UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

DAVID ABRAMS, not individually but )

solely as the Liquidating Trustee and )

court-appointed manager of Heartland )

Memorial Hospital, LLC, and )

HEARTLAND MEMORIAL HOSPITAL, )

LLC, the Debtor, an Indiana limited )

liability company, )

) CAUSE NO.: 2:12-CV-19-TLS

Plaintiffs, )

)

 v. )

)

DLA PIPER (US) LLP, a Maryland )

limited liability partnership, )

)

Defendant. )

OPINION AND ORDER

This matter is before the Court on a Motion to Dismiss Counts V and VI of Second

Amended Complaint [ECF No. 17-2 at 54–56], originally filed on July 20, 2012, by the

Defendant, DLA Piper (US) LLP, as ECF No. 73 in Adversary Proceeding No. 09-02049-jpk.

On August 28, 2012, this Court granted the Defendant’s Renewed Motion to Withdraw

Reference [ECF No. 7] because claims for legal malpractice and breach of fiduciary duty were

pending before the bankruptcy court. Presently all six counts of the Second Amended Complaint

[ECF No. 17-2 at 2–36] are before this Court. But because the Court finds that Counts V and VI

of the Second Amended Complaint do not state claims upon which relief can be granted, the

Court will dismiss those counts without prejudice, with leave to re-file. 

PROCEDURAL BACKGROUND

In January 2007, creditors filed an involuntary Chapter 7 bankruptcy petition against the

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Debtor, Plaintiff Heartland Memorial Hospital, LLC. On March 2, 2007, the bankruptcy court

granted relief against the Debtor and converted the case to Chapter 11. On November 19, 2008,

the bankruptcy court confirmed the Debtor’s liquidating plan of reorganization and appointed

Plaintiff David Abrams as liquidating trustee. On February 26, 2009, Plaintiff Abrams filed a

Complaint against the Defendant in bankruptcy court, Adversary Proceeding No. 09-02049-jpk,

seeking to avoid $100,000 in allegedly preferential transfers and to disallow the Defendant’s claim

in the bankruptcy. On March 2, 2009, the Plaintiff filed an Amended Complaint against the

Defendant in Adversary Proceeding No. 09-02049-jpk, alleging four counts involving fraudulent

and preferential transfers. 

On March 3, 2009, the Plaintiff filed a Complaint against the Defendant in Case No.

09L002543 in the Circuit Court of Cook County, Illinois, alleging legal malpractice and breach of

fiduciary duty. On October 5, 2011, the Cook County judge dismissed that Complaint with

prejudice, finding that the liquidating plan required the Plaintiff to pursue legal malpractice claims

in the bankruptcy court. The Plaintiff filed a notice of appeal of the Cook County dismissal order

on October 14, 2011. 

On October 5, 2011, the Plaintiff filed his Amended Motion for Leave to File Second

Amended Complaint against the Defendant in Adversary Proceeding No. 09-02049-jpk, seeking to

add the claims for legal malpractice and breach of fiduciary duty to the other claims already before

the bankruptcy court, seeking to add a new party plaintiff to those counts, and seeking a

determination that the amendments to the complaint would relate back to February 26, 2009—the

date of the filing of the original Complaint in Adversary Proceeding No. 09-02049-jpk. 

On November 7, 2011, the Defendant filed its first Motion to Withdraw Reference [ECF

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No. 1], asking this Court to withdraw the reference from the bankruptcy court and to decide the

pending Amended Motion for Leave to File Second Amended Complaint. The Court denied the

Defendant’s request in an Opinion and Order dated May 15, 2012 [ECF No. 6], finding that

withdrawal of the reference was premature because claims for legal malpractice and breach of

fiduciary duty were not yet before the bankruptcy court. After the Court issued its May 15

Opinion and Order, the bankruptcy court granted the Plaintiff’s Amended Motion for Leave to

File Second Amended Complaint. Therefore, in an Opinion and Order dated August 28, 2012

[ECF No. 8], this Court granted the Defendant’s Renewed Motion to Withdraw Reference. 

On July 20, the Defendant filed a Motion to Dismiss Counts V and VI of Second

Amended Complaint [ECF No. 17-2 at 54–56] along with a Memorandum of Law in Support

[ECF No. 17-2 at 57–76]. The Plaintiffs filed a Response [ECF No. 13] on September 25, and

the Defendant filed a Reply [ECF No. 16] on October 15. 

The Defendant’s Motion to Dismiss Counts V and VI of Second Amended Complaint is

now fully briefed and ripe for this Court’s ruling. 

FACTUAL BACKGROUND

The Court draws the following facts from the Second Amended Complaint. See Hallinan

v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009) (stating that

“for purposes of the motion to dismiss we accept all factual allegations in the complaint and

draw all reasonable inferences from those facts” in favor of the plaintiffs). 

The Debtor is an Indiana limited liability company, formerly operating as a surgery

center and hospital located in Munster, Indiana. (2d Am. Compl. ¶ 2, ECF No. 17-2 at 3.) The

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Debtor was originally organized on or about February 16, 1999, under the name Illiana Surgery

Center, L.L.C. Beginning in 1999, the Debtor operated a number of for profit, physician-owned

healthcare practices in Indiana and Illinois. On or about May 18, 2006, the Debtor renamed itself

Heartland Memorial Hospital, LLC. The Defendant law firm is a Maryland limited liability

partnership with offices in Chicago, Illinois, and around the world. 

On or about June 6, 2002, iHealthcare, Inc., was formed and became the sole equity

owner of the Debtor. From 2002 until 2004, the Debtor undertook the construction of a 55-bed

ambulatory care facility in Munster, Indiana. The Debtor was unable to complete construction of

the facility, however, and thereafter “at all relevant times . . . [the Debtor] was insolvent.” (2d

Am. Compl. ¶ 18.) The Plaintiffs allege that from 2004 until October 2005, a management

committee for the Debtor—styled as the “Old Management”—managed the business affairs of

the Debtor. After October 2005, a group styled as the “New Management” managed the affairs

of the Debtor. The New Management included Leroy Wright and Alfred Sharp. 

