ars

AR&S, Ahern and Reynolds also argue that the counterclaims against them are improper
because Counts I through II are brought solely against them, non-parties. See Independence Tube
Corp. v. Copperweld, 74 F.R.D. 462, 467 (N.D. Ill. 1977). “However, both under the pre-1966 and
amended versions of Rule 13(h), joint tortfeasors, individuals jointly and severally liable and parties
conspiring with an original party to the suit have been permitted to be joined.” Independence Tube,
74 ¥F.R.D. at 467 (citations omitted). Moreover, “[i]t is the law in Illinois . . . that a corporate officer
... may be held jointly and severally liable for torts committed by his corporation if he authorized
or participated in the alleged wrongful act.” Independence Tube, 74 F.R.D. at 467 (citing Lowell Hoit
& Co. v. Detig, 320 Ill. App. 179 (Ill. App. Ct. 1943)).

More recently, the Seventh Circuit noted “{nJor is it material that the counterclaim named
additional parties, besides [the opposing parties], as counterclaim defendants. Rule 13(h) allowed
them to be joined pursuant to Rule 20(a).” Asset Allocation & Mgmt. Co. v. West. Employers Ins.
Co., 892 F.2d 566, 574 (7th Cir. 1990). Thus, this argument also fails. Therefore, dismissal of
AR&S, Ahern and Reynolds as counterdefendants is inappropriate.

AR&S, Ahern and Reynolds also argue that Counts I through II are improper third-party
claims under Rule 14. Third-party claims are proper against “a person not a party to the action who
is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-
party plaintiff.” Fed.R.Civ.P. 14(a). Scheffki argues that AR&S, Ahern and Reynolds are proper
third-party defendants because should she be liable to D&A, AR&S, Ahern and Reynolds will be
liable to her for the dissolution and wind-up of AR&S and the buy-out of her shares of D&A. This
argument is circular and lacks merit. Scheffki does not plead that AR&S, Ahem or Reynolds are

secondarily liable to D&A in the event that she is found liable for any count in D&A’s complaint.

-19-


ce

how. Scheffki has alleged specifically when and where and to whom Ahern, Reynolds and D&A
made misrepresentations about her status as a partner. Furthermore, she has alleged what the
substance of the misrepresentation was, that she was a partner. This is sufficient to state a general
outline of the alleged fraud.

The statement was material and, according to D&A, untrue. The allegation that D&A, Ahern
and Reynolds are trying to defraud her by saying now that she never was a partner supports the
inference that the statement was known to be untrue by D&A, Ahern and Reynolds.

D&A argues that Scheffki alleges a future promise, not a misrepresentation of present fact,
and that, therefore, Count IV should be dismissed. D&A argues that Scheffki’s allegation that she
was “being made” a partner is a future promise and cannot form the basis of a claim for fraudulent
misrepresentation.

As was noted earlier, the counterclaim and third-party complaint support the reading that
there was no future promise to make Scheffki a partner and that, in fact, Scheffki had been a partner
since 1994,

Even if there was only a future promise to make her a partner, as was discussed earlier,
misrepresentations can relate to a future promise if they are part of a “scheme to defraud”. Bensdorf
& Johnson, 58 F. Supp. 2d at 8sl. Misrepresentations relating to future promises are part of a
“scheme to defraud” if “the defendant intended to induce plaintiff to act for defendant’s benefit in
reliance on the misrepresentation.” Bensdorf & Johnson, 58 F. Supp. 2d at 881 (citations omitted).

Here, Scheffki alleges that “when Ahern, Reynolds and Scheffki discussed the amount of
rental payments to be made by D&A to AR&S, Ahern and Reynolds told Scheffki that the amount

of the rental payment . . . did not matter because the three of them were also equal owners in D&A,

-13-


client database and materials; (3) removing D&A as an authorized reseller on MIP’s website; (4)
refusing to communicate with D&A; (5) changing mailings for marketing seminars to indicate
Clifton Gunderson, and not D&A, as an authorized reseller; and (6) not acknowledging personnel
who remained employed by D&A to be qualified to continue providing MIP services after Scheffki
induced some of D&A’s employees to leave D&A’s employ and work for CG.

Scheffki’s counterclaim and third-party complaint paint a very different picture. D&A hired
Scheffki in January 1992. At that time, Ahern and Reynolds were the only D&A shareholders. In
May 1994, D&A announced Scheffki’s promotion to equal partner and shareholder with Ahern and
Reynolds to its bankers. In June 1994, Scheffki’s new position was announced to D&A’s clients at
a party given by D&A. From that time until November 2000, Scheffki, Ahern and Reynolds were
paid equally. Around the same time, Scheffki was appointed D&A’s corporate secretary, and her
status as such was listed on D&A’s annual reports until 2000. During this period, Ahern served as
the president and managing partner of D&A.

