In order to state a claim under Section 608, ZCM MFC need only satisfy the notice
pleading requirements of Federal Rule of Civil Procedure 8. “All the complaint need do to
withstand a motion to dismiss for failure to state a claim is ‘outline or adumbrate’ a violation of
the statute or constitutional provision upon which the plaintiff relies.” Brownlee v. Conine, 957
F.2d 353, 354 (7" Cir. 1992).

Il. The Section 608 Indemnification Claim

Under Section 608 of the IRULPA, a limited partner who receives a “retum of any part of
his or her contribution” is liable to the limited partnership for the amount of the return, but only
to the extent that it is necessary to discharge the limited partnership’s liabilities to creditors. 805
ILCS 210/608. Section 608 defines a return of a partner’s contribution as “a distribution to him
or her [that] reduces his or her share of the fair value of the net assets of the limited partnership
below the value ... of his or her contribution which has not been distributed to him or her.” 805
ILCS 210/608(c). The duration of a partner’s liability to the limited partnership depends on
whether the return was made with or without “violation of the certificate of limited partnership,
the partnership agreement or [IRULPA].” The minimum duration is one year. 805 ILCS
210/608(a), (b).

The Counter-Defendants do not challenge ZCM MFC’s standing to assert a Section 608
claim.? They further do not contest the allegation that Asset Allocation has insufficient assets
with which to discharge any liability to ZCM MFC. Instead, the Counter-Defendants contend

that ZCM MFC has failed to state a clawback claim because it has failed to allege (1) that each

2 See Henkels & McCoy, Inc. v. Adochio, 906 F. Supp. 244, 249-50 (E.D. Pa 1995), for a
discussion of standing.


a

Asset Allocation. (Jd. at] 12). It alleges that the Counter-Defendants obtained this unlawful
return through a consent judgment in the ZCM action, (Jd. at 13). As part of that consent
judgment, ZCM MFC alleges that Martin Allamian, whom the Court previously held in contempt
for violating a preliminary injunction, was permitd to repay the amount Allamian took in
violation of the preliminary injunction to th¢ Counter-Defendants, not to the limited partnership. ,
(Id.). In exchange, the Counter-Defendants dismissed their breach of contract claim asserted

|

against Asset Allocation. (Id.).

ZCM MEC alleges that the Counter-Defendants have a duty under the Illinois Revised
Uniform Limited Partnership Act (“IRULPA”), 805 ILCS 210/608 (“Section 608”), to indemnify
it to the extent of the payments that they have received or will receive pursuant to the contempt
judgment. (Id., Jf] 13-14.) These payments, ZCM MFC argues, are “returns” on Plaintiffs’
investments in Asset Allocation and therefore are subject to “clawback” under Section 608 to the
extent that they are necessary to satisfy Asset Allocation’s obligations to ZCM MFC. (id. at ¥
14.)

ANALYSIS

I Legal Standard

The purpose of a motion to dismiss under Rule 12(b)(6) is to “test the sufficiency of the
complaint, not to decide the merits” of the case. Triad Associates, Inc. v. Chicago Housing
Auth., 892 F.2d 583, 586 (7" Cir. 1989). When deciding a motion to dismiss pursuant to Rule
12(b)(6), the Court views “the complaint in the light most favorable to the plaintiff, taking as true
all well-pleaded factual allegations and making all possible inferences from those allegations in

his or her favor.” Lee v. City of Chicago, 330 F.3d 456, 459 (7 Cir. 2003) (citations omitted).


:

Counter-Defendant has received a return of his or her contribution and (2) “whether or not, and if
so how, any un-alleged return of contribution was made with or without ‘violation of the
certificate of limited partnership, the partnership agreement or this Act.” The Court disagrees.

A. Return of Contribution

ZCM MCF alleges that the payments that Counter-Defendants have received and will
receive pursuant to the contempt judgment in the ZCM action constitute returns of their
investments in Asset Allocation. ZCM MCF alleges that Asset Allocation purposefully
conspired with Allamian, MJCM, and the Counter-Defendants to grant the Counter-Defendants a
return on their investment. It alleges that Martin Allamian exchanged funds which had been
taken from Asset Allocation and should have been returned to Asset Allocation, in exchange for
the Counter-Defendants’ abandonment of their claims against Asset Allocation. These
allegations sufficiently allege that the Counter-Defendants have received or will receive a retum
on their contributions to Asset Allocation.

If this Court were to adopt Counter-Defendants’ position that transfers from third parties
to limited partners cannot constitute returns of investments, it would render the clawback
provision of Section 608 void. Partnerships and limited partners could avoid the statute’s
dictates through sham transactions that interposed a third party between the partnership and
partner - or, as is alleged to have happened here, through the general partner’s misappropriation
of funds.