The Munster Medical Holdings, LLC, Sale/Leaseback

On March 16, 2004, Thomas McDermott, Sr., loaned the Debtor approximately $2.5

million. McDermott held a fifty percent equity interest in Munster Medical Holdings, LLC. On

or about August 30, 2004, the Debtor sold the Munster hospital facility to Munster Medical

Holdings for $30 million, and agreed to lease the facility back for $298,723 per month for the

first five years. The Debtor gained a 25 percent interest in Munster Medical Holdings as part of

the transaction, which closed on or about December 22, 2004. The Debtor also had an option to

repurchase the real estate on certain terms and conditions. In December 2005, the Debtor gained

an additional 27.5 percent interest in Munster Medical Holdings. The Plaintiffs allege that the

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result of the Munster Medical Holdings Sale/Leaseback transaction was “to render [the Debtor]

insolvent.” (2d Am. Compl. ¶ 98.) From April to October 2005, the Debtor failed to pay

approximately $900,000 in employee withholding taxes to the Internal Revenue Service and the

Indiana Department of Revenue. It is undisputed that the Defendant was not in any way involved

in the Munster Medical Holdings, LLC, Sale/Leaseback transaction. 

The AIC Sale/Leaseback

In October 2005, Wright Capital Partners was an entity owned and controlled by Leroy

Wright. At that time, Wright Capital Partners loaned the Debtor $2.5 million in exchange for

Wright and his associates Alfred Sharp and Allen Hill being placed in control of the Debtor. The

Old Management agreed to this arrangement. Further, the shareholders of iHealthcare agreed to

sell their shares in iHealthcare to Wright Capital Partners for $25 million. Because Wright

Capital Partners did not have the necessary cash, however, the parties amended the purchase

agreement on March 24, 2006. Pursuant to the amended agreement, Wright Capital Partners

purchased the shares of iHealthcare through a “leveraged finance transaction or leveraged buyout transaction” (id. ¶ 29 (quotation marks omitted)) in which the Debtor sold substantial

portions of its ancillary real estate to an entity called AIC Holding V, LLP, for $18 or $19

million,1

 and then leased back those properties for $163,000 per month. Wright Capital Partners

used some of the proceeds generated from the Debtor’s sale/leaseback to purchase the shares of

iHealthcare from the iHealthcare shareholders, including the Old Management. The Plaintiffs

maintain that “[i]n effect, Wright Capital Partners purchased [the Debtor] with the proceeds from

1

Paragraph 88 of the Second Amended Complaint indicates that the Debtor sold the real estate for

$19 million, but Paragraph 115 indicates that the Debtor sold the real estate for $18 million. 

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the sale of [the Debtor’s] own assets.” (Id. ¶ 30.) 

Wright Capital Partners, Wright, Sharp, and/or Hill formed an entity called Wright

Health Systems, Inc., on or about September 28, 2005, and changed the name of said entity to

Heartland Memorial Holdings, Inc., on or about September 12, 2006. 

The Defendant served as legal counsel to Heartland Memorial Holdings and Wright

Capital Partners in conjunction with the AIC Sale/Leaseback transaction, and was paid

approximately $382,000 from the sale proceeds, “despite the fact that the merger agreement

required the parties to bear their own legal expenses.” (2d Am. Compl. ¶ 34.) Further, the AIC

Sale/Leaseback “resulted in the transfer of approximately $7.3 million of [the Debtor’s] assets to

the equity owners of iHealthcare.” (Id. ¶ 35.) 

The Plaintiffs allege that “[t]he Old Management knew and should have known that the

AIC/Leaseback transaction was entered into by [the Debtor] not for the benefit of [the Debtor]

and its creditors, but for the specific benefit of the Old Management, the owners of iHealthcare.

This transaction enriched the Old Management at the direct expense of [the Debtor] and its

creditors.” (Id. ¶ 118.) 

The Redemption Transaction

After the AIC Sale/Leaseback transaction, the New Management managed the affairs of

the Debtor, and the financial condition of the Debtor continued to deteriorate. The Debtor

continued to fail to pay employee withholding taxes. Shortly after the AIC Sale/Leaseback, the

Debtor owed $4 million to the Internal Revenue Service, and $500,000 to the Indiana

Department of Revenue. Nevertheless, the New Management authorized payment of $382,000 to

the Defendant for its representation of Wright Capital Partners in the AIC Sale/Leaseback

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transaction. 

Within four months of the AIC Sale/Leaseback, the Defendant stated that the financial

position of the Debtor was “perilous.” In a Memorandum addressed to Leroy Wright and dated

August 7, 2006, the Defendant stated that it had “evolved and proposed a transaction structure,

which, in [the Defendant’s] judgment, provided Wright Capital with a phenomenal upside and,

while exceedingly generous to Wright, permitted [the Debtor] with the greatest opportunity for

survivability.” (Mem., ECF No. 17-2 at 34.) The Defendant also threatened to send its

outstanding invoices to collections unless the Debtor either agreed to go forward with the

redemption transaction or proposed an alternative. Accordingly, the Debtor executed the

Defendant’s proposed redemption transaction, paying $300,000 to Wright Capital Partners in

order to allow Heartland Memorial Holdings, Inc., to redeem the equity interests of Wright

Capital Partners, Wright, and/or Sharp in Heartland Memorial Holdings, Inc. Another result of

the redemption transaction was removal of Wright from his ownership of the Debtor. Further, as

part of the transaction, the Second Amended Complaint alleges that the Debtor agreed to assume

and be responsible for payment of over $883,000 in the Defendant’s invoices reflecting work

performed for and on behalf of Wright Capital. The Second Amended Complaint additionally

alleges that “[o]n information and belief, [the Debtor] paid [the Defendant’s] outstanding

invoices for over $883,000 in or around September/October of 2006.” (2d Am. Compl. ¶ 38.)

However, according to documentation submitted along with the Second Amended Complaint, it

is Heartland Memorial Holding Company, Inc., and not the Debtor which became obligated to

pay $883,000 to the Defendant on or about September 1, 2006. (See Letter, ECF No. 17-2 at 36.) 

After the redemption transaction, the Debtor’s financial condition continued to

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deteriorate. 

The SSFHS Sale/Leaseback

On October 31, 2006, the Debtor sold the Munster hospital facility and most of its

operating equipment to the Sisters of St. Francis Health Services (SSFHS) for $42.8 million, and

leased the property back from SSFHS for approximately $500,000 per month. Because the

Debtor had previously sold the Munster facility to Munster Medical Holdings, LLC, it had to

first exercise its right to buy the facility back from Munster Medical Holdings, LLC, before it

could sell the facility to SSFHS. The Second Amended Complaint alleges that “[the Debtor]

received a disproportionately small portion of the proceeds from the SSFHS Sale/Leaseback

transaction due to the decision regarding the allocation of the purchase price between [the

Debtor] and insiders holding an interest in the facility through Munster Medical Holdings LLC.”