In June 1994, Scheffki, Ahern and Reynolds formed AR&S. The general purpose of AR&S
is to hold the ownership interest in real and personal property used by D&A, particularly the
beneficial interest in a trust holding the title to the building in which D&A operates. Thus, AR&S
held title to all of the office equipment used by D&A and three vehicles used by Ahern, Reynolds
and Scheffki.

Neither Scheffki, Ahern, nor Reynolds signed any written agreements regarding their working
relationships in or the inter-relationship of D&A or AR&S. Scheffki, Ahern and Reynolds were
never asked to sign non-compete agreements.

During Scheffki’s tenure with D&A, there was a 50% increase in annual revenue due to the

-4-


sate

Therefore, AR&S, Ahern and Reynolds are dismissed as third-party defendants.

AR&S, Ahern and Reynolds also argue that Scheffki’s claim for defamation is improperly
pled as a counterclaim and a third-party claim. The third-party claims are dismissed for the reasons
discussed earlier. However, Count VI does survive as a counterclaim, even though it is pleaded
solely against a non-party, for the reasons discussed earlier.

Finally, AR&S, Ahern and Reynolds move to dismiss Counts IV and V for the same reasons
as D&A. These counts are not dismissed as counterclaims against them for the reasons discussed
earlier.

SUMMARY

Defendant’s motion to dismiss Counts I, IM, VIL, IX, X and XI of Plaintiff's Complaint is
denied. Counter-defendant D&A’s motion to dismiss Counts I through VI of Scheffki’s
counterclaim is granted as to paragraphs 57, 58 and 59. AR&S, Ahern and Reynolds are dismissed
as third-party defendants. However, such parties are proper counter-defendants and the

counterclaims are not dismissed against them except with respect to paragraphs 57, 58 and 59.

~20-


between the parties. Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1059. A debtor-creditor relationship
is created when the plaintiff voluntarily transfers the funds to the defendant. Roderick Dey. Inv. Co.,
282 Ill. App. 3d at 1060.

In paragraph 57 of Count V, Scheffki alleges that, from 1994 until 2000, D&A did not pay
fair market value for its rental of office space in a building owned by AR&S. She alleges that D&A
converted the rent due to her as a partner of AR&S. No conversion action lies for “money
represented by a general debt or obligation.” Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1059.
“TT ]he covenant to pay rent creates no debt until the time stipulated for payment arrives.” Manhattan
Prop., Inc. v. Irving Trust Co., 291 U.S. 320, 331 (1934); see also Trust Co. of Chicago v. Fargeson,
340 Il. App. 344, 349-50 (IIL. App. Ct. 1950). Since the time for payment of rent on D&A’s office
space has already passed, the rent has become a debt and cannot be the subject of an action for
conversion. Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1059. Therefore, this portion of paragraph
57 is stricken.

Scheffki also alleges in Count V that D&A did not compensate her for working on D&A
matters from December 23, 2000 until January 12, 2001, did not make a $12,000 payment of her
year-end distribution to her pension account or deliver her year-end final compensation in the
amount of $15,000, and owes her payment for overtime worked during the 1994 to 2000 period and
business expenses of $1,000. (Countercl. & Third-Party Compl. §f 58, 59.) It is not clear whether
these allegations are part of her claim for conversion or her claim for unjust enrichment. Thus,
these paragraphs do not give adequate notice of the claims being asserted against D&A and Ahern
and Reynolds. Therefore, these paragraphs are stricken.

AR&S, Ahern and Reynolds argue that Counts I through III should be dismissed because:

-17-


a valid business relationship; (2) defendant knew of that relationship or expectancy; (3) defendant
intentionally interfered, inducing or causing a breach or termination of relationship or expectancy;
and (4) damages. Labor Ready, Inc. y. Williams Staffing, 149 F.Supp.2d 398, 410 (N.D.IIl. 2001).

D&A has adequately pled a claim for intentional interference with prospective economic
advantage. In Count X, D&A alleges that it had a list of existing and potential clients to whom it
had a reasonable expectation of providing business, that Scheffki took that list to CG, that she
intentionally interfered with D&A’s reasonable commercial expectations and that it was damaged.
D&A has pled all the elements of intentional interference with prospective economic advantage.
“The Federal Rules do not require that [D&A’s] complaint allege the specific third party or class of
third parties with whom [it] claims to have had a valid business expectancy.” Cook, 141 F.3d at 328.
The fact that D&A has alleged that a valid business expectancy existed and Scheffki intentionally
interfered with it is sufficient under the Federal Rules. See Cook, 141 F.3d at 328. Therefore,
dismissal of Count X is inappropriate.

Scheffki argues that Count XI fails to state a claim for conspiracy because it does not identify
a specific agreement between the defendants and is vague in its reference to the unlawful means used
in furtherance of the conspiracy.

