Opinion ID: 3001819
Heading Depth: 2
Heading Rank: 3

Heading: Fraud and Conspiracy to Defraud Claims Against

Text: Rosetti As discussed above, because LM’s alter ego claim and claims for punitive damages for a breach of fiduciary duty all exceed the amount in controversy requirement, all claims brought by LM against Rally Capital Services, Samuels, the three Spaulding entities, and John and Jean Lalagos are within the federal courts’ jurisdiction. Laura Rosetti, however, the President of Spaulding Trucking, was only named as a defendant in Counts 7 and 8 for conspiracy to defraud and fraud. It is thus necessary to determine whether the amount in controversy requirement has been satisfied as it relates to Rosetti for these claims. For Counts 7 and 8 against Rosetti, LM has failed to meet its burden of showing the amount in controversy requirement has been satisfied. We first note that LM’s computation of damages for these claims has evolved over the course of the proceedings. In its complaint for Counts 7 and 8, LM requested damages “in an amount to be determined at trial,” without specifying any particular dollar amount. The fact that LM’s request for damages was general in nature is of no consequence so long as it was not legally impossible, based on the complaint as a whole, that LM could be awarded more than $75,000 in damages against Rosetti. See RTC Commer. Assets Trust 1995-NP3-1 v. Phoenix Bond & Indem. Co., 169 F.3d 448, 452 (7th Cir. 1999). However, when LM submitted its Jurisdictional Status Report pursuant to the district court’s order, LM stated, “[f]or the reasons set forth above, Plaintiff believes these damages would be at least $150,000.” LM now argues that the “for the reasons set forth above” language was a reference to its assertion when disNo. 07-2606 19 cussing Counts 4, 5, and 6 (which sought the out- standing judgment of $185,776) “that this [outstanding] judgment was fraudulently avoided by the Defendants.” Defendants contend, however, and we find more persuasive, that the “for the reasons set forth above” phrase is a reference to LM’s discussion in Counts 1, 2, and 3, of why it sought damages “of at least $150,000,” which LM had calculated as being “the minimum value of the assets wrongfully transferred from Spaulding Enterprises, Inc. to Spaulding Trucking, Inc.” This latter interpretation could be seen as a case of the plaintiff pleading itself out of federal court, see Dakuras v. Edwards, 312 F.3d 256, 258 (7th Cir. 2002), since LM’s Jurisdictional Status Report indicates that it is basing its damages for Counts 7 and 8 on Spaulding Enterprises’s assets at the time of the assets’ transfer to Spaulding Trucking, an amount that was later determined to be at most $20,000. In its Response to Defendants’ Motion to Dismiss for lack of subject matter jurisdiction, however, LM assumed the position it now advances on appeal, that it was not legally impossible for Defendants to be held liable for $185,776 on Counts 7 and 8. But even if this Court were to disregard LM’s Jurisdictional Status Report and rely solely on the position it first presented in response to the Motion to Dismiss, LM has still failed to show that the outstanding debt is an available remedy for its two fraudrelated claims against Rosetti. The cases LM relies upon to show that the value of an outstanding judgment is an available remedy for common law fraud and conspiracy to defraud claims do not support that proposition. LM first points to Sea-Land Services, Inc. v. The Pepper Source, 941 F.2d 519 (7th Cir. 1991), the same case relied upon to show that the amount in controversy requirement was satisfied with respect to LM’s alter ego claim. LM argues 20 No. 07-2606 that because one of the required elements for piercing the corporate veil is showing that “adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice,” id. at 520 (quoting Van Dorn Co. v. Future Chemical and Oil Corp., 753 F.2d 565 569-70 (7th Cir. 1985) (emphasis added), a plaintiff bringing independent claims of fraud or conspiracy to defraud can recover the outstanding debt just as it would for an alter ego claim. There would be no reason, however, for Illinois to have a separate cause of action for piercing the corporate veil if plaintiffs could recover outstanding debts owed by a corporation from other entities through a simple fraud claim. Similarly unavailing is LM’s reliance upon Lincoln National Life Ins. Co. v. Nicklau, Inc., No. 98 C 2453, 2000 U.S. Dist. LEXIS 6936 (N.D. Ill. May 17, 2000). As an unpublished opinion from the Northern District of Illinois, this case of course has no precedential value before this Court. Moreover, even if