Count I—Unjust Enrichment

In Count I, plaintiffs allege that Sears was unjustly enriched when Sears reaped the benefils
of plaintiffs’ labor. Scars argues that Count [ fails to state a claim because: (1) plaintiffs fail to
adequately allege that Sears was plaintifls’ de facto employer; and (2) as a matter of Illinois law, a
third party cannot be held liable for an implied contract when there was an explicit contract between
two different parties.

Tn Illinois, unjust enrichment is based on an implied contractin law. HPJ Health Care Servs.,
Ine, v. Mt. Vernon Hosp., Inc., 131 M.2d 145, 545 N.F.2d 672 (1989). Unjust enrichment exists
when (1) "a defendant receives a benefit, (2) to the plaintiff's detriment, and (3) the defendant's
retention of that benefit would be unjust." TRW Title Ins. Co. v. Security Union Title Ins, Co., 153
F.3d 822, 829 (71th Cir. 1998) (citing APJ, 131 Ill.2d 145, 545 N.E.2d 672), To recover under unjust
enrichment, plaintiffs must show that Sears voluntarily accepted a benefil that would be inequitable
to retain without payment. People ex rel, Hartigan v. E & F Hauling, Inc., 153 UL.2d 473, 497, 607
N.E.2d 165 (1992).

Sears correctly argues that plaintiffs must allege a cognizable agency liability theory to state
a prima facic case of unjust enrichment based on Sears receiving the bencfit of plaintiffs’ labor. See
St. Ann's Home for Aged v. Daniels, 95 Ill. App.3d 576, 420 N.E.2d 478 (1st Dist. 1981). Otherwise,
Seurs is simply a third party that cannot be held able for reaping the benefits of the work performed
by plaintiffs in accord with their contractual obligations to Diamond. Decatur Production Credit
Ass'n v. Murphy, 119 Ill. App.3d 277, 288 456 N.E.2d 267, 274 (4" Dist. 1983). Sears argues that
plaintiffs must allege sufficient facts to show that Sears had day-to-day control over plaintiffs to

prove that Sears was plaintiffs’ de facto cmployer. See, Lavazzi v. McDonald's Corp., 2391, App.3d


Although plaintiffs argue in their brief that there were reasons to believe the money in
Diamond’s bank account was earmarked, this argument implies facts that are not alleged in the
complaint, In fact, the complaint alleges only that Sears was paid money that Diamond owed to
Sears under the license agreement from the funds in Diamond’s bank account that would have been
available to pay plaintiffs’ wages absent such payments to Sears.

Therefore, absent any allegation thal the money was specifically carmarked for plaintiffs,
plaintiffs have failed to allege that they had either a right in the specific money in the bank, or an
absolute right to immediately possess the money. Count II is dismissed.

Count II—Violation of Ilinois Wage Payment and Collection Act

Count ILI of the complaint alleges a violation of the Illinois Wage Payment and Collection
Act ("WPCA"). Sears argues that plaintiffs have failed to allege agency liability. ‘The starting point
when a plaintiff alleges a statutory violation is the statute’s definition of employer. See e.g. Jack
Bradley, Inc. v, Department of Employment Security, 146 Ill-2d 61, 73-74, 585 N.B.2d 123, 128, 165
Il.Dec. 727, 732 (1992) (holding that the definition of employer in the Unemployment
Compensation Act was broader than common law master-servant relationships).

The WPCA, 820 ILCS 115/2, defines an employer as,

any individual, partnership, association, corporation, business trust, cmployment and

labor placement agencies where wage payments are made directly or indirectly by the

agency or business for work undertaken by employees under hire to a third party

pursuant to a contract between the business or agency with the third party, or any

person or group of persons acting directly or indirectly in the interest of an employer

in relation to an employee, for which one or more persons is gainfully employed.

There are no Illinois cases that have analyzed this definition, The Act explicitly does not

cover onc who is: (1) an independent contractor in name and in fact; (2) performs all of their work


USS. at 45-46 (requiring only notice pleading in federal courts), However, the licensing agreement
is also apart of the pleading, Help at Home, 260 F.3d at 752, and, while not dispositive, must be
considered in determining the sufficiency of the complaint. Schroeder v. Pennsylvania Railroad,
397 F.2d 452, 455 (7th Cir. 1968).

