Even assuming arguendo that First Union knew of Lacrad’s alleged malfeasance, plaintiffs
have not adequately alleged that First Union had a duty to disclose that information to them.’ In
their amendments to their fourth amended complaint, plaintiffs state, “As a national banking
institution, First Union is required to notify banking authorities of any suspected fraudulent or
suspicious activity by its customers.” Plaintiffs allege that First Union’s silence and failure to notify
proper authorities, together with its acceptance of Lacrad’s payments, makes First Union liable as
a “fraudulent participant.”

As First Union point outs, however, a defendant's duty to disclose in the first instance arises
under only two circumstances: (1) when the defendant owes the plaintiff some fiduciary duty to
make full and fair disclosure and fails to correct a misapprehension of fact; or (2) when the
defendant’s acts contribute to the plaintiff's misapprehension of a material fact and the defendant
intentionally fails to correct plaintiff's misapprehension. Lefebvre, 946 F. Supp. at 1366.

Plaintiffs have not alleged that First Union owed them a fiduciary duty. Nor can plaintiffs
colorably claim that First Union's silence contributed to their misapprehension of Lacrad’s alleged
fraud. Plaintiffs fail to cite to any authority, in either their complaint or their opposition to the
instant motion, that suggests that First Union had a duty to contact “banking authorities” regarding
its alleged knowledge of Lacrad’s alleged malfeasance. Moreover, even if such a duty to notify
banking authorities does exist, that duty would not translate into a duty to notify other creditors, such

as plaintiffs. Thus, recognizing the obligation to draw all reasonable inferences in plaintiffs’ favor

‘In addition to failing to adequately allege that First Union owed a duty to them, plaintiffs
also have not alleged that they could not have discovered the truth regarding Lacrad’s allegedly
fraudulent business practices through a reasonable inquiry or inspection.

4



DISCUSSION

The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to rule on
its merits. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). When considering
the motion, the court accepts the allegations of the complaint as true and views the facts in the light

most favorable to plaintiffs. Travel All Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d
1423, 1428 (7th Cir. 1996). The court applies these standards to Counts XVII, XXVIII, and XXIX

below.

Count XVII - Fraudulent Concealment

In order to prove that concealment amounts to a fraudulent misrepresentation under Illinois
law, plaintiff must demonstrate that: (1) the defendant concealed a material fact; (2) the defendant
intended to induce a false belief by the plaintiff, under circumstances creating a duty to disclose on
the part of the defendant; (3) the plaintiff could not have discovered the truth through a reasonable
inquiry or inspection, and relied upon the defendant’s silence as a representation that a fact did not
exist; (4) the concealed information was such that the plaintiff would have acted differently ifit had
been aware of the information; and (5) the plaintiff's reliance led to its injury. Lefebvre

Intergraphics, Inc. v. Sanden Mach, Ltd., 946 F. Supp. 1358, 1367 (N.D.IIl. 1996) (citing Stewart

v. Thrasher, 242 Ill. App. 3d. 10, 16 (4" Dist. 1993)).

Fraudulent concealment is a form of common law fraud. Hirsch v. Feuer, 299 Ill. App. 3d
1076, 1085 (1* Dist. 1998). Accordingly, the heightened pleading standards embodied in Fed. R.
Civ. P. 9(b) apply. According to the Seventh Circuit, “this means the who, what, when, where, and
how: the first paragraph of any newspaper story.” DiLeo v. Emst & Young, 901 F.2d 624, 627 (7"

Cir, 1990).



with respect to the instant motion, as well as the requirements of Fed. R. Civ. P. 9(b), the court

concludes that Count XVII must be dismissed.

Count XXVIII - Fraudulent Conveyance
Count XXVIII, which asserts a fraudulent conveyance claim against First Union, also fails
to state aclaim. The Illinois Uniform Fraudulent Transfer Act (IUFTA), 740 ILCS 160/5, provides:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether

the creditor’s claim arose before or after the transfer was made or the obligation was
incurred, if the debtor made the transfer or incurred the obligation:

(1) with actual intent to hinder, delay, or defraud any creditor of the debtor, or
(2) without receiving a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor:

(A) was engaged or about to engage in a business or transaction for which the
remaining assets of the debtor were unreasonably small in relation to the
business or transaction; or

(B) intended to incur, or believed or reasonably should have believed that he
would incur, debts beyond his ability to pay as they became due.

Plaintiffs allege in their complaint that “Lacrad’s transfer of money to First Union was a
preference.” Even assuming that First Union knew that, (1) Lacrad was insolvent, and (2) First
Union was preferred over Lacrad’s other creditors, this would not be sufficient to prove fraudulent
intent on the part of First Union. See In re Liquidation of MedCare HMQ, Inc., 294 Ill. App. 3d 42,
53 (Ist Dist. 1997) (distinguishing preference from fraudulent intent). In the absence of allegations
that First Union was in any way colluding with Lacrad, Lacrad’s alleged intent to hinder, delay or
defraud its other creditors does not establish liability against First Union. See 37 AM. JUR. 2D
Fraudulent Conveyances & Transfers §71 (“Knowledge on the part of the creditor receiving the
preference that the debtor has acted with fraudulent intention is immaterial if the creditor has done

nothing except to receive payment ofhis claim.”). Plaintiffs have pled a fraud claim against Lacrad,

not First Union. First Union’s motion to dismiss Count XXVIII is granted.


