; SUSAN MORONI, an

individual; and MORONI AUTO

SALES, INC., an Illinois

Corporation, d/b/a WESTGATE

AUTO SALES, INC., d/b/a WEST

GATE AUTO SALES,

 Defendants.

Case No. 12 C 4783

Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

Before the Court is the Motion to Dismiss by Defendants John

Moroni (“Moroni”) and Moroni Auto Sales, Inc. (“Moroni Auto”). 

For the reasons stated herein, the Motion is granted in part and

denied in part.

I. BACKGROUND

All facts are taken from allegations in Plaintiff’s

Complaint unless otherwise indicated. Plaintiff Board of

Trustees of the Automobile Mechanics’ Local No. 701 Union and

Industry Pension Fund (“The Fund”) received a default judgment on
December 7, 2010 against Elmhurst Lincoln Mercury, Inc. (“ELM”)

in the amount of $1,086,330.60. The Honorable Blanche M. Manning

issued the judgment. The amount represents ELM’s withdrawal

liability owed to The Fund after ELM stopped contributing to it

in 2009. The Fund is governed by the Employee Retirement Income

Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., which gives

this Court jurisdiction.

Plaintiff alleges that ELM was 90 percent owned by the

David G. Mears Trust, whose beneficial owners were, in turn,

Susan Moroni (“Susan”) (56 percent of the trust) and John Moroni

(44 percent of the trust). David G. Mears owned 10 percent of

ELM stock. Susan is also a Defendant in this action and a

default judgment has already been entered against her.

Plaintiff alleges that in the fall of 2009, Moroni began

operating a sole proprietorship under the assumed names of West

Gate Auto Sales and Westgate Auto Sales Inc. (the “Moroni Sole

Proprietorship”). Later, on December 11, 2009, Moroni

incorporated the business under the name Moroni Auto Sales, Inc.

(“Moroni Auto”) with Moroni as its sole shareholder. Moroni Auto

continues to use the Westgate assumed names. Plaintiff’s

Complaint is a bit unclear as to the shift between the Moroni

Sole Proprietorship and Moroni Auto (it uses John Moroni’s name

interchangeably with the sole proprietorship), but it nonetheless

reasonably alleges that both the Moroni Sole Proprietorship and

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the later incorporated Moroni Auto are under common control with

ELM and therefore ELM, the Moroni Sole Proprietorship (and thus

Moroni himself) and Moroni Auto are a single employer under 29

U.S.C. § 1301(b)(1).

ELM was insolvent as of January 1, 2009 and Moroni and Susan

were both officers in ELM. In late 2009, Moroni and Susan began

diverting assets to the Moroni Sole Proprietorship, Moroni Auto

and themselves without first satisfying ELM’s corporate

obligations. The Moroni Sole Proprietorship, Moroni Auto and ELM

share common employees, tools, inventory, vehicles, equipment,

customer lists and corporate records. The Moroni Sole

Proprietorship and Moroni Auto have collected accounts due to

ELM. The Moroni Sole Proprietorship, ELM and Moroni Auto have

commingled assets and Plaintiff alleges the Moroni Sole

Proprietorship, Moroni Auto and ELM are alter-egos of one

another. Moroni Auto is merely a disguised continuance of ELM

and the Moroni Sole Proprietorship, Plaintiff alleges. Plaintiff

brings this three-count Complaint alleging (1) joint and several

single employer liability under 29 U.S.C. § 1301(b)(1),(2)

shareholder and director liability under the Illinois Business

Corporation Act, 805 ILL. COMP. STAT. 5/8.65(a)(1) and 9.10(C) and

(3) common law successor and alter ego liability.

Defendants seek dismissal under several theories arguing

Plaintiff (1) is barred by res judicata from maintaining this

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suit, (2) is barred by collateral estoppel, (3) has not stated a

claim for which relief can be granted (FED. R. CIV. P. 12(b)(6)),

(4) has not alleged sufficient facts to pierce the corporate

veil, and (5) has failed to allege facts sufficient to state a

claim that Moroni was a director of ELM.

II. LEGAL STANDARD

When evaluating dismissal under Rule 12(b)(6), the Court

takes all well-pleaded allegations of the complaint as true and

views them in the light most favorable to the plaintiff. Appert

v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, ---, 2012 U.S.

App. LEXIS 4834, at *29 (7th Cir. 2012). 

A claim has facial plausibility when a plaintiff pleads

factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct

alleged. Id. at *30. Determining whether a complaint states, a

plausible claim is context-specific, requiring the reviewing

court to draw on its experience and common sense. Ashcroft v.