(2d Am. Compl. ¶ 45.) The New Management authorized transfer of a portion of its interest in

Munster Medical Holdings to a member of the New Management, resulting in significant

financial gain to that member pursuant to the SSFHS Sale/Leaseback. Finally, although the

Defendant “knew or should have known that [the Debtor’s] financial condition remained

perilous and that there were even more serious questions about its survivability and the financial

viability of [the Debtor] as an operating entity” (id. ¶ 45), the Plaintiffs allege that “on

information and belief, [the Defendant] received payments at or around the SSFHS closing, and

an additional $100,000 on January 3, 2007” (id.).

In Count V of the Second Amended Complaint, for legal malpractice, the Plaintiffs allege

that the Defendant represented the Debtor beginning with the AIC Sale/Leaseback transaction,

and breached its duty to the Debtor by: 1) providing “substantial legal assistance” in the AIC

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Sale/Leaseback transaction when it knew or should have known that the Debtor’s financial

viability was in doubt; 2) evolving and proposing the redemption transaction when it knew the

perilous financial condition of the Debtor; and 3) providing “substantial legal assistance” in the

SSFHS Sale/Leaseback transaction when it knew or should have known that the Debtor’s

financial condition remained perilous. (2d Am. Compl. ¶ 145.) Further, the Plaintiffs allege that

“[h]ad Heartland been properly and competently advised by [the Defendant], it would not have

engaged in the transactions described in the preceding paragraphs, or it would have engaged in

them only on terms that were in its interest.” (Id. ¶ 146.) 

In Count VI of the Second Amended Complaint, for breach of fiduciary duty, the

Plaintiffs allege that the Defendant owed fiduciary duties to the Debtor, “including the duty of

loyalty and the duty not to put its own interests or the interests of its other clients above those of

[the Debtor].” (Id. ¶ 149.) The Plaintiffs allege that the Defendant breached those duties by: 1)

“plac[ing] the interest of other clients, particularly Wright Capital Partners and its related

persons and entities above those of [the Debtor]”; and 2) “maneuver[ing] to have [the Debtor]

pay it for work that the firm performed for other clients.” (Id. ¶ 150.) 

STANDARD OF REVIEW

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the

sufficiency of the complaint and not the merits of the suit. Gibson v. City of Chi., 910 F.2d 1510,

1520 (7th Cir. 1990). The court presumes all well-pleaded allegations to be true, views them in

the light most favorable to the plaintiff, and accepts as true all reasonable inferences to be drawn

from the allegations. Whirlpool Fin. Corp., 67 F.3d 605, 608 (7th Cir. 1995). 

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The Supreme Court has articulated the following standard regarding factual allegations

that are required to survive dismissal:

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need

detailed factual allegations, a plaintiff’s obligation to provide the “grounds” of his

“entitlement to relief” requires more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action will not do. Factual allegations must

be enough to raise a right to relief above the speculative level, on the assumption that

all the allegations in the complaint are true (even if doubtful in fact). 

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotation marks, ellipsis, citations, and

footnote omitted). A complaint must contain sufficient factual matter to “state a claim that is

plausible on its face.” Id. at 570. “A claim has facial plausibility when the pleaded factual

content allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at

556). 

Although the court must accept as true all well-pleaded facts and draw all permissible

inferences in the Plaintiff’s favor, it need not accept as true “[t]hreadbare recitals of the elements

of a cause of action, supported by mere conclusory statements.” Iqbal, 556 U.S. at 678; see also

Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012) (stating that a court need not accept as true

“legal conclusions or conclusionary allegations that merely recite a claim’s elements”). Legal

conclusions can provide a complaint’s framework, but unless well-pleaded factual allegations

move the claims from conceivable to plausible, they are insufficient to state a claim. Iqbal, 556

U.S. at 680; see also Maddox v. Love, 655 F.3d 709, 718 (7th Cir. 2011). A plaintiff can also

plead himself out of court if he pleads facts that preclude relief. See Atkins v. City of Chi., 631

F.3d 823, 832 (7th Cir. 2011); Edwards v. Snyder, 478 F.3d 827, 830 (7th Cir. 2007); McCready

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v. Ebay, Inc., 453 F.3d 882, 888 (7th Cir. 2006). Finally, determining whether a complaint states

a plausible claim for relief requires a reviewing court to “draw on its judicial experience and

common sense.” Iqbal, 556 U.S. at 679. 

ANALYSIS

The Defendant’s Motion to Dismiss concerns only Counts V and VI of the Second

Amended Complaint. The Court will analyze these Counts in turn. Because it appears that

neither Count V nor Count VI states a claim upon which relief can be granted, the Court will

grant the Motion to Dismiss. 

A. The Plaintiffs’ Count V Claim for Legal Malpractice Fails to State a Claim Upon

Which Relief Can Be Granted

The Defendant argues in its Motion that Count V should be dismissed because it fails to

state a claim upon which relief can be granted under Rule 12(b)(6). Specifically, the Defendant

argues that the Plaintiffs’ Count V claim for legal malpractice is wanting because rather than

alleging that the Defendant rendered deficient legal services, it attempts to hold the Defendant

responsible for the Debtor’s poor business decisions. Lawyers do not owe a legal duty to protect

clients from making poor business decisions, the Defendant argues, and therefore the Plaintiffs’

claim for legal malpractice must be dismissed under Rule 12(b)(6). The Plaintiffs respond that

they have alleged more than a failure to give business advice. The Plaintiffs insist that their

allegations that the Defendant provided legal services structuring transactions designed to

bankrupt the Debtor to the benefit of insider shareholders, while the Defendant knew or should

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have known that the Debtor’s financial condition was perilous, state a claim for legal

malpractice. The Defendant replies that the Plaintiffs are attempting to recharacterize their

allegations into a conspiracy to loot the Debtor or an actual fraud on the Debtor, but that the

Plaintiffs’ allegations in the Second Amended Complaint do not state such claims. Instead, the

Defendant argues, the Plaintiffs have attempted to allege legal malpractice in connection with the

provision of legal services but have not alleged that the Defendant breached a duty of care in the

provision of its legal services. 