Minus: OG ‘Form (06/97)

] United States District Court, Northern District of Illinois
‘wm ‘iioeeinag | Robert W.Gettleman | SiistinitQue
CASE NUMBER 01 C 4296 DATE Dec. 6, 2002
CASE B.E.L.T. Vv LaCrad International Corp., et al
TITLE

[ln the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented]

MOTION:

DOCKET ENTRY:

(1) a Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

@) a Answer brief to motion due___. Reply to answer briefdue___.

(4) oOo Ruling/Hearingon_____esetfor__—sat__—

(5) ao Status hearing

(6) im} Pretrial conference[held/continued to] [set for/re-setfor}on__—ssetfor_——sat_—
(7) oO Trial[set for/re-set for]on___——_at

(8) a {Bench/Jury trial] [Hearing] held/continuedto____aat

(9) G This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) OGeneral Rule21 COFRCP41(a)(1) (FRCP41(a)(2).

(io) of [Other docket entry]
Memorandum opinion and order entered. Accordingly, defendant
First Union’s motion to dismiss counts XVII, XXVIII, and XXIX is granted.

(il) [For further detail see order attached to the origina! minute order.]

No notices required, advised in open court.

No notices required.

X | Notices mailed by judge’s staff.
Notified counsel by telephone.

Docketing to mail notices,

Mail AO 450 form.

ayuisia “sn
Lunds rear

Copy to judge/magistrate judge.

aps eputy's He l1H¥ 6-930 20
Gita eats

initials



:

Count XXIX - Unjust Enrichment

To state a claim for unjust enrichment, plaintiff must adequately allege that, (1) defendant
unjustly retained a benefit to the plaintiff's detriment, and (2) that the defendant's retention of that
benefit violates fundamental principles of equity, justice, and good conscience. HPI Health Care
Services, Inc. v. Mt. Vernon Hosp,, 131 Ill.2d 145, 160 (1989). Having established that First Union
did not violate a duty to plaintiffs, and in the absence of allegations.of collusion regarding Lacrad’s
preference for First Union over plaintiffs, the court concludes that plaintiffs have failed to state a
claim for unjust enrichment.

CONCLUSION
For the reasons stated herein, First Union’s motion to dismiss Counts XVI, XXVIII, and

XXIX is granted.
ENTER: December 6, 2002
“(Autti
Robert W. Gettleman—~
United States District Judge



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
B.E.LT., INC., EUROPEAN AMERICAN BANK, ) - DOCKETED
AMERICAN EQUIPMENT LEASING, THE CIT) DEC 1 0 2002

GROUP/EQUIPMENT FINANCING, INC., )
REGIONS BANK and WINTHROP RESOURCES, )
INC.,

Plaintiffs.
No. 01 4296
v.
Judge Robert W. Gettleman
LACRAD INTERNATIONAL CORPORATION,
an Illinois corporation, RODNEY T.E. DIXON,
DARCAL DIXON, GLENN E. MILLER, KIM W.
MILLER, BETHEL COMMUNITY OUTREACH
MINISTRIES, CHENISE WHITEHEAD, FIRST
UNION NATIONAL BANK, FEED THE
CHILDREN, INC., BISHOP LEO LEWIS, E.C.
REEMS MINISTRIES, CHRISTIAN JEW
FOUNDATION, KIMBERLY STRATTON/
JEHOVAH JIREH MUSIC, ALBERT
DEGENOVA, TOTAL PERIPHERALS, INC.,
MICHAEL WHITFIELD, JAMES T. BORDEN,
NU-CONCEPTS MARKETING, LIVINGSTONE
ENTERPRISES, ROBERT SMALLWOOD,
DANIEL WEATHERSPOON, BISHOP NORMAN )
WAGNER and MT. CALVARY PENTECOSTAL )
CHURCH, JIM JOHNSON and COMPAK. )
CORPORATION, PACIFIC ATLANTIC )
LEASING, a/k/a El Camino, DELTA HARDMAN, )
JAMES FOSTER, TRICIA’S FASHIONS, UNICO )
DESIGNS, LTD., DIVINE ORDER and WILLIAM )
BLANK, )

)
)

we SSS SH HS Sew Serre

Defendants.
MEMO! DUM OPINION AND ORD)

(First Union National Bank’s Motion to Dismiss)

AO


Plaintiffs filed an amendment to their fourth amended complaint, asserting the following
three claims against defendant First Union National Bank (‘First Union”); (1) fraudulent
concealment (Count XVII); (2) fraudulent transfer under the Illinois Uniform Fraudulent Transfer
Act, 740 ILCS 160/1 et seq, (Count XX VIM); and (3) unjust enrichment (Count XXIX). First Union
has filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), which, for the reasons discussed
below, is granted in its entirety.

BACKGROUND

In 1997, First Union, a national bank, extended a credit line in excess of $2 million to
Lacrad International Corp. (‘‘Lacrad”) and issued corporate credit cards to several Lacrad
employees. Between 1998 and 2000, Lacrad and its employees accumulated more than $4 million

of debt on these cards.

In mid-1999, plaintiffs allege that First Union realized that Lacrad had been fraudulently
misusing the credit cards and subsequently suspended Lacrad’s account. At that time, Lacrad’s
outstanding debt to First Union exceeded $2 million. Plaintiffs allege that First Union continued
to accept Lacrad’s payments toward the debt, even after learning that Lacrad funded these

payments through fraud on other creditors.

In amendments to their fourth amended complaint, plaintiffs seek relief on the following
grounds: (1) First Union’s failure to notify the appropriate banking authorities of Lacrad’s
allegedly fraudulent scheme constitutes fraudulent concealment; (2) Lacrad’s preference for First
Union over its other creditors amounts to fraudulent conveyance; and (3) First Union was

unjustly enriched as a result of Lacrad’s payments.