Iqbal, 556 U.S. 662, 663-664 (2009).

III. ANALYSIS

A. Res Judicata and Collateral Estoppel

Res Judicata requires three elements to prohibit a

subsequent legal action: (1) identity of the parties or their

privies; (2) an identity of the cause of action; and (3) a final

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judgment on the merits. Matrix IV, Inc. v. American Nat. Bank

and Trust Co. of Chicago, 649 F.3d 539, 547 (7th Cir. 2011). 

Defendants here argue that Plaintiff’s own allegations states

that Defendants in this case are in privity with the defendants

in the underlying judgment.

Virtually the identical situation and argument were

presented in Central States, Southeast and Southwest Areas

Pension Fund, et al. v. Hayes, et al., 789 F.Supp. 1430 (N.D.

Ill. 1992). In that case, the Lincoln Transfer Company incurred

withdrawal liability and subsequently went bankrupt. Central

States obtained a consent judgment from two companies in the

Lincoln-controlled group, but those companies did not pay as

promised, so plaintiffs initiated a new suit against another

member of the Lincoln-controlled group, Chicago Heights Leasing. 

Chicago Heights argued res judicata and collateral estoppel

barred the action because Chicago Heights had not been named in

the suit against the other two Lincoln controlled companies. 

Judge John F. Grady properly scoffed at the defendants’

arguments.

Even if CHL. was in privity with Lincoln at the time of

the latter’s withdrawal from the Fund, so that res

judicata were applicable to the present claim, the

court fails to see how the doctrine would aid CHL. [the

defendant]; if anything, the doctrine would preclude

the court from relitigating the question of CHL.’S

liability, and this action would be reduced to a matter

of enforcing the judgment obtained by the Fund in the

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earlier against CHL.’S privies. . . . Because res

judicata would not help CHL . . . it is jointly liable

for the controlled group’s assessment if, on the merits

of the present action, it is in fact a member.”

Hayes, 789 F.Supp. at 1433 (internal citations omitted). In a

footnote, Judge Grady found the same logic applied to the

collateral estoppel issue. Id. at 1434 n.4. The Hayes court

went on to articulate that the new suit was not precluded because

it involved a different issue: whether the new defendants were

part of the debtor’s controlled group and thus liable for the

debtor’s withdrawal assessment. Judge Grady noted “[a]s a

creditor, the Fund [plaintiff] is not required to sue all of the

controlled group members in one action or lose its rights against

uncoiled parties; it may even sue each member separately if it

elects to.” Id. at 1434. 

The same is true here, and thus Defendants’ motion to

dismiss on res judicata and collateral estoppel grounds fails.

B. Failure to State a Claim Upon

Which Relief Cans Be Granted (12(b)(6))

Defendants argue that Plaintiff has not alleged sufficient

facts to support its causes of action.

1. ERISA Single Employer Liability

Two criteria must be met in order to impose an insolvent

organization’s liability upon another organization: (1) the

solvent organization must be under "common control" with the

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insolvent organization, and (2) it must be a "trade or business." 

Cent. States, S.E. and S.W. Areas Pension Fun v. King Auto Fin.,

Inc., No. 12-617, 2012 U.S. Dist. LEXIS 140688, at *7 (N.D. Ill.

Sept. 19, 2012). Common control can be demonstrated in several

ways, but the Court focuses here on whether the Moroni Sole

Proprietorship, Moroni Auto and ELM are “brother-sister” groups. 

A brother-sister group is one in which (1) “five or fewer persons

who are individuals, estates, or trusts” own a controlling

interest (at least 80 percent of the stock) in two or more

organizations and (2) the same persons maintain “effective

control” (at least 50 percent of the stock) over each

organization. Cent. States v. SCOFBP, LLC, 738 F.Supp.2d 840,

846 (N.D. Ill. 2010) (citing 26 C.F.R. § 1.414(c)-2).

Plaintiff has alleged Moroni and his spouse owned, through

a trust, 90 percent of ELM. Under ERISA regulations, as the

holder of a beneficiary interest of more than 5 percent of the

trust, Moroni is attributed ownership of essentially the entirety

of the trust. Id. Plaintiff alleges Moroni is 100 percent owner

of both the Moroni Sole Proprietorship and Moroni Auto. Thus,

under the allegations of the Complaint, Moroni holds both a

controlling interest and effective control over ELM, the Moroni

Sole Proprietorship and Moroni Auto.

