motion to dismiss, a complaint must allege facts sufficiently setting forth the essential
elements of a cause of action. Lucien v. Preiner, 967 F.2d 1166, 1168 (7th Cir. 1992).
DISCUSSION

The LLC looks to dismiss two counts of the complaint as well as two named
parties, JK Value and Educon Resources. The first count, Count VIII, seeks dissolution
of the LLC under the Illinois Limited Liability Company Act (“LLC Act”). 805 ILCS
180/35-1 to 35-70. The second, Count XII, prays for a declaration that the Buyout
Agreement is invalid and unenforceable. We address each of their arguments in turn.
JK Value and Educon Resources

Defendants JK Value and Educon Resources are named in this action, but the
complaint contains no allegations of wrongdoing on their part. In his response,
Hubbard states that the two entities are de facto members of the LLC, thus connecting
them to the reliefhe seeks. However, Count VIII, which contains the only reference to
these two parties, states that the LLC has added no members since Hubbard, Ross, and
Arms first formed it in 1999. It goes without saying that the statements made within the

complaint control for the purposes ofa 12(b)(6) challenge. See Thomason v. Nachtrieb,

888 F.2d 1202, 1205 (7th Cir. 1989). Hubbard has therefore not made any allegation
that these two parties are potentially responsible for any legal injury he may have

suffered, and we dismiss them from this action.


In this case, the first two factors set out in Nucor are clearly satisfied. Even
though the relief sought in Count XII would not settle the entire controversy between
the parties, the requested relief, if granted, would settle any controversy with respect to
the buyout agreement and would crystallize the legal relations between the parties in
regard to the legal rights or obligations arising out of the agreement, or corresponding
lack thereof. The third and fourth factors are inapplicable. The LLC has made no
argument regarding a race to the courthouse, and because this count arises in a
multicount complaint surrounded by independent causes of action, there is no indication
that Hubbard is using this count as an improper procedural maneuver. Finally, we do
not think another method of relief would be more effective to resolving this aspect of
the dispute, nor has the LLC suggested any. We conclude that declaratory relief is
available in this case, and deny the motion to dismiss Count XII.

CONCLUSION
For the foregoing reasons, we dismiss JK Value and Educon as parties but deny

the motions to dismiss Counts VIII and XII.

Charles P. Kocoras
United States District Judge

Dated: March 28, 2002



Hubbard contends that the materials were “works for hire,” owned by DHS and now
licensed to Plaintiff Cogniplex. In response to the continued use of the methodology,
Hubbard filed suit in state court, mainly seeking declaratory judgment establishing the
true owner of the disputed materials. The case was removed to our court, and in April
2001 we dismissed portions of Hubbard’s complaint that alleged commercial
disparagement. Hubbard amended his complaint, and the LLC now moves to dismiss
two counts and two parties from it pursuant to Fed. R. Civ, Proc. 12(b)(6).
LEGAL STANDARD

The purpose of a motion to dismiss pursuant to Fed. R. Civ. Proc. 12(b)(6) is to

test the sufficiency of the complaint, not to decide the merits of the case. Triad Assoc.

Inc. v. Chicago Housing Auth., 892 F.2d 583, 586 (7th Cir. 1989). Thus, defendants
must achieve a high standard to have the court dismiss a plaintiffs case for failure to
state a claim upon which relief can be granted. In ruling on a motion to dismiss, the
court must construe the complaint’s allegations in the light most favorable to the
plaintiff and all well-pleaded facts and allegations in the plaintiff's complaint must be

taken as true. Bontkowski v. First Nat’l Bank of Cicero, 998 F.2d 459, 461 (7th Cir.

1993). The allegations of a complaint should not be dismissed for failure to state a
claim upon which relief can be granted “unless it appears beyond a reasonable doubt
that the plaintiff can prove no set of facts in support of his claim which would entitle

him to relief.” Conley v. Gibson, 78 S.Ct. 99 (1957). Nonetheless, to withstand a

-3-


Count VIIL

Count VIII finds its basis in §§ 35-1 and 35-60 of the LLC Act.’ Section 35-60
requires a dissociating member to afford an LLC 30 days to offer to purchase the
interest of the dissociating member to avoid judicial intervention and possible complete
dissolution of the LLC. 805 ILCS § 180/35-60(b). Ifsuch a purchase offer is made, the
offer must ripen into agreement within 120 days. 805 ILCS § 180/35-60(d). If it does
not, the member has an additional 120 days to commence a proceeding to enforce the
purchase under terms set by a court. 805 ILCS § 180/35-60(d), (e). Section 35-1
provides that an LLC must be dissolved and its business wound up if the LLC fails to
comply with the methods specified in § 35-60 for purchase of a dissociating member’s
interest.

According to the LLC, Hubbard did not allow the 240 days given in § 35-60(d)
to expire before he filed the complaint in this case and that his claim therefore cannot
go forward. However, a dissociating member must follow the procedures and time
limits imposed by § 35-60(d) only if the LLC offers to purchase his or her interest
within 30 days after the date of dissociation. 805 ILCS § 180/35-60(b). If the LLC
does not make such a purchase offer within 30 days, the dissociating member may seek
dissolution under § 35-1 without further delay. In this case, both parties agree that a

purchase offer was never made, and the 30-day period for such an offer has elapsed.

'The parties have cited no case law construing these provisions, and our research
has revealed none.