Civil conspiracy is defined as “a combination of two or more persons for the purpose of
accomplishing by concerted action either an unlawful purpose or a lawful purpose by unlawful
means.” Buckner v. Atlantic Plant Maint., Inc., 182 Ill. 2d 12, 23 (1998). To state a claim for civil
conspiracy, a plaintiff must allege an agreement and a tortious act committed in furtherance of that
agreement. McClure v. Owens Corning Fiberglass Corp., 188 Ill. 2d 102, 133 (1999).

At this stage of litigation, D&A has adequately pled its conspiracy count because plaintiff

-9-


Depeder. Count II alleges that Scheffki and Depeder misappropriated trade secrets. Count VII
alleges that Scheffki, Depeder and CG intentionally interfered with D&A’s contract with MIP.
Count IX alleges that all defendants intentionally interfered with D&A’s contractual relationships
with its clients. Count X alleges a claim for intentional interference with prospective economic
advantage against all defendants. Count XI alleges that all defendants conspired to sever D& A’s
client base and divert it to CG.

In order to plead a claim for misappropriation of a trade secret, D&A must plead that: (1)
information that was secret, i.e. “not generally known in the industry”; (2) was misappropriated, i.e
“stolen from it rather than developed independently or obtained from a third source”; and (3) used
in Scheffki’s business. Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265-
66 (7th Cir. 1992).

Scheffki argues that Count III fails to state a claim for misappropriation of a trade secret
because it does not allege actual use of the trade secret in any of defendants’ businesses. Count II
does adequately plead a claim for misappropriation of a trade secret. D&A alleges that “it created
and compiled data, pricing structures and lists of actual and potential clients as well as market
analysis information (“Proprietary Information”)” that it kept secret. (Compl. {{] 43, 44.) D&A
further alleges that such information was not generally known. D&A alleges that Scheffki took that
secret information and gave it to CG, D&A’s direct competitor. It can be reasonably inferred from
the allegation that because Scheffki gave the proprietary information to her new employer CG that
she and CG used the information. Therefore, dismissal of Count III is inappropriate.

Scheffki argues that dismissal of Count VII is appropriate because D&A fails to allege an

inducement to breach or an actual breach of the contract between D&A and MIP.

-6-


business brought in and managed by Scheffki. Despite the increased revenue, around
December 3, 2000, Ahern told Scheffki that he was unhappy with the current working relationship
and suggested that it might be time to negotiate Aherrn’s leaving D&A.

On December 22, 2000, Scheffki told Reynolds that she had spoken with CG about a position
but had not yet accepted one and would not until after the tax season. She also told Reynolds that
CG was interested in discussing a merger of CG and D&A. Later that day, Reynolds and Ahern told
her to set up a meeting between the two firms, which she scheduled for December 28, 2000.

The scheduled meeting did not take place because, on December 26, 2000, Ahern and
Reynolds fired her and other consultants. On December 28, 2000, Reynolds proposed a settlement
and transition plan between D&A, AR&S and Scheffki. Scheffki did not sign the letter that
commemorated this proposal.

Scheffki was allowed to serve D&A’s clients until January 6, 2001, when her access to its
computer network and printers was blocked, and her e-mail and voicemail were cancelled. On
January 12, 2001, Scheffki, Ahern and Reynolds discussed the wind-up of the corporation and the
partnership and reached an agreement on the possession and ownership of a certain vehicle and
computers. But the parties could not come to a final agreement. Ahern and Reynolds have refused
to wind-up AR&S business and distribute the assets equitably. Specifically, Ahern and Reynolds
refuse to acknowledge her equal ownership interest in D&A and to equitably buy out her interest.

Scheffki began working at CG on January 15, 2001.

DISCUSSION
Scheffki's Motion to Dismiss

D&A has filed an eleven-count Complaint against the Defendants Scheffki, CG, MIP, and

Se


ce eam nas a ada

ao i

(1) they are not opposing parties under Federal Rule of Civil Procedure 13 and therefore are not
subject to counterclaims, and (2) Counts I through II are not valid third-party claims under Federal
Rule of Civil Procedure 14. Scheffki argues that Rules 19 and 20 permit counterclaims and third-
party claims against AR&S, Ahern and Reynolds.

Rule 13 provides that permissible counterclaims are “any claim which . . . arises out of the
transaction or occurrence that is the subject matter of the opposing party’s claim and does notrequire
for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction see
any claim against an opposing party not arising out of the transaction or occurrence that is the subject
matter of the opposing party’s counterclaim.” Fed.R.Civ.P 13(a), (b). Rule 13 also provides that
“(pl ersons other than those made parties to the original action may be made parties to a counterclaim
. .. in accordance with the provisions of Rules 19 and 20.” Fed.R.Civ.P. 13(h).

