factual underpinnings” for a RICO claim in discovery. First Bank and Hershenhom oppose this motion,
asking for dismissal with prejudice and for the court to relinquish jurisdiction over the remaining state
claims. Winter joined in this opposition.

I. ANALYSIS

A. Voluntary Dismissal of RICO Claims

Rule 41(a)(2) provides in relevant part that:

Except as provided in paragraph (1) of this subdivision of this rule, an action shall not

be dismissed at the plaintiff's instance save upon order of the court and upon such terms

and conditions as the court deems proper.

Fed. R. Civ. P. 41(a)(2) (emphasis added). Permitting a plaintiff to voluntarily dismiss an action without
prejudice, under Rule 41(a)(2), is within the sound discretion of the district court. Tolle v. Carroll
Touch, Inc., 23 F.3d 174, 177 (7th Cir. 1994). Furthermore, the district court is free to impose such
terms and conditions as it believes necessary, including dismissal with prejudice. Ratkovich v. Smith
Kline, 951 F.2d 155, 157-58 (7th Cir. 1991). The district court’s terms and conditions of dismissal are
the “quid pro quo of allowing the plaintiff to dismiss his suit.” McCall-Bey v. Franzen, 777 F.2d 1178,
1184 (7th Cir. 1985).!

As we explained above, we originally granted defendant Winter’s motion to dismiss without
prejudice because Builders Bank failed to plead the RICO claim with particularity, as required by
Federal Rule of Civil Procedure 9(b). After availing Builders Bank of this heightened requirement,
giving it an opportunity to amend its complaint, Builders Bank stated that it did not have the facts

necessary to satisfy the pleading requirements of a RICO claim against any of the defendants. While

‘Builders Bank argues that First Bank and Hershenhom should not have the RICO claims
against them dismissed with prejudice, because the voluntary dismissal without prejudice was sought
pursuant to an agreement between the parties and that First Bank and Hershenhorn had already
answered the complaint. However, once a plaintiff files for voluntary dismissal under Rule 41(a)(2),
as explained above, the court, in its discretion, may dismiss a claim with or without prejudice.

4


The second occasion for retaining jurisdiction over state law claims occurs when “substantial
judicial resources have already been committed, so that sending the case to another court will cause a
substantial duplication of effort.” Jd. In Timm v. Mead, for example, the Seventh Circuit found that the
district court properly exercised supplemental jurisdiction over state law claims after dismissing all
federal claims under this exception. 32 F.3d at 277. When the federal claims had been eliminated in
that case, the state law claims were “ripe for decision, the applicable state law was straightforward, the
litigation was well overa year old, and discovery, which had been at times contentious, was completed.”
Id, at 277. In the present case, the state law claims have not been briefed, the applicable state law is not
straightforward, and discovery is not close to completion. We have not spent time familiarizing
ourselves with the state law that would be necessary to apply to the state claims, nor are we familiar with
the facts that underpin the state law claims. Because the judicial resources we have expended have been
focused on the propriety of the federal RICO allegations, significant judicial resources have not yet been
devoted to the state law claims.

The third occasion for federal retention of state law claims occurs when it is "abundantly clear"
how the pendent claims should be decided or when the state claims are patently frivolous. Id.; Wright,
29 F.3d at 1252. A federal district court may decide a state claim rather than return “doomed litigation”
to state court that will only be dismissed once it arrives in state court. Groce v. Eli Lilly & Co., 193 F.3d
496, 502 (7th Cir. 1999). Because we are not close to a point where we could decide this case, we
cannot say that it is “abundantly clear” how the state claims should be decided.

The exceptions the Seventh Circuit has outlined for retaining pendent jurisdiction over state
claims when no federal claims remain do not apply in this case. The state claims are, therefore,

remanded to state court pursuant to 28 U.S.C. § 1367(c).


Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990); see also Graue Mill Dev. Corp. v. Colonial Bank &
Trust Co., 927 F.2d 988, 992-93 (7th Cir. 1991); Dileo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.
1990).

