statute of limitations for claims brought pursuant to §12(1) of the Securities, 15 U.S.C. §
771). Section 5 of the Securities Act forbids selling an unregistered security in interstate
commerce and § 12(1) states that the purchaser of a security sold in violation of § 5 may
rescind the transaction. Allison v. Ticor Title Ins. Co., 907 F.2d 645, 650 (7th Cir. 1990).
However, “no action shall be maintained to enforce liability created under § 12(1), unless
brought within one year after the violation upon which it is based.” 15 U.S.C. § 77(1).
Furthermore, “in no event shall any such action be brought to enforce a liability created
under § 12(1) more than three years after the security was bona fide offered to the
public.” Id,

The statute of limitations expired prior to Fintel’s filing of the § 12(1) claims on
June 9, 2003. Fintel bases his claim on the violation of registration and soliciting sales
over the phone pursuant to § 12(1). Therefore, the statute of limitations started on June 8,
2000, the date the violation occurred, and expired one year later on June 8, 2001.
Furthermore, A.P. Members offered the securities at the beginning of 2000. Since Fintel
is basing his claim on § 12(1), his claim must be filed within three years of the public
offering. Therefore, the latest time that Fintel could have filed his claim was early
January 2003, three years after the company first issued the securities to the public in
early 2000. Thus, Fintel’s Securities Act claim must be dismissed as untimely.
I. — State Claims

In Counts II and HI of his Complaint, Fintel asserts claims for violation of the
Illinois Securities Law and breach of contract pursuant to Illinois law. Having granted
Gouletas’s motion to dismiss Fintel’s claims under the Securities Act, there is no longer a

federal claim pending before this court. Thus, this Court, in its discretion, declines to



14, 2000.

Fintel alleges Defendants violated Section 5 of the Securities Act and 5/12(B)
and 5/13(A) of the Illinois Securities Law by failing to provide him with a prospectus, a
copy of the note, a private placement memorandum, a subscription agreement, or any
written information regarding the sale prior to or at the time of the sale. Fintel contends
that Gouletas is personally liable for the alleged violations of A.P. Members, since she
controls HBI, a member of the A.P. Members. Gouletas moves to dismiss the Complaint
arguing that the one-year statute of limitations for the federal and state claims expired on
June 8, 2001, Gouletas further claims that Fintel fails to allege that Gouletas is a
controlling person of the A.P Members, according to 15. U.S.C. § 77(0) or 815 Ill. Comp.
Stat. 5/13(D).

DISCUSSION

L Standard for a Motion to Dismiss

When considering a motion to dismiss, a court must view the complaint’s
allegations in the light most favorable to the plaintiff, and all well-pleaded facts in the
complaint must be accepted as true. Wilson v. Formigoni, 42 F.3d 1060, 1062 (7 Cir.
1994). To withstand a motion to dismiss, a complaint must allege facts which sufficiently
set forth the essential elements of the cause of action. Gray v. County of Dane, 854 F.2d
179, 182 (7 Cir. 1988). Dismissal is proper only if it appears beyond a doubt that a
plaintiff can prove no set of facts in support of a claim which would entitle him to relief.
Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
I. Statute of Limitations

Gouletas contends that Fintel’s federal law claims are barred by the one-year



accept supplemental jurisdiction over Fintel’s state law claims of breach of contract and
violations of 815 Ill. Comp. Stat. 5/12(B) and 5/13(A); see Vukadinovich v. Board of
Sch. Trustees, 978 F.2d 403, 415 (7 Cir. 1992) (“It is well established that if federal
claims are dismissed before trial, the federal district courts should generally dismiss the
state law claims as well.”); Vakharia v. Swedish Covenant Hosp., 987 F. Supp. 633, 643
(N.D. Ill. 1997) (“Ordinarily, if a court rules against a plaintiff on all federal claims short
of trial the pendant state Jaw claims are dismissed without prejudice.”), aff'd, 190 F.3d
799 (7 Cir. 1999). Accordingly, the Court dismisses Counts II and III without prejudice.
Iv. Sanctions

Gouletas requests this court impose sanctions upon Fintel claiming that this was a
baseless claim which had no merit in law. However, “the mere fact that an argument is

meritless does not subject its proponent to sanctions.” Landis & Gyr Powers, Inc. v.