Rule 19 permits joinder of persons in whose “absence complete relief cannot be accorded
among those already parties.” Fed.R.Civ.P 19(a)(1). Rule 20 provides that “fajll persons... may
be joined in one action as defendants if there is asserted against them jointly, severally, or in the
alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or
series of transactions or ocourrences and ifany question of law or fact common to all defendants will
arise in the action.” Fed.R.Civ.P. 20(a).

AR&S, Ahem and Reynolds are such persons under Rules 19 and 20. Scheffki’s claims
against AR&S, Ahern and Reynolds arise out of her employment with and termination from D&A
and subsequent employment with CG, the same subject matter of D&A’s complaint against her.
Complete relief would require the presence of AR&S, Ahern and Reynolds; and there are questions

of law and fact that are common to D&A, AR&S, Ahern and Reynolds.

-18-


(5) damages. Cook v. Winfrey, 141 F.3d 322, 327 (7th Cir. 1998). A tortious interference with
contractual relationship claim includes “the situation in which the defendant prevents the plaintiff
from performing the contract.” Havoco of America v. Sumitomo Corp., 971 F.2d 1332, 1344 (7th Cir.
1992) (quoting Scholwin v. Johns, 147 Ill. App. 3d 598 (1986)).

D&A has adequately pled a claim for intentional interference with contract. D&A alleges
that, before Scheffki left D&A, it had multiple contracts with clients, D&A alleges that Scheffki
made representations to those clients that D&A and CG had merged or that Scheffki had never left
D&A. D&A alleges that based on Scheffki’s actions, its clients terminated their contractual
relationships with D&A. D&A has alleged contracts, that Scheffki knew of those contracts and
induced its clients to breach those contracts, and that those clients terminated their contracts with
D&A, causing D&A damage.

The fact that Count IX couches the breach in terms of termination of contracts does not
matter. Any ambiguities in the complaint are construed in favor of the plaintiff. Kelly, 135 F.3d at
1205. Furthermore, complaints “serve[] to put... defendant[s] on notice.” Toth v. USX Corp., 883
F.2d 1297, 1298 (7th Cir. 1989). The allegations in Count IX are sufficient to place Scheffki on
notice of the claim being asserted against her. Thus, D&A has stated a claim for intentional
interference with contractual relationships. Therefore, dismissal of Count IX is inappropriate.

Scheffki argues that D&A has not adequately stated a claim for interference with prospective
economic advantage in Count X because D&A failed to identify any breach or termination by a third
party that was induced by Scheffki.

In order to state a cause of action for interference with prospective economic advantage, a

party must allege that: (1) plaintiff had a valid business relationship or expectation of entering into

-8-


>
*  Minuie Order Form (06/97)

United States District Court, Northern District of Minois

Name of Assigned Judge
or Magistrate Judge

Sitting Judge if Other
than Assigned Judge

John W. Darrah

CASE NUMBER 01 C 6098 DATE 12/19/2001
CASE DESMOND & AHERN, LTD. vs. MICHELLE SCHEFFKI, et al
TITLE
[in the following box (a) indicate the party filing the motion, e.g., plaimtff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
qd) oO Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) im} Answer brief to motion due. . Reply to answer brief due.
(4) Oo Ruling/Hearing on. set for at
(5) 0 Status hearing[held/continued to] {set for/re-set for]on__set for at
(6) ia} Pretrial conference[held/continued to] [set for/re-set for] on__set for at
1) Q Trial[set for/re-set for] on at
(8) oO {Bench/Jury trial] [Hearing] held/continued to at _
(9) im) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
CFRCP4(m) General Rule21 OO FRCP41(a)(1) OO FRCP41(a)(2).
a0 [Other docket entry} Enter Memorandum Opinion And Order. Defendant Scheffki’s motion to
dismiss counts III, VII, IX, X and XI pursuant to Rule 12(b)(6) and Count I as duplicative [18-1] is
denied; Plaintiff's motion to dismiss counts I-VI of Scheffki’s counterclaim pursuant to Rule 12(b)(6) [30-
1] is granted with respect to paragraphs 57, 58, and 59 and denied in all other respects; and AR&S
Partnership, Hugh J. Ahern and George B. Reynolds’ motion to dismiss defendant Scheffki’s
counterclaim and third-party complaint [32-1] is denied with respect to the counterclaims except as to
paragraphs 57, 58 and 59, and granted with respect to the third-party complaint.
(1) (For further detail see order attached to the original minute order.]

No notices required.

Mail AQ 450 form.

No notices required, advised in open court.

Notices mailed by judge’s staff.
Notified counsel by telephone.
WV | Docketing to mail notices.