Defendants argue in an affidavit that Moroni is not the sole

owner of Moroni Auto but rather is only a 50 percent stockholder. 

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While the Court may sometimes take notice of publicly filed

documents, such as incorporation papers, Moroni’s affidavit does

not fall into this category and would embroil the Court in an

issue of fact at the motion to dismiss stage, which is improper. 

Thus, the Court disregards Moroni’s affidavit. Under the

allegations of the Complaint, a cause of action has been stated

against Moroni Auto for single employer liability. Moroni is

properly a defendant as well, because ERISA regulations treat an

individual who owns the entire interest in an unincorporated

trade or business (in this case the Moroni Sole Proprietorship)

as his own employer. 29 C.F.R. 4001.3(a)(3).

2. Shareholder and Director Liability

under the Illinois Business Corporation Act

Plaintiff alleges liability under Sections 8.65(a)(1) and

9.10(c) of the Illinois Business Corporation Act (“BCA”). The

latter section prohibits distributions under certain

circumstances and the former section imposes liability upon

directors who authorize such distributions. 

Defendants object that Plaintiff has failed to allege that

Moroni was a director of ELM. This is true; Plaintiff alleged

Moroni was an officer and shareholder of ELM. Plaintiff responds

that courts have interpreted the statute to apply to officers as

well. Plaintiff cites Chicago Tile Institute Welfare Plan et al.

v. Tile Surfaces, Inc. et al., No. 04-4194, 2004 U.S. Dist. LEXIS

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21612 (N.D. Ill. Oct. 26, 2004). That case states in a footnote

that Illinois courts have interpreted “that section” as applying

to corporate officers. Id. at *4 n.1. The case cites Chicago

Title & Trust Co. v. Brooklyn Bagel Boys, Inc., 584 N.E.2d 142,

146 (Ill. App. Ct. 1992), and describes Brooklyn Bagel Boys as

holding a “secretary-treasurer of a corporation liable for debts

incurred during its dissolution pursuant to section 8.65(a)(3).” 

Id.

The Court has several problems with Plaintiff’s

extrapolation of this one citation. First, it is not clear that

the Tile Surfaces court’s reference to “that section” was meant

to encompass subsection 8.65(a)(1). In fact, by specifically

referencing “section 8.65(a)(3)” the Court believes the Tile

Surfaces court was, at best, referencing only subsection

8.65(a)(3), which refers to actions taken after dissolution,

which is not the issue in this case. (There is no allegation ELM

was dissolved during the relevant time period.) Moreover, this

Court respectfully disagrees with the Tile Surfaces court’s

interpretation of the underlying state court case, Brooklyn Bagel

Boys.

In Brooklyn Bagel Boys, individual liability was found

against the secretary-treasurer, but the case notes specifically

that “[t]he court also dismissed the complaints against Gorbena

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[the secretary-treasurer] . . . in [his] capacity as [a]

corporate officer[]. However, the trial court denied the motion

to dismiss claims against Gorbena . . . in his capacity[y] as [a]

corporate director[].” Brooklyn Bagel Boys, 584 N.E.2d at 144

(emphasis added). Thus, the Court does not find that Brooklyn

Bagel Boys stands for officer liability, as the case against

Gorbena as an officer was dismissed.

Moreover, Brooklyn Bagel Boys made its ruling of individual

liability in the context of not only subsection 8.65(a)(3) but

also subsection 12.45(d), which deals with the constructive

continuation of a corporation without interruption after it

reinstates its existence after a dissolution. Id. at 146. In

Brooklyn Bagel Boys, liability was incurred during the period

when the corporation was dissolved, and the Court merely ruled

that subsection 12.45(d) did not operate to negate individual

liability incurred during the period when the corporation was

dissolved. Accord Gonnella Baking Co. v. Clara’s Pasta Di Casa,

Ltd., 786 N.E.2d 1058, 1062 (Ill. App. Ct. 2003) (finding officer

liability during a period of dissolution). Plaintiff cites no

other case law that interprets Section 8.65(a)(3) as applicable

to officers (let alone Section 8.65(a)(1)), and the Court can

find none. In fact, Chief Judge James Holderman ruled explicitly

that 8.65(a)(3) did not apply to officers. Laborers’ Pension

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Fund v. Nationwide Envtl., No. 11-500, 2011 U.S. Dist. LEXIS

27727, at *4 (N.D. Ill. March 16, 2011) (“As a general matter,

the Business Corporation Act distinguishes between ‘directors’

and ‘officers.’ . . . Because, by its plain language, Section

8.65(a)(3) applies only to ‘directors,’ this statutory provision

cannot support Plaintiff’s cause of action.”). This Court

likewise finds that the plain language of Section 8.65(a)(1)

applies only to directors, not officers. Therefore, Count II is

dismissed.