B. Violation of the Partnership Agreement

Counter-Defendants also argue that ZCM MCF has failed to allege whether the returns of

investments were made with or without violation of applicable partnership rules. Whether or not



ser © MintiberdeP Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Jud; Sitting Judge if Other
Or Magistrate Judge Amy J. St. Eve than Assigned Judge
CASE NUMBER 02 C 3223 DATE 1/20/2004
CASE 766347 Ontario vs. Zurich
TITLE
{In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.) |
ik
|
DOCKET ENTRY:
qd) 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 brief due. -
(4) Qo Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Oo Pretrial conference[held/continued to] [set for/re-set for) on set for at .
{7) o Trialfset for/re-set for] on at
(8) Oo (Bench/Jury trial) [Hearing] held/continued to at
(9) Qo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) OLocal Rule 41.1 ClFRCP41(a)(1) OO FRCP41(a)(2).
ao Wf [Other docket entry) _ Enter Memorandum Opinion and Order. Plaintiffs/Counter-Defendants' Motion to
Dismiss Counterclaim (R. 51-1) is denied.

ai) a [For further detail see order (on reverse side of/attached to) the original minute order.)

No notices required, advised in open court.

No notices required. number of notices

Notices mailed by judge's staff. JAN 21 2004

‘ Notified counse! by telephone. see

a | Docketing to mail notices.

Mail AO 450 form, dung Lomisig sn

Copy to judge/magistrate judge. a

rir00) 6heh Bo CS NIP ww ste raed notin
ni deputy
mua Bihan eeveatnrst
central Clerk's Office rmading deputy initials



retums are made illicitly is important under Section 608 only in determining the duration of a
partner’s liability to the partnership. 805 ILCS 210/608(a), (b). If the partner receives the retum
without violation of the certificate of limited partnership, the partnership agreement or the
IRULPA, the partner’s liability is one year. Jd. (a). If a partner receives the return in violation of
the certificate of limited partnership, the partnership agreement or the IRULPA, the partner’s
liability is extended to a six year period. Jd. (b). Such allegations are not essential to state a
claim under Section 608.

ZCM MEC alleges that the Counter-Defendants unlawfully sought to obtain a retum on
their contributions “in violation of their limited partnership agreements and Illinois law.” (R. 50-
1, Def.’s Counterclaim, 12.) This is sufficient to extend the limited partners’ liability to six
years,

CONCLUSION

The Plaintiffs/Counter-Defendants’ Motion to Dismiss Counterclaim is denied.

Dated: January 20, 2004 ENTERED
AMY J. SP.AEVE
United States District Judge
6


. -
oe

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

766347 ONTARIO LTD.; THE JAMES F.
BOUGHNER FOUNDATION; ELLEN FRYMIRE;
and SALATEEN INTERNATIONAL LTD.,

DOCKETED

Plaintiffs, JAN 2 1 2004

Vv.
i

ZURICH CAPITAL MARKETS INC., et al.,

Defendants.
No. 02 C 3223

Counterclaimant,
v.
766347 ONTARIO LTD.; THE JAMES F.

BOUGHNER FOUNDATION; ELLEN FRYMIRE;
and SALATEEN INTERNATIONAL LTD.,

)
)
)
)
)
)
)
)
)
)

ZCM MATCHED FUNDING CORP., )
)
)
)
)
)
)
)
)
)

Counter-Defendants. )
IEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Judge:
Plaintiffs/Counter-Defendants have moved to dismiss the counterclaim of
Defendant/Counterclaimant ZCM Matched Funding Corp. (“ZCM MFC”) pursuant to Federal

Rule of Civil Procedure 12(b)(6) for failure to state a claim. For the reasons set forth below,

their motion is granted.


+

BACKGROUND!

ZCM MFC filed a counterclaim against the Plaintiffs/Counter-Defendants — 766347
Ontario Ltd., The James F. Boughner Foundation, Ellen Frymire, and Salateen International Ltd.
That counterclaim arises from a contempt judgment against third-party Martin Allamian entered
in a separate but related proceeding still before this Court (“the ZCM action”). See, e.g., ZCM
Asset Holding Co. v. Allamian, 2002 WL 31870162 (N.D. Ill. Dec. 20, 2002) (“ZCM I’). The
Counter-Defendants now seek to dismiss that counterclaim for failure to state a claim.

Asset Allocation Fund, L.P. (“Asset Allocation”) is a now-insolvent Illinois limited
partnership and commodity pool that engaged in the speculative trading of commodity futures
contracts and is a defendant in the ZCM action. Martin James Capital Management, Inc.
(“MJCM”) — Asset Allocation’s general partner — and Martin Allamian, who owned and operated
MICM, are also defendants in the ZCM action. On May 31, 2000, Asset Allocation entered into
an “Option Agreement” with Defendant/Counterclaimant, ZCM MCF. ZCM MFC asserts that
Asset Allocation agreed in the Option Agreement to indemnify ZCM MFC of all losses arising
from the transaction contemplated by the Option Agreement. (R. 50, Def.’s Counterclaim, { 9.)
ZCM MFC alleges that it has incurred losses from that transaction, and that Asset Allocation is
now required to indemnify it. (/d. at {J 10-11).

Specifically, ZCM MFC alleges that the Counter-Defendants conspired with Asset

Allocation, MJCM and Martin Allamian, to unlawfully obtain a return on their investments in

+ The allegations in this case are set forth in detail in the Court’s opinions addressing
Defendants’ motions to dismiss, and the Court will not repeat them here. See 766347 Ontario
Ltd. v. Zurich Capital Markets, Inc., 274 F.Supp.2d 926, 928-29 (N.D. Ill. 2003), 766347
Ontario Ltd. v. Zurich Capital Markets, Inc., 249 F.Supp.2d 974, 979-81 (N.D. Ill. 2003).

2