Copy to judge/magistrate judge. . oF}

Document
Number
umber of notices =

, feo 2 0
8 Leena 4 |

PY tena
id St o3 date sled nati

courtroom ve an

deputy’s

initials

Date/time received in
central Clerk's Office

mailing deputy initiis



defendants. 160 F. Supp. 2d at 919 n.1, 920. Therefore, dismissal of Count I as duplicative is
inappropriate.
D&A, AR&S, Ahern and Reynolds’ Motions to Dismiss

Scheffki filed a six-count counterclaim and third-party complaint against Ahern and
Reynolds, individually and as shareholders in D&A and partners in AR&S. Count I requests an
order dissolving AR&S. Count II asks the Court to order an equitable wind-up of AR&S’s affairs.
Count HI alleges a breach of fiduciary duty by Ahern and Reynolds. Count IV alleges a claim of
fraud and misrepresentation to gain an economic advantage against D&A, Ahern and Reynolds.
Count V alleges a claim of unjust enrichment and/or conversion against D&A, AR&S, Ahern and
Reynolds. Count VI alleges that Ahern has defamed Scheffki.

D&A moves to dismiss Count IV, arguing that Count IV should be dismissed for failure to
plead fraud with particularity and to state a cause of action.

In order “[t]o state a claim for fraudulent misrepresentation under Illinois law, [Scheffki]
must assert 1) that defendants made a statement; 2) of a material nature; 3) which was untrue; 4)
known by the person making it to be untrue, or made in culpable ignorance of its truth or falsity; 5)
relied upon by [Scheffki] to her detriment; 6) made for the purpose of inducing reliance; and 7)
[Scheffki’s] reliance led to [her] injury.” Bensdorf & Johnson, Inc. y. Northern Telecom Ltd, 58 F.
Supp. 2d 874, 881 (N.D. Ill. 1999) (citing Doherty v. Kahn, 682 N.E.2d 163, 167 (Ill. App. Ct.
1997)). “[T]he alleged misrepresentation must . . . relate to a past or present fact, not a future or
contingent event,” except where the misrepresentations are part ofa “scheme to defraud”. Bensdorf
& Johnson, 58 F. Supp. 2d at 881 (citing Razdan v. General Motors Corp., 979 E. Supp. 755, 759

(N.D. Ill. 1997)). To take refuge in the “scheme to defraud” exception, a plaintiff must allege, in

-ll-


has pled facts that support an inference of an agreement or an understanding by the defendants
toward the goal of severing D&A’s client base and diverting such clients to CG. These allegations
include the relationships between the defendants; the fact that all of the defendants had contact with
each other both before, during, and after the alleged wrongful conduct; and the timing of the events
by all of the defendants.

Furthermore, D&A realleges, in Count XI, the allegations contained in the rest of the
complaint. Paragraph 72 states that “Such a conspiracy was accomplished through unlawful means
as set forth more fully above.” This supports an inference that the unlawful means used in
furtherance of conspiracy are the intentional interference with contractual relationships and
prospective economic advantage, etc., alleged previously in the complaint. Accordingly, the
conspiracy claim, Count XI, is not dismissed.

Finally, Scheffki argues that Count I (breach of fiduciary duty) should be dismissed because
Count I is duplicative of all the other counts in the complaint. Dismissal of Count I as duplicative
is inappropriate. The elements of a claim for breach of fiduciary duty are (1) existence ofa fiduciary
duty, (2) breach of that duty, and (3) resulting damages to the plaintiff. LaSalle Bank Lake View v.
Seguban, 937 F. Supp. 1309, 1324 (N.D. Ill. 1996) (citation omitted). It is mere happenstance that
the alleged conduct that is a breach of fiduciary duty is the same as the alleged conduct in the other
torts alleged in the complaint.

However, Count I is not duplicative of the other counts in the complaint because the cause
of action in Count I is completely different from the causes of action in the other counts. Scheffki’s
citation of Automed Technologies, Inc. v. Eller, 160 F. Supp. 2d 915 (N.D. Ill. 2001), is inapposite.

In Eller, the count dismissed as duplicative pled the same cause of action against the same

-10-


cs ge NR SE

aan eS a

In order to plead a claim of intentional interference with an existing contract, D&A must
plead “(1) the existence of a valid and enforceable contract between . . . [P]laintiff and another, (2)
(Scheffki’s] awareness of this contractual relation, (3) [Scheffki’s] intentional and unjustified
inducement of a breach of the contract which causes a subsequent breach by the other, and (4)
damages.” A-Abart Elect. Supply, Inc. v. Emerson Elect. Co., 956 F.2d 1399, 1404 (7th Cir. 1992)
(quoting Mannion v. Stallings & Co., 561 N.E.2d 1134, 1139 (Ill. App. Ct. 1990)).