For plaintiffs to be subservants of Sears, Diamond must have been a servant of Sears. Kelley,
419 U.S. at 324, Illinois has adopted the 10 factors set forth in the Restatement (Second) of Agency
§ 220 for determining if a master-servant relationship exists. /Jills, supra, 195 [ll.2d at 234. These
factors are; (1) the extent of control over the servant; (2) whether the agent is engaged in a distinct
business; (3) the locality’s custom; (4) the skill required to perform the duty; (5) who supplies the
instrumentalities and tools; (6) the length of time of the agency; (7) the method of payment; (8)
whether the work is part of the principal’s regular business; (9) the belicf of the parties; and (10)
whether the principal is in business. Restatement (Second) of Agency § 220.

There is little guidance as to what threshold a plaintiff must meet to avoid a motion to
dismiss when pleading subservant liability. Illinois courts have not addressed the issue of subservant
lability in the context of a motion to dismiss. See c.g. Bucieri, 235 Ll. App.3d at 193 (summary
judgment), Hopgoud, 120 Ill. App.3d at 230 (summary judgment); Tierney v. Burlington Northern
Railroad Company, 240 Ill. App.3d 526, 527 608 N.E.2d 479, 480 (holding fact question as to
employment precluded summary judgment); Kottmeyer v. Consolidated Rail Corp., 98 MApp.3d
365, 379, 424 N.L.2d 345, 356 (5" Dist, 1981) (upholding directed verdict in favor of the plaintiff-
employee); Consolidated Rail Corp. v. Liberty Mutual Ins., Co., 92 Il, App.3d 1066, 416 N.F.2d
758 (5" Dist. 1981) (upholding judgment that insurance company must cover railroad’s subservants).

The cases cited by Scars all involved summary judgments, Richardson y, Bulk Petroleum Corp., 11


403, 606 N.E.2d 845 (2d Dist. 1992); In Re Penn Central Transportation Co., 419 F.Supp.1370
(F.D. Pa. 1976). Plaintiffs argue that they must simply allege that Diamond was a servant of Sears
and that plaintiffs were therefore subservants. See, Kelley v. Southern Pacific Co., 419 U.S. 318,
324, 95 S.Ct. 472, 476, 42 L.Ed.2d 498 (1974). Plaintiffs are correct that an allegation based on
subservancy would state a cognizable claim. Kelly, 419 U.S, at324, However, plaintiffs have failed
to adequately allege a subservant relationship.

There are three ways to allege a master-servant relationship sufficient to withstand Scars’
motion to dismiss: (1) dual employment; (2) borrowed employee; and (3) subservancy. Kelley, 419
U.S. at 324. In Kelley, the Supreme Court analyzed whether the plaintiff was an employee for the
purpose of bringing an action under the Federal Employers’ Liability Act. /d., at 323. The court,
however, applied common law agency principals in holding that the case should be remanded to
determine if the plaintiff was in fact an employce of the defendant. Jd Kelley’s application of
common law master-servant principals has been adopted in Illinois. See e.g. Bucieri v. Hlinois Cent.
Gulf R.R., 235 Ill. App.3d 191, 601 N.E.2d 840 (1* Dist. 1992) (following Kelley and reversing
summary judgment because employment status was question of lact); Hopgood v, Anheuser-Busch,
Ine., 120 Ill. App.3d 222, 458 N.E.2d 525 (5" Dist, 1983) (finding facts did not support subservant
theory of liability on summary judgment).