In our June 30, 2004 Order, we held that Builders Bank’s Complaint, which briefly sketches a
string of communications regarding the alleged racketeering activity, was insufficient to supporta RICO
claim against Defendant Winter because it did not identify exact dates, the content of, and participants
in the alleged mail and wire fraud. Furthermore, because the Complaint only identified one victim and
failed to plead the predicate acts of racketeering with particularity, Builders Bank did not sufficiently
plead a pattern of racketeering activity. Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir.
1986). Finally, Builders Bank’s complaint failed to meet the requirements for a RICO allegation for
three additional reasons: 1) failing to allege receipt of income from racketeering activities; 2) failing to
allege RICO injury; and 3) failing to allege RICO conspiracy.

We dismissed the RICO claims against Winter without prejudice because, although Builders
Bank had already filed a second amended complaint, the changes made did not concern the RICO
allegations, and, thus, Builders Bank had not previously been put on notice that the 9(b) particularity
requirements were not met. Builders Bank did not re-plead the RICO allegations after our June 30, 2004
Order put them on notice, admitting that it “lacks a sufficient factual basis at this time to satisfy all of
the specific pleading requirements” outlined in our opinion. Builders Bank has not and will not file an
amended complaint alleging RICO violations against Winter.

Builders Bank now moves pursuant to Federal Rule of Civil Procedure 41(a)(2) to voluntarily
dismiss the RICO claims against First Bank and Hershenhom, without prejudice, and for our court to
retain supplemental jurisdiction over the remaining state law claims. Builders Bank requests that we

grant its motion to voluntary dismiss the RICO claims without prejudice because it plans “to pursue [the]


plaintiff hopes “to pursue such factual underpinnings in discovery,” he should not be allowed to do so.”
This strategy undermines one of the main purposes of Rule 9(b): the elimination of conclusory
complaints filed as a pretext for using discovery to uncover unknown wrongs. See Levine v. Prudential
Bach Properties, Inc., 855 F. Sup. 924, 929 (N.D. Ill. 1994); see also Pizzo v. Bekin Van Lines Co., 258
F.3d 629, 633 (7th Cir. 2001) ("We are not impressed by Pizzo's argument that with pretrial discovery
she might discover additional frauds. . . . The defendants should not be put to the burden of litigating a
RICO suit beyond the pleadings by allegations as thin as in this case."); Vicom, Inc. v. Harbridge Merch.
Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994) (recognizing that minimization of “strike suits” and
“fishing expeditions” is one of three main purposes of Rule 9(b)). Builders Bank has admitted it does
not have a sufficient factual basis to re-plead RICO claims with particularity, and it may not use
discovery in the hopes of doing so. We dismiss the RICO claims against all defendants with prejudice.

B. Supplemental Jurisdiction

Having dismissed the RICO claims, we must decide whether to retain supplemental jurisdiction
over the remaining state law claims. In our June 30, 2004 Order, we dismissed the RICO claims against
defendant Winter without prejudice, but we retained supplemental jurisdiction over the remaining state
claims against Winter. Builders Bank, 2004 WL 1497766 at *6. We did so because co-defendants First
Bank and Hershenhorn had answered the RICO claims in the complaint and the state claims against

Winter arose out of the same set of facts as the RICO claims against the other defendants. Jd. With the

*There is one exception for relaxing the particularity requirement of Rule 9(b). Uni*Quality,
Ine. v. Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992). To meet this exception, a plaintiff must
specifically allege in the complaint that the information needed to meet Rule 9(b)’s heightened
pleading standard was in the sole possession of the defendant. Goren v. New Vision Int’l Inc., 156
F.3d 721, 729 n.6 (7th Cir. 1998); Corley v, Rosewood Care Cir., Inc., 142 F.3d 1041, 1051 (7th Cir.
1998). Builders Bank’s Complaint makes no mention of specific information held solely by the
defendants, which, if discovered, would allow Builders to meet Rule 9(b)’s particularity requirement.