Count VII adequately states a claim for intentional interference with an existing contract.
D&A alleges a valid and enforceable contract between itself and MIP in 1999 and 2000. The fact
that Scheffki was employed by D&A at that time supports the inference that she knew of the contract
between D&A and MIP. D&A alleges that “but for the actions of Scheffki . .. MIP would not have
terminated its contract with” D&A. (Compl. 158.) This language is sufficient to plead that Scheffki
intentionally induced MIP to breach the contract. “[D&A] is under no obligation to plead further
facts that [it] believes supports [its] claims.” Cook, 141 F.3d at 328. Therefore, dismissal of Count
VII is inappropriate.

Scheffki also argues that D&A fails to adequately plead its intentional interference with
contractual relationships claim in Count IX. Scheffki argues that Count IX should be dismissed
because it fails to identify a valid enforceable contract between D&A and any third party or that there
was a breach of any contract.

Under Illinois law, the elements ofa tortious interference with contract claim include: (1) the
existence ofa valid and enforceable contractual relationship, (2) the defendant’s knowledge of such
contractual relationship, (3) the defendant’s intentional and unjustified inducement of a breach of

said contractual relationship, (4) breach by the other party caused by the defendant’s conduct, and

-7-


CONCLUSION

For the reasons stated above, Defendant Michelle Scheffki’s Motion to Dismiss Counts ti,
VIL, IX, X and X] Pursuant to Rule 12(6)(6) and Count I as Duplicative [18-1] is denied; Desmond
& Ahern’s Motion to Dismiss Counts I-VI of Scheffki’s Counterclaim Pursuant to Rule 12(b)(6) [30-
1] is granted with respect to paragraphs 57, 58, and 59 and denied in all other respects; and AR&S
Partnership, Hugh J. Ahern and George B. Reynolds’ Motion to Dismiss Defendant Michelle
Scheffki’s Counterclaim and Third-Party Complaint [32-1] is denied with respect to the
counterclaims except as to paragraphs 57, 58 and 59, and granted with respect to the third-party
complaint.

IT IS SO ORDERED.

John W. Darrah, Judge
United States District Court

Date: _///~ [ -0O

-21-


(“MIP”); pursuant to which D&A became an authorized reseller of the MIP Non-Profit Accounting
Systems software. As head of D&A’s consulting department, Scheffki acted as the main contact
with MIP. D&A’s potential MIP software client list was registered with MIP and maintained on
MIP’s “MIP On-Line” internet site.

Over the course of its relationship with MIP, D&A invested substantial amounts of money,
time, and effort promoting and marketing MIP’s programs and in developing an infrastructure to
support its relationship with MIP. In September 1999, pursuant to MIP’s urging, D&A terminated
its contract for another non-profit accounting software product in order to focus more effort into its
relationship with MIP. At that time, MIP and D&A renewed their contract. MIP recognized D&A
as one of its top ten resellers in the country in 1999 and 2000.

In May 2000, Scheffki asked D&A, and D&A agreed, to hire her brother, Steven Depeder
(“Depeder”). Unhappy with Depeder’s work, D&A informed Scheffki that it wanted to terminate
Depeder’s employment in October 2000. Scheffki urged D&A to keep Depeder employed until at
least December 2000.

At the end of December 2000, Scheffki informed D&A that she was terminating her
employment with D&A and was going to work for one of D&A’s direct competitors, Clifton
Gunderson (“CG”). Depeder also ceased working for D&A and began working for CG.

On January 16, 2001, MIP informed D&A that it was terminating its contract with D&A
effective February 16, 2001. Subsequently, MIP and CG entered into a reseller contract. Despite
the thirty-day notice provision in the MIP’s and D&A’s contract, MIP “effectively cancelled” the
contract prior to February 16, 2001, by (1) preventing access by D&A to MIP On-Linein addition

to D&A’s own client database and materials forwarded to MIP; (2) refusing to give D&A its own

-3-


and therefore each of them would receive the same benefit no matter how the funds were divided
between the two related business entities.” (Countercl. & Third-Party Compl. 51.) This allegation
supports the inference that D&A, Ahern and Reynolds intended to induce Scheffki to act for their
benefit in reliance on the misrepresentation. If Scheffki believed she was a partner in D&A and
would recoup the rental payments as part of the profits of D&A, she would not, as a partner of
AR&S and part owner of the beneficial interest in the real property in which D&A conducted its
business, seek fair rental value for the space.

Moreover, as was discussed above, Scheffki has alleged detrimental reliance on the false
statement and that she suffered an injury, loss of the fair market rental payments. Therefore,
dismissal of Count IV is inappropriate.

D&A also moves to dismiss Count V, arguing that Count V should be dismissed for violating
Rule 10(b) of the Federal Rules of Civil Procedure and for failing to state a cause of action for unjust
enrichment or conversion.