“To establish legal malpractice, a plaintiff must prove the existence of an attorney-client

relationship; a duty arising from that relationship; a breach of that duty; a proximate causal

relationship between the breach of duty and the damages sustained; and actual damages.” Glass

v. Pitler, 657 N.E.2d 1075, 1078 (Ill. App. Ct. 1995) (citing Metrick v. Chatz, 639 N.E.2d 198

(Ill. App. Ct. 1994) and Skorek v. Przybylo, 628 N.E.2d 738 (Ill. App. Ct. 1993)). See also In re

Estate of Lee, 954 N.E.2d 1042, 1046 (Ind. Ct. App. 2011) (setting out the elements for a claim

of legal malpractice).2

The Court agrees with the Defendant that the Plaintiffs’ allegations fail to state a claim

for legal malpractice upon which relief can be granted because the Plaintiffs have failed to plead

that the Defendant breached a duty it owed to the Debtor. The Plaintiffs allege that the

Defendant committed legal malpractice by: 1) providing “substantial legal assistance” in the AIC

2

The Parties agree that the laws of Illinois and Indiana do not differ on either legal malpractice or

breach of fiduciary duty. Because “a malpractice claim against a firm’s lawyer is determined by the law

of the state where the services are performed,” In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1018

(7th Cir. 2002), the Court will apply the substantive law of Illinois—the state where the Defendant’s

attorneys performed the legal services in question—although it appears the parties are correct that there is

no conflict. 

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Sale/Leaseback transaction in which the Debtor paid the Defendant $382,000 for its legal fees

when the Defendant “knew or should have known that there were serious questions about the

financial viability of [the Debtor] as an operating entity”; 2) evolving and proposing the

redemption transaction in which the Debtor agreed to pay the Defendant over $883,000 for legal

services performed for Wright Capital when the Defendant knew that the Debtor’s financial

condition was “perilous”; and 3) providing “substantial legal assistance” in the SSFHS

Sale/Leaseback transaction when the Defendant “knew or should have known that [the Debtor’s]

financial condition remained ‘perilous.’” The Plaintiffs allege generally that each of these

transactions was disadvantageous to the Debtor’s financial position, which the Plaintiffs

characterize at all relevant times as insolvent. The Court agrees that the Plaintiffs have not stated

a claim for legal malpractice in any of these instances because the Plaintiffs have failed to

plausibly plead that the Defendant breached its duties to the Debtor. The Plaintiffs’ claims

against the Defendant are that the Defendant provided legal assistance and proposed a

transaction, not that the legal services provided were in any way deficient. The Plaintiffs do not

suggest that the Defendant breached a standard of care in the legal services it provided; rather,

the Plaintiffs are alleging, in essence, that the Defendant should not have provided legal services

at all because the transactions were disadvantageous to the Debtor, and because the Defendant

represented the Debtor. The Plaintiffs also allege, however, that the Debtor itself approved every

legal action taken by the Defendant on behalf of the Debtor. The advice the Plaintiffs challenge,

then, is not the legal advice provided by the Defendant. Rather, the Plaintiffs are challenging the

Defendant’s failure to give the Debtor business advice—specifically, the Defendant’s failure to

advise the Debtor against engaging in the AIC Sale/Leaseback transaction, the redemption

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transaction, and the SSFHS Sale/Leaseback transaction. Such allegations do not state a claim for

legal malpractice. 

The Seventh Circuit discussed a similar situation in Maxwell v. KPMG LLP, 520 F.3d

713 (7th Cir. 2008). In a bankruptcy case where a Chapter 7 trustee sued the auditors who had

audited a portion of the bankrupt entity, the Maxwell court discussed the professional duty owed

by an auditor: 

It was the duty to protect creditors of and investors in [the bankrupt company] from

being misled to their harm by financial statements issued by [the bankrupt company]

that contained errors that would be material to a creditor or an investor. It was not

a duty to give the company business advice, such as advice on whether to acquire

another company. The knowledge required to give such advice is possessed by the

business itself and by business-consulting firms, as distinct from auditors. 

Id. at 716–17. Concluding that the bankrupt company “wants to make its auditor the insurer

against the folly (as it later turned out) of a business decision . . . unrelated to what an auditor is

hired to do,” the Maxwell court stated that “[n]othing in Illinois law permits such an attempt to

succeed.” Id. at 717. Similarly, in In re Greater Southeast Community Hospital Corp., 333 B.R.

506 (Bankr. D.D.C. 2005), the court rejected legal malpractice claims by a bankruptcy trustee

against lawyers where the complaint alleged that the lawyers “fail[ed] to inform the Debtors of

the consequences associated with the Debtors’ deepening insolvency,” id. at 529. The Court

found that such a claim failed as a matter of law because the attorney client relationship did not

include “business advice given to the Debtors. Rather, the [lawyers] had an obligation to exercise

reasonable care only with respect to their legal advice.” Id. Further, the court stated that “a

company’s acquisition of additional debt, by itself, is not a legal wrong, and therefore has no

‘consequences’ for the company of a legal nature.” Id. at 530. 

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The Court agrees that the Defendant did not have a duty to give the Debtor business

advice as to the advisability of its business transactions. The Plaintiffs assert that the directors of

the Debtor approved each of the transactions about which the Plaintiffs complain. It was the

directors of the Debtor, and not the Defendant, who possessed the knowledge necessary to give

business advice. Maxwell, 520 F.3d at 716–17. The Second Amended Complaint is devoid of

allegations that can sustain a claim for legal malpractice. 

The Plaintiffs insist that they have pled more than a failure to give proper business

advice. They argue that they have alleged the Defendant acted as part of a conspiracy with the

insiders of the Debtor to defraud the Debtor itself to the benefit of the insiders and the

Defendant. The Plaintiffs insist this conspiracy to loot the Debtor makes out a claim for legal

malpractice. But the Court finds that the Plaintiffs are now attempting to stretch the allegations

of the Second Amended Complaint too far. The Second Amended Complaint alleges that the

Defendant committed legal malpractice by providing legal services that were disadvantageous to

the Debtor in the AIC Sale/Leaseback transaction, by evolving and structuring the redemption

transaction which was disadvantageous to the Debtor, and by providing legal services that were

disadvantageous to the Debtor in the SSFHS Sale/Leaseback transaction. Nowhere does the

Second Amended Complaint contain an allegation that the Defendant participated in a

conspiracy with insiders of the Debtor to loot its assets. The Second Amended Complaint does

allege that the Defendant knew that the Debtor’s financial condition was perilous when it

performed the legal services in question. But providing legal services to an insolvent client under

the approval of its directors and actively conspiring to loot the assets of a client are two very

different things. The Second Amended Complaint alleges the former without alleging the latter. 