Plaintiffs have not adequately alleged either dual-employment or borrowed employment.
Plaintiffs do allege, however, that they were subservants of Sears. This allegation by itself would
likely be enough to withstand a motion to dismiss. See St. Ann's, 95 Ill. App.3d at 579 (holding a

“prima facic case of agency can be created by inference or presumption” and that the actual scope

of the agency must be decided by the trier of fact if there is any dispute); sce also Conley, supra, 355



Count IT--Conversion

In Count II, plaintiffs alleged that Sears converted their property when plaintiffs’ final
paychecks from Diamond were not honored because Sears removed funds from Diamond’s account.
Sears makes two separate arguments for dismissal of Count Il. First, Sears argues that plaintiffs
failed to adequately allege agency liability, Since this count is based on allegations of wrongdoing
done by Scars itself, plaintiffs do not have to allege any agency liability.

Second, Sears makes two arguments as to why the conversion claim is legally insufficient:
(1) plaintiffs had no right to the money because the moncy was not their property; and (2) plaintiffs
did not have an absolute right to possess the property immediately. Because plaintiffs have failed
to allege that the money was specifically earmarked for p] aintiffs, Count Il fails to state a claim under
Illinois law.

To plead a claim for conversion under Tllinois law, a plaintiff must allege that: (1) he has a
tight to property; (2) he has an absolute right to possess the property, (3) he has made a demand for
possession; and (4) the defendant wrongfully assumed control or ownership over the property.
Cirrincione v. Johnson, 184 Il.2d 109, 114, 703 N.E.2d 67, 70 (1998).

The "subject of conversion is required to be an identifiable object of property." Jn Re Phebus,
108 Ill.2d 255, 260, 483 N.E.2d 1258 (1985). Money meets that requirement if it is shown that it
was "specifically carmarked" for the plaintiff. /d Lxamples of specifically earmarked money
include funds put into a separate account for one specific purpose, /# Re Thebus, 108 11.2d at 263,
funds placed for a wire transfer, Addante v. Pompilio, 303 Ill. App. 172, 25 N.E.2d 123 (1940); and

converting a negotiable instrument, Grand Pacific Hotel Co. v. Rowland, 88 Il. App. 519 (1899).



4

‘Minute Order Form (06/97)

United States District Court, Northern District of Illinois

vom faucet jee | Robert W. Gettleman | Sunt Juae ote

CASE NUMBER 02 C 3939 DATE Oct. 28, 2002
CASE Robert Brown, et al v___ Sears, Roebuck & Co., et al
TITLE

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

MOTION:

DOCKET ENTRY:

ql) oO Filed motion of [ use listing in “Motion” box above.]

@) Oo Brief in support of motion due

Q) Oo Answet brief to motion due____. Reply to answer brief due.
(4) Qo Ruling/Hearing on _setfor at.

() r Status hearing reset to 11/21/02, at 9:30 a.m,

(6) oO Pretrial conference[held/continued to] [set for/re-set for]on____—ssetfer__—saat._
mM a Trial[set for/te-set for]on____ at

(8) oO [Bench/Jury trial] [Hearing] held/continued to aat_

(9) a This case is dismissed pursuant to

OOFRCP4(m) (Local Rule 41 OOFRCP41(a)(1) O FRCP41(a)(2).

qo) [Other docket entry]

Memorandum opinion and order entered.

Accordingly, defendant’s motion to dismiss counts I through IV is granted.
Plaintiffs are given leave to file and amended complaint by 11/18/02.
Status report due date of 10/30/02 is stricken.

ail) a (For further detail see order attached to the original minute order.|

No notices required, advised in open court,

No notices required. mutaber af natices

X. | Notices mailed by judge's staff, ;
5 eet sg 20

dave docketed

Notified counsel by telephone,

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge,

date aalled potice

courtroom
GDS deputy’s
initials

é teseivdt in || J
“iets Olfice suiting Weputyinitils



Conclusion
For the foregoing reasons, the Scars’ motion to dismiss Counts I through IV is granted.
Plaintiffs are granted leave to file an amended complaint, consistent with their obligations under led.
R. Civ. P. 11, on or before November 18, 2002. This matter is set for report on status on

November 21, 2002, at 9:00 a.m. The status report previously set for October 30, 2002, is vacated.

ENTER: October 28, 2002

SA: —~
Robert W. Gettleman
United States District Judge



outside of the place of business of the employer; and (3) is an independently established trade,
occupation, profession or business, 820 ILCS 115/2. With this exception, the Tllinois legislature
expressly excluded independent contractors.