5


Hil. CONCLUSION
For the reasons stated above, Builders Bank’s RICO claims against First Bank, Hershenhorn, and
Winter (Counts II], IV, V) are dismissed with prejudice and the pendent state law claims (Counts I, HI,

VI, VH, VUI, EX) and First Bank's counterclaim are remanded to the Circuit Court of Cook County,

Tinois, It is so ordered. Pore 9

MARVIN E. ASPEN
United States District Judge

Dated () __ phrofoy


Minute Order Form (06/97)

Ar

United States District Court, Northern District of Illinois

Name of Assigned Judge Marvin Aspen Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 03 C 4959 DATE 10/26/2004
CASE Builders Bank vs. First Bank, et al
TITLE
Lin the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.}
DOCKET ENTRY:
ql) Oo Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) Q Answer brief to motion due. . Reply to answer brief due.
(4) Oo Ruling/Hearing on set for at
(5) a Status hearing[held/continued to] [set for/re-set for] on set for at
(6) o Pretrial conference[held/continued to] [set for/re-set for] on set for at
(7) o Trial[set for/re-set for} on at
(8) Oo (Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed {with/without} prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) CO Local Rule 41.1 OFRCP41(a}(1) O FRCP41(a)(2).
ao =f [Other docket entry] | Enter Memorandum Opinion and Order: Builders Bank’s RICO’s claims
against First Bank, Hershenhorn, and Winter (Counts III, IV, V) are dismissed with prejudice and the
pendent state law claims (Counts I, II, VI, VII, VIII, IX) and First Bank’s counterclaim are remanded to
the Circuit Court of Cook County, Illinois. The clerk of the Court is directed to remand the above-cause
of action to the Circuit Court of Cook County. The status and ruling date of 10/28/04 is stricken. Any
pending motions are moot.
(a1) [For further detail see order attached to the original minute order.]
No notices required, advised in open court. Document
- Number
No notices required. vunber of notices
a | Notices mailed by judge's staff. act Qv pi
Notified counsel by telephone. duis joiues
Docketing to mail notices.
J | Mail A0 450 form. doped bury initiate
Copy to judge/magistrate judge.
107262004
courtroom date mailed noice
ot sem aa-z ui 92 90M a
jate/time received in,
central Clerk's Qtt|ce} | -] mailing deputy initials
corms



remaining federal claims now dismissed against all defendants, we must revisit the decision to retain
supplemental jurisdiction.

A district court may retain supplemental jurisdiction over state law claims even after it has
dismissed all claims over which it has original jurisdiction. 28 U.S.C. § 1367(c)(3). Courts have
consistently recognized that “pendent jurisdiction is a doctrine of discretion, not of plaintiff's right.”
United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726 (1966). In fact, the Seventh Circuit has
characterized the district court’s discretion to relinquish pendent jurisdiction as “almost unreviewable,”
especially when all federal claims have been dropped from the case before trial and only state law claims
remain. Kennedy v. Schoenberg, Fisher & Newman, Ltd., 140 F.3d 716, 728 (7th Cir. 1998) (citing
Huffman v. Hains, 865 F.2d 920, 923 (7th Cir. 1989)).

Asa general rule, “[W]hen all federal law claims are dismissed before trial, the pendent claims
should be left to the state courts.” Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1252 (7th Cir. 1994).
When federal claims are eliminated before trial, a court may retain jurisdiction, at its discretion, after
balancing, “the nature of the state law claims at issue, their ease of resolution, and the actual, and
avoidable, expenditure of judicial resources. ..” Timm v. Mead Corp., 32 F.3d 273, 277 (7th Cir. 1994).
“[D]ismissal at the pleading stage usually counsels strongly in favor of relinquishing jurisdiction because
at that point in a case ‘judicial resources’ typically are yet to be heavily tapped.” Jd. at 277 n.2.