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Consequently, the authorities cited by the Plaintiffs in support of their arguments are

distinguishable because they concern cases where the lawyers were alleged to have participated

in fraudulent conduct. See Kopka v. Kamensky & Rubenstein, 821 N.E.2d 719, 725 (Ill. App. Ct.

2004) (noting that under Illinois law there is no “per se bar that would prevent imposing liability

upon attorneys who knowingly and substantially assist their clients in the commission of a tort”);

Thornwood, Inc. v. Jenner & Block, 799 N.E.2d 756, 769 (Ill. App. Ct. 2003) (overturning

dismissal of claims against law firm for aiding and abetting a breach of fiduciary duty, aiding

and abetting a scheme to defraud, and aiding and abetting a scheme of fraudulent inducement);

Dempsey v. Sternik, 498 N.E.2d 310, 312–13 (Ill. App. Ct. 1986) (upholding finding that

attorney was involved in a conspiracy). The Plaintiffs also discuss Clark v. Allen, 139 F.3d

888(4th Cir. 1998) (Table) , a case in which the Fourth Circuit upheld a jury finding of

professional negligence by attorneys because there was evidence that they breached the standard

of care for attorneys. As the Defendant notes, the Plaintiffs have not alleged that the Defendant

breached the standard of care in the legal advice it provided to the Debtor. Further, Clark

involved attorneys who were also corporate insiders who breached their fiduciary duties to the

corporation. There is no allegation that attorneys from the Defendant were also corporate

insiders of the Debtor. Thus, the Court finds Clark distinguishable from the Plaintiffs’ legal

malpractice claim. 

The Plaintiffs also discuss at length the case of In re JTS Corp., 305 B.R. 529 (Bankr.

N.D. Cal. 2003). In JTS, a bankruptcy trustee sued a lawyer who represented the debtor in a real

estate transaction for failing to advise the debtor that it was selling certain real estate for $5–6

million less than its appraised value. The court found the attorney liable for legal malpractice. Id.

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at 552. The JTS court stated that “attorneys should be prepared to volunteer legal opinions when

necessary to further a client’s objectives and should provide advice regarding alternatives where

the failure to consider them could result in adverse consequences.” Id. Notably, the JTS court

found that it was “reasonable to conclude from the evidence that [the debtor] would have acted

differently if it had been cautioned that a sale at less than fair market value might breach duties

[the debtor] owed to its creditors.” Id. The Plaintiffs insist that just as the attorney in JTS should

have given preemptive legal advice, so the Defendant should have advised the Debtor of the

consequences of its transactions. The Court distinguishes JTS for two reasons. First, as the

Defendant argues, JTS turned on negligence in legal advising which breached the standard of

care because of legal advice that was not given. But the Plaintiffs have not alleged that the

Defendant should have given additional legal advice. Rather, as discussed above, the Plaintiffs

allege that the Defendant should have given additional business advice. The Plaintiffs have failed

to allege that the advice not given by the Defendant was legal advice as in JTS. Second, the JTS

holding depended on the reasonable inference that the debtor would have acted differently if it

had been properly advised by the lawyer. The Second Amended Complaint allows for no such

inference. On the contrary, the Second Amended Complaint contains allegations that the Old

Management and the New Management purposely took actions detrimental to the financial

welfare of the Debtor. It is not a reasonable inference from the Second Amended Complaint that

these insiders would have acted differently if the Defendant had advised them that certain

financial transactions would be disadvantageous to the Debtor. Instead, the Second Amended

Complaint alleges that these insiders engaged in the transactions precisely because they were

disadvantageous to the Debtor. For these reasons, the Court finds In re JTS Corp.

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distinguishable. 

The Plaintiffs raise a number of additional arguments. The Plaintiffs argue that the

Defendant owed its duty to the Debtor, and not to its insiders. Diamond Mortg. Corp. of Ill. v.

Sugar, 913 F.2d 1233, 1248 (7th Cir. 1990). This is true, but is not sufficient to state a claim that

the Defendant breached its duty to the Debtor. The Plaintiffs argue that the Defendant owed a

higher duty to the Debtor because it is a fair inference that the Defendant knew of the Debtor’s

perilous financial condition from the beginning of the Defendant’s involvement in the Debtor’s

affairs. The only authority the Plaintiffs cite for this proposition is Willner’s Fuel Distributors,

Inc. v. Noreen, 882 P.2d 399 (Alaska 1994). The Noreen court held that “if an attorney

represents both a dissolved or insolvent corporation and a director or officer of that firm, and if

the attorney controls corporate assets, then the attorney must protect the financial rights of

creditors to these assets.” Id. at 406. Because there is no suggestion that the Defendant actually

controlled the assets of the Debtor, the Court finds the Noreen court’s holding distinguishable

from the Plaintiffs’ allegations. 

The Plaintiffs argue that whether the Defendant owed a duty to give business advice or

not, it was liable for the advice it gave once it “evolved and proposed” the redemption

transaction (Mem., ECF No. 17-2 at 34), volunteering business advice concerning the

survivability of the Debtor. See Praxair, Inc. v. Hinshaw & Culbertson, 235 F.3d 1028, 1031

(7th Cir. 2000) (“A law firm . . . that represents itself to have special competence in a particular

matter commits itself to a standard of care above the average for the profession as a whole.”).

The Defendant responds that nothing about proposing the redemption transaction distinguished it

from a law firm’s normal function—providing legal advice. The Court agrees that, based on the

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pleadings, it appears that the Defendant’s proposal concerning the redemption transaction did not

create a special duty on the part of the Defendant. Indeed, the Defendant did not overstate the

redemption transaction’s potential for success, merely stating that in the Defendant’s judgment

the redemption transaction provided the Debtor “the greatest opportunity for survivability.”

Thus, proposing the redemption transaction did not suggest a special competence on the part of

the Defendant, and created no special duty. 

Finally, the Plaintiffs argue that the Defendant had a conflict of interest in the redemption

transaction sufficient to call that transaction into question. In support, they cite Klaskin v.

Klepak, 534 N.E.2d 971, 975 (Ill. App. Ct. 1989), a case discussing financial transactions

between attorneys and clients. The Court finds that nothing in Klaskin calls into question the

redemption transaction, which, as discussed below, was not a transaction between the Defendant

and the Debtor. As the Defendant argues, the document produced by the Plaintiffs as part of the

Second Amended Complaint shows that the Debtor was not a party to the redemption

transaction. Accordingly, the Court finds that the Second Amended Complaint does not plausibly

suggest a conflict of interest in the redemption transaction sufficient to heighten the Defendant’s

duty or call the transaction into question. 