this Court were to use Lincoln National as persuasive authority, it does not stand for the proposition LM asserts. The facts of Lincoln National are very similar to those in this case. There, the plaintiff had obtained an earlier judgment against a restaurant named Pasteur. This first restaurant was dissolved, and the wife of one of the two brothers who coowned this first restaurant then opened a new restaurant under the same name at a new location, with the two brothers working as employees. Id. at -5. The plaintiff sued the second Pasteur restaurant and the two brothers for the outstanding judgment under claims for successor liability and intentional and constructive fraud, among others. Id. at -2. Although, as noted by LM, the district court did find that “a fraudulent transfer No. 07-2606 21 occurred,” id. at , this does not support LM’s assertion that it can obtain the outstanding debt it is owed from Rosetti through claims for fraud and conspiracy to defraud. The district court’s discussion of fraudulent transfer in Lincoln National was done within the context of the plaintiff’s successor liability claim, not its claims for intentional and constructive fraud. Moreover, the district court made clear in its judgment that only the second Pasteur corporation was liable for the outstanding debt, not the two brothers individually named as defendants. Id. at -21. Accordingly, Lincoln National does not support LM’s assertion that Rosetti can be found liable in the amount of the outstanding judgment for fraud or conspiracy to defraud. Instead, as Defendants point out, damage awards for fraud are based upon the plaintiff’s loss (rather than the defendant’s gain), Martin v. Allstate Ins. Co., 416 N.E.2d 347, 352 (Ill. App. Ct. 1981), and as a general matter, provide damages of “such an amount as will compen- sate the plaintiff for the loss occasioned by the fraud or the amount which plaintiff is actually out of pocket by reason of the transaction.” Brown v. Broadway Perryville Lumber Co., 508 N.E.2d 1170, 1176 (Ill. App. Ct. 1987). Based on LM’s complaint and arguments to this Court, “LM’s fraud claims center on the allegations that a new rollover company, Spaulding Trucking, was created to obtain all of the assets of Spaulding Enterprises, and thereby continue Spaulding Enterprises’s income producing business operations.” Appellant’s Reply Br. at 11. Accordingly, LM’s “loss occasioned by the fraud” was the value of Spaulding Enterprises’s assets that were fraudulently transferred pursuant to the Assignment for the Benefit of Creditors, which for reasons discussed, could 22 No. 07-2606 not have exceeded $20,000. Despite LM’s summary assertion that it is legally possible for it to recover the outstanding judgment as the remedy for these claims, LM has been unable to point to any case where a plaintiff recovered an outstanding judgment through a common law fraud or conspiracy to defraud claim. While such a remedy may exist for a claim of fraudulent conveyance brought under the Uniform Fraudulent Transfer Act, 740 ILL. COMP. STAT. 160/8, or, as discussed, through an alter ego or successor liability cause of action, those are not the claims raised in Counts 7 and 8.4 Accordingly, the amount in controversy requirement has not been satisfied as it relates to Rosetti, and federal jurisdiction does not exist over the claims against her.5 Federal jurisdiction does 4 We note that our damages discussion with respect to the fraud counts against Rosetti is distinct from our damages discussion concerning LM’s alter ego claim. Defendants’ arguments for the alter ego claim concerned the likelihood of LM prevailing on the merits of its claim and how a district court should exercise its equitable discretion in awarding damages. Both of these arguments spoke to the merits of LM’s claim and did not reflect that it was “legally certain” the recovery would be for less than $75,000. In contrast, for the fraud claims against Rosetti, our discussion does not address the likelihood of LM prevailing on the Counts, but instead focuses upon the maximum amount of damages LM could recover under Illinois law and whether there is any legal precedent for an outstanding judgment being awarded on a common law fraud or conspiracy to defraud claim. 5 We also note that supplemental jurisdiction could not be exercised over LM’s claims against Rosetti, because doing so would require that she be joined as a defendant pursuant to (continued...) No. 07-2606 23 exist, however, for Counts 7 and 8 against all other defendants, since the amount in controversy requirement has already been satisfied for those defendants for reasons already discussed.