The Seventh Circuit has articulated three exceptions to the general rule that jurisdiction over pendent
state claims should be relinquished if all federal law claims have been dismissed before trial. Wright,
29 F.3d at 1251-52. First, if the statute of limitations has run on the pendent claim, precluding the filing
of a separate suit in state court, the federal court should retain jurisdiction. Jd. at 1251. This exception

does not apply to our case.


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
BUILDERS BANK, an Illinois state }
chartered bank, ) Qn ‘ )
)
Plaintiff, ) ¥ x2 ry"
)
v. ) No. 03 CV 04959
)
FIRST BANK AND TRUST COMPANY )
OF ILLINOIS, an Illinois state chartered )
bank; MICHAEL WINTER; and )
ROBERT HERSHENHORN )
)
Defendant. )
MEMORANDUM OPINION AND ORDER

MARVIN E. ASPEN, District Judge:

Plaintiff Builders Bank filed a nine-count Second Amended Complaint ("Complaint") against
defendants First Bank & Trust Company of Illinois (“First Bank”), Michael Winter (“Winter”), and
Robert Hershenhorn (“Hershenhom”). Builders Bank asserts federal claims for violation of the
Racketeer Influenced and Corrupt Organizations Act (“RICO”) (Counts II, IV, and V) and state law
claims for conspiracy (Count I), fraudulent misrepresentation (Count II), breach of fiduciary duty against
Winter (Count VI), breach of employment agreement against Winter (Count VID), and breach of contract
against Winter (Count VIE). Builders Bank has also requested a declaratory judgment regarding First
Bank’s right of set-off against Winter and his wife (Count IX). First Bank has filed a counterclaim
against Builders Bank seeking performance on a letter of credit.

In our June 30, 2004 Memorandum Opinion and Order, we granted defendant Winter’s motion
to dismiss the RICO claims against him, without prejudice, and we retained supplemental jurisdiction
over the remaining state law claims. See Builders Bank v. First Bank & Trust Co. of Illinois, No. 03-

04959, 2004 WL 1497766, *6 (N.D. Ill. June 30, 2004). Presently before us is Builders Bank’s motion



to voluntarily dismiss its RICO claims against First Bank and Hershenhorn without prejudice; Builders
Bank also urges that we continue to exercise supplemental jurisdiction over the state law claims. First
Bank, Hershenhorn, and Winter oppose this motion and ask us to dismiss the RICO claims with
prejudice and to decline to exercise supplemental jurisdiction. For the reasons stated below, we dismiss
Builders Bank’s RICO claims (Counts III, IV, V) against First Bank, Hershenhom, and Winter, with
prejudice, and we remand the pendent state law claims (Counts I, II, VI, VII, VII, [X) and First Bank’s
counterclaim to the Circuit Court of Cook County, Illinois.

L BACKGROUND

The following facts are adopted from Builders Bank’s Complaint and are assumed to be true for
the purpose of this motion. See Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th
Cir. 2000). Plaintiff Builders Bank alleges that First Bank, Hershenhom, and Winter wrongfully induced
Builders Bank to purchase loans that were in default or otherwise non-performing. The defendants
allegedly convinced Builders Bank that the loans were in good standing by extending their due dates,
so that they would not appear to be in default.

Builders Bank’s Complaint includes allegations that the defendants violated RICO, the federal
Racketeer Influenced and Corrupt Organizations Act, based on predicate acts of alleged mail and wire
fraud. 18 U.S.C. § 1961, et seg. To survive a Federal Rule of Civil Procedure 12(b)(6) motion to
dismiss on a RICO claim, a plaintiff must allege with particularity the 1) conduct; 2) of an enterprise;
3) through a pattern 4) of racketeering activity.” Richmond v. Nationwide Cassel, L.P., 52 F.3d. 640, 644
(7th Cir. 1995) (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)). To satisfy the
particularity requirement of Federal Rule of Civil Procedure 9(b) in alleging a RICO violation, a plaintiff
must allege “the identity of the person making the misrepresentation, the time, place, and content of the

misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.”