The allegations in Count V of the Second Amended Complaint are that the Defendant

committed legal malpractice by providing legal services and by evolving and proposing a

transaction. The Second Amended Complaint does not allege that the Defendant breached the

standard of care by providing deficient legal advice. The Second Amended Complaint does not

allege that the Defendant “facilitated (and later participated in) the looting of its client.” (Pls.’

Resp. 12, ECF No. 13.) It is not a reasonable inference from the pleadings that the Defendant

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engaged in a conspiracy to loot the assets of the Debtor. Rather, the pleadings reasonably suggest

that the insiders of the Debtor engaged in various transactions knowing full well that they would

be financially disadvantageous to the Debtor, and would not have acted differently even if the

Defendant had advised against them. Because the Second Amended Complaint does not

plausibly suggest legal malpractice by the Defendant, the Court will grant the Motion to Dismiss

concerning Count V. 

B. The Plaintiffs’ Count VI Claim for Breach of Fiduciary Duty Fails to State a Claim

Upon Which Relief Can Be Granted

The Defendant argues that Count VI of the Second Amended Complaint should also be

dismissed pursuant to Rule 12(b)(6). Specifically, the Defendant argues that the Plaintiffs’ Count

VI claim for breach of fiduciary duty is deficient because it does not state how the Defendant

placed the interests of Wright Capital above the interests of the Debtor, or how it “maneuvered

to have [the Debtor] pay for work that the firm performed for other clients.” The Defendant

argues that the Plaintiffs have failed to plead facts plausibly stating a claim for breach of

fiduciary duty. Further, the Defendant argues, the Second Amended Complaint fails to state a

claim for breach of fiduciary duty concerning the redemption transaction because the document

produced by the Plaintiffs and attached to the Second Amended Complaint shows that the Debtor

was not a party to the redemption transaction. The Plaintiffs respond that the Defendant breached

its fiduciary duty of loyalty and its fiduciary duty not to prefer its own interests or the interests of

another client over the interests of the Debtor. The Plaintiffs argue that the Defendant breached

these duties in the redemption transaction by ensuring that the Debtor paid $883,000 to the

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Defendant for work the Defendant had performed for Wright Capital, thus preferring both its

own interests and those of Wright Capital to those of the Debtor. The Plaintiffs argue that the

Defendant breached these duties in the AIC Sale/Leaseback transaction by structuring a

transaction that benefitted Wright Capital and not the Debtor, and by receiving from the Debtor

$382,000 in legal fees for work performed for Wright Capital and Heartland Memorial Holdings,

even though parties to the transaction were to bear their own legal fees. The Defendant replies

that it could not have breached a fiduciary duty to the Debtor by structuring the redemption

transaction, to which the Debtor was not a party. The Defendant also replies concerning the AIC

Sale/Leaseback transaction that the transaction did benefit the Debtor, and that the claimed

breach of fiduciary duty is insufficient to state a claim upon which relief can be granted. 

To state a cause of action for breach of fiduciary duty, a plaintiff must allege: “(1) a

fiduciary duty on the part of the defendant and (2) a breach of that duty that (3) proximately

caused (4) an injury.” Visvardis v. Ferleger, 873 N.E.2d 436, 442 (Ill. App. Ct. 2007) (citing In

re Estate of Lis, 847 N.E.2d 879, 885 (Ill. 2006)).3

The Plaintiffs allege that the Defendant breached its fiduciary duty to the Debtor in the

AIC Sale/Leaseback transaction by structuring a deal that benefitted Wright Capital to the

detriment of the Debtor. The Court agrees with the Defendant that these allegations of the

Second Amended Complaint are insufficient to state a claim upon which relief can be granted.

Most notably, the Plaintiffs argue that the AIC Sale/Leaseback allowed Wright Capital to

purchase an ownership interest in the Debtor “without risking its own money.” (Pls.’ Resp. 14.)

3

As noted above, the parties agree that the law in Indiana and Illinois does not differ with respect

to legal malpractice or the breach of a fiduciary duty. For the reasons discussed above, the Court will

apply the law of Illinois. 

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But as the Defendant notes, this is not true. Wright Capital loaned the Debtor $2.5 million of its

own funds. Thus, although Wright Capital purchased iHealthcare with funds generated from the

AIC Sale/Leaseback, it is not accurate to state that Wright Capital did not risk its funds on the

success of the Debtor. It appears from the pleadings that the Debtor, Wright Capital, and the

Defendant all benefitted from the AIC Sale/Leaseback transaction. Further, it appears that the

Debtor itself approved the transaction. Nothing about the allegations in the Second Amended

Complaint sets forth the breach of a fiduciary duty by the Defendant as part of the AIC

Sale/Leaseback. Therefore, the Plaintiffs have failed to state a claim for breach of fiduciary duty

concerning the AIC Sale/Leaseback transaction. 

The Plaintiffs allege that the Defendant breached its fiduciary duty to the Debtor in the

redemption transaction by structuring a deal in which the Debtor became obligated to pay the

Defendant $883,000 in legal fees for work that the Defendant had performed for Wright Capital.

The Court agrees with the Defendant, however, that the document setting forth the details of the

redemption transaction states that Heartland Memorial Holding Company, Inc., and not the

Debtor, “shall assume and be responsible for payment of” the Defendant’s invoices. (Letter, ECF

No. 17-2 at 36.) Thus, although the Plaintiffs allege that the Debtor became obligated to pay

Wright Capital’s legal bills, the Plaintiffs have pled themselves “out of court by pleading facts

that show that [they have] no legal claim.” Atkins, 631 F.3d at 832. The Plaintiffs’ own

document shows that the Debtor was not a party to the redemption transaction; it is, therefore,

not a reasonable inference to be drawn in favor of the Plaintiffs that the Debtor became obligated

to pay the Defendant’s legal fees as part of the redemption transaction. 