Rule 10(b) provides that “[ajil averments of claim or defense shall be made in numbered
paragraphs, the contents of which shall be limited as far as practicable to a statement of a single set
of circumstances ., . Each claim founded upon a separate transaction or occurrence and each defense
other than denials shall be stated in a separate count.” The conversion claim and the unjust
enrichment claim are set forth in separate paragraphs of Count V. The claims for conversion and
unjust enrichment should be pled in separate counts. See Harris v. River View Ford, Inc., No. 00 C
8129, 2001 WL 1191188 (N.D. Ill. Oct. 4, 2001). However, the Court will address each of these
claims.

D&A argues that the unjust enrichment claim is barred by the existence of a contract

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Iny. Co., 282 Ill. App. 3d at 1058 (citing Fonda y. General Casualty Co. of Ill., 279 Ill. App. 3d 894
(Ill. App. Ct. 1996)). No conversion action lies for “money represented by a general debt or
obligation.” Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1059.

Illinois courts consider the following factors when determining whether money can be the
subject of an action for conversion, that is, whether it is a specified and identifiable fund. Roderick
Dey. Inv. Co., 282 Ill. App. 3d at 1058. Money is a specified and identifiable fund when it is not an
estimate but rather “a specific amount transferred to [the defendant] from an outside source.”
Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1059. In Roderick Development Investment Company,
the court held that five percent of the final payment under purchase agreement was specific and
identifiable because it was not an estimate; the amount of final payment could be determined by an
accounting. 282 Ill. App. 3d at 1062.

Another factor that will be considered is whether the money is maintained in a separate
account. Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1059.

Money can also be identifiable and specific by its source or description. Roderick Dev. Inv.
Co., 282 Ill. App. 3d at 1063. Thus, money is specific and identifiable if there is “an [established]
obligation to treat it in a specified manner,” Roderick Dev. Inv. Co. , 282 Ill. App. 3d at 1063 (quoting
Autoville, Inc. v. Friedman, 510 P.2d 400, 402 (Ariz. Ct. App. 1973)), “an obligation to keep intact
and deliver” it, Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1063 (quoting Greene County Bd. Of
Educ. vy. Bailey, 586 So. 2d 893, 893 (Ala. 1991) (citation omitted)), or it is earmarked for a
particular purpose. Roderick Dev. Inv. Co., 282 Ill. App. 3d at 1064 (citing Unified Servs., Inc. v.
Home Ins. Co., 460 S.E.2d 545, 549 (Ga. Ct. App. 1995)).

A conversion action for money will also lie where there is no debtor-creditor relationship

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a

Rule 12(b)(6) [30-1] is granted in part and denied in part; and AR&S Partnership, Hugh J. Ahern
and George B. Reynolds’ Motion to Dismiss Defendant Michelle Scheffki’s Counterclaim and
Third-Party Complaint [32-1] is denied in part and granted in part.

LEGAL STANDARD

When considering a motion to dismiss, well-pleaded allegations in the complaint are accepted
as true. Turner/Ozanne y. Hyman/Power, 111 F.3d 1312, 1319 (7th Cir. 1997). Any ambiguities
in the complaint are construed in favor of the plaintiff. Kelly v. Crosfield Catalysts, 135 F.3d 1202,
1205 (7th Cir. 1998). Dismissal is proper only when it appears beyond doubt that Plaintiffcan prove
no set of facts to support the allegations in his or her claim. Strasburger v. Board of Education, 143
F.3d 351, 359 (7th Cir. 1998).

“Although the Federal Rules of Civil Procedure do not require a plaintiff ‘to set out in detail
the facts upon which he bases his claim’” [citation omitted], he must “set out sufficient factual
matter to outline the elements of his cause of action or claim, proof of which is essential to his
recovery.’” Benson vy. Cady, 761 F.2d 335, 338 (7th Cir. 1985). A complaint will not avoid
dismissal if it contains “bare legal conclusions” absent facts outlining the basis of the claims.
Perkins y. Silverstein, 939 F.2d 463, 467 (7th Cir. 1991).

BACKGROUND

A reading of D&A’s complaint supports the following summary of the alleged conduct of
the parties. D&A is a full-service certified public accounting firm with a particular emphasis on the
non-profit sector. In January 1993, D&A hired Scheffki as a certified public accountant.
Subsequently, Scheffki became the department head of D&A’s consulting division of the business.

In November 1997, D&A entered into a contract with Micro Information Products, Inc.