Because the court has found that plaintiffs were not Scars” subservants, they were nol Sears’
employees for the purpose of this Act. Therefore, defendants’ motion to dismiss Count Ill is granted,
Count 1V—Breach of Contract

Count IV alleges breach of contract based on plaintiffs not being paid for their work
performed. Sears’ only argument is that plaintiffs have failed to allege agency liability. When
alleging a contract action plaintiffs must show an agency relationship that docs not necessarily rise
to the level of master-servant. See e.g, St, Ann’s, 95 IL. App.3d 576. In Illinois, a principal is also
bound for any "apparent authority" it gives its agent. Petrovich, 188 11.2d at 32. If the principal
creates the appearance of authority, then the principal is estopped from arguing that its agent did not
have that authority. /d, The scope of Sears and Diamond's agency relationship may be implied trom
facts and circumstances. Sr. Ann's, 95 Ill. App. 3d at 579. A “prima facie case of agency can be
created by inference or presumption." /d The actual scope of the agency must be decided by the
trier of fact unless it is undisputed that there was no agency liability. Id.

Plaintiffs do not allege that thcy believed that they were contracting with Sears as their
employers when they contracted with Diamond. Absent any allegation that they thought they had
contracted with Sears, or that Sears had held Diamond out to make employment contracts on their
behalf, plaintiffs cannot allege a breach of contract action against Sears. Therefore, Count LV is

dismissed.

10



Til. App.3d 655, 297 N.£.2d 405 (1st Dist. 1973), Lavazzi, 239 Ml. App.3d 403, or directed verdicts,
Coty y. U.S. Slicing Machine Co., 58 Til. App.3d 237, 373 N-E.2d 1371 (2d Dist. 1978), The courts
of this district and Seventh Circuit rulings that have dealt with this issue also do not specifically
address the standard for a motion to dismiss, See e.g. Staschke v. Grand Truck Western Railroad
Inc., 1998 WL 245867 (N,D. Ill. 1998) (denying defendants motion for summary judgment), see also
Schroeder, supra, 397 F.2d 452 (reversing directed verdict).

In the instant case, all plaintiffs have alleged is that they were Sears’ subservants. The
complaint conspicuously fails to allege that Sears had day-to-day control over Diamond or
Diamond’s employees, or that Diamond operated out of Sears’ space or uscd Sears’ tools or
equipment. The one clear factual allegation is the intent of the parties, as expressed by the licensing
agreement, that Diamond was an independent contractor. Indeed, the licensing agrcement
specifically makes Diamond responsible for the working conditions, hiring, firing, promotion,
assignments and compensation of its employees and the provisions of all tools and equipment used
by those employees. Although under the license agreement Sears exercised a certain amount of
control over Diamond, both in terms of the standard of quality for the services provided, and in the
manner in which Diamond conducted its finances, this did not constitute day-to-day control
sufficient to change Djamond’s legal status from an independent contractor into a servant of Sears.
See e.g. Hopgood v. Annheuser-Busch, Inc., 120 Ill, App.3d 222.

Therefore, Sears motion to dismiss as to Count I is granted.


Diamond was paid, Diamond's employees were paid, including a base wage, a commission and
expense reimbursement.

Plaintiffs received their final paychecks around January 31, 2000, around the same time
Diamond ceased doing business. When plaintiffs received their paychecks Diamond's bank account
had the funds necessary to cover the checks. When plaintiffs attempted to cash their checks,
Diamond's bank account had insufficient funds. Scars removed the remaining funds from Diamond's
account before Diamond was dissolved. Additionally, Scars did not make a scheduled payment to
Diamond in the days before Diamond's demise.

Discussion

On a motion to dismiss for failure to state a claim, the court accepts the factual allegations
of the complaint as true and draws all reasonable inferences in favor of plaintiffs. See Travel All
Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423 (7th Cir. 1996). The court considers
"whether relief is possible under any set of facts that could be established consistent with the
allegations." Bartholet v, Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992). A claim may be
dismissed only if it is beyond doubt that under no sct of facts would plaintiffs’ allegations entitle it
woreliel, Conley v, Gibson, 355 U.S. 41, 45-46, 78 8.Ct. 99, 2 L.Ed.2d 80 (1957). The purpose of
a motion to dismiss is to test the sufficiency of complaint, not to decide its merits. See Gibson v.
City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990).

Sears argues that: (1) plaintiffs fail to adequately allege an agency relationship that makes
Sears liable for Diamond's actions; (2) plaintiffs fail to allege a cause of action for unjust enrichment;

and (3) plaintiffs fail to allege a cause of action for conversion. Each count will be addressed

separately.



Allegations of Complaint!

On January 1, 1996, Diamond and Sears entered into a licensing agreement under which
Diamond sold and installed Sears home improvement items. The parties agreed that Diamond had
"sole and exclusive control" over its employees. The agreement says that Diamond "shall operate
[as] an independent contractor." The parties also agreed, however, that Diamond would "give
consideration to the transfer" of any employee Sears deemed objectionable. The parties agreed that
Diamond would carry Worker's Compensation and Employer's Liability Insurance "in amounts
satisfactory to Sears and adequate to fully protect Sears” against any claims. Further, all customer
information was exclusively owned by Sears. Further agreements in 1999 modified the 1996
agreement. In a letter agreement on June 30, 1999, Diamond agreed not to enter into a licensing
agreement with a Sears competitor. The following day, Diamond and Sears amended their licensing
agreement to ensure that Diamond's installation met Sears' quality control standards. The agreement
was modified three other times in November of 1999, all aimed at ensuring that Diamond was
meeting Sears’ business standards.

Under the licensing agreement, Sears customers requested home improvement consultation
from Sears, and Diamond personne! did the consulting, selling and installation. The customers paid
Sears directly, often through a Scars credit card. Once the work was completed Scars would pay
Diamond. This was done via electronic transfers through accounts designated by Sears. Sears’

portion of the proceeds was generally 11 to 14 percent of the gross revenues and materials. Once

‘In considering Sears’ motion to dismiss, the licensing agreement is considered part of the
pleadings. //e/p at Lome, Inc. v. Medical Capital, L.L.C., 260 \'.3d 748, 752 (7" Cir. 2001). In
addition, the later agreements that modified the licensing agreement arc considered under the
doctrine of completeness. Jn Re First Chicago Corp. Sec. Litig., 769 F. Supp. 1444, 1450 (ND.
Al. 1991).



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

EASTERN DIVISION
ROBERT BROWN, JANET DIAZ, and JOHN )
WELLING, individually and on behalf of all others )
similarly situated, )
)
Plaintiffs, )
) No. 02€3939
v. )
) Judge Robert W. Gettleman
SEARS ROEBUCK & COMPANY, DIAMOND _ ) pore
EXTERIORS, INC., DIAMOND HOME ) : ee
SERVICES, INC., and PROFESSIONAL ) yes a
BENEFIT ADMINISTRATORS, INC., ,) t
) ses
Defendants. ) GOT 3 © elite
MEMORANDUM OPINION AND ORDER
Plaintiffs, Robert Brown, Janet Diaz and John Welling filed a six-count amended putative . , ,

class action complaint against Diamond Exteriors, Inc. ("Diamond"), Diamond Home Services, Inc.
("DHS"), Professional Benefit Administrators, Inc. ("PBA"), and Sears Roebuck and Company
("Sears"). Plaintiffs allege unjust enrichment (Count 1), conversion (Count II), a violation of the
Illinois Wage Payment and Collection Act (Count IIL), two breaches of contract (Counts [V and V),
and request punitive damages (Count VJ), In five of the six counts Sears is a named defendant, Sears
has moved to dismiss the complaint, arguing that plaintiffs failed to adequately allcge that Scars was
a de facto employer, and therefore liable. In addition, Sears argues that the complaint fails to

adequately allege both the conversion and the unjust enrichment claims. For the reasons set forth

below, the motion is granted.

o—_