As to the Plaintiffs’ allegation that “on information and belief” the Debtor actually paid

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legal invoices for over $883,000 to the Defendant (2d Am. Compl. ¶ 38), it is insufficient to state

a claim for breach of fiduciary duty. The Plaintiffs have not alleged that the Debtor paid legal

fees to the Defendant because the Defendant breached a fiduciary duty to the Debtor. Instead, the

Plaintiffs have alleged that Heartland Memorial Holding Company, Inc., became obligated to

pay the Defendant’s legal invoices and that the Debtor actually paid them. The pleadings do not

plausibly allege that the Defendant preferred its own interests or the interests of Wright Capital

to those of the Debtor in the redemption transaction because the pleadings show that the Debtor

was not a party to the redemption transaction at all. Heartland Memorial Holding Company

agreed to pay the invoices. The Plaintiffs argue that the document setting out the details of the

redemption transaction was addressed to a representative of the Debtor at the time the Defendant

represented the Debtor. But the Court finds these details to be irrelevant because the meaning of

the document is clear concerning the redemption transaction. The pleadings do not plausibly

suggest that the Defendant breached a fiduciary duty to the Debtor when the pleadings show that

the Debtor was not a party to the redemption transaction, and that another party became

obligated for the payments about which the Plaintiffs complain. Thus, the Second Amended

Complaint fails to state a claim upon which relief can be granted concerning the redemption

transaction. 

C. The Doctrine of In Pari Delicto

The Defendant argues that Counts V and VI of the Second Amended Complaint should

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also be dismissed because they are barred by the doctrine of in pari delicto.

4

 The Seventh Circuit

has described this equitable defense as “the idea that, when the plaintiff is as culpable as the

defendant, if not more so, the law will let the losses rest where they fell.” Peterson v. McGladrey

& Pullen, LLP, 676 F.3d 594, 596 (7th Cir. 2012). Both Illinois and Indiana recognize the

defense of in pari delicto. See King v. First Capital Fin. Servs. Corp., 828 N.E.2d 1155, 1173

(Ill. 2005); Theye v. Bates, 337 N.E.2d 837, 844 (Ind. Ct. App. 1975). However, under the

adverse interest exception, in pari delicto does not apply if “the corporate officers act entirely for

their own interests and the actions do not benefit the corporation.” Grede v. McGladrey & Pullen

LLP, 421 B.R. 879, 886 (Bankr. N.D. Ill. 2009). But any benefit to the debtor—however

slight—works to revoke the adverse interest exception. In re Scott Acquisition Corp., 364 B.R.

562, 568 (Bankr. D. Del. 2007) (“[C]ourts do not apply the adverse interest exception unless the

agent acts entirely in his or her own interest with no benefit to the principal.”). The sole-owner

doctrine also works to prevent application of the adverse interest exception. This doctrine applies

when the agent has “unbreakable communication with his principal.” McRaith v. BDO Seidman,

LLP, 909 N.E.2d 310, 333 (Ill. App. Ct. 2009). In such a circumstance, where “the looting agent

and his principal are one and the same, the principal clearly has knowledge of its agent’s actions

at all times,” id., and therefore “it is only fair to impute the self-dealing conduct of the looter to

the looted corporation,” id. (quoting Reider v. Arthur Anderson, LLP, 784 A.2d 464, 472 (Conn.

Super. Ct. 2001)). 

4

“[T]he [L]atin phrase in pari delicto literally means of equal fault. The expression in pari delicto

is a portion of the longer Latin sentence, In pari delicto potior est conditio defendentis, which means that

where the wrong of both parties is equal, the position of the defendant is the stronger.” Baker O’Neal

Holdings, Inc. v. Ernst & Young LLP, No. 1:03-CV-0132-DFH, 2004 WL 771230, at *7 (S.D. Ind. Mar.

24, 2004) (quotation marks and citations omitted). 

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The Defendant urges that in pari delicto bars the Plaintiffs’ claims in Counts V and VI

because directors of the Debtor approved of the AIC Sale/Leaseback transaction, the redemption

transaction, and the SSFHS Sale/Leaseback transaction. Thus, Plaintiff Heartland Memorial

Hospital (the Debtor) may not assert claims against the Defendant. Further, the Defendant

argues, because Plaintiff Abrams (the Trustee) stands in the place of the Debtor under the

bankruptcy code, his claims against the Defendant are also barred just as if they had been

asserted by the Debtor. Finally, the Defendant argues that the adverse interest exception to in

pari delicto is not applicable because the Second Amended Complaint alleges that the Debtor

received some benefit from the alleged wrongdoing, and because the directors of the Debtor

were one and the same as the Debtor under the sole-owner doctrine. The Plaintiffs argue in

response that, on public policy grounds, Illinois courts would not apply in pari delicto against an

innocent trustee, and therefore this Court should also not apply the doctrine against Plaintiff

Abrams. The Plaintiffs also respond that the adverse interest exception to in pari delicto should

apply because the insiders were acting adversely to the interests of the Debtor, and because the

sole-owner doctrine does not apply. The Defendant replies that the Seventh Circuit has squarely

held that a defendant may assert an in pari delicto defense against a bankruptcy trustee in

Illinois. 

As discussed below, the Court finds, first, that the Defendant may assert the defense of in

pari delicto against the Plaintiffs; but second, that application of in pari delicto would be

premature at this stage of the proceedings. 

1. Illinois Law Supports Application of In Pari Delicto to a Bankruptcy Trustee

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The Plaintiffs’ first argument against in pari delicto is that it should not apply against an

innocent bankruptcy trustee. Citing Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995), the

Plaintiffs argue that in pari delicto “does not serve [its] equitable purpose when the wrongdoer

has been removed and will not profit from the lawsuit.” (Pls.’ Resp. 20.) Presumably the

Plaintiffs are referring to the Seventh Circuit’s statement in Scholes that “the defense of in pari

delicto loses its sting when the person who is in pari delicto is eliminated,” Scholes, 56 F.3d at

754. Pointing to decisions of Illinois courts that have limited application of the doctrine of in

pari delicto on public policy grounds, including litigation involving the Debtor and Plaintiff

Abrams, the Plaintiffs urge that Illinois courts would not apply the doctrine as against the

Trustee and therefore this Court should also not apply in pari delicto. The Defendant replies that

the Plaintiffs misunderstand the Seventh Circuit’s recent holding in Peterson v. McGladrey &

Pullen, LLP, 676 F.3d 594 (7th Cir. 2012). 