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BOCKETED

UNITED STATES DISTRICT COURT DEC 2 1 2001
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

DESMOND & AHERN, LTD., )
a Delaware Corporation, )
)
Plaintiff, )
) No. 01 C 6098

v. )

) Judge John W. Darrah
MICHELLE SCHEFFKI; CLIFTON )
GUNDERSON, LLP; MICRO INFORMATION )
PRODUCTS, INC., a Texas Corporation; and )
STEVEN DEPEDER, )
)
Defendants. )

MEMORANDUM OPINION AND ORDER

Before the Court are three motions to dismiss. Defendant Michelle Scheffki (“Scheffki”)
moves, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss Counts III, VII, IX, ¥
and XI, and, as duplicative of the other counts, Count I of Plaintiff Desmond & Ahern, Limited’s
(“D&A”) Complaint. Scheffki filed a counterclaim against D&A and a third-party complaint
against Hugh J. Ahern (“Ahern”) and George B. Reynolds (“Reynolds”), individually and as
partners in AR&S Partnership (“AR&S”) and shareholders in D&A. D&A moves to dismiss
Scheffki’s counterclaim. Ahern, Reynolds, and AR&S move to dismiss the third-party
complaint.

For the reasons set forth below, Defendant Michelle Scheffki’s Motion to Dismiss Counts

I, VIL, IX, X and XI Pursuant to Rule 12(b)(6) and Count I as Duplicative [18-1] is denied;

Desmond & Ahern’s Motion to Dismiss Counts I-VI of Scheffki’s Counterclaim Pursuant to

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caer er eee eae

addition to the intentional misrepresentation, “that defendant intended to induce plaintiff to act for
defendant’s benefit in reliance on the misrepresentation.” Bensdorf & Johnson, 58 F. Supp. 2d at 881
(citations omitted).

Because this case is in federal court, Count IV must meet the pleading requirements of Rule
9(b). Rule 9(b) provides that “[iJn all averments of fraud . . . the circumstances constituting fraud
-. Shall be stated with particularity. Fed.R.Civ.P. 9(b). This means that persons alleging fraud must

state “‘the who, what, when, where, and how.’” Boyd Mach. & Repair Co. y. American Int’l Homes,
Ltd., 100 F. Supp. 2d 898, 900 (N.D. Ill. 2000) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 628
(7th Cir. 1990)). “The allegations must be specific enough to provide the defendants with a general
outline of how the alleged fraud scheme operated and of their purported role in the scheme.”
Rohlfing v. Manor Care, Inc., 172 F.R.D. 330, 347 (N.D. Ill. 1997) (citations omitted).

To determine whether Count IV is sufficient, a court will bear in mind the purposes of Rule
9(b): “(1) protecting the defendants’ reputations; (2) preventing fishing expeditions; and (3)
providing adequate notice to the defendants.” Rohifing, 172 F.R.D. at 347 (citing Vicom, Inc. v.
Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994)).

Scheffki alleges that in May 1994, Ahern and Reynolds told her that she was an equal partner
and shareholder in D&A. Scheffki further alleges that D&A announced her new status to its bankers
in May 1994, and to its clients and friends at a D&A party in June 1994. Scheffki also alleges that
from 1994 until 2000, Ahern and Reynolds represented to the public and D&A employees that she
was a partner. She further alleges that articles about the firm in professional journals indentified her

as a partner of D&A and that D&A’s own website identified her as a partner.

These allegations are sufficient to satisfy the requirements of who, what, where, when and

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concerning the same subject matter. Under Illinois law, a party cannot “state a claim for unjust
enrichment when a contract governs the relationship between the parties.” First Commodity Traders,
Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 ( 7th Cir. 1985). Therefore, D&A argues,
an unjust enrichment claim is futile because the parties were once in a contractual relationship.
However, in Heinold Commodities, there was no dispute that a contract existed. Here, there is a
good faith dispute as to whether a contract exists. In Quadion Corp. v. Mache, 738 F. Supp. 270,
278 (N.D. Ill. 1990), the court declined to dismiss the plaintiffs claim for equitable relief, even
though the relationship between the parties was contractual, because “[u]nder Rule 8(€)(2) [of the
Federal Rules of Civil Procedure] .. . plaintiffs may raise alternative claims of breach of contract and
unjust enrichment despite the inconsistency of these claims.” Furthermore, the Mache court
reasoned that Heinold Commodities did not apply at the pleading stage. Mache, 738 F. Supp. at 278.
D&A do not challenge the sufficiency of the pleading of this claim. Therefore, Scheffki’s claim of
unjust enrichment is not barred.

D&A next argues that the conversion element of Count V must be dismissed because money
is not recoverable in a conversion action. In order to plead a claim for conversion, Scheffki must
plead “(1) [D&A’s] unauthorized and wrongful assumption of control, dominion or ownership over
[her] personal property, (2) [her] right in the property, (3) [her] right to immediate possession of the
property, absolutely and unconditionally and (4) [her] demand for possession of the property.”
Roderick Dev. Inv. Co., Inc. v. Cmty. Bank of Edgewater, 282 Ill. App. 3d 1052, 1057 (Ill. App. Ct.
1996).

As a general rule, under Illinois law, “an action for conversion may not be maintained for a

mere failure to pay money unless it is capable of being described as a specific chattel.” Roderick Dev.

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