-5-


Minute Order Form (06/97)

United States District Court, Northern District of [linois

vir Magitrate Judge Charles P. Kocoras “than Assigned Judge
CASE NUMBER 00 C 7463 DATE 3/28/2002
CASE Cogniplex, Inc. vs. Hubbard Ross (00 C 7463)
TITLE 0007934 Arns et al -v- Hubbard et al (00 C 7933)
\ Gite fllowing bos fanaa the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: ° presente]
DOCKET ENTRY:
(l) Qo Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) Oo Answer brief to motion due___. Reply to answer briefdue___.
(4) Oo Ruling/Hearingon___—sset for at
(5) a Status hearing[held/continued to] [set for/re-set for]on___—setfor___—_at
(6) Oo Pretrial conference[held/continued to] [set for/re-set for]on_____setfor___—sat__—.
) o Trial[set for/re-set for}on__at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to__at
(9) gq This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) OGeneral Rule21 CFRCP41(a)(1) C1 FRCP41(a)(2).

(11) [For further detail see order attached to the original mimate order.]

ao ff [Other docket entry] Ruling held. ENTER MEMORANDUM OPINION: Defendants’ motions
(Doc 41-1 in 00 C 7463 and Doc 0-1 in 00 C 7933) to dismiss certain counts is granted in part and denied
in part. We dismiss JK Value and Educon as parties but deny the motions to dismiss Counts VIII and XII.

No notices required, advised in open court.

No noti¢ jired.
lo notices requi nyruber of notices

Notices mailed by judge's staff.

Notified counsel by telephone.

Y | Docketing to mail notices.
Mail AO 450 form. Tessa

aye

ny

Copy tq judge/magistrate judge.

courtroom é S : } date mailed notice
SCT deputy’s ae oeatd al
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Date/time received in ;
central Clerk's Office ‘mailing depuly initials



Hubbard has therefore satisfied the only applicable condition precedent to his claim for
relief under § 35-1, and Count VIII accordingly survives the LLC’s 12(b)(6) challenge.
Count XII

The LLC also challenges the sufficiency of Count XII, which pertains to the
validity and enforceability of the Buyout Agreement. They contend that a declaratory
judgment, Hubbard’s chosen form of relief, is inappropriate to his claim and that we

should therefore exercise our discretion not to entertain it. See North Shore Gas Co. v.

Salomon, Inc., 152 F.3d 642, 647 (7th Cir. 1998). In addition, they note that Count II

also addresses the Buyout Agreement by seeking its rescission; they conclude that
Count XII is superfluous if Hubbard gains the relief that he seeks under Count II. The
latter argument is misplaced at this stage; although Count II is undeniably related to
Count VIII, that interrelationship alone is not enough to justify dismissal under 12(b)(6).
We therefore focus our attention solely on the former contention.

The Seventh Circuit has enumerated a five-factor test for determining whether
declaratory relief is appropriate to a particular case. Nucor Corp. v. Aceros y Maquilas
de Occidente, 28 F.3d 572, 579 (7th Cir. 1994). The relevant considerations are
whether a declaratory judgment would settle the controversy underlying the claim;
whether it would help clarify the legal relations at issue in the case; whether the remedy
is simply a procedural tactic or a staging ground for later assertions of res judicata;
whether the action would cause an improper, unnecessary conflict with a state court,

and whether a better or more effective alternative exists. Id.

-6-


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS pocwETed
EASTERN DIVISION MAR 2 9 2002

COGNIPLEX, INC. DOUGLAS HUBBARD
and DHS & ASSOCIATES, INC.,

Plaintiffs,

vs. 00 C 7463

HUBBARD ROSS, L.L.C, JACK ROSS and
KATHLEEN FILBIN ARNS,

Defendants.

)
)
)
)
)
)
)
)
)
)
KATHLEEN FILBIN ARNS, JACK ROSS )
and HUBBARD ROSS LLC, )
)

Plaintiffs, )

)

)

)

)

)

)

)

)

)

)

vs. 00 C 7933

DOUGLAS HUBBARD, COGNIPLEX, INC.,
an Illinois corporation, and HUBBARD
DECISION RESEARCH, INC., an assumed

Illinois business corporation name of
COGNIPLEX, INC.,

Defendants.

MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:

This matter comes before the court on the motion of Defendant Hubbard Ross,

LLC to dismiss certain counts of the complaint. For the reasons set forth below, the

2")

motion is granted in part and denied in part.


BACKGROUND

The case we consider today and its companion have a somewhat tortuous history.
Our prior opinion, entered April 27, 2001, detailed factual backgrounds for both. To
avoid redundancy, we reiterate only the portions of the background specifically relevant
to the instant motion.

Plaintiff Douglas Hubbard (“Hubbard”) develops software. His creations include
a method called the Applied Information Economics (““AIE”) methodology produced
during his tenure with Plaintiff DHS & Associates (“DHS”). In 1999, after he
developed the AIE methodology, he formed Defendant Hubbard Ross LLC with
Defendants Kathleen Ars (“Arns”) and Jack Ross (“Ross”), collectively referred to
herein as “the LLC,” to provide economic consulting services that would rely on the use
of the AIE methodology. Before the formation of the LLC, the three founders signed
a document (the “Buyout Agreement”) that set forth certain obligations of the parties.
Under the terms of the Buyout Agreement, Ross and Arns agreed to “purchase all
claims Doug Hubbard makes...regarding the intellectual property and prospective
revenue from the Applied Information Economics methodology and related consulting
services.”

The business venture did not fare well, and by August 2000, Hubbard had
dissociated himself from the LLC. Arns, Ross, and the LLC continue to use the AIE

methodology, despite Hubbard’s disavowal of any ownership interest in the materials.