In Peterson, the court vacated and remanded a district court’s dismissal of claims against

the auditors for bankrupt mutual funds. The district court had dismissed the claims on the basis

of in pari delicto, but the Seventh Circuit found that the dismissal relied on an inappropriate

inference by the district court. As part of its analysis, the court also addressed whether a federal

bankruptcy trustee is susceptible to the defense of in pari delicto at all. The court began by

noting that “Illinois would allow the defense if a receiver for the [bankrupt mutual funds] were

suing under state law.” Id. at 597. The court continued by discussing § 541(a) of the bankruptcy

code, 11 U.S.C. § 541(a), outlining the property contained in a bankruptcy estate. Noting that

“an estate in bankruptcy includes all of the debtor’s ‘property’, a word that comprises legal

claims,” the court stated that “‘property’ normally is defined by state law—and in Illinois a claim

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for damages is limited by defenses such as in pari delicto.” Peterson, 676 F.3d at 598. Affirming

that state law and not federal bankruptcy law defines the “property” entering a bankruptcy estate,

and noting that the federal judiciary may not create limits to state law legal claims under current

United States Supreme Court precedents, the court held as follows: 

We therefore agree with the conclusion of every other court of appeals that has

addressed this subject and hold that a person sued by a trustee in bankruptcy may

assert the defense of in pari delicto, if the jurisdiction whose law creates the claim

permits such a defense outside of bankruptcy. 

Id. The court also noted that its statement from Scholes, that “the defense of in pari delicto loses

its sting when the person who is in pari delicto is eliminated,” Scholes, 56 F.3d at 754, was

“dictum,” Peterson, 676 F.3d at 599. The Peterson court distinguished Scholes because Scholes

was decided under Illinois state law concerning a receivership, because “Scholes was not a

bankruptcy proceeding,” and because “Scholes did not entail a pari delicto defense.” Id.

The Court agrees with the Defendant that Peterson squarely holds that a defendant may

assert the defense of in pari delicto against a bankruptcy trustee in Illinois. The State of Illinois

recognizes the defense of in pari delicto. Id. at 597. Accordingly, it appears that if the Debtor

were suing the Defendant outside of bankruptcy, the Defendant could assert the defense of in

pari delicto against the Debtor under Illinois law, and the Plaintiffs have not suggested

otherwise. Therefore, under the holding in Peterson, the Defendant may assert the defense of in

pari delicto against the Trustee, Plaintiff Abrams. Further, as the Defendant notes, the Debtor is

a named plaintiff in this action and the Plaintiffs have offered no argument for why the

Defendant cannot assert in pari delicto against the Debtor. Accordingly, the Defendant may

properly assert the defense of in pari delicto against both Plaintiffs in this federal cause of

action. The Plaintiffs’ arguments to the contrary are unpersuasive. The Peterson court noted that

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some Illinois courts have limited the doctrine of in pari delicto for public policy reasons, but also

noted that public policy is not a basis for limiting the definition of state law claims and defenses

given precedents of the United States Supreme Court. See Peterson, 676 F.3d at 598. Because

Illinois would allow the Defendant to assert the defense of in pari delicto against the Debtor, and

because the Trustee stands in the same position as the Debtor pursuant to § 541 of the

bankruptcy code, the Peterson holding clearly allows the Defendant to assert the defense of in

pari delicto against the Trustee as well. 

2. It Would Be Premature to Apply the Doctrine of In Pari Delicto

The Plaintiffs argue that application of in pari delicto is premature at the motion to

dismiss stage. In support, they cite Diamond Mortgage Corp. of Illinois v. Sugar, 913 F.2d 1233

(7th Cir. 1990), in which the Seventh Circuit declined to dismiss claims of legal malpractice and

breach of fiduciary duty under the doctrine of in pari delicto where “substantial question”

remained regarding the alleged fraud, id. at 1248, and where the facts of the case were

“insufficiently developed,” id. at 1248 n.14. The Defendant does not respond to the Plaintiffs’

argument on this point. The Court finds that the Plaintiffs are correct. It would be inappropriate

to apply the doctrine of in pari delicto at this stage of the proceedings. Substantial questions

remain concerning the relationship of the Defendant to the directors of the Debtor and to other

parties, and concerning the defrauding of the Debtor. Morever, the record is insufficiently

developed to apply an equitable doctrine that could have the effect of foreclosing all claims. The

Court will take up the question of the in pari delicto defense at the appropriate stage in this

litigation, upon request by the Defendant. Accordingly, the Court will not grant the Defendant’s

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Motion to Dismiss on the basis of the doctrine of in pari delicto, and the Court need not discuss

the application of that doctrine, the adverse interest exception, or the sole-owner doctrine. 

D. Opportunity to Amend

A court “should freely give leave [to amend pleadings] when justice so requires.” Fed. R.

Civ. P. 15(a)(1)(B)(2). See Foster v. DeLuca, 545 F.3d 582, 584 (7th Cir. 2008) (“District courts

routinely do not terminate a case at the same time that they grant a defendant’s motion to

dismiss; rather, they generally dismiss the plaintiff’s complaint without prejudice and give the

plaintiff at least one opportunity to amend her complaint.”); Barry Aviation Inc. v. Land O’Lakes

Mun. Airport Com’n, 377 F.3d 682, 687 (7th Cir. 2004) (stating that the general rule is that “the

district court should grant leave to amend after granting a motion to dismiss”). However, a court

should not grant leave to amend “where the amendment would be futile.” Stanard v. Nygren, 658

F.3d 792, 797 (7th Cir. 2011) (quoting Arreola v. Godinez, 546 F.3d 788, 796 (7th Cir. 2008)). 

The Plaintiffs argue that their claims are, in substance, claims that the Defendant engaged

in a conspiracy to loot and defraud the Debtor. As discussed above, the Plaintiffs have not stated

such claims in Counts V and VI of their Second Amended Complaint, and dismissal of those

claims is appropriate. However, it appears that opportunity to amend the pleadings would allow

the Plaintiffs to craft claims that seek relief more appropriate to the undeveloped record before

the Court, and it does not appear that amendment would be futile. Accordingly, the Court will

dismiss without prejudice and grant the Plaintiffs fourteen days to amend their claims against the

Defendant by raising any claims for conspiracy or fraud in accordance with the strictures of the

Federal Rules of Civil Procedure and applicable caselaw, if the Plaintiffs choose to pursue such

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claims. 

CONCLUSION

For the foregoing reasons, the Court GRANTS the Motion to Dismiss Counts V and VI

of Second Amended Complaint [ECF No. 17-2 at 54–56]. Counts V and VI are DISMISSED

WITHOUT PREJUDICE, with leave to re-file within fourteen days of the date of this Opinion

and Order. If the Plaintiffs do not amend their pleadings within fourteen days, this dismissal of

Counts V and VI will become final and with prejudice. 

SO ORDERED on June 12, 2013.

 s/ Theresa L. Springmann 

THERESA L. SPRINGMANN

UNITED STATES DISTRICT COURT

FORT WAYNE DIVISION

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