3. Successor and Alter Ego Liability

Successor liability is a common law theory. It is gauged by

a modified test when nonpayment of ERISA benefits are involved. 

Feinberg v. RM Acquisition, LLC, 629 F.3d 671, 674 (7th Cir.

2011). 

[W]hen a claim arising from a violation of federal

rights is involved, the courts allow the plaintiff to

go against the purchaser of the violator’s business

even if it is a true sale . . . , provided that two

conditions are satisfied. The first is that the

successor had notice of the claim before the

acquisition. . . . The second condition is that there

be substantial continuity in the operation of the

business before and after the sale, and is satisfied if

no major changes are made in that operation.

Id. (ellipses in original).

Here, Plaintiff alleges there was a substantial transfer of

assets from ELM to the Moroni Sole Proprietorship and Moroni Auto

and that there was notice (via Moroni, the alleged de facto owner

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of all entities). Plaintiff has alleged there were no major

changes of operation through its allegations that the same

customer lists, customers, equipment and employees were used. 

Thus, successor liability is sufficiently pled.

Alter ego liability occurs when there is “such unity of

interests and ownership that the separate personalities of the

corporation and the individual no longer exist; and second,

circumstances must be such that an adherence to the fiction of

separate corporate existence would sanction a fraud or promote

injustice.” Cent. Ill. Carpenters Health & Welfare Trust Fund,

et al. v. Struben et al., 2009 U.S. Dist. LEXIS 14234, at *43-44

(C.D. Ill.) (Feb. 24, 2009) (citing Lumpkin v. Envirodyne Indus.,

933 F.2d 449, 463-464 (7th Cir. 1996)). Unity of interest and

ownership may be shown by evidence of several factors, with no

single one being determinative. Those factors include:

misrepresentation; commingling of funds, assets, or identities;

inadequate capitalization; failure to operate at arms’ length;

failure to comply with corporate formalities; failure to issue

stock; non-payment of dividends; insolvency of the corporation;

non-functioning of other officers or directors; absence of

corporate records; diversion of assets by or to a shareholder to

the detriment of creditors; failure to maintain arm’s length

relationships among related entities; and whether in fact the

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corporation is a mere facade for the operation of the dominant

shareholders. Struben, 2009 U.S. Dist. LEXIS 14234, at *44-45.

“The Seventh Circuit has cited with approval three general

factors ... in determining whether underlying objectives of the

alter ego doctrine have been satisfied: (1) the amount of

respect which the shareholders give to the separate entity; (2)

the fraudulent intent involved; and (3) the amount of injustice

which parties would suffer by respecting the corporate entity.” 

Struben, 2009 U.S. Dist. LEXIS 14234, at *45 (citing Lumpkin, 933

F.2d at 461).

Here, several unity of interest factors are alleged, such as

insolvency, commingling of assets, diversion of assets to a

shareholder to the detriment of creditors, failure to maintain

arms’ length relationship among related entities (by diverting

assets and resources from ELM to the Moroni Sole Proprietorship

and Moroni Auto) and that both the Moroni Auto is a mere facade

for Moroni. Furthermore, all three general factors are also

alleged. Plaintiff has alleged Moroni failed to give respect to

formalities of the separate entity, that the new companies were

established to permit ELM “to escape its contractual and

financial obligations to the Plaintiff,” (Compl. 8) and that

recognizing the corporate entity would result in an injustice and

fraud (deprivation of ERISA payments). This is sufficient to

survive a motion to dismiss.

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Defendants protest that Plaintiff has not laid out who,

where, when and how these diversions and commingling occurred. 

But that level of specificity is the standard of pleading

required for fraud (FED. R. CIV. P. 9(b)), and Defendants offer no

case law showing that level applies in this case. None of the

previously cited cases by this Court have required fact-based

pleading; this Court will not require it either. The Motion to

Dismiss Count III is denied.

IV. CONCLUSION

For the reasons stated herein, Count II of Plaintiff’s

Complaint is dismissed. Defendants’ Motion to Dismiss Counts I

and III is denied. Defendants must answer the remaining counts

within twenty-one (21) days of entry of this order.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge

United States District Court

DATE:10/25/2012

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