Powers U.K., Ltd., No. 90 C 3027, 1990 U.S. Dist. LEXIS 14244, (N.D. Il. Oct. 25,

1990). “Failure on merits is not synonymous with frivolousness.” Id. The focus is
“whether the conduct was reasonable under the circumstances.” Id. Rule 11 provides
guidance as to conduct that is considered reasonable: “[T]he presence of an attorney’s
signature on a complaint is a certificate that he has read the pleading . . . that to the best of
his knowledge, information is warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law, and that is not interposed for any
improper purpose, such as to harass or to cause any unnecessary delay or needless

increase in the cost of litigation.” Szabo Food Serv. Inc. v. Canteen Corp., 823 F.2d 1073,

1080 (7 Cir. 1987). The four requirements must be satisfied when the attorney files the

complaint, Id.



Minute Order Form (06/97)

5 / \y United States District Court, Northern District of Illinois

‘ame ofasdened jwise | George M. Marovich _ | Siti Judge ir Orher

CASE NUMBER 03 C 3916 DATE 7/15/2004
CASE Fintel vs. A.P. Members, LLC, et al.
TITLE

[In the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd party plaintiff, and (b) stat
of the motion being presented.)

je briefly the nature

MOTION:

DOCKET ENTRY:

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

Q) a Brief in support of motion due

(3) Qa Answer brief to motion due__. Reply to answer brief due.

4) a Ruling/Hearing on ss set for_—_at

(5) Oo Status hearing[held/continued to] [set for/re-set for]on___—ssetfor_ att

(6) Oo Pretrial conference[held/continued to] [set for/re-set for]on___——ssetfor_— at.
(7) a Trial[set for/re-set for]on ss at_

(8) a [Bench/Jury trial] [Hearing] held/continued to at

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

OFRCP4(m) CO Local Rule 41.1. CFRCP41(a)(1) 0 FRCP41(a)(2).

A.P. Loftominium Consultants, Inc.; HB{; Steven Gouletas; Washington-Morgan; Loftominium, LLC; 132’

and Gouletas’s motion for sanctions is denied.

ad) ff [For further detail see order on the reverse side of the original minute order.]

(10) MM (Other docketentry]) ENTER MEMORANDUM OPINION AND ORDER. Defendants, A.P. Members;

7 Washington,

Loftominium, LLC; Peoria Sangamon, Loftominium, LLC; May Loftominium, LLC; Loomis Loftominium, LLC; Annie
Properties Investors, LLC; A.P. Property Holdings, LLC; and James Schwark have not been served. Service was required to
be completed by 10/07/03. Therefore, claims against these defendants are dismissed. Gouletas’s motion to dismiss is granted

No notices required, advised in open court.

No notices required, ber of wot
umber of notices

Document
Number

Notices mailed by judge's staff.
Notified counsel by telephone. h 1.5

v | Docketing to mail notices. nd
oY | Mail AO 450 form.

docketing deputy initials

Copy to judge/tnagistrate judge.

date mailed notice
courtroom et

JD deputy's
initials

18 deputy initials

\v



Fintel appears to have adequately investigated the claims alleged in the
Complaint. Fintel presented case law and identified sections of the Securities Act and the
Illinois Securities Law, however, he mistakenly applied the three-year statute of
limitations, which applies to other sections of the Securities Act. “Rule 11 is meant to

punish frivolity, not mistakes.” Berwick Grain Co., Inc. v. I!linois Dept. of Agriculture,

217 F.3d 502, 503 (7% Cir. 2000). Furthermore, Gouletas has provided no evidence that
Fintel displayed bad faith or a lack of diligence in investigating the claim. Therefore,
Gouletas’s Motion for Sanctions is denied.
CONCLUSION
For the reasons set forth above, Gouletas’s Motion to Dismiss is granted and

Fintel’s motion for sanctions is denied.

ENTER:

Wu Ay aenlele

M. Marovich
ited States District Judge

DATED: $$ Leo 4



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Dan Fintel,
Plaintiff,

03 C 3916
Judge George M. Marovich

Vv.

A.P. Members, LLC;

A.P, Loftominium Consultants, Inc.;
Home by INVSCO, Inc.; Steven
Gouletas; Washington-Morgan;
Loftominium, LLC; 1327 Washington
Loftominium, LLC; Peoria Sangamon
Loftominium, LLC; May Loftominium,
LLC; Loomis Loftominium, LLC; Annie
Properties Investors, LLC; A.P. Property
Holdings, LLC; Nicholas S. Gouletas;
Evangeline Gouletas; and James Schwark,

Ne SS SS SH SS SS OO

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiff Dan Fintel (“Fintel”) filed a three-count Complaint against A.P.
Members, LLC (“A.P. Members”); A.P. Loftominium Consultants, Inc.; Home by
INVSCO, Inc.(“HBI”’); Steven Gouletas; Washington-Morgan; Loftominium, LLC; 1327
Washington, Loftominium, LLC; Peoria Sangamon, Loftominium, LLC; May
Loftominium, LLC; Loomis Loftominium, LLC; Annie Properties Investors, LLC; A.P.
Property Holdings, LLC; Nicholas S. Gouletas; Evangeline Gouletas (“Gouletas”); and
James Schwark (collectively “Defendants”, alleging that they failed to comply with
registration requirements pursuant to § 5 and § 12 of the Securities Act of 1933

(“Securities Act”), as amended by the Securities Act of 1934, 15 U.S.C. § 77(e) and (1)

Ib


(“Section 5”) (Count I); the Illinois Securities Law of 1953, 815 Ill. Comp. Stat. 5/12(B)
and 5/13(A) (“5/12(B)” and “5/13(A)”) (Count II); and breach of contract (Count III).
Defendants, A.P. Members; A.P. Loftominium Consultants, Inc.; HBI; Steven Gouletas;
Washington-Morgan; Loftominium, LLC; 1327 Washington, Loftominium, LLC; Peoria
Sangamon, Loftominium, LLC; May Loftominium, LLC; Loomis Loftominium, LLC;
Annie Properties Investors, LLC; A.P. Property Holdings, LLC; and James Schwark have
not been served. Service was required to be completed by October 7, 2003, 120 days
after the Complaint was filed. Sellers v. United States, 902 F.2d 598, 603 (7" Cir. 1990).
Therefore, claims against these defendants are dismissed. The sole remaining Defendant,
Gouletas, moves for dismissal of the Complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6) and for sanctions pursuant to Federal Rule of Civil Procedure 11(c).
For the reasons set forth below, Gouletas’s Motion to Dismiss is granted and Gouletas’s
Motion for Sanctions is denied.
BACKGROUND

The Complaint alleges the following relevant facts which, for the purposes of
deciding this motion, are taken as true. Hishon v. King & Spaulding, 467 U.S. 63, 73
(1984). In early 2000, A.P. Members issued and offered for sale securitized, promissory
notes debt in the amount of $2,900,000. The debt was offered for sale in the form of six-
year, twenty-five percent secured, promissory notes. Through its agents, A.P. Members
solicited Fintel by mail and telephone. On or after June 8, 2000, Fintel subscribed to the
offering and tendered money for a note in the amount of $191,342.47. Fintel alleges that
he did not receive copies of a secured note nor a prospectus for two years, at which time

he received a letter stating that the note and prospectus